Australia unveils world's largest carbon scheme amid criticism

Canberra: Australia pledged to cut its greenhouse emissions by 5-15 per cent by 2020 as it unveiled on Monday 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," 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 percent cutback if a global deal emerges from UN talks in Copenhagen in late 2009, angering environmentalists who had hoped 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."

Scientists and green groups wanted cuts of at least 25 per cent 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.

Australia's target is far shy of the 20 per cent reduction that Europe has promised and the UN's Intergovernmental Panel on Climate Change recommendation of up to 40 per cent by then, and underscores the challenge world governments face in finding a successor to the Kyoto Protocol in the next 12 months.

Rudd defended the targets by saying they were more aggressive on a per-capita basis than those in the EU. The government also said the scheme would only trim about 0.1 per cent off annual growth in gross national product from 2010 to 2050, with a one-off increase in inflation of around 1.1 per cent.

"You could say that the decision came down to a choice between the environment and the economy and at this stage it looks like the economy has won," said Gary Cox, head of environmental derivatives at global brokers Newedge.

The details of the plan released yesterday showed some changes from the draft proposal that came out in July, dropping a much-criticised suggestion to fix initial carbon prices and offering exemptions for the liquefied natural gas (LNG) industry.

Under the new proposal, permits to produce carbon will be auctioned by the government in the first half of 2010, raising an estimated A$11.5 billion (Dh27.9 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 big-gest 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 aluminium 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.

Natural gas is a much cleaner-burning hydrocarbon for power plants, but producing it releases large volumes of CO2.

Overall, industry experts said the plan looked weak.

"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.

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 A$25 ($16.70) a tonne, below the European emission allowances, which are trading around 15 euros (A$30) a tonne.