Australia proposes plan to curb greenhouse gas

By RACHEL PANNETTTHE WALL STREET JOURNAL ASIA:July 17, 2008

CANBERRA, Australia -- Australia's Labor government Wednesday proposed a cap-and-trade emissions system to be introduced in 2010, which is designed to curb the country's greenhouse-gas emissions.
Australia contributes only around 1.5% of global emissions, but tops the U.S. on a per-person basis because of its heavy reliance on hydrocarbons for power generation.
Equity analysts have warned that any emissions-trading plan may derail the country's resource-based economic boom by pulling the plug on the supply of cheap fossil-fuel-based energy that has allowed industry to prosper in recent years.
Government forecasts issued Wednesday suggest electricity prices will rise 16% in 2010-2011, the year that carbon trading begins, while gas and other household fuels will rise 9%.
The forecasts, based on a hypothetical carbon price of 20 Australian dollars (US$19.57) a metric ton, would also add 0.9% to inflation, as measured by the consumer-price index, in the first year. Still, any CPI impact "will be largely one-off," the government added.
The discussion paper didn't recommend specific targets or trajectories for emissions reductions in Australia or speculate on a likely carbon price.
However, the government extended an olive branch to industry by proposing transitional measures such as free permits for the worst-affected industries and cuts to fuel taxes to cushion the transport sector from the initial price impact of carbon trading.
The center-left Labor government called for public comment on a proposal that will see Australia cap the amount of carbon dioxide that companies can produce. If they exceed this cap, they must buy so-called "carbon permits," either at auction, or on a secondary trading market from companies that have surplus permits.
The theory is that this so-called cap-and-trade system gives companies a financial incentive to clean up.
The government said the plan, if implemented, would cover around 75% of Australia's greenhouse-gas emissions, including those produced by electricity generation, transport, industrial processes and fugitive emissions from oil and gas production.
"As one of the hottest and driest continents on earth, Australia's economy and environment will be one of the hardest and fastest hit by climate change if we don't act now," Climate Change Minister Penny Wong said.
The government also proposed cent-for-cent cuts to fuel taxes to offset the likely impact of carbon trading on gasoline prices.
Australia faces a tougher balancing act than Europe, which has had market-based emissions trading in place since 2005, because Australia's recent rapid economic growth has been driven by demand for its iron ore, coal and other natural resources.
The heaviest emitters include the electricity sector, which generates 90% of its power from fossil-fuel-based generation.
Many of Australia's biggest exporters are indirectly emitters through their heavy use of energy to extract natural resources for export.
The government is committed to carbon-emissions cuts of 60% based on year 2000 levels by 2050.
Write to Rachel Pannett at rachel.pannett@dowjones.com