SYDNEY (Reuters) - Australian Prime Minister Julia Gillard's bid to sell a controversial carbon tax got a boost on Monday after a $5 billion (3 billion pound) takeover bid for a local coal miner cast doubt on warnings that the tariff would hurt the key mining sector.
Gillard is the most unpopular prime minister in 13 years and has been struggling to gain support for her carbon tax plan to fight climate change, a policy she hopes will resurrect her political fortunes before the next election due in 2013.
But a long-running negative campaign by miners, power generators, steelmakers and the conservative opposition has seen the majority of Australians reject the climate policy, despite economists saying it would have little impact on growth.
"The nation's future needs to be a clean energy future. We've opted for the cheapest way of cutting carbon pollution," said Gillard, as she kicked off a campaign to sell the tax.
Opposition leader Tony Abbott, who plans to dump the tax if he wins the next election, told reporters after visiting coal mines north of Sydney: "We won't be supporting this toxic tax. You can't fix it, you've just got to fight it".
But in an indication that the tax might not seriously damage the key mining sector in the largest coal exporting nation, Peabody Energy and Arcelor Mittal launched a bid for Australian coal miner Macarthur Coal, valuing it at A$4.7 billion (3 billion pounds) or a 40 percent premium to Monday's share close.
"You can almost hear the band starting up in the background," said an analyst, referring to how the government would receive the Macarthur Coal takeover bid announcement.
Stocks in coal miners, steel firms and airlines were sold off on Monday on concerns about the plan.
Australian airline shares also tumbled. Qantas said the carbon tax will cost it an estimated A$110 million to A$115 million, while Virgin Australia said it was likely to face a cost impact of A$45 million in fiscal year 2013.
Clean energy firms, however, are expected to be the winners from the carbon tax and an associated A$10 billion clean energy package initiative. Geodynamics shares soared 25 percent and Infigen Energy rose 5 percent on Monday.
POWER ASSET RISKS
Gillard on Sunday unveiled the long-awaited climate policy which will see 500 big polluting firms pay a A$23 a tonne carbon tax from mid-2012. That will rise by 2.5 percent a year before moving to a market-based trading scheme in 2015. The scheme aims to cut emissions by 5 percent off 2000 levels by 2020.
Australia's parliament twice rejected attempts to price carbon in 2009, but Gillard is confident parliament will pass the latest carbon tax later this year with the support of Green and independent lawmakers.
Green groups hope the tax package will aid global efforts to fight carbon pollution, largely stalled since U.S. President Barack Obama last year ruled out a federal climate bill during his present term. Outside the European Union, only New Zealand has a national carbon scheme.
Australia is the developed world's worst per-capita greenhouse gas emitter due to its heavy reliance on cheap coal for power. Power suppliers said the carbon tax would help retire the worst polluting brown coal power plants, but warned it also put at risk A$4-6 billion in black coal plant assets.
"Our sector has assets that...last 40 to 50 years and have payback periods of 20 to 30 years and are constantly having to be maintained and reinvested in," said Brad Page, chief executive officer of the Energy Supply Association of Australia.
"When it comes to refinancing these facilities, which occurs every few years, the banks will take a very hard view on this. These black coal facilities may struggle if that refinancing is not available to them."
The government plans to set up loan guarantees for electricity generators, to help the industry refinance loans of between A$9 billion and A$10 billion over the next five years.
Power suppliers and manufacturers have warned of rising prices due to the carbon tax. To compensate, the government said more than A$24 billion to be raised from pollution permit sales over three years will go to households through tax cuts.
Under the scheme, coal miners like global giants Xstrata Ltd, Rio Tinto, BHP Billiton would be eligible for a A$1.3 billion compensation package.
The tax is estimated to add, on average, a mere A$1.80 per tonne to the cost of mining coal at a time when coal prices are at near record highs above US$300 a tonne.
But Rio Tinto said Australia should not impose a price on carbon before its competitors.
"We have to be careful about imposing policy experiments on the Australian economy," said Rio Tinto managing director Australia David Peever.