Carbon trade a threat to Australian firms: industry

2/07/2008 - 16:11

By Rob Taylor

CANBERRA (Reuters) - Australian businesses, particularly large energy companies, will be forced to close doors unless they are allowed to pass on the cost of carbon emissions trading to consumers, big business warned on Thursday.

The government-backed architect of an emissions scheme, respected academic economist Ross Garnaut, will on Friday outline how trading could operate from a promised start in 2010, with expectations the regime will be as broad as possible.

Emissions trading allows companies to accept limits on their greenhouse gas outflows and continue emissions under permits issued under a national carbon cap. Australian permit auctions could net the government A$20 billion ($19.2 billion).

"Where costs cannot be passed on and energy efficiencies are not available, business will simply cease to exist if this prevents them from earning an adequate return on their investment," said Business Council of Australia President Greig Gailey in a speech to be delivered late on Thursday.

"This is a particular risk with trade-exposed, emissions intensive industries," Gailey told the Committee for Economic Development of Australia, which brings together business leaders, government and academics to discuss Australia's economic future.

The Garnaut report, which will be a pointer for the centre-left Labor government on how the emissions scheme should operate, is expected to spare few industries from inclusion or the cost of carbon emission permits.

The Friday draft report is expected to recommend a two-year trial period between 2010-12, with a phase-in before higher fuel and electricity costs are passed to consumers already angry about rising inflation and interest rates.


But Gailey said Australian companies were being asked to absorb the world's most comprehensive emissions scheme, which could place them at a significant disadvantage compared to competitors overseas.

"Sectoral competitiveness concerns are legitimate for trade-exposed, emissions intensive industries such as cement, paper, steel, minerals processing, LNG, and aluminum," he said.

At the least, Gailey said, Australian governments must eliminate state-based price caps on retail energy prices.

The country has a target to cut greenhouse gas emissions by 60 percent from 2000 levels by 2050.

Hugh Saddler, a member of Australia's Experts Group on Emissions Trading, said the Friday report was unlikely to include crucial interim emissions targets for 2020 and 2030.

An overall emissions cap, which will be the cornerstone from which the market price of carbon will be determined, would also be missing, he said.

Australia is responsible for about 1.2 percent of global carbon emissions, but is one of the highest per-capita polluters because of the nation's position as the world's biggest coal exporter and its heavy reliance on fossil fuels for energy.

While Prime Minister Kevin Rudd has said some money from permit auctions could be used to defray the rising cost of petrol and electricity for low-income consumers, Gailey said heavily exposed carbon-intensive industries would also need protection.

"Some may be needed to address our adaptation to the impacts of climate change," he said.

But global environmental group WWF said no money should go to compensating electricity generators under emissions trading.

"Electricity generators and other big polluters have known for nearly 20 years that they would have to reduce their greenhouse gas emissions, and they should not receive favorable treatment," WWF-Australia CEO Greg Bourne said.

"Auctioning all permits is the only fair and transparent way to allocate carbon credits under the scheme," Bourne said.

The government will release an official emissions scheme options paper later in July, after the Garnaut report, with laws to be sent to parliament by end-2008 and fine-tuning of the coming regime done in early 2009.

($1 = A$1.05)

(Editing by David Fogarty)

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