Thursday, 26 November 2009

Costly amendments meet demands - Extra $7bn compensation for industry

Wednesday 25/11/2009 Page: 5

THE Federal Government has proposed a package of amendments to its emissions trading scheme, satisfying much of the Oppositions demands and handing out $7 billion in extra industry compensation by 2020. The amendments will largely be paid for by slashing $5.67 billion of household compensation by 2020, reflecting lower electricity price increases than first thought. The overall cost of the package to the budget bottom line is now estimated to be $769 million by 2019-20.

The big winner is the coalfired electricity generators who will get an extra $4 billion in free permits, taking their overall compensation to $7.3 billion over 10 years. The Opposition had sought $10 billion for the generators over 15 years. The Government will also establish a series of potential protection measures for coal generators - which stake up 44% of Australia's emissions - including loan guarantees.

Companies can also gain further free permits if they increase energy efficiency in their coal-fired power plants. Climate Change Minister Penny Wong said yesterday she had taken into account a report by the Government commissioned by investment bank Morgan Stanley earlier this year in handing out the extra compensation to generators. Money for coal miners has also been doubled, from $750 million to $1.5 billion over five years, but the Government has resisted an Opposition amendment to exclude methane emissions from coal mines from the scheme altogether.

Assistant Minister for Climate Change Greg Combet has rejected lobbying from the coal industry to exclude coal mine emissions for most of the year and said yesterday it was a "win for the environment" that mines remained in the scheme. The Government also rejected a major Opposition amendment to ensure all heavy polluting trade exposed industries get 94.5% of their carbon permits for free. Under the Government scheme, trade exposed industry receive 94.5% and 66% free permits depending on how much they emit.

The Government's main concession to trade exposed industries is to remove a five-year deadline to reduce the rate of free permits, costing $1.3 billion over 10 years. There is also more money, to the tune of $1.1 billion over two years, for miners and the manufacturing industry - on top of free permits - to compensate for electricity price increases. The natural gas industry has also won out and receives $600 million in additional free permits - money the Opposition did not ask for in its proposed amendments.

Agriculture, as previously announced, is indefinitely excluded from the scheme but the Government will create a number of programs that mean farmers can make money by planting trees and reducing emissions from livestock and crops. In an attempt to to fend off expected criticisms by green groups, the Government has included a collection of small environmental measures to "green up" the scheme.

Those environmental programs included developing a "mechanical link" to allow efforts from households to reduce the emissions to count on top of Australia's emissions reduction targets of 5-25% on 2000 levels by 2020. Next year, an energy efficiency measure will also be developed to drive emissions reductions through lower use of electricity. The Government will also spend $40 million to better monitor and protect biodiversity and ecosystems, crucial for agriculture processes, from the effects of climate change.

What Will It Cost?
Additional compensation to industry of $7.01bn by 2020.
$769m hit to the budget bottom line by 2020.

$5.67bn less compensation to homes by 2020.
Voluntary household action to count above national emissions targets.

Coal Miners
Doubling of cash from $750m to $1.5bn over five years.

Coal-Fired Electricity Generators
$4bn more in free permits, with total package reaching $7.3bn over 10 years.
Extra free permits for energy efficiency measures.

Trade-Exposed Industries
Removal of a five year cap for extra free permits, costing $1.3bn by 2020.

Indefinitely excluded.
Farmers to get free permits for offsets and reducing emissions.

Electricity Prices
$1.1bn in compensation over two years to mining and manufacturing for increased electricity prices.