Australian report calls for carbon trade by 2012

CANBERRA, June 1 (Reuters) Australia should set up its own carbon trading system by 2012 to combat global warming, a government report said today, dismissing Kyoto Protocol measures to curb greenhouse emissions as flawed.

But the report, commissioned by Prime Minister John Howard to steer his response to global warming, cautioned the government against deep cuts in greenhouse gas emissions, arguing instead for a gradual reduction.

It recommended a low initial price for carbon emissions, with the price to rise over time, farmers to initially be exempt from having to take part, free carbon permits for coal exporters, and more modelling on the economic impact of emissions targets.

''Australia needs to proceed carefully in taking on emissions constraints ahead of concerted international action,'' it said, adding that developing nations needed to also be involved in curbing emissions when the Kyoto Protocol expires in 2012.

Carbon trading involves putting a price and limits on pollution, allowing companies that clean up their operations to sell any savings below their allocated level to other companies.

Howard set up the carbon trading inquiry by government officials and business leaders six months ago, to find ways of pricing carbon pollution without hurting Australia's economy or standing as the world's leading coal exporter.

Australia's mining industry, enjoying a record boom on the back of China's demand for resources, said the report offered some certainty for the industry.

Climate scientists said the report was an important milestone, although it was crucial that emission targets were not too weak because that would discourage investment in clean energy.

''If the government's target is too weak, then a carbon emissions trading scheme will be a wasted exercise,'' said University of New South Wales climate researcher Ben McNiel.

ELECTION ISSUE Howard's conservative government refused to ratify the Kyoto Protocol and has been a strong critic of the pact, which imposes cuts on carbon emissions on developed countries but no binding cuts on developing nations.

Greenhouse emissions are blamed for global warming, which has become a key election issue in Australia, with polls showing 80 per cent of voters want the government to do more on climate change.

After 11 years in office, polls show Howard's conservative government would overwhelmingly lose an election held now and the prime minister hopes the report and the government's response will help turn public opinion.

The centre-left Labor opposition party has promised to sign the Kyoto Protocol and to slash greenhouse gas emissions by 60 per cent of 2000 levels by 2050, but the report said Australia should be careful of adopting international proposals.

''Australia should continue to take a cautious approach to the adoption of targets proposed internationally. This is particularly the case in setting short-to-medium-term targets for emissions reductions,'' it said.

Australia relies on coal for about 80 per cent