Australia's top climate adviser on Friday recommended carbon be sold for an initial A$20 ($16) a ton from 2010, with only marginal increases for the first two years, to help business adjust to carbon trading in Australia.
CANBERRA (Reuters) - Australia's top climate adviser on Friday recommended carbon be sold for an initial A$20 ($16) a ton from 2010, with only marginal increases for the first two years, to help business adjust to carbon trading in Australia.
In an updated report on targets for a trading scheme, academic Ross Garnaut said Australia should also aim to cut emissions by at least 10 percent by 2020, or up to 25 percent if the government adopts a tougher target.
Environment groups condemned the new targets as too low to help stop global warming, but business groups said Garnaut's targets were too tough and would be difficult to achieve without major breakthroughs in clean energy technology.
"A 10 percent national emissions reduction target by 2020 will be extremely difficult to achieve," said Mitch Hooke, from the Minerals Council of Australia, which represents Australia's major resource industries.
"Meeting this target without significant technological breakthroughs is akin to moving Australia to a candles economy."
Garnaut said the government should sell carbon permits at A$20 a ton initially, with the price rising each year by four percent on top of inflation, until an open market would set the price of pollution from 2013.
Analysts said the recommended price was at the centre of current market prices for trades and would represent the penalty price for companies for exceeding their emissions limits, giving business some certainty in the early years of trading.
"The price is bang in the middle of our current price spread," said Gary Cox, head of environmental derivatives for Newedge Group in Australia. "On the screens right now the price is A$19 bid, A$22 offered, so the price is pretty reasonable."
He was referring to Australia's embryonic over-the-counter carbon market, which saw its first trade in May when energy group AGL Energy Ltd sold 10,000 Australian emission units to Westpac Banking Corp Ltd at A$19 per/ton.
Since then about eight more trades have occurred at prices ranging from A$18 to A$21.50 a ton.
Australia's centre-left Labor government has promised to introduce carbon trading from July 2010 to help the country cut its carbon emissions, but has come under attack from companies that say the scheme could drive some firms out of business.
The government, which has made the carbon scheme a central plank of its policy, says it is willing to negotiate with business and has said Garnaut's report is only one source of advice.
"We respect his advice, we'll listen to his advice, but ultimately it is for government to make its decisions on these matters," Climate Change Minister Penny Wong told reporters.
Australia's expanded carbon trading system will cover 75 percent of the economy, and 1,000 of Australia's biggest companies, with hefty initial subsidies for big polluting firms to help them adapt.
The country is the world's 16th biggest carbon polluter and produces about 1.5 percent of global emissions. But Australia is the fourth largest per-capita emitter, with five times more carbon pollution per person than China.
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World environment ministers and negotiators will meet in Copenhagen in late 2009 to try to work out a new agreement on how to curb global emissions, to come into force after the initial phase of the Kyoto Protocol pact expires in 2012.
Garnaut, who was asked to advise the government on the costs and impacts of climate change and carbon trading, has proposed two models for Australia's targets, based on a strong aspirational target from Copenhagen, and a softer target.
Garnaut said Australia should push for the new agreement to set a strong target to limit worldwide carbon dioxide emissions to 450 parts per million in the atmosphere, although a limit of 550 parts per million were more achievable.
Global atmospheric CO2 concentrations are about 390 ppm compared with pre-Industrial Revolution levels of about 280 ppm.
Under the stronger aspirational target, Australia would need to cut its emissions by 25 percent by 2020, and 90 percent by 2050, based on levels from the year 2000. Gross domestic product would then be 1.6 percent lower than it would be in 2020 if the government took no action to cut emissions.
Under the more practical target of 550 parts per million, Australia would need to cut emissions by 10 percent by 2020 and 80 percent by 2050, with gross domestic product to be only 1.1 percent lower than it would otherwise be in 2020.
Centre-left Labor government's target is to cut emissions by 60 percent of 2000 levels by 2050.
Garnaut said Australia should set its own target of a five percent cut in emissions by 2020 if talks in Copenhagen fail to reach a global deal.
The Australian Greens, who share the balance of power with two independents in the upper house Senate, said the government needed stronger targets than Garnaut recommended.
"The weak targets ... released today are based on outdated science, risk catastrophic climate change and will undermine global negotiations towards an effective climate treaty," Greens leader Bob Brown said.
($1=A$1.22)
(Additional reporting by Rob Taylor and Bruce Hextall and David Fogarty)
