Australia's states press for carbon trade changes

CANBERRA (Reuters) - Australia's influential states have written to the national government to raise concerns about a planned carbon emissions trading scheme amid warnings it may drive big polluting firms offshore or out of business. The premiers of South Australia and Tasmania states wrote to center-left Prime Minister Kevin Rudd to press for changes in design of the scheme, which will begin in 2010 and force 1,000 of Australia's largest polluting companies to buy emissions permits.

"We made submissions to the federal government to see if we can get some special exemptions," South Australian Premier Mike Rann told Australian Associated Press.

Tasmania's leader David Bartlett told the Australian newspaper he had also written to Rudd after global smelting company Nyrstar said the planned emissions trade scheme could force closure of zinc and lead plants in both states.

Queensland, Victoria and conservative-ruled Western Australia state -- Australia's resource exports hub -- had also raised concerns about the impact of the regime on trade-exposed industries like cement and aluminum, the paper said.

All of the states but Western Australia are governed by the Labor Party, which Rudd leads nationally.

"I wrote ... about the carbon pollution reduction scheme and the potential for perverse outcomes," Tasmanian leader Bartlett said.

Rudd and Climate Change Minister Penny Wong will outline their preferred emissions regime later this year, following public consultations involving global miners such as BHP Billiton and power companies like AGL Energy.

An interim framework in July led to business group accusations that steel, cement and papermaking firms would be forced out of business or to shift operations overseas to Asian bases where emissions costs were lower or non-existent.

To ease concerns, Wong and Treasurer Wayne Swan last month released Treasury modeling that found carbon trading would cut average per capita growth by 0.1 percent a year from introduction in 2010 to 2050, with only a small one-off inflation impact.

The government has also promised proceeds from the auction of emissions permits will be used to compensate poor families and motorists for rises in the cost of fuel and electricity, which is mostly powered by burning coal.

Bartlett said Rudd and Wong had "got it wrong" on design of the scheme, asking for reconsideration of planned compensation for big polluters and including cost breaks if they drew power from renewable sources.

But the government's main emissions scheme adviser, economist Ross Garnaut, said ordinary households would lose out if energy companies were given free carbon permits or other major breaks.

Drawing on the example of Europe, Garnaut said emissions trade had been hobbled in the bloc because too many free permits were given to big polluting companies, and the permit cost was passed into domestic electricity prices anyway.

"The free allocation of permits wasn't compensation to businesses of the cost to them of the permits. This was a transfer of income and wealth," he told charity group the Brotherhood of St Laurence.

(Editing by Jerry Norton)