Australia: Nonsensical emissions trading scheme unveiled

Good ol' Kevin Rudd tokenism again: Large political compromises ensure that the scheme will have negligible effect on carbon emissions. All it will do is generate another nice little bureaucracy to administer it

Motorists are guaranteed petrol price relief for just three years under an emissions trading scheme unlikely to have any short term effect on greenhouse gas emissions. The Rudd Government has opted for a softly, softly approach which will likely lead to an increase in the cost of living of less than one per cent. Its options paper on emissions, released in Canberra today, will see Australia ease into a relatively gentle scheme on July 1, 2010. This approach is good news for industry and means there will be a limited impact on household budgets - but it's not likely to lead to deep cuts to greenhouse emissions in the short-term.

The key points:

Scheme will probably add less than 1 per cent to the cost of living.

Petrol will be included, but there will be no net price increase because the fuel excise will be cut.

Pensioners, carers and seniors will have their payments increased to make up for price rises.

Other low-income earners will get tax breaks and increased allowances to make up for price rises.

Middle-income earners will get some financial assistance.

Scheme to start on July 1, 2010.

Free "permits to pollute" will be given to big polluters who export their goods; 90 per cent of their emissions will be for free.

Twenty per cent of the scheme's permits will be given out for free.

Coal-fired power stations will get cash payments to compensate for increased costs, and develop clean coal technology.

Petrol will be included in emissions trading, but the fuel excise will be cut so that there is no net increase in price. The decision to cut the petrol excise so that emissions trading does not push up prices - which was first proposed by the federal opposition - flies in the face of advice from the government's hand-picked climate change adviser Ross Garnaut. He urged against an excise cut last week, saying the price of petrol should rise to send a signal to the market to use less. The government says it will review the excise cut after three years. Fuel taxes on heavy vehicle road users will also be cut.

As expected, electricity is included in the scheme, as is throwing out rubbish to landfill, while agriculture is out until at least 2015. The options paper forecasts the cost of living will rise by 0.9 per cent due to emissions trading, meaning the average price for a basket of goods will rise by 0.9 per cent in the first year of the scheme.

Low-income earners will be given cash payments to make up for those price rises. Pensioners, carers and seniors will have their payments increased, and other low-income earners will get tax breaks and increased payments from the government. The scheme also aims to placate middle-income earners, who will get financial assistance.

Emissions trading seeks to tackle climate change by putting a price on carbon emissions. Big emitters have to buy "permits to pollute", which they can trade between them, so the market sets the price. The government has taken on board industry's concerns about the scheme, responding with a relatively generous support package. Big emitters who export much of their product - such as aluminium smelters - will be all-but exempted from emissions trading at the start. They will be given free "permits to pollute" to cover 90 per cent of their emissions. In all, 20 per cent of the scheme's permits will be given out for free, rising to 30 per cent once agriculture is included.

Coal-fired power plants will be compensated with direct payments from the government, including to develop clean coal technology. And there's a win for the forestry industry - companies who plant trees can qualify for carbon credits, but companies who chop down forests don't have to pay.

Climate Change Minister Penny Wong made reference to the gentleness of the scheme, saying it was not possible for Australia to lead the world on climate change. "After so many years of inaction, it is impossible for Australia to be in front of the world in tackling climate change," Senator Wong said today as the options paper was unveiled. "A greater risk is being left behind a world of emerging economic opportunities."

She stressed the importance of protecting the economy and the national interest. "In this green paper, the government has sought to strike the right balance, on the basis of economically responsible policy in the national interest." The government will release its final plan for emissions trading, along with draft laws to start the scheme, in December this year. The options paper does not include hard facts on the cost of emissions trading, but gives a big hint, basing key calculations on a carbon price of $20 a tonne.

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