Australia passed its carbon dioxide emissions tax this week, which means the top 500 domestic polluters will pay AUD23 (USD23.78) per metric ton of greenhouse gas emitted beginning Jul. 1, 2012. A cap-and-trade system similar to one in Europe will kick in beginning Jul. 1, 2015, at which time companies will need a permit for every ton of carbon they emit.

Australia, which has one of the highest per capita emissions rates in the world because of its reliance on coal for power generation, is the second major economy, following the European Union, to put a price on carbon emissions.

And the legislative process that may lead to imposition of a special, “super-profits” levy on coal and iron ore producers kicked off last week with the introduction of the Mineral Resources Rent Tax Bill 2011 into the lower house of parliament. Included in the Gillard government’s latest set of attempts at reforming Australia’s tax system is an expansion of the Petroleum Resource Rent Tax to include all oil and gas projects.

The turbulence and urgency stirred up by interest groups on all sides of the carbon, mining and petroleum tax issues has obscured for the moment the long-term reality that demand from emerging economies like China as well as from transitioning developed ones such as Japan will dictate the pace and extent of resource extraction in the Land Down Under.

Numbers compiled by Deloitte Access Investment Monitor define what the salient story: A record 935 investment projects worth AUD 20 million or more are planned or are already underway in Australia. The total value of these projects exceeds AUD894 billion, an increase of 7.5 percent over the past three months and 16.1 percent over the past year–during which time planners had full knowledge of the potential changes to the way Australia taxes its resources.

The value of the “definite” projects–under construction or committed to start soon–rose to AUD406.8 billion, a 13.8 percent increase on the value recorded in the June quarter, and a 51.3 percent increase over the past year. Growth in the value of definite mining projects led other sectors, with mining accounting for 34 percent of all investment projects currently under construction. Mining accounts for almost all of the AUD487.3 billion in planning stages.

Fourteen projects are worth more than AUD10 billion, and five of those worth more than AUD30 billion. Western Australia and Queensland account for half of the investments, led by Chevron’s (NYSE: CVX) AUD29 billion Wheatstone liquefied natural gas (LNG) project off the Pilbara coast and Origin Energy Ltd’s (ASX: ORG, OTC: OGFGF, ADR: OGFGY) and ConocoPhillips’ (NYSE: COP) AUD20 billion Australia Pacific LNG project. Both projects will be subject to the expanded 40 percent petroleum resource rent tax.

Deloitte’s conclusion to its report for the September quarter is instructive and encouraging at the same time: “Large projects are longer-term investments. They take longer to construct and need to be in operation for longer for investors to see a return on capital. The rise in their number in Australia’s investment pipeline reflects the level of confidence that investors have in the longer-term prospects of the global and Australian economics.”

Focus on the longer term is the perfect antidote to extreme market volatility.

Mineral Resource Rent Tax Facts

Fortescue Metals Group Ltd (ASX: FMG, OTC: FSUMF, ADR: FSUMY) frontman Andrew Forrest’s about-face on the impact of the MRRT on his company has certainly drawn more attention to what promises to be an entertaining legislative process.

Mr. Forrest–known widely Down Under by his nickname, “Twiggy”–recently forecast that his company, a global top five iron ore producer with a market cap of around AUD16 billion, wouldn’t pay anything under the so-called mining super tax during at least its first five years because of allowances built into the law that favor big producers’ previous capital investments in coal and iron ore development projects.

Mr. Forrest had spoken for months about the damage the tax would do to his company, Australia’s mining sector and its broader economy. Now he’s rallying smaller outfits he says will be disproportionately harmed by the new levy and is even advocating a challenge to the tax in Australia’s High Court.

The government has challenged Mr. Forrest’s characterization of the law as a creature of the giant miners, particularly the numbers produced for him by BDO Accounting respecting the amount of tax they’ll pay relative to smaller miners. In a letter to BDO Treasurer of Australia Wayne Swan outlined “substantial errors” in the company’s analysis of the tax, including assuming mining revenues, investment and royalties would remain unchanged over five years.

According to the Minerals Council of Australia and the federal Treasury giants BHP Billiton Ltd (ASX: BHP, NYSE: BHP), Rio Tinto Ltd (ASX: RIO, NYSE: RIO) and Xstrata Plc (London: XTA, OTC: XSRAF, ADR: XSRAY) will pay most of the estimated AUD3.7 billion in annual tax revenue.

Pressure from all over, including from groups concerned that not enough is being done to protect farms from coal seam gas exploration, imperils this part of Ms. Gillard’s reform effort.

Here are the basics of the MRRT as originally outlined.

Minerals Resource Rent Tax is designed to “provide an appropriate return for these non-renewable resources to the Australian community who owns the resources 100 percent,” in the words of Assistant Treasurer Bill Shorten. The key to accomplishing this is a provision that sets aside funds from the new revenue generated to boost “compulsory” contributions under Australia’s “superannuation” retirement system from 9 percent to 12 percent of an employee’s salaries and wages.

A tougher version of the MRRT, the “catch all” Resource Super Profits Tax (RSPT) that would have applied to all types of mining companies in addition to coal and iron ore producers, ultimately sank Ms. Gillard’s predecessor, Kevin Rudd. The plan Ms. Gillard, Treasurer Wayne Swan and Resources Minister Martin Ferguson announced Jul. 2, 2010, was the product of consultation with segments of the resources industry and therefore reflects their interests in eliminating the uncertainty that issues such as carbon taxation and this super tax have introduced to their long-term planning.

