Climate Institute Says Carbon Plan Handouts to Hurt Economy

By Gemma Daley

Sept. 18 (Bloomberg) -- Australia's plan to give handouts to big polluting companies to compensate for the cost of a planned carbon-trading system will hurt the economy and stymie investment, the Climate Institute said.

The government plans to issue free permits or give a one-off cash bonus to some coal-fired power generators to compensate them for the added expense of introducing a cost on carbon emissions. It plans to introduce a carbon-trading system in 2010 as part of efforts to reduce emissions 60 percent by 2050.

``It is likely to come at a substantial economic cost,'' the Climate Institute says in its submission on the government's so- called Green Paper climate plan. ``We need a study into carbon leakage before handing out what could simply become windfall profits for some of our biggest polluters.''

Prime Minister Kevin Rudd, who ratified the Kyoto Protocol on his first day in office, is yet to set short-term targets for carbon reduction. The government is due to complete the design of the cap-and-trade system and subsidies by the end of the year.

The Climate Institute, in research with McLennan Magasanik, also looked at other demands from industries like liquefied natural gas for handouts to stop companies moving offshore.

``The current proposals to hand out free permits to existing polluters are not likely to deliver a net benefit to the economy and are unlikely to impact on investment decisions,'' the submission says. ``We need a serious discussion on industry assistance and industry plans.''

The submission calls for an independent regulator to set annual cap extensions and direct assistance to affected generators and exporters. It also says a direct proportion of revenue from trading system should help developing countries.

To contact the reporters on this story: Gemma Daley in Canberra at gdaley@bloomberg.net