The Government has restructured its emissions trading scheme to deliver even greater assistance to Australia’s biggest polluters and to scale back its commitment to participate in any international agreement, well below that advocated in the Garnaut Review.

The emissions trading scheme White Paper released this morning proposes that Australia commit to a unilateral 5% reduction in carbon emissions on 2000 levels by 2020, equivalent to a 27% per capita reduction given Australia’s population growth.

In the event of an international agreement, the Government has proposed committing to up to a 15% reduction by 2020, equivalent to a 34% per capita reduction.

The unilateral target of 5% is in line with that recommended by Garnaut, and the 15% target would reflect an international agreement somewhere between the 550ppm realistic goal discussed by Garnaut — which would require a 10% cut — and the 450ppm ambition that would require a 25% cut by 2020.

However, the Government has rejected Garnaut’s recommendation that it commit to a 25% cut if an international agreement around 450ppm is reached (equivalent to a 40% per capita reduction). Australia will go no lower than a 15% cut, even though the White Paper specifically states that “the Government believes that it is in Australia’s national interest to achieve a comprehensive global agreement to stabilise atmospheric concentrations of greenhouse gases at around 450ppm”.

In the event such an agreement is reached, the Government has only committed to reconsider its post 2020 targets.

The Government strongly argues that its 5-15% effort is comparable to that adopted by Europe on a per capita basis — Europe’s current goal of 20-30% below 1990 levels equates on a per capita basis to 24-34% below 1990 levels; Australia’s 5-15% goal would be 34-41% below 1990 levels.

The Government has also made significant concessions to Australia’s biggest polluters in the design of the scheme. Under the White Paper scheme, the carbon price will be reduced by permitting unlimited importation of accepted international permits, and there will be a $40 price cap for the first five years of the scheme. The Government expects the initial permit price to be around $23 a tonne, and some borrowing of the following year’s permits will be permitted in addition to unlimited banking.

The compensation arrangements have been significantly broadened to include industries that previously missed out on compensation and to provide greater flexibility for companies in determining their eligibility for compensation, through providing a value-added option in addition to the tonnes per million dollars revenue, and extending the period on which the calculation is based.

The threshold of 2000t per million dollars revenue/value added has been retained from the Green Paper, above which trade-exposed firms will be eligible for 90% free permits. But in a big victory for the LNG industry and other previously borderline industries, the lower threshold at which 60% of permits are provided free has been dropped to 1000t per million dollars revenue/value added.

As a consequence the proportion of free permits under the scheme has increased from 20% to 25% — with another 10% for agriculture, which will remain excluded until at least 2015.

The Government has also clarified that such firms will receive increasing numbers of free permits if they increase production, meaning there will be no cap on emissions from our worst polluting sectors. There will be a 1.3% “dividend” deducted from caps each year but under normal economic growth conditions, it means that by 2020 45% of permits will be handed out free to polluters.

The Government will also provided $3.9b over five years in handouts to the coal-fired power industry, as well as a $2.15b “climate change action fund” for handouts to businesses, community groups and the coal mining industry. The petrol excise offset from the Green Paper has been retained, and the Government has strengthened its household assistance measures, promising to overcompensate nearly all low-income households with 120% of their additional costs, and committing that most middle-income households will not be out of pocket.

The Government expected to generate $11.5b in permit revenue in 2010-11, with all permit revenue recycled back into assistance, and a substantial risk that if big polluters grow faster than the rest of the economy, the Government will be forced to fund some assistance measures from the Budget.

Now the Government’s selling task begins, commencing with Kevin Rudd – having bumped Penny Wong — at the Press Club today. Next stop, the Senate.

Peter Fray

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