Noting that the country has taken "the most effective step it can to cut carbon pollution," Australian Prime Minister Julia Gillard said Tuesday, "Today's vote means we will begin to address the devastating impacts of climate change including more severe droughts, more severe floods, more extreme weather events and coastal erosion."
The carbon tax passed in the Australian Senate on a 36-32 vote.
Under the new law, 500 of Australia's top polluting companies will pay $24 for each ton of carbon they emit, beginning next July. In 2015 it converts to an emissions trading scheme with a floating price starting at a floor of $15.
Passage of the tax is significant because Australia is one of the world's highest per-capita emitters of carbon. And, as the world's largest exporter of coal and iron ore, Australia's economy is driven by energy-intensive industries such as mining. It also relies heavily on coal-fired power generation.
Australia aims to cut the country's emissions by 5 percent from year 2000 levels by 2020 and bring emissions down 80 percent by 2050.
An earlier version of a carbon tax, proposed by Gillard's predecessor Kevin Rudd, led to Rudd's downfall in June 2010.
The Clean Energy Act will slash carbon pollution by at least 160 million tons a year in 2020, the equivalent to taking 45 million cars off the road, the government says.
Under the reforms, Canberra expects around $100 billion to be invested through 2050 in renewable and clean energy sources. The government also says 1.6 million jobs will be created as a result of the tax.
Yet the carbon tax scheme, fiercely opposed by the opposition and Australia's resource sector and industry, manufacturing and business lobby groups, continues to be a polarizing issue.
Referring to the legislation's passage as a "betrayal of the Australian people," opposition leader Tony Abbott called it "a toxic tax based on a lie from a prime minister who promised six days before the last election 'there will be no carbon tax under the government I lead.'"
Abbott said the tax is a blow to the future of Australian manufacturing and a burden to families.
Reacting to the passage, the Australian Coal Association said Parliament had voted "to handicap one of Australia's largest exports at a time when uncertainty in the global economy once again threatens to reach our shores," noting that no other coal exporting country imposes a tax on fugitive emissions from coal mining.
In an advertising campaign prior to the vote, ACA warned that the scheme could put 4,700 coal-related jobs at risk.
Former U.S. Vice President Al Gore, a noted campaigner for action against climate change, praised the new law. Under the headline "History is made in Australia," he wrote in his blog: "With this vote, the world has turned a pivotal corner in the collective effort to solve the climate crisis."
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