Australia outlines carbon trading scheme

  July 16 2008


By Elizabeth Fry in Sydney

Australia on Wednesday outlined a carbon trading scheme including a pledge that heavily polluting industries that export much of their product and those that face inter­national competition could receive free credits for up to 90 per cent of their ­emissions.

The scheme will be launched in 2010, according to a green paper released by Penny Wong, ­climate change minister. It brought good news to business since up to 30 per cent of permits to be issued annually under the “cap and trade” scheme could be given free to industries such as aluminium smelting, cement production and steel manufacturing. The report would also commit the government initially to provide free credits or compensation to help coal-fired power plants, which provide most of the country’s electricity, adjust.

“The scheme is underpinned by the ‘polluter gets paid’ principle, rather than polluters paying,” said Christine Milne, Green party climate change spokeswoman. “The whole point of an emissions trading system is to change the investment signals and instead of that, they want to compensate the coal generators in case there is any change in investment signal.”

Ms Wong defended the power plant provisions by saying the government had to consider risks to investment in the sector as well as security issues.

Rejecting suggestions the scheme lacked ambition, Ms Wong said: “After so many years of inaction, it is impossible for Australia to be in front of the world in tackling climate change. We are putting a cost on carbon.”

Michael Blythe, chief economist at Commonwealth Bank of Australia said: “As usual it was a balance between competing interests. Putting a price on carbon and getting a scheme up and running are necessary first steps to a scheme giving people time to adjust.”

Heading off a potential voter backlash during the 2010 election year when the scheme launches, the government proposed to offset any resulting rise in fuel prices with cuts in fuel taxes. This was applauded by Stuart St Clair, chief executive of the Australian Trucking Association. “We feel that we need to do our part and to be able to spread that cost amongst as many people as possible,” he said.

The report forecast that the cost of living could rise by 0.9 per cent in the first year of the scheme.

Wayne Swan, treasurer, is to discuss climate change on Thursday with Michael Cullen, the finance minister of New Zealand, whose parliament is already debating an emissions trading bill.

Ms Wong’s report does not contain detailed economic modelling on the impact of the emissions trading scheme although government says that information, along with draft laws, will be released in December.

The Australian Chamber of Commerce and Industry said members were disappointed by the delay.

Copyright The Financial Times Limited 2008


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