Price plunge hits carbon trade plan

Age
Wednesday 18/2/2009 Page: 8

THE collapse in the international price of carbon is threatening the Federal Government's ability to pay for compensation packages in the emissions trading scheme without drawing on the budget. Compensation for households, trade-exposed industries and high-polluting coalfired electricity generators was expected to be drawn from auctioning carbon credits, which the Government estimated would initially generate $12 billion a year.

But the assumed price of carbon - $25 a tonne - is now under threat because the Government's proposal allows polluting businesses to offset an unlimited proportion of emissions by buying international credits. With the international carbon price hovering around $15 a tonne, carbon trading analysts told The Age the local $25 start-up price was "seriously in doubt".

They said it raised the prospect of the Government dipping into the budget pay for the household compensation package targeted at low to middle-income earners. A spokeswoman for Climate Change Minister Penny Wong last night said the Government was committed to paying the full household assistance package promised last year, regardless of the carbon price.

The emissions trading blueprint released in December says household compensation will cost $3.9 billion in 2010-11, rising to an estimated $6 billion in 2011-12. It "estimates" the effect of the overall compensation package will be neutral to the budget. Tim Hanlin, managing director of the Australian Climate Exchange, said the Australian price would closely mirror the international price, which is generated from UNapproved clean energy projects in the developing world.

Global carbon market analyst Point Carbon said in its latest newsletter that an international price of little more than half the assumed Australian price of $25 would mean most of the Government's economic forecasts were incorrect. "There is doubt as to whether such a low carbon price will be sufficient to drive investments in low-carbon technology" it said.

Climate Institute Australia policy director Erwin Jackson said the Government needed to consider initially limiting the amount of international credits that would be accepted. Chris Halliwell, a senior broker at TFS Green, said the international price sunk when industry production slowed and companies had sold longstored permits to raise money during the financial crisis.

This has led to the international permit being cheaper for Australian companies to buy than the alternative Australian permits if the auction starting price is at the Treasury estimate of $25 a tonne," he said. The $25 price is the result of Treasury modelling from October, part of a climate change policy aimed at cutting greenhouse gas emissions 5% below 2000 levels by 2020.