CANBERRA - Australia's farmers, coal miners and power generators should have to bid at auction for carbon permits when carbon trading starts in 2010, the government's top climate adviser said on Thursday.


Ross Garnaut, appointed by the government to help work out how to best introduce carbon trading, said giving major polluting industries free carbon permits would make no difference to the higher prices people would pay for energy or goods.

"Whether permits are allocated freely or auctioned to existing (electricity) generators, the price impact on households will be the same," Garnaut said in a discussion paper on Thursday.

The recommendation is a major shift from plans put forward by the previous conservative government last June, which recommended free carbon permits for the coal industry and exemptions for farmers, allowing them to not be involved in carbon trading.

Australia's centre-left Labor government won power last November, immediately signing the Kyoto Protocol on climate change, which sets binding limits for rich nations on greenhouse gas emissions that are blamed for global warming.

Labor also promised a carbon trading scheme by 2010 to give business a financial incentive to cut pollution, with companies that clean up emissions able to then sell their excess carbon permits to bigger polluters.

Australia is responsible for about 1.2 percent of global carbon emissions, but remains one of the highest polluters per capita because of the nation's reliance on coal and other fossil fuels.

Australia is the world's largest coal exporter and relies on coal to generate about 80 percent of its electricity.

Power generation accounts for about half of Australia's greenhouse emissions, with agriculture, forestry and land use accounting for 22 percent.

Garnaut said Australia's carbon trading system needed to be designed so it could become part of a global agreement to cut greenhouse gas emissions.

He also said the money raised by auctioning carbon permits could be used to compensate people for higher electricity bills, and help companies invest in clean technology.

Garnaut's recommendations will be considered by the government, which will announce details of its carbon trading system later this year.

Climate Change Minister Penny Wong would not comment directly on Garnaut's recommendations, but said his views and those of business and the public would be taken into account.

"We want to get the best results for our climate and for future generations, while minimising the pressures on working families and the risks for our economy," Wong said in a statement.

Earlier, the independent Climate Institute said the government could receive more than A$20 billion ($18 billion) from selling carbon permits by 2020, which could then be used to help poor people pay for higher electricity and petrol prices.

And the Australian Industry Group, which represents Australia's manufacturing industries, called on the government to cut the company tax rate from 30 percent to 25 percent to help compensate business for the cost of curbing carbon emissions. ($1 = A$1.10)

(Editing by David Fogarty)


Story by James Grubel

REUTERS NEws Service