Government may ease curbs on cheap Kyoto emission credits

The federal government appears open to the possibility of relaxing restrictions on the number of cheap Kyoto pollution permits Australian businesses can purchase to offset their carbon emissions.

Labor announced in late August it was scrapping the $15 floor price for its emissions trading scheme which will be linked to the European market when it starts in mid-2015.

Under current arrangements companies are allowed to meet 50 per cent of the liability each year with overseas permits.

But only 12.5 per cent of a polluter’s liability can be met with cheap Kyoto carbon permits which can sell for a third of the cost of European credits.

Australian Coal Association director Peter Morris told a parliamentary hearing on Friday the removal of the floor price was a small step towards improving the regime.

‘‘It indicates the government’s willingness to remain open to amending the scheme design and also to ... allow permit arrangements with other countries and regions,’’ he told the Senate’s economics legislation committee.

But Mr Morris insisted the changes were marginal and didn’t address fundamental design flaws.

‘‘If Australian coal producers are to reduce their emissions at least-cost they should be allowed unrestricted access to international permits,’’ he said, adding that if the 12.5 per cent cap on Kyoto credits was instead 40 per cent ‘‘we would have a lower-cost outcome’’.

In response the committee chair, Labor’s Mark Bishop, said: ‘‘That’s something I’m sure that’s on the table for discussion.’’

Climate change department assistant secretary James White later suggested relying too heavily on Kyoto credits wouldn’t set Australia up ‘‘for the further emissions reductions that will be required to 2050’’.

Canberra has committed to cutting emissions by 5 per cent from 2000 levels by 2020. It aims to reduce pollution by 80 per cent by 2050.

Mr White said although the department was yet to compare the stringency of reporting systems in Europe it didn’t have ‘‘any particular concern’’ about international units.

Treasury official Robert Raether was cagey on Friday when asked if the government’s budget update would include new modelling on future carbon prices.

Many experts think permits will be much cheaper than $29 in 2015/16 as Treasury has previously predicted. European credits currently cost just $10.

Asked if the Mid-Year Economic and Fiscal Outlook (MYEFO) would update the projections, Mr Raether replied: ‘‘I’m not in a position to speculate what will be in the MYEFO.’’

Quizzed whether Treasury had undertaken any work to update forecasts the official refused to answer, saying: ‘‘That goes to our preparations for the MYEFO.’’

Mr Raether’s response was in stark contrast to Treasury executive director David Gruen who on Thursday declared: ‘‘We have not updated the modelling.’’

Fellow Treasury official Ben Dolman on Friday said that despite Europe’s existing economic woes ‘‘it’s not clear that world GDP growth over a substantial period of time is necessarily very different than it was at that time’’ of the modelling.

Treasury last released updated modelling in September 2011.

Legislation to scrap the floor price and link the ETS with Europe’s scheme is currently before the Senate.