A ”hybrid” model of a fixed carbon price leading to an emissions trading scheme is likely to be agreed by the multi-party climate committee on Friday as the foundation for a new greenhouse reduction policy.
Federal cabinet has approved the preferred model, which was proposed by the Greens as a compromise after Kevin Rudd’s emissions trading scheme was defeated in the Senate in late 2009.
The committee is unlikely to set a date for the transition from a fixed price to a full carbon market. The rationale for an initial fixed price is the uncertainty surrounding international climate talks and the slow development of a global carbon market. The government will propose a series of conditions that should be met before full emissions trading begins.
Agreement on the ”architecture” of a scheme paves the way for difficult negotiations with the Greens and the lower house independents over the initial carbon price, the annual percentage by which it will increase, and the compensation to trade-exposed industries and electricity generators. The Prime Minister, Julia Gillard, aims to legislate a new carbon pricing scheme by the year’s end.
The European price of about $20 a tonne is likely to act as an upper limit for the initial price set in Australia. The $10 fixed starting price proposed in the carbon pollution reduction scheme is considered too low by the Greens.
The government has said its industry compensation would be based on the work done for the Rudd scheme, but has not developed a final proposal. It knows the final deal reached with the former opposition leader Malcolm Turnbull will not win support from the Greens.
Labor is likely to revisit the $7.3 billion in compensation offered to the electricity industry, as well as the $1.5 billion for the coal industry.
But having insisted on ”energy security” as one of the underlying principles of the new attempt to impose a carbon price, it will not take as hard a line as the Greens or its adviser Ross Garnaut in his initial climate change review.
Labor sources believe business leaders are more open to a well-designed carbon price than they were in 2008 and 2009, in the heat of the global economic crisis.
The new proposal will include benchmarks for the earliest possible linking of an Australian scheme to international carbon markets, or to a regional carbon trading pact. This move would put downward pressure on the domestic price and could allow businesses to pre-purchase permits to hedge against future liabilities.
