GOVERNMENT WRONG ON EUROPEAN CARBON SCHEME

Climate Change Minister Greg Combet yesterday claimed that the Carbon Pollution Reduction Scheme (CPRS) – the template for the Government’s new carbon pricing plan – provides more safeguards for Australia’s trade exposed firms than the European Emissions Trading Scheme. This is incorrect.

Analysis of the two schemes demonstrates that the trade competitiveness safeguards in the CPRS are vastly inferior to those developed for their European Union competitors under the EU ETS.

  • Compensation for electricity costs: Contrary to the Minister’s assertions, European trade exposed firms will be compensated for both direct emissions costs and higher electricity charges. Yesterday, the Minister for Climate Change claimed that the EU ETS scheme will not (after 2013) compensate trade exposed firms for the impact of higher electricity costs. The Minister has been wrongly advised. Paragraph 31 of the relevant EU Directive states as follows:
    • "Sectors or sub-sectors deemed to be exposed to a significant risk of carbon leakage may be compensated for costs related to greenhouse gas emissions passed on in electricity prices by financial measures adopted in Member States in accordance with state aid rules applicable and to be adopted by the Commission in this area."
  • Limits on support: The Minister claims that the EU will limit support to a cap of 29 per cent of permits. This cap applies to direct emissions only, and there is no proposed limit on additional compensation for electricity price increases. Under the CPRS EITE model, support for Australian firms (for both direct and indirect emissions) is estimated at 25 to 28 per cent. The Greens propose a cap of 20 per cent.
  • Treatment of coal mining The EU scheme exempts fugitive emissions from coal mining as there is no technology available to capture these emissions. Fugitive emissions are included in the CPRS. This will cost the Australian coal mining industry $14 to $20 billion (in current dollars) by 2020. The EU coal mining sector — which produces 45 percent more emissions than the Australian sector — will face no such costs.
  • Tax burden: Since its inception in 2005 the EU scheme has established a functioning carbon market without a tax spree. The CPRS would have raised more tax in its first three months than the EU scheme has generated since 2005.
  • Coverage of export sectors: The EU scheme’s trade exposed provisions apply to 164 sectors that account for 73 per cent of EU merchandise exports. The so-called Emissions Intensive Trade Exposed provisions of the CPRS will cover just 40 ‘activities’ — 80 per cent of Australia’s goods exports and 90 per cent of minerals exports will receive no safeguard assistance.
  • Safeguards for employment in manufacturing/mining: The EU trade exposure provisions cover sectors that account for 50 per cent of employment in manufacturing and mining. Under the CPRS, sectors accounting for 90 per cent of total manufacturing employment in Australia will receive no transitional assistance to safeguard their competitiveness.

Minister Combet has previously lauded the European emissions scheme, citing it as a model for Australia. On 28 February on Sky News, Mr Combet was asked...

which scheme would you hold up as the model you would most like to follow, that has done the best when it comes to pricing carbon?

He replied...

Well I think the phasing in of the European Union emissions trading scheme has had some teething problems, but is getting underway effectively.

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