Australia scheme to compensate big carbon emitters

Office workers walk past a mural of a drought scene in the business district of Melbourne July 1, 2008.

CANBERRA (Reuters) - Australia on Wednesday unveiled plans for one of the world's biggest carbon trading schemes, including measures to protect motorists and large companies from higher costs which drew the ire of green activists.

The centre-left government, which swept to victory last year on the back of fury among working voters at rising prices under conservative rule, released an options paper for how emissions trading is likely to work from July 1, 2010.

"The effect of putting a price on carbon will be profound," Climate Change Minister Penny Wong said in a television address. "Placing a limit and a price on pollution will change the things we produce, the way we produce them, and the things we buy."

Australia is the world's biggest per-head polluter, with each person producing five times more emissions than the average in China.

The government's plan aims to curb carbon emissions by forcing 1,000 of Australia's biggest-polluting firms, including global miners BHP Billiton and Rio Tinto to buy permits placing a cost on emissions.

The regime would cover 75 percent of emissions in the A$1 trillion ($980 billion) economy, with the inclusion of fuel from the 2010 start and hard-to-measure agricultural emissions from 2015, the government said.

But with officials predicting the scheme could add 0.9 percent to consumer prices in its first year, the proposals also pose deep political risks for Prime Minister Kevin Rudd in an economy already battling inflation at 16-year highs.

To ward off a ballot backlash in late 2010, after trading comes into force, Wong said low-earners would be buffered from inevitable price hikes through tax breaks and welfare.

Motorists angered by soaring fuel pump prices, already up by 30 percent in recent months as world oil prices soared to new highs, would be mollified by "cent-for-cent" fuel tax cuts to balance emission price hikes, to be reviewed every three years.

With Treasury officials estimating on Wednesday that the sale of permits could net government as much as A$20 billion, big polluting energy firms would receive up to 30 percent of total permits free of charge, including agriculture, the government said.

The largest polluters, producing more than 2,000 tonnes of carbon emissions per A$1 million of revenue, would initially pay for only 10 percent of their total emissions. Companies producing between 1,500-2,000 tonnes would pay for 40 percent of emissions.

Assistance would taper off with time to allow companies to replace dirty technology with cleaner production methods, the report said.

Other energy-intensive firms like cement and aluminum manufacturers exposed to cheap competitors in Asia would also receive grants from a new Climate Change Action Fund to be set up with the proceeds of emission permit sales.

DIRTY INDUSTRIES

Environmental critics accused Rudd of capitulating to the big polluting "greenhouse mafia" by compensating "dirty" energy firms after the government's top climate adviser two weeks ago recommended against assistance.

"All this proposed ETS does is prop up dirty industries, such as coal-fired electricity generation, allowing them to maintain the status quo. It will result in nothing more than paper shuffling," Greenpeace Climate spokesman Simon Roz said.

Climate experts said the scheme could be a model for Asia and fuse with an eventual global emissions trading system.

"What is good is that the coverage is broad. Unfortunately some parts of the science are crudely handled, and this matters in terms of its effectiveness," said Barry Brook, Director of the Research Institute for Climate Change and Sustainability at Adelaide University.

The report did not say what Australia's overall emissions cap should be or put a price on carbon emissions apart from a working assumption of A$20 a tonne, used for inflation impact estimates.

Emissions trade around the report's release indicated a soft start to the scheme in 2010, with initial prices starting at A$19-A$20 a tonne, but "speculative" buyers offering A$16, said Gary Cox, Manager of Environmental Derivatives at the Newedge Group in Sydney, which brokered one of six deals.

A Singapore-based carbon broker said the report contained no major surprises, but pointed to a broader scheme than in Europe, where 100 percent of emission allowances had been allocated free against only 30 percent in Australia.

The government is to release hard Treasury figures setting the market price in October ahead of laws to go to parliament in late 2008 setting up the emissions scheme.

($1=A$1.02)

(Editing by Jerry Norton)

(rob.taylor@thomsonreuters.com; Reuters Messaging: rob.taylor.reuters.com@reuters.net, +612 6273 3700))