Sydney, New South Wales, Australia-based integrated energy giant Origin Energy Ltd (ASX: ORG, OTC: OGFGF, ADR: OGFGY) exercised the first tranche of options under its AUD190 million deal with Subiaco, Western Australia-based carbon offset company Carbon Conscious, making it the first major company Down Under to respond to passage of Prime Minister Julia Gillard’s carbon tax with substantive action rather than a strongly worded press release.

Carbon Conscious creates carbon offsets by planting native Australian trees on degraded farm land. Origin has committed to exercising the 2012 component of commercial forestry options granted under a 2009 deal and to bringing forward 2013 contract plantings into the 2012 planting season.

The deal means Carbon Conscious will plant 10 million native Mallee Eucalyptus trees in the wheatbelt region over the 2012 planting season, a five-fold increase on the previously anticipated planting for 2012. Origin has AUD163 million in remaining forestry options, which can be exercised over the next three planting seasons.

This deal is more important from an existential point of view for Carbon Conscious, which is still trying to establish itself as a viable business. Perhaps the aspiration of Carbon Conscious Executive Chairman Stephen Lowe will be realized–that, with the reality of carbon pricing in Australia, Australian businesses will be eager to invest in carbon-abatement projects. If this industry is going to mature it will need more and bigger investments of the type Origin has made. As for now it remains more “speculation” than “investment.”

Following passage of the so-called Clean Energy Bill in Australia’s upper house of parliament, beginning Jul. 1, 2012, Australia’s 500 biggest polluters will pay a tax of AUD23 (about USD23.66) per metric ton of carbon emitted. The carbon tax will increase by 2.5 percent per year, plus inflation. In 2015 this scheme will expire, and the market will set the price of carbon emissions and emissions credits, using a system similar to Europe’s cap-and-trade scheme.

The plan also includes measures to soften the blow to business. The government would set aside AUD9.2 billion over the first three years to help industries adjust to the new tax, including AUD5.5 billion for upgrading coal-fired power plants that aren’t closed down; AUD1.3 billion for coal mines to target methane emissions; and an additional AUD1.3 billion to create jobs at the mines most affected by the tax.

High-emission exporters, such as steel, aluminum and pulp and paper makers, will get free carbon permits to assist them while they undertake initiatives to reduce pollution. The proposal grants the steel industry an additional AUD300 million in “adjustment payments.”

The government would also purchase and decommission the worst coal-fired power plants–about 2,000 megawatts of generation capacity–including the controversial Hazelwood power plant, reputed to be Australia’s least carbon-efficient power station.

The proposal excludes fuel for most business and personal transportation from the carbon tax, but owners of heavy transport vehicles will face levies in 2014. Domestic aviation fuel taxes would also increase by an amount equal to the carbon tax.

Average assistance to households under the plan is forecast to offset the cost-of-living increases that will result as carbon-tax-paying polluters pass on costs to customers.

The carbon tax is going to impact coal-fired power plants–which produce 77 percent of Australia’s electricity–and iron and mineral mining companies–which account for 35 percent of Australian exports–most directly.

The impact of the carbon tax will vary based on company-specific circumstances. Large electricity generators that emit a lot of carbon, for example, will face the challenge of reducing their pollution and changing their portfolio mix. Electricity generators, particularly retailers, are likely to pass costs through to end-consumers up to a level equal to the industry’s average carbon intensity. How much will likely evolve as government removes 2,000 megawatts of coal-fired generation from the market. Relative carbon intensity–as well as the generally important trend in fuel prices–will determine competitiveness among power generators and more broadly.

As we’ve noted on more than one occasion, “mid-carbon” companies that have relatively low emissions-generation portfolios and exposure to “brown” coal are likely to do well under the government’s carbon tax. Origin Energy’s power-generation portfolio is heavy on natural-gas and renewable-fired energy, and it puts the company in good position as Australia tries to shift away from coal.

Origin, which provides quarterly production updates for the oil and gas side of its business, reported Oct. 31 that output for the three months ended Sept. 30 was “steady” at 36.3 petajoules equivalent, or PJE, compared to year-ago levels. (One million barrels of crude oil equals 5.83 PJ, so Origin produced about 6.2 million barrels of oil equivalent during the period.) Sales volumes were 5 percent lower at 39 PJe, while revenues were 4 percent higher on favorable commodity prices.

Production was 2 percent lower on a sequential basis, due mostly to lower activity as well as the dilution of Origin’s share in the lucrative Australia Pacific LNG project from 50 percent to 42.5 percent as per agreement with partner China Petroleum & Chemical Corp Ltd, better known as Sinopec (NYSE: SNP). Sequential sales volumes were unchanged, though revenue increased by 3 percent from the June quarter to the September, again driven by higher realized prices.

Net expenditure on exploration and development was AUD91 million, as Australia Pacific LNG participated in 113 wells, including 72 development wells and 41 exploration/appraisal wells. Activity at Origin’s Cooper Basin operations continues to increase after the flooding earlier this year, with nine gas development wells drilled and suspended as future producers and five new wells brought online. A gas well in Thailand was drilled, tested and capped because of its lack of potential as a producer.

Following the acquisitions of Country Energy and Integral Energy Origin Energy now also has the largest retail energy market share in terms of number of customers at 33 percent.

During its full-year results announcement in August Origin forecast underlying EBITDA growth of 35 percent for fiscal 2012 compared to fiscal 2011 and underlying profit growth of 30 percent. Management reaffirmed this guidance during Origin’s Oct. 24 annual general meeting.

Origin is well placed to fund ongoing capital expenditure requirements, including the Australia Pacific LNG, while preserving balance sheet strength. In recent months the company has raised AUD2.3 billion of equity via a pro rata entitlement offer to existing shareholders; executed AUD2.15 billion and  USD350 million three- to five-year bank facilities; and raised EUR500 million (AUD680 million) through a hybrid issue. It also completed the private placement of a 10-year, USD500 million note in the US.

Growth funding is assured via AUD4.6 billion of undrawn debt facilities and cash as of Sept. 30, 2011. Origin’s underlying business also generated AUD1.3 billion of free cash flow in fiscal 2011.

A solid oil and gas production business with a quality utility business and an option on the Australia Pacific LNG project provide a foundation for stable cash flow and dividend growth. Origin Energy, a new addition to the AE Portfolio Aggressive Holdings, is a buy up to USD15.