MORE than $20 billion would be wasted on unwarranted compensation to polluting sectors under the Rudd government's proposed emissions trading scheme, a damning analysis has found.
The analysis by think tank the Grattan Institute - the first to examine the financial reports of major businesses in line for compensation - found only the steel and cement sectors could make a case for taxpayer help. Others that compete overseas, including alumina refining, LNG production and coalmining, would be marginally less profitable, but not forced to close.
Aluminium smelting is in another category - it would become unprofitable, but the analysis found the government should let it move offshore.
Many overseas aluminium plants run on comparatively environmentally friendly fuel and emit less greenhouse gas than an Australian smelter. Help would go directly to the communities and workers that would feel the brunt of the closure, such as Portland in Victoria, and not companies such as Alcoa.
Despite opposition resistance to the emissions scheme in Canberra, the analysis assumes a carbon price is inevitable, reflecting international trends.
Grattan Institute chief executive John Daley said fears about big job losses and cost increases were not supported by evidence and led to irrational policy.
Mr Daley said emissions trading would have a smaller impact on lives than predicted.
It involved less structural adjustment than the end of tariff protection and would increase the cost of living less than the GST.
The trade-exposed sectors examined bring in 8 per cent of the gross domestic product and are responsible for about 30 per cent of emissions. They employ 70,000 people. The analysis found most of these jobs would be viable under a carbon price without compensation. By comparison, 55,000 jobs were lost in the vehicle sector between 1973 and 1995 and 64,000 in textiles, clothing and footwear manufacturing in the two decades to 2005.
The analysis noted that 176,000 jobs had been lost in the power sector due to privatisation and competition reforms. About 9000 people are employed in electricity generation - the only part of the sector that would be affected by the scheme.
The institute found the free permits cost the taxpayer $65,000 per employee working in trade-exposed sectors. In aluminium smelting, it is $160,000 an employee.
Mr Daley said free permits were an exemption from a tax paid by the rest of the community. He preferred a carbon border tax for imports in the few sectors under threat to bring their carbon price into line with the national figure.
The analysis said giving free carbon permits would delay reform. Given as proposed, no polluting, internationally trading facility would close.
It assumes a target of cutting emissions 5 per cent below 2000 levels by 2020. A more ambitious target in the government's 5-to-25 per cent range would require more countries to take on a carbon price, making the impact on trade-exposed sectors less of a concern.