CANBERRA (Reuters) - Australia's Greens party, which takes the balance of power in the Senate this week, said that major hurdles remained in closed-door talks with the government on a controversial carbon price to tackle climate change and a deal could still unravel.
Uncertainty over the fate of the policy, which would tax carbon emissions from next year, has begun to frustrate investment decisions, especially in the huge coal-fired power industry and in renewable energies and plantation forestry.
Greens Leader Bob Brown, in an interview with Reuters on Tuesday, said he was still hopeful of reaching a deal with the government but stressed that negotiations could stretch well beyond this week's target date set when talks began six months ago.
"Nothing is failsafe, but I know that every component of that committee -- the independents, the government and the Greens -- are still committed to working for an agreement," Brown said.
"So we're continuing to work hard on that and I'm very positive about it. But, as I've been saying in the last week, there are still a couple of major hurdles to cross," he said.
The minority Labor government wants to impose a tax on carbon emissions from mid-2012 before transitioning to a carbon-trading system, whereby the nation's 1,000 biggest polluters will need to purchase emission permits from an open market.
But Prime Minister Julia Gillard faces major obstacles in securing backing from the Greens for its plan to cut carbon output from one of the world highest per capita emitters, raising the risk that talks could fail and sink the scheme.
The Greens blocked the Labor party's last major attempt to cut carbon emissions in 2009, deciding that a targeted cut in emissions of only 5 percent by 2020 from 2000 levels was too weak.
The stakes are high for both the government and the nation's A$1.3 trillion economy, the world's 13th largest, ahead of elections next due in 2013.
The coal-fired power industry has warned that a poorly designed and executed policy could lead to more than $10 billion in industry writedowns, the possible closure of several power stations and the risk of chaos in the electricity market.
Australia's aluminum industry also said on Tuesday that a carbon price would drive the A$14 billion a year sector offshore, putting 17,000 jobs at risk.
Clear political air is vital for Gillard who, according to the closely watched Newspoll on Tuesday, has fallen behind her conservative rival as preferred PM after a series of surveys showing most voters oppose a price on carbon pollution.
But Gillard, who ousted former prime minister Kevin Rudd last year after his popularity dived, said she was determined to push ahead with the policy "because it's the right thing to do for the country's future."
The Greens are vital to help Gillard turn around her fortunes, as the party will have nine senators in the 76-seat Senate from this week, up from five, taking balance of power in their own right. The lower house also has one kingmaker Green.
The new political influence is a victory for Brown, 66, who has been an environmental campaigner since the 1970s, when he fought to save native forests from a planned hydo-electric dam project while working as a doctor in island Tasmania state.
When lawmakers meet again next month, it will be the Greens who decide whether Gillard's carbon price plans and a new 30 percent profits tax on coal and iron miners survives the fractious parliament.
There are expectations the Greens will compromise with the government, allowing higher levels of compensation for big polluters in return for a faster timetable for ambitious emissions cuts. But Brown described this as "speculative."
"I'm not able to report on what's going on inside the committee," he said. "However what I can say is there has been a lot of progress which involved give and take on all sides. And that's continuing to happen."
With Climate Change Minister Greg Combet understood to favor a starting carbon tax of around A$20 ($21) a metric ton, a deal next month would allow the government to sell its scheme to voters during the long winter parliamentary break.
Brown said while the Senate would now be in part repainted Green, his minority party realized it would not be able to enforce its environment agenda on policy, as many businesses including global miners fear.
"We can't. We realize there will be just 10 of us in a parliament of 240. We have a sectional mandate," Brown said.
"We had 1.6 million people vote Green at the 2010 elections. And from that point we see a sectional mandate, and we'll do everything we can to get outcomes closer to our policies. But we are not the government."
($1 = 0.957 Australian Dollars)
Additional reporting by James Grubel; Editing by Mark Bendeich and Ed Davies