Foreign Correspondence

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Australia .. Carbon plan fuels meltdown
Peter Hartcher, Political Editor
December 20, 2008

EXCLUSIVE .. Latest related coverage

* Ross Garnaut: Oiling the squeaks
http://www.smh.com.au/news/environment/global-warming/oiling-the-squeaks/2008/12/19/1229189886229.html
* Rio Tinto likely to reap biggest carbon windfall
http://www.smh.com.au/news/environment/global-warming/rio-tinto-likely-to-reap-biggest-carbon-windfall/2008/12/19/1229189886157.html

THE national climate change adviser, Ross Garnaut, has damned the Rudd Government's
carbon policy as a threat to the environment, the national budget and global prosperity.

Professor Garnaut has called on the Government to make urgent changes
to the policy that the Prime Minister, Kevin Rudd, announced this week.

Writing in today's Herald, Professor Garnaut urges the Government to keep open the option of a more
ambitious cut to carbon emissions to keep alive the prospect of averting dangerous climate change.

While Mr Rudd has limited Australia to a maximum cut to emissions of 15 per cent by 2020,
Professor Garnaut writes "the Government should keep the 25 per cent option on the table".

He argues: "Australia cannot play a strongly positive role in encouraging the global community towards
the best possible outcomes if it has ruled out in advance its own participation in strong outcomes."

The Government could restore this option without unpicking its overall package, he says.

But Professor Garnaut reserves his toughest criticisms for the Government's plan to compensate the biggest polluters.

"There is no public policy justification for $3.9 billion in unconditional payments
to [electricity] generators in relation to hypothetical future 'loss of asset value'.

"Never in the history of Australian public finance has so much
been given without public policy purpose, by so many, to so few."

The cost to the taxpayer was likely to blow out further over five
years, posing "a large risk to public finances", he writes.

Professor Garnaut is even more alarmed at the dangers posed by the Government's decision to issue free
carbon permits to industries exposed to international competition, such as steel, chemicals and paper and pulp.

He writes that this is an act of protectionism that threatened to provoke other countries to follow suit.

He likens the potential to the notorious US protectionism that deepened the Great Depression of the 1930s.

Professor Garnaut was an adviser to the former prime minister Bob
Hawke and a key voice in arguing an end to protectionism in the 1980s.

Mr Rudd and the premiers commissioned him to write a report on options for responding to
climate change - the Garnaut Review. The final version was delivered at the end of September.

Professor Garnaut says the Government had acknowledged there was a principle involved in compensating trade-exposed
companies - levelling the playing field to allow them to compete against firms from countries which had no carbon restraint.

But the Government had failed to apply the principle: "The consequences
of not having a principled basis for the issue of payments are profound."

The Government, in a green paper in July, initially proposed giving these industries
free carbon permits equal to a maximum of 20 per cent of the value of all permits issued.

He endorses these as "reasonable upper limits to principled initial claims".

"By contrast, the white paper's approach would see the proportion of permit value
given free to trade-exposed industries rising to 45 per cent on conservative assumptions."

Under some conditions, the share could rise as high as 75 per cent, he calculates.

Fixing this was "an urgent matter for the restoration of global prosperity".

http://www.smh.com.au/news/environment/carbon-plan-fuels-meltdown/2008/12/19/1229189886133.html