The Australian Senate voted on Thursday to scrap the country's carbon tax and plans for emissions trading, a victory for conservative Prime Minister Tony Abbott that leaves uncertainty about how the country will meet its carbon reduction goals.
The repeal was fiercely opposed by the opposition Labor and Greens Party, which portrayed the vote as a stain on the country's international reputation.
"This is an appalling day for Australia when a government, rather than lead in the face of what the world is facing up to ... is determined to stick with the past," Greens leader Sen. Christine Milne said before the vote.
Abbott, once a climate-change skeptic, has long argued that the carbon tax, which saw 348 of Australia's biggest companies pay about $24 for each ton of CO2 they emit, is a burden on industry and consumers in a country reliant on coal-fired power and does little to cut emissions.
Abolition of the carbon tax was a centerpiece policy of Abbott's 2013 election, but his Liberal-National coalition struggled to repeal the legislation without control of the Senate.
By a vote of 39 to 32, the Senate voted to dump the carbon tax and planned emissions trading system with the support of mining magnate Clive Palmer, whose Palmer United Party (PUP) holds the balance of power in the chamber.
Australia is one of the world's biggest carbon emitters on a per capita basis, and abandoning plans for the world's third largest emissions trading scheme (ETS) after Europe and Guangdong, set to begin in 2015, is a major blow for global CO2 trading.
Carbon markets allow polluters to buy and emit CO2, blamed for global warming. Under such "cap-and-trade" schemes, companies or countries face a carbon limit. If they exceed that limit, they can buy permits to emit from others in the scheme.
Around 40 countries and over 20 states, regions or cities have either set up or are planning to set up emissions trading schemes or carbon taxes. Together, they account for more than 22 percent of global emissions.
Australia's ETS was to link with the world's biggest market in Europe — the first direct connection between major emissions trading schemes and a test case for possible links between schemes emerging in China and planned in Japan and the United States.
But Abbott's plan to replace the carbon tax with an A$2.55 billion (about US$2.39 billion) Emissions Reduction Fund that would see big emitters paid to cut carbon levels is opposed by Palmer, leaving it unclear how Australia will meet its emissions reduction goals.
Australia's Renewable Energy Target scheme, which Palmer insisted not be repealed, is designed to ensure that 20 percent of Australia's electricity comes from renewables by 2020.
Australia has committed unconditionally to reducing its overall emissions by 5 percent compared with 2000 levels by 2020, but some now doubt it will be able to do that.
"By repealing the carbon pricing mechanism, it is entirely unclear how this may now be achieved," said Bret Harper, associate director with the carbon advisory firm Reputex.
Scrapping the carbon tax will be seized on by Abbott as a major political victory, at a time when support for his government has slumped after an unpopular budget in May, but the cost may be high.
Last month the Lowy Institute released a poll showing that concern about climate change among Australians was up 9 points since 2012 and that 45 percent of adults think measures should be taken to prevent it “even if this involves significant costs.”
To gain support from the PUP senators, Abbott agreed to guarantee that savings from repealing the carbon tax would be passed onto consumers, adding to the government's fiscal pressures as it tries to rein in growing deficits.