Canberra: Australia’s government moved on Tuesday to scrap its carbon tax and bring forward an emissions trading scheme in a policy shift to win over voters, angry over rising power costs, before an election expected within weeks.

Prime Minister Kevin Rudd said he wants the fixed price on carbon emissions to end on 30 June 2014. A floating carbon price, or emissions trading scheme (ETS) that will be linked to the European carbon market, will start the following day, a year earlier than planned.

On current prices, the shift would see the cost of carbon permits fall from the planned A$25.40 ($23.09) per tonne from July 2014 to around A$6 per tonne, saving big businesses billions of dollars in carbon costs.

Rudd also said the change would slash A$3.8 billion ($3.46 billion) from the federal budget over four years, but his government planned to make up the gap with savings of around A$3.9 billion from a range of measures.

The widely unpopular tax, blamed for rising electricity costs, was due to raise A$8.14 billion in 2013-14 and A$8.6 billion in 2014-15. Scrapping the plan would cut average household electricity and gas bills by A$4 a week, Rudd said.

“This is modest relief, but it is real," Rudd told reporters at a media conference in Queensland state.

Big Polluters Pay

The carbon tax, introduced by Rudd’s predecessor Julia Gillard as her central policy to cut carbon emissions, is currently set at A$24.15 a tonne.

It applies to around 300 of Australia’s biggest polluters, including mining giant BHP Billiton, Qantas Airways and BlueScope Steel, and 60% of the country’s 550 million tonnes of annual emissions.

Rudd’s new carbon plan relies on his centre-left Labor party winning national elections, due between late August and November, and on receiving support from the minority Australian Greens party.

Rudd ousted Gillard in a party-room vote three weeks ago, a move which opinion polls show has resuscitated his party’s chances of re-election.

The conservative opposition has promised to scrap the carbon price altogether if it takes power, with opposition leader Tony Abbott dismissing the ETS as a “so-called market in the non-delivery of an invisible substance to no-one".

Deutsche Bank carbon analyst Tim Jordan said the policy shift would have no real impact on carbon markets because there was no effective forward market beyond the current fixed-price period. However, he said the move could see a change in the investment outlook as coal-fired power became more economic compared with low-emissions gas-fired power.

“Europe has seen a big switch back to coal with the falling carbon price. So a lower price for coal and a lower carbon price in Australia could be good for coal and bad for gas," he said.

Rudd said compensation for trade-exposed industries would remain in place, bringing down the cost for the most emissions-intensive industries to around A$0.50 a tonne from July 2014.

Carbon market research firm Reputex said it expected the floating carbon price in Australia to be up to 40% lower than the price of European permits until mid-2016, due to lower emissions and lower demand for permits in Australia.

Rudd’s government plans to make up the budget gap left by scrapping the carbon tax by removing a tax concession on the personal use of salary-sacrificed or employer-provided cars. Reuters