AUSTRALIA: July 7, 2008


Australia, one of the world's top carbon emitters per person, will unveil an emissions trading scheme later this year, which it hopes will help cut the country's carbon footprint.


The scheme is a major initiative of Kevin Rudd's Labor government, and is due to start operating in 2010.

Climate Change Minister Penny Wong will outline the government's options for carbon trading later in July, with the system to be finalised and laws sent to parliament by the end of the year.

The government's key climate adviser, economist Ross Garnaut, released his draft report on climate change and carbon trading on Friday, July 4.

Here are some details on how a cap and trade scheme can work.


HOW DO EMISSIONS TRADING SCHEMES' WORK?

* A national upper limit, or 'cap' for carbon emissions is set according to the country's target.

* Companies audit emissions, and reduce them to hit the target by buying permits that allow them to emit above-target levels of carbon. Companies with under-limit emissions sell permits to those unable to keep within their ceiling.

* Limits can tighten over time. Polluting businesses then migrate to cleaner technologies to cut costs, speeding the transition to a low-carbon economy. Start-ups are also dissuaded from going into carbon-heavy technologies.


WHAT SECTORS WILL BE AFFECTED IN AUSTRALIA?

* Details have not been released, but the scheme will likely include as many energy sources as possible. Government climate adviser Ross Garnaut, who calls climate change a "diabolical problem", has suggested fuel should be included, as excluding it would put a bigger burden on other polluters.

* Likely suspects, farmers, coal miners and power generators, could be asked to bid for carbon permits at auction, rather than be given free permits. The previous conservative government wanted initial exemptions for farmers and free carbon permits for the coal industry to soften the economic blow.

* Some economists say the Australian permit auction could net A$20 billion (US$19.2 billion) -- money which could go towards subsidising higher electricity and petrol prices.


WHY ARE AUSSIE EMISSIONS SO HIGH?

* In a word, coal. Australia relies on it to generate about 80 percent of its electricity. Greenhouse gases are emitted both in coal mining and when the fossil fuel is burnt.

* Cutting coal emissions is not easy -- Australia is also the world's largest coal exporter, sending more than A$26 billion of coal overseas in 2007/8, mostly to Asian neighbours.

* Despite having 0.32 per cent of the global population, it is responsible for about 1.5 percent of all carbon emissions. Each Australian's emissions were 4.5 times the global average in 2004 -- pushed up by coal and other fossil fuels.


WHAT ARE THE NATIONAL GOALS?

* To reduce 2000 emissions by 60 percent by 2050. Under the Kyoto Protocol, ratified by Labor last year, it must limit growth in greenhouse emissions to 108 percent of 1990 levels by 2012.

* Hard-hit by the worst drought in century, Australia last year introduced stringent water restrictions, and concerns about global warming rose. But with inflation soaring and high fuel prices already angering voters, making tough moves to meet national goals may not be popular. * Moving to 'clean coal' is being presented as a means to cut emissions without abandoning the profitable industry. But with this technology still fledgling, some expect carbon-lite energy sources such as natural gas and nuclear will benefit.


DO CAP-AND-TRADE SCHEMES WORK?

* There are success stories. An early 1990s cap-and-trade system to combat acid rain by limiting sulfur dioxide emissions saw United States power plants cut back successfully, and at lower than expected costs.

* Greenhouse gas schemes are modelled on the acid rain program, but experts say carbon schemes are wider-ranging, (covering many greenhouse pollutants instead of just one) and their international nature makes them more complicated and costly. Technology to capture and store carbon from coal-fired power plants is also not as developed as acid rain systems.

* Europe introduced the world's largest cap-and-trade scheme for greenhouse gases in 2005. In 2007, it set the goal to reduce greenhouse gases by 20 percent by 2020. But the Australia scheme is expected to be broader in reach.

* Some say carbon taxes are more appropriate than trading schemes, others say they are just one approach among many needed.

Sources: Reuters, Garnaut Climate Change Review (http://www.garnautreview.org.au/CA25734E0016A131/pages/home), CSIRO (http://www.csiro.au/news/GlobalCarbonProject-PNAS.html) European Union Emissions Trading Scheme (http://ec.europa.eu/environment/climat/emission.htm) (Writing by Gillian Murdoch, Beijing Editorial Reference Unit)


REUTERS NEWS SERVICE