It’s on this point that Mr. Forrest hangs his latest argument, that BHP, Rio and Xstrata basically wrote the law to favor their narrow interests.

The MRRT is applicable to about 500 companies in the coal and iron ore sectors, as opposed to the more than 2,000 miners contemplated by the Rudd regime. The existing Petroleum Resource Rent Tax (PRRT) will be expanded to include onshore oil and gas projects, including coal seam gas projects and the North West Shelf.

The MRRT proposed tax rate is now 22.5 percent, a combination of a 30 percent headline rate, which is reduction from the 40 percent contemplated by the RSPT, and a further 25 percent extraction allowance against the gross MRRT liability for all affected companies “to further shield from tax the important know-how and capital that mining companies bring to mineral extraction.”

Because the new proposal results in a reduction in tax revenue, the Australian government has proposed eliminating a previously announced resource exploration rebate and removing the refundability of losses and state royalties. As part of the package the corporate tax rate across Australia will be reduced to 29 percent.

A proposed “de minimis” rule would exclude those businesses with of less than AUD50 million per year from the MRRT. The ambiguity around this proposal is what Mr. Forrest is using to extend his broader campaign against the mining tax.

The Roundup

For its part Australian Edge Portfolio Conservative Holding AGL Energy (ASX: AGK, OTC: AGLNF, ADR: AGLNY) is a little more circumspect than Andrew Forrest of Fortescue Metals Group Ltd (ASX: FMG, OTC: FSUMF, ADR: FSUMY) or opposition leader Tony Abbott about Prime Minister Julia Gillard’s new taxes.

Mr. Abbott, more melodramatic than “Twiggy,” who simply appeared in parliament and wandered the halls with small miners in search of independent members to lobby, has sworn a “blood oath” to repeal the new carbon tax. AGL Managing Director Michael Fraser, however, warned that any attempt to derail implementation of the tax could complicate planned investment.

Mr. Fraser, speaking at Carbon Expo Australasia 2011 in Melbourne Tuesday, described Mr. Abbott’s plan to repeal the tax as “very unfortunate.” “The uncertainty created by the Abbott factor,” he added, “is unfortunate and we will have to proceed with absolute caution.

“Getting investment decisions, particularly around baseload gas, we won’t be making (those) until we’ve got clarity around where the contracts for closure are heading and we’ve got clarity around what is the bipartisan approach.”

AGL has billions of dollars of natural gas and renewables projects in its pipeline and will likely benefit from a cap-and-trade system. Its generation fleet’s average emissions intensity is 58 percent below the Australian National Energy Market (NEM) average. Its “emissions obligation” is forecast at 10 million metric tons, while its coal-fired Loy Yang A plant is expected to receive transitional assistance over the first five years after the tax becomes effective.

The risk for Australia is that it’s getting too far ahead of what’s still a nascent global pricing market for carbon, imposing on domestic industry as well as Australian consumers costs that won’t burden other economies for years, at least. But there are companies positioned to benefit from Australia’s forward-leaning posture.

In an Oct. 27 presentation for its annual general meeting management forecast fiscal 2012 (Jul. 1, 2011, to Jun. 30, 2012) underlying profit of AUD470 million to AUD500 million. Underlying profit for fiscal 2011 was AUD431.1 million, a figure that was hemmed in by abnormal weather in eastern and southern Australia that drove up wholesale electricity costs. AGL Energy is a buy up to USD15.30.

Fellow Conservative Holding APA Group (ASX: APA, OTC: APAJF) executed new syndicated loan facilities totaling AUD1.45 billion last week, a move that will allow it to refinance a AUD900 million syndicated facility due June 2012 and enable the early refinancing of a AUD515 million facility due in July 2013.

APA has no further debt refinancings until a USD113 million tranche of a 2003 US private placement matures in September 2013. The commitment from a syndicate of 15 Australia- and foreign-based banks–in three equal tranches of AUD483 million over terms of two, three and four years–represents an oversubscription of nearly three times the AUD500 million APA originally sought during this round of refinancing.

The new facility has been locked in at pricing below APA’s current working forecast as well as market guidance for total interest costs for fiscal 2012.

APA carries significant debt–more than AUD3 billion in obligations through 2020–but the company’s assets typically last a long time, generate predictable revenue and provide enough cash to cover current interest costs by more than 2-to-1.

During the company’s Oct. 27 annual general meeting APA Group Chairman Len Bleasel affirmed guidance first offered along with the August report of fiscal 2011 results. APA expects fiscal 2012 (Jul. 1, 2011, to Jun. 30, 2012) earnings before interest, taxation, depreciation and amortization (EBITDA) of AUD530 million to AUD540 million, an increase of about 8 to 10 percent from actual fiscal 2011 EBITDA of AUD492 million. A full-year contribution from the Emu Downs wind farm and the Amadeus gas pipeline, both acquired in June 2011, should drive growth.

The Australian government’s effort to reduce carbon emissions won’t have a direct impact on APA’s operations, but it will have a significant indirect impact. APA’s gas infrastructure assets produce very little in the way of carbon emissions, and any costs associated with them are passed through to customers under contractual arrangements or by work of regulation.

But the increase in natural gas demand as it gradually replaces coal as the primary feedstock for electricity generation will have a positive impact on APA’s business and its extensive and integrated gas infrastructure portfolio. APA Group, currently yielding 7.9 percent, is a buy under USD4.50.