Garnaut opposes high ETS compo

Australian
Thursday 12/2/2009 Page: 8

INCREASED industry compensation under the Rudd Government's emissions trading scheme would undermine global climate change efforts and raise the costs for Australian households, the Rudd Government's climate change adviser, Ross Garnaut, has said. The Government is under intense pressure from industry to delay its emissions trading scheme or increase proposed compensation to trade-exposed industries in light of the worsening economic crisis and mounting job losses.

The board of the Australian Coal Association will meet in Canberra tomorrow to agree on a lobbying strategy to get coal included in the compensation arrangements for so-called trade-exposed emissions intensive industries, after the Government's white paper last December excluded the coal industry from the scheme. And other industries including aluminium, gas, cement and steel have argued that the compensation arrangements offering up to 90% of necessary emission permits for free will still leave them disadvantaged in comparison with international competitors who are not yet subject to a carbon price.

But Professor Garnaut argues that companies should be compensated only for the difference between the current global price for their commodity and the higher price they might expect if all countries had imposed a carbon price rather than the much more generous compensation scheme that has been proposed by the Government. And Professor Garnaut says the pressure for higher compensation risks corrupting the entire global emission reduction effort and will ultimately cause Australia far more economic pain.

"Behind the fog of differentiated arrangements for trade exposed industries will emerge a range of protectionist interventions that will be especially damaging to Australia ... (it) will be especially tempting and costly, albeit deeply counterproductive, as many countries seek to find their ways out of deep recession in the period ahead," he said in a speech yesterday.

He said trade-exposed compensation based on his principle would encourage international talks, but the approach adopted by the Australian Government and also by the European Union "invites competitive protectionist responses amongst countries that are likely to escalate over time". And he told the Australian Agricultural and Resource Economics Society conference in Cairns that increasing compensation to industry would come at the expense of households, or else it would mean Australia would not meet its emissions reduction goals.

"No government is comfortable about subjecting its traded sector to an additional impost when its trade competitors are not willing to take comparable policy measures. '' However, to give way to the superficially attractive approach of compensating for the domestic imposts means either one of two things. It may mean heavily compromising a national commitment to reduce emissions.

Or it means increasing the burden on non-traded sectors of the economy most notably, and ultimately, domestic households," he said. The Government is currently drafting its emissions trading legislation, which it hopes to have through the parliament by June. The Coalition has expressed deep reservations about the Government's approach, and is also under pressure from industry groups to insist on amendments in the Senate that extend the present compensation arrangements.