Oil companies urge weekly auctions of carbon emission permits

Australian
Tuesday 29/4/2008 Page: 6

AUSTRALIA should hold weekly auctions of greenhouse gas emission permits to avoid imposing an "impossible" financial burden on petrol companies and undermining efforts to cut fuel prices at the bowser, the Rudd Government has been told. Petrol companies are likely to be required to buy permits for the millions of tonnes of carbon emitted when motorists use their fuel, under the greenhouse gas Emissions Trading Scheme the Government has vowed to have up and running by 2010.

But the nation's biggest petrol company, Caltex, has told the review of emissions trading being conducted by Ross Garnaut that buying the permits up-front and in bulk would impose an impossible financial burden. At a carbon cost of $40 per tonne of carbon dioxide, Caltex would have to purchase $1.4 billion of permits annually for its customers' 35 million tonnes of emissions from fuel combustion.

This would impose a huge and inequitable financial risk on Caltex far out of proportion to our earnings and financial capability," the company says in its submission, just lodged. "If a permit auction was held at annual or six-monthly intervals, there is no way Caltex could fund the purchase of more than a small fraction of the permits it would need at the auctions.

Caltex's current debt level is about $600 million, and this debt could not be increased to $2 billion for an annual auction." Caltex said weekly auctions could minimise the extent to which the new cost of carbon would undermine efforts by the Government to reduce the price paid by motorists through extra monitoring of petrol prices.

In line with its election platform, the Government has appointed a petrol price commissioner and is setting up a fuelwatch system to give motorists up-to-date information on where to find the cheapest petrol. But Caltex says this system could struggle after the introduction of an additional cost on fuel through the new carbon price. "Petrol excise is quite explicit, and motorists know with certainty the rate of excise is 38.14c per litre (plus 10 per cent GST)," the submission says. "With emission trading... different companies would employ different strategies to manage carbon risk, and the cost of permits would then be recovered in various ways.

"The problem of carbon price transparency and monitoring could be reduced by frequent permit auctions: in essence, a weekly carbon auction in which there was... participation by liquid fuel suppliers could provide a benchmark carbon price for ACCC price monitoring." Caltex had previously argued that fuel should be excluded from emissions trading in favour of a direct tax on petrol and diesel, but acknowledges in its submission that the Government does not share its view and that Professor Garnaut's discussion paper, released last month, effectively rules it out.

Climate Institute Australia chief executive John Connor said he was pleased Caltex had moved on from arguing that fuel should be exempt from the scheme. "We believe a broadly based emissions trading regime is best," he said.