Carbon plan fuels meltdown

Carbon plan fuels meltdown Share on Facebook
THE national climate change adviser, Ross Garnaut, has damned the Rudd Government's carbon policy as a threat to the environment, the national budget and global prosperity.

by fairfax - Saturday, 20 December 2008

Professor Garnaut has called on the Government to make urgent changes to the policy that the Prime Minister, Kevin Rudd, announced this week.

Writing in today's Herald, Professor Garnaut urges the Government to keep open the option of a more ambitious cut to carbon emissions to keep alive the prospect of averting dangerous climate change.

While Mr Rudd has limited Australia to a maximum cut to emissions of 15 per cent by 2020, Professor Garnaut writes "the Government should keep the 25 per cent option on the table".

He argues: "Australia cannot play a strongly positive role in encouraging the global community towards the best possible outcomes if it has ruled out in advance its own participation in strong outcomes."

The Government could restore this option without unpicking its overall package, he says.

But Professor Garnaut reserves his toughest criticisms for the Government's plan to compensate the biggest polluters.

"There is no public policy justification for $3.9 billion in unconditional payments to [electricity] generators in relation to hypothetical future 'loss of asset value'.

"Never in the history of Australian public finance has so much been given without public policy purpose, by so many, to so few."

The cost to the taxpayer was likely to blow out further over five years, posing "a large risk to public finances", he writes.

Professor Garnaut is even more alarmed at the dangers posed by the Government's decision to issue free carbon permits to industries exposed to international competition, such as steel, chemicals and paper and pulp.

He writes that this is an act of protectionism that threatened to provoke other countries to follow suit.

He likens the potential to the notorious US protectionism that deepened the Great Depression of the 1930s.

Professor Garnaut was an adviser to the former prime minister Bob Hawke and a key voice in arguing an end to protectionism in the 1980s.

Mr Rudd and the premiers commissioned him to write a report on options for responding to climate change - the Garnaut Review. The final version was delivered at the end of September.

Professor Garnaut says the Government had acknowledged there was a principle involved in compensating trade-exposed companies - levelling the playing field to allow them to compete against firms from countries which had no carbon restraint.

But the Government had failed to apply the principle: "The consequences of not having a principled basis for the issue of payments are profound."

The Government, in a green paper in July, initially proposed giving these industries free carbon permits equal to a maximum of 20 per cent of the value of all permits issued.

He endorses these as "reasonable upper limits to principled initial claims".

"By contrast, the white paper's approach would see the proportion of permit value given free to trade-exposed industries rising to 45 per cent on conservative assumptions."

Under some conditions, the share could rise as high as 75 per cent, he calculates.

Fixing this was "an urgent matter for the restoration of global prosperity".

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Mining giant Rio Tinto likely to reap biggest carbon windfall
THE mining multinational Rio Tinto will be the biggest recipient of public support under the Federal Government's carbon trading scheme, with $462 million in free carbon permits expected to flow to the company in 2010.

About $3.5 billion will be allocated to emissions-intensive, trade-exposed industries in the scheme's first year of operation if, as expected, the carbon permit price is $25, according to a report prepared by the investment research firm Innovest Strategic Value Advisors for the Australian Conservation Foundation.

The total value of free permits allocated to Australia's heaviest polluters will rise to $5.3 billion in 2015 if the carbon permit price reaches $35, as the Government suggested in Monday's white paper.

"These huge levels of public support mean the Government has bent over backwards for the biggest polluters," said Don Henry, the executive director of the Australian Conservation Foundation. "It risks entrenching in our economy the emissions-intensive activities that we are supposed to be trying to stamp out."

The Climate Institute, which earlier offered conditional support for the Government's carbon trading scheme, said yesterday it was reconsidering. The system would force the rest of the economy to bear the brunt of carbon cuts, while heavy industry was insulated, said the institute's director, John Connor. The aluminium smelting industry will get $939 million worth of free permits in 2010. By 2015, support for aluminium smelting will rise to $1.2 billion, the Innovest report estimates.

The steel and cement industries, along with aluminium smelters, are eligible to have 90 per cent of their carbon emissions covered by free permits. The alumina refining, liquid natural gas and petrol refining industries will have 60 per cent of their permits covered. The Federal Government aims to raise $11.5 billion in 2010 by auctioning carbon permits to the 1000 heaviest polluters.

The Government says the number of carbon permits will be wound back every year, partly to account for improvements in household energy efficiency.

"Everyone will be doing their bit under the carbon pollution reduction scheme - no one gets a free ride," said a spokeswoman for the Climate Change Minister, Penny Wong. "Support to coal-fired electricity generators is targeted and transitional - not ongoing. This means more and more of our electricity supply will come from gas and renewables like sun, wind and geothermal power."

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