Canberra unveils carbon trading scheme

CANBERRA, July 4 –

Australia’s leading climate guru on Friday laid out a draft carbon trading scheme to rein in rising emissions in the world’s top per-capita greenhouse gas polluter.
Economist Ross Garnaut, appointed by the government to design what will be the world’s most extensive emissions regime from 2010, said Australia was critically at risk from climate change and urged deep cuts in emissions from the world’s top coal exporter.

But Prime Minister Kevin Rudd, who won a huge election victory last November on a green agenda, is under pressure to soften the impact of inevitable energy and fuel price rises from an emissions cap-and-trade scheme.
“We cannot drop the ball,” Mr Garnaut said in a speech. “Our location makes us already a hot and dry country. Increases in temperature and lower rainfall have a much bigger impact here than on other wealthy countries.”
Mr Garnaut, dubbed “Australia’s Nicholas Stern”, referring to the British author of a widely read report on fighting climate change, urged Mr Rudd to go further than his current goal to cut greenhouse gas emissions by 60 per cent by 2050.
Mr Garnaut urged the inclusion of energy and transport in the scheme, but said big corporates whose foreign rivals are free to pollute should be mollified with compensation.
Voters, though, are already fretting over higher petrol prices, along with rising food and mortgage costs, piling pressure on Mr Rudd to get the scheme right and limit the impact on ordinary Australians.
Polls show rising living costs are already eating into government popularity.
Some rival green and conservative analysts have even begun thinking what on election night last year seemed impossible; that emissions and climate policy could bring so much economic upheaval that Mr Rudd’s dominant Labor lasts only one three-year term. Mr Garnaut gave no hard numbers on what his preferred regime could cost, promising those by August. But a “middle-of-the-road” climate policy could gouge 4.8 per cent from gross domestic product, or US$384bn, by end of the century, he said.
“An effective market-based system will be as broadly based as possible, with any exclusions driven by practical necessity and not by short-term political considerations,” the report said. Power generators say they will have to raise prices, while farmers and coal-miners warn of lost overseas competitiveness.
Under Mr Garnaut’s proposals, businesses that pump out less greenhouse gas than their allowable limit would receive credits and be able to sell permits bought at competitive auction to pollute to firms exceeding their carbon emissions quota.
The government is already working on a number of options for the 2010 trading scheme.
“Professor Garnaut’s views will be taken into account,” Penny Wong, climate change minister, said.
“The Australian government believes that every nation must do its fair share to tackle climate change and we are working to help shape a long-term global solution,” she said.
Mr Garnaut’s scheme would cover more sectors of the economy compared with the European Union’s emissions trading system, currently the largest of its type and worth $50bn last year.
The EU scheme, which covers about half of EU emissions, was criticised for overallocating emission permits, which experts said should have been auctioned.
To overcome what Brussels sees as that design flaw, the Commission earlier this year said it will set EU-wide emissions limits for all sectors covered by the trading scheme, and most permits will be auctioned off instead of handed out for free.
The report conceded a competitive emissions-trade system could cause big price gyrations in the early stages and accepted there was a good argument for relying initially on some fixed-price permits and a two-year trial period.
Compensation directed to disadvantaged exporters, to keep them in Australia, should be limited to as much as 30 per cent of the cost of purchasing emission permits, the report said, prompting a testy response from Green groups.
“There is a danger that if we move to a corporate welfare scheme, it’s just going to prolong the use of coal. Coal is not the solution, coal is the problem,” Steve Shallhorn, Greenpeace CEO, told Reuters.
Australia relies on coal to generate about 77 per cent of the country’s electricity.
Mr Garnaut stressed the emission scheme should not become a government revenue-raiser, suggesting 50 per cent of the likely A$15-20bn ($14-19bn) raised from permit auctions should be returned to households and 30 per cent to hard-hit businesses. The other 20 per cent would go to renewable energy.
© Reuters Limited