Diverging Climate Policy

Australia’s Senate just repealed the country’s carbon tax on a measure supported by Prime Minister Tony Abbott. Just as President Obama stepped up his campaign in fighting climate change, resource-rich nations like Australia, Canada, and Japan are pushing back on environmental regulation. Global decision makers have arrived at the fork in discussion of future of environmental policy.

Existing, Emerging, and Potential Carbon Pricing Instruments (World Bank)

existing, emerging, and potential regional, national and sub-national carbon pricing instruments

Some claim decreased economic activity paired with rising energy costs are driving support for repeal. Brendan Pearson, CEO of the Minerals Council for Australia, says that, “In two years, in direct tax burden alone, it raised $15 billion in new tax, or an annual tax burden of $326 on every single Australian. This compares with an annual tax burden of $4.30 per person for the European carbon pricing scheme and $8.30 per person for the Californian scheme.Consumers have obviously felt the impact enough to support reforming existing regulation even if other analysts disagree on the true overall burden.

Foreign investment is another factor pressing governments looking to grow affected industries. With slow economic growth, shortfalls in government revenue, and conflicting policies between countries it’s expected that competition to provide an attractive business environment will increase over coming years.

Investing Opportunity, FWIW

Changes in policies between developed countries will affect the competitiveness of firms trading internationally. JP Morgan estimates that Australian mining companies will increase by nearly six percent in value if the mining tax is also repealed. Structuring a portfolio to arbitrage diverging burdens across the mine, energy, and related sectors impacted could provide additional returns previously discounted under existing structures. For reference, Q Continuum over at Macro Business worked through the pre-carbon tax valuation, ROE (with tax) and the resulting post-tax valuation of some companies.

Rio Tinto and BHP Billiton both closed down today.

Rio Tinto Australia Valuation Repeal Carbon Tax      BHP Billiton Australia Carbon Tax Repeal Valuation