Australian Carbon Plan Could Strangle Companies

August 22, 2008

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According to “Modeling Success: Designing an ETS that Works,” a paper by the Business Council of Australia, three of the 14 firms studied may close if the government’s proposed emissions compensation model is implemented (based on current European price of $40 per ton of CO2). In addition, two of the firms from hard-hit sectors would face an extremely bleak future, The Australian reports.

The research shows that compensation for many emissions-intensive, trade-exposed businesses is not enough to prevent them from either reducing their operations or moving offshore in the absence of a global price on carbon.

According to the research, the companies’ pre-tax earnings would be cut by 22 percent, with the worst affected possibly facing a 136 percent reduction in earnings.

Climate Change Minister Penny Wong told the Australian that she was “open to discussion of different methods of allocating” compensation to industry. Under the government’s proposal, big emitters exposed to international competition could receive some of their permits for free.

However, the BCA disagrees, citing that such a formula is both inadequate and unfair. Instead, the council proposes a compensation formula that would require companies to buy permits until they had paid between 3 to 5 percent of their gross income, after which they would receive them for free. This model would cost companies on average about 10 percent of their profits, but as a fixed cost.

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