Australia is set to delay its carbon trading plan by 12 months, pushing the start out to July 2011, and to announce tougher greenhouse gas reduction targets in an effort to win political backing for the most sweeping trade scheme outside Europe, media reports said yesterday.
The decision gives the government more flexibility in global negotiations at the Copenhagen climate summit later this year, where nations will try to hammer out a replacement for the Kyoto Protocol, which expires in 2012. The government had wanted laws for the scheme to be in place by July, so it could go to Copenhagen with a firm commitment.
Business groups in Australia, the world's second-biggest exporter of thermal coal and a major producer of liquefied natural gas, will welcome the decision.
They had been calling for a delay, warning that the added costs of carbon trading would come at a time when business is already struggling with the global economic downturn. But business and the conservative opposition parties had called for a two-year delay to the plan.
The government always faced a tight deadline to get the carbon scheme up and running by July next year. The delay gives the government time to fine-tune the scheme, and gives business more time to prepare. But the delay adds to the uncertainty, and business will be looking for the government to set a realistic, and solid start date for the scheme.
The carbon trade plan faced an uncertain passage through the upper house, the Senate, where the Greens were demanding tougher emissions cuts, and where the conservative parties wanted delays and more compensation for big emitters.
The delay may help the government secure the numbers in Senate, but Prime Minister Kevin Rudd will need to significantly boost the emissions reduction target, from between five and 15 per cent by 2020, to secure the support of the five Greens senators.
Mr Rudd is due to go to elections in late next year. The delay will ensure he can go to the election campaign without the added complication of bedding down the new carbon trade scheme. His promise in 2007 to ratify the Kyoto Protocl was a key issue in his election victory. The delay means the issue will be back on the agenda for the next election campaign.
Meanwhile Australia's opposition leader called the government's planned emissions trading scheme "flawed" yestrerday and said he would not support it, adding that there was no need to rush legislation now that the scheme has been delayed.
The government needs either opposition support or the support of a group of independents and greens to pass its plans through the upper house.
Changes announced by Prime Minister Kevin Budd and climate change Minister Penny Wong yesterday
Delay
• The carbon trading scheme will now start on July 1, 2011, instead of the original start date of July 1, 2010. Mr Rudd said the 12-month delay would help business deal with the impact of the global recession. Mr Rudd still wants the legislation for the scheme, which was initially expected to become law by mid-year, passed this year.
Carbon price
• The government will fix the price of carbon at A$10 a tonne for the first 12 months of the scheme, with a transition to full market trading from July 1, 2012. The original scheme had capped the price at a maximum A$40 a tonne, but not fixed a price.
Emissions target
• The government will lift its target for reducing emissions by the year 2020 to 25 per cent, based on 2000 levels, if the world agrees to an ambitious global deal to stabilise levels of CO2 equivalent in the atmosphere at 450 parts per million or less by 2050. It said up to five percentage points of the 25 per cent target could be achieved through the government buying international credits, such as avoided deforestation credits, using revenue from the trading scheme, no earlier than 2015.
But the government will maintain its target for a minimum cut of five per cent if there is no global agreement, or by 15 per cent if major developed economies agreed to substantial cuts.
The original plan had set a target of five per cent, with cuts of up to 15 per cent if there was a global agreement to deep cuts. The Greens have called for a miniumum cut of 25 per cent by 2020.
Industry help
• In the first year of the scheme, the government will increase the number of free permits for major polluting exporting industries, under what it labels a global recession buffer.
• Industries originally eligible for 90 per cent of free permits will now receive 95 per cent of permits for free in the first year. Those industries are likely to include anluminium smelters, cement clinker producers, lime, silicon and iron and steel manufacturers.
• To qualify for the top level of assistance, industries must produce 2,000 tonnes or more of carbon equivalent for every A$1 million in revenue.
• Industries originally entitled to 60 per cent assistance will receive an extra 10 per cent of free permits in the first year of the scheme, giving an effective rate of assistance of 66 per cent. Those industries are likely to include LNG and alumina industries, and petrol refiners.
• To qualify for the 66 per cent assistance rate, industries must produce between 1,000 and 1,9999 tones of carbon equivalent for every A$1 million in reenue.
• Rates of assistance will decline at 1.3 per cent a year, in line with the original plan.