The Australian, 4th July

TAX cuts and welfare reform should be offered to dampen the impact of a new emissions trading scheme, according to the landmark Garnaut climate change report released today.

Kevin Rudd’s chief climate change adviser, Ross Garnaut, has today urged the Government to pass on the lion’s share of revenue raised through the new scheme, which will put a price on carbon emissions when it starts in 2010.

He also warns some of Australia’s most celebrated tourist destinations and natural wonders - including the Great Barrier Reef and the wetlands of Kakadu in the Northern Territory – could be lost if action is not taken.

The report paints a bleak picture of the international community’s failure to take earlier action on climate change, warning the development of global pacts to create a more level playing field for key Australian industries is an “urgent matter”.

While Professor Garnaut is fighting for the broadest possible ETS, covering as many industries as possible, he also concedes rising petrol prices are already having an impact on consumer behaviour.

Amid warnings that Mr Rudd’s 2010 timetable for a new trading scheme is a mission impossible, his report also concedes that “much anxiety” was expressed about the possibility of an unconstrained ETS generating high and unstable prices in the early years.

“While there are substantial advantages in moving directly to the unconstrained operation of the proposed emissions trading scheme in 2010, the review accepts there is a legitimate second best case for a fixed price for permits in the early years,” he states.

Under an ETS, businesses and industries that can not meet mandatory greenhouse gas reduction targets will be forced to buy carbon permits to continue polluting. This is likely to drive up the cost of services delivered by any industry bound by the scheme, such as electricity generators.

Professor Garnaut’s draft report does not include analysis of specific targets for cutting greenhouse gas emissions. This will be included in his final report, due in September, which will include detail modelling by Treasury on the effects of short- and long-term targets.

Professor Garnaut warns that low-income families will be hit hard by the Prime Minister’s decision to introduce an ETS in two years, unless compensation is offered.

“As a general guide, the review has formed the view that around half of the permit revenue should be returned to the household sector, mostly as adjustments to the tax and social security systems that enhance efficiency, with some allocations to promote energy efficiency, especially among low-income earners,” the report states. “There are equity and economic management reasons for concentrating the return of permit revenue on the bottom half of the income distribution.

“This will overcome what would otherwise be regressive income distribution effects of the emissions trading scheme.”

The report also concedes businesses hit hard by the new climate change measures should also secure some compensation.

“The review has formed the view that in the years before there are effective international agreements removing the need for special support for trade-exposed emissions-intensive industries, up to 30 per cent of permit sales revenue could be returned to the business sector as payments to exposed firms, or as a general efficiency-raising reduction in business taxation,” he states.

“About 20 per cent of the permit sales revenue should be allocated to support research, development and the commercialisation of new, low emissions technologies.”

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