FACTBOX: Australia report outlines carbon trading system

SYDNEY (Reuters) - Australia's climate-change adviser, Ross Garnaut, sketched out a blueprint for a national carbon-trading system on Friday in a report to the government. In his 600-page draft report, Garnaut called for tough limits on greenhouse gas emissions and a competitive auction for setting the price of emission permits, which would give the right to pollute, but he stopped short of giving hard numbers. Instead, he outlined the following key principles for governing an emissions-trading system:

SETTING EMISSIONS CAPS

* The nation's overall emissions cap should be set as an annual limit and lowered over time. The first cap, from 2010 to 2012, should be based on Australia's commitments to the Kyoto climate-change protocol, which aims to limit its emissions to 108 percent of 1990 levels by 2008-12. The caps decided for the post-2012 period "should reflect increasing levels of ambition".

CHANGING EMISSIONS CAPS

* Changes should be based on international policy developments and agreements. The government should give five years' notice of movement to another "trajectory", meaning a different level of emissions caps.

SCHEME COVERAGE

* Emissions caps and emissions-permit trading should apply to six greenhouse gases as defined by the Kyoto Protocol: Stationary energy (such as power plants), industrial processes, "fugitives" (which includes coal-mining and oil and gas production), transport, waste and forestry. The first four would be included from the outset in 2010 and the other two as soon as practicable. The inclusion of agriculture (Australia's second-biggest emitter) to be subject to progress on measurement and administration.

DOMESTIC CARBON CREDITS

* Domestic carbon credits will have a small role. Unlimited credits should be accepted from forestry, before and during running of the scheme. Credits for agriculture should be analysed further in the context of coverage of agricultural emissions, pending advice given in further reports.

ISSUING OR RELEASING PERMITS

* All permits should be auctioned at regular intervals. Some additional permits may be awarded, in lieu of cash assistance, to firms that are in trade-exposed, emissions-heavy industries that face competition from less-regulated rivals overseas.

INTERNATIONAL LINKS

* Opportunities for international linking of the Australian scheme should be sought in a judicious and calibrated manner.

PRICE CONTROLS

* Not supported, except during transition period to end 2012.

FLEXIBILITY IN USE OF PERMITS