Australia vows CO2 cut, unveils trade scheme

Australia pledged to cut its greenhouse emissions by five to 15 per cent by 2020 as it unveiled yesterday the world's broadest carbon trading scheme, rebuffing business calls for a delay due to the global slowdown.

While Australia is now second only to the EU in its drive to cut emissions by establishing a cap-and-trade system that puts a price on carbon output, critics said the target was too weak and blasted the trading plan that will give free credits to some of the economy's most carbon-intensive industries.

Prime Minister Kevin Rudd said the carbon 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.

"Without action on climate change, Australia faces a future of parched farms, bleached reefs and empty reservoirs," Mr Rudd told the National Press Club.

But some carbon market participants said the system, details of which Canberra unveiled yesterday ahead of approval by Parliament expected next year, may fall far short of what's required in the global fight against climate change.

And the government said Australia would only target the full 15 per cent cutback if a global deal emerges from UN talks in Copenhagen in late next year, angering environmentalists who had hoped Mr Rudd would follow through on his green electoral mandate by taking a leading role in cutting global emissions.

"It's a total and utter failure. It's madness. Climate change is happening much faster than people thought. Five per cent, which is what we are looking at, is an outrage," Greenpeace climate campaigner John Hepburn said.

Friends of the Earth called the plan a "polluters' paradise."

Under the new proposal, permits to produce carbon will be auctioned by the government in the first half of 2010, raising an estimated €5.68 billion in 2010/11 that will help compensate businesses and consumers for higher power and fuel costs.

The system will cover 75 per cent of Australia's carbon emissions and involve 1,000 of the nation's biggest firms, the government said, and participating firms will need to surrender a permit for every tonne of carbon emitted.

But there will be exemptions of up to 90 per cent for major polluters who could be penalised by the added carbon cost when facing untaxed competitors on the international market, like iron ore and aluminum producers including BHP Billiton, Alcoa and Rio Tinto.

And while LNG producers Chevron and Woodside Petroleum will only get a smaller 60 per cent exemption, the industry was pleased that it had been included at all.

Overall, industry experts said the plan looked weak.

The carbon trade plan allows for prices to be set by the market, first under auctions to be held in the first half of 2010. It estimated an initial price of about €12.3 a tonne, below the European emission allowances, which are trading around €15.

But the government said it would also impose an interim price cap of €19.7 a tonne for four years, a move that analysts said could limit the market's development initially.

"The proposed scheme is disappointing in terms of the levels of reductions required as set down by the (UN's) IPCC," said Martijn Wilder, partner at Baker & McKenzie in Sydney.