Gas problem could cause a rude shock

Age
Wednesday 21/5/2008 Page: 2

AUSTRALIAN companies would probably have to cut greenhouse gas emissions "further and faster" than many anticipated, while compensation for the start of carbon trading might be less than they hoped for, Citigroup says.

Industries in competition with rivals in countries that did not place a cost on carbon would probably get less help from the free hand-out of permits than they would like, Citigroup said in the report. These were expected to include steel, cement, aluminium and liquefied natural gas, it said.

Australia is due this year to set targets for reductions in greenhouse gas emissions, before a national emissions trading system starts in 2010. The Federal Government is due to release a discussion paper on the design of the emissions trading system in July, followed by draft legislation in December.

'Anecdotal evidence suggests that government will expect industry to play a meaningful role in emissions reduction," Sydney-based Citigroup analyst Elaine Prior said in the report.

"Shelter offered by free permits may be less than they had hoped or expected under the Coalition government, and allocation of free permits may be reduced faster." Woodside Petroleum, Exxon Mobil's Australian unit and Alcoa are among companies that have made submissions to a review of the proposed trading system, voicing support for the free allocation of carbon permits.

Engineering, construction and petroleum technology companies should benefit from investments in low-emissions power generation, carbon capture and disposal projects and modifications to industrial plant, Citigroup said.

"We expect engineering solutions to meet 2015, 2020, 2030 targets will require major spending into the next decade," Ms Prior said.