Wednesday, July 16, 2008

Wong unveils trading scheme details

By Online parliamentary correspondent Emma Rodgers

ABC News Online, Posted 6 hours 23 minutes ago
Updated 1 hour 49 minutes ago

The Federal Government has conceded tough economic reform will be needed to implement its preferred structure of an emissions trading scheme but says it is committed to returning all the funds raised to help families and businesses adjust to its drastic restructure of the country's economy.

Today's Green Paper outlines the Government's vision of what it now calls a Carbon Pollution Reduction Scheme, which it says represents a whole of economy approach and Australia's international response to climate change.

Launching the Green Paper, Climate Change Minister Penny Wong said the Government will meet extra costs passed onto low-income earners and the paper also confirms that some of the hardest-hit industries, such as aluminium and cement, will receive a specified amount of free permits.

The Government will also reduce the fuel excise cent for cent to match petrol price rises incurred by the scheme, however Senator Wong said that measure will be reviewed after three years.

The paper says the cap and trade scheme provides a strong incentive to consumers and businesses to adjust their behaviour in order to reduce the country's pollution as prices on goods and services are expected to rise.

The paper also estimates that an average impact on inflation on a $20 carbon price would be a 0.9 per cent rise once the scheme started.

However, the Green Paper still describes a start-up date of 2010 as an "intention" because it says it recognises that businesses need to be ready and further consultation will take place before legislation is introduced in the first half of next year.

Senator Wong says the scheme represents a significant economic reform which responds to threats to food production, agriculture, water and tourism.

"Placing a limit and a price on pollution will change the things we produce, the way we produce them and the things we buy," she said.

"In this Green Paper the Government has sought to strike the right balance on the basis of economically responsible policy in the national interest.

"As one of the hottest and driest continents on earth, Australia's economy and environment will be one of the hardest and fastest hit by climate change if we don't act now."

Senator Wong has admitted the cost will be high to implement the scheme and the reforms will be tough but Australia is well placed to tackle it.

"The Carbon Pollution Reduction Scheme will modernise our economy for the future and protect our standard of living," she said.

The Government's scheme would cover about 75 per cent of Australia's emissions, which means about 1,000 businesses that emit more than 25,000 tonnes of carbon a year will be required to buy permits and monitor and report their emissions.

Electricity generation, transport, emissions released from oil and gas production, industrial processes and waste will all be included in the scheme from the start up date.

Fuel will be included in the scheme but the Government, against advice from its climate change adviser Ross Garnaut, will offset fuel rises "cent for cent" by lowering the 38-cent fuel tax.

Professor Garnaut has previously argued that to do this would remove the incentive for people to use less fuel.

The fuel price will be adjusted periodically over the next three years after which the system will be reviewed.

Trucks are also eligible for the cent for cent reduction, but this will be reviewed after just one year.

Agriculture will not be included any earlier than 2015, with a final decision to be made in 2013.

Deforestation is not included and forestry can be included on a voluntary basis and receive permits for sequestration, or the burial of carbon.

Senator Wong says coverage of the scheme must be as broad as possible to minimise costs.

"Regardless of what sources of carbon pollution you include, we still need to make the same reductions across the economy as a whole. If we are going to reduce carbon pollution, as we need to, those reductions have to come from somewhere," she said.

A carbon price or further reductions targets will not be identified until further Treasury modelling is released in October.


Key points at a glance

  • 2010 start-up date only an "intention" at this stage.
  • Scheme to cover about 75 per cent of Australia's emissions
  • About 1,000 businesses that emit more than 25,000 tonnes of carbon a year will be required to buy permits and monitor and report their emissions.
  • Big polluters like the aluminium and cement industries to get specified amount of free permits.
  • Electricity generation, transport, emissions released from oil and gas production, industrial processes and waste will all be included in the scheme from the start.
  • Petrol will be included but the Government will soften the blow by reducing fuel excise to cancel out any price rises caused by emissions trading.
  • The fuel price will be adjusted periodically over the next three years after which the system will be reviewed.
  • Agriculture will not be included any earlier than 2015, with a final decision to be made in 2013.
  • Deforestation is not included and forestry can be included on a voluntary basis and receive permits for sequestration, or the burial of carbon.
  • Once a cap is set, carbon permits per tonne will be auctioned with a price set by the market, with the aim to create an incentive for businesses to decrease emissions.
  • Businesses will know within a five-year timeframe what the carbon emission cap would be, and can trade permits.
  • Payments to carers, pensioners and seniors will be increased to counter rising costs.
  • Low-income earners to receive extra payments through the tax system. Family assistance payments would also be reviewed through the Budget.
  • Coal-fired energy generators will receive a "limited amount" of direct assistance at the beginning of the scheme, but this amount has not yet been defined.
  • Climate Change Action Fund to be set up to support capital investment and improve energy efficiency for businesses.

Permits

The paper outlines what will happen after a cap is set on carbon pollution emissions at the end of this year.

Once a cap is set, carbon permits per tonne will be auctioned with a price set by the market, with the aim to create an incentive for businesses to decrease emissions.

Businesses will know within a five-year timeframe what the carbon emission cap would be, and can trade permits.


Compensation

The paper outlines several areas in which families would be compensated for higher costs in goods and services such as energy.

In addition to the fuel tax offset, the paper says that payments to carers, pensioners and seniors will be increased.

Low-income earners would receive extra payments through the tax system.

Family assistance payments would also be reviewed through the Budget yearly.

Middle-income earners will also receive some assistance to help with cost of living increases. Other support will also be provided to help households reduce their energy use.


Vulnerable industries

At the start of the scheme 20 per cent of permits will be made available to those most affected by the scheme, described as emissions intensive trade exposed, such as aluminium and cement.

Once agriculture is included this would rise to 30 per cent.

Those industries who emit 2,000 tonnes per million dollars of revenue will receive 90 per cent of their permits for free while those emitting 1,500 tonnes per million dollars of revenue will receive 60 per cent of permits free.

Coal-fired energy generators will receive a "limited amount" of direct assistance at the beginning of the scheme, but this amount has not yet been defined.

A Climate Change Action Fund will also be set up to support capital investment and improve energy efficiency for businesses and will also provide funding for energy-efficient projects.

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