By James Grubel
CANBERRA (Reuters) - Australia vowed Monday to push ahead with the most sweeping carbon trade scheme outside Europe in 2010, resisting calls for a delay, but some feared the plan would fall far short of what's needed to combat global warming.
As part of the plan, Canberra set a target to cut emissions by at least 5 percent of 2000 levels by 2020, rising to 15 percent if world governments reached an ambitious agreement next year in talks for a successor to the Kyoto Protocol.
Climate Change Minister Penny Wong said the scheme was vital for Australia, which has the fourth-highest per-capita greenhouse gas emissions in the world, and five times more per person than China, due to its reliance on coal for electricity.
"These are hard targets for Australia," Wong told reporters, adding that the policy was designed to ease the economic impact of the scheme in light of the global financial crisis.
"Our economy, including food production, agriculture and water supplies, is under threat. If we don't act now, we will be hit hard and fast. We will lose key industries and Australian jobs."
The plan allows for prices to be set by the market, first under auctions to be held in the first half of 2010, abandoning an earlier idea of a fixed price. The government expects a price of about A$25 ($16.70) a tonne, below the European emission allowances, which are trading around 15 euros (A$30) a tonne.
But the government said it would also impose an interim price cap of A$40 a tonne, a move that analysts said could limit the market's development initially.
"It seems a bit like the old game of one foot on the brake and one foot on the accelerator, having a bet each way and I'm not sure the numbers add up," said Brett Janissen, executive manager of the consultancy Asia-Pacific Emissions Trading Forum.
By allowing polluters to import carbon permits from green projects abroad but barring potential exports from Australia, participants will have their pick of the cheapest price.
Scientists and green groups wanted cuts of at least 25 percent but the carbon scheme comes at a politically sensitive time for the government, with the mid-2010 start date set only months before it is due to hold elections to seek a second term.
"It's a total and utter failure," Greenpeace climate campaigner John Hepburn said.
The government said the scheme would trim about 0.1 percent off annual growth in gross national product from 2010 to 2050, with a one-off increase in inflation of around 1.1 percent.
"BUY THEIR WAY OUT"
Wong said carbon trading would cover 75 percent of Australia's carbon emissions and involve 1,000 of the nation's biggest firms, although big-polluting exporters would receive up to 90 percent of carbon permits for free.
The rapidly growing liquefied natural gas (LNG) industry, which had been excluded from an earlier draft plan in July, was pleased to be given exemptions in the final version.
"There's no doubt that this has come a long way since the model was outlined in the Green paper," said Belinda Robinson, CEO, Australian Petroleum Production and Exploration Association.
"For that the LNG (liquefied natural gas) industry is very pleased and for that, we think Australia should be pleased, because it's the LNG industry that represents Australia's best chance for assisting the rest of the world reduce its greenhouse gas emissions."
But by global standards the targets were cautious. Europe has pledged a 20 percent reduction by 2020 and the UN's Intergovernmental Panel on Climate Change (IPCC) has recommended rich nations back reductions of 25 up to 40 percent by then.
"The proposed scheme is disappointing in terms of the levels of reductions required as set down by the IPCC," said Martijn Wilder, partner at Baker & McKenzie in Sydney.
"By adopting a A$40 price cap, it will provide companies with certainty as to their compliance cost but it also enables companies to buy their way out of compliance, in circumstances where the carbon price breaks the $40 ceiling," he added.
Janissen described the scheme as a soft start with a tougher downward trajectory on emissions occurring beyond the 2012-2013 financial year. But he said it also appeared to be "providing a high degree of shielding key industries that are concerned about their emissions intensity," referring to subsidies for emissions intensive and trade exposed industries.
Under the scheme, participating firms will need to surrender a permit for every tonne of carbon emitted.
The auction of permits is expected to raise A$11.5 billion in 2010/11, which will all be used to compensate business and households for higher costs for electricity and transport.
Australian farmers, who have suffered more than seven years of severe drought, will be spared from taking part in carbon trading for at least five years. Agriculture accounts for about 16 percent of Australian emissions.
But transport and fuel will be included in the scheme.
The government will introduce carbon-trading laws into parliament in 2009, where it needs the support of the Greens and two independent senators, or the conservative opposition, which want the scheme delayed due to the global economic downturn.
($1 = A$1.49)
(Additional reporting by David Fogarty; Editing by Jonathan Leff)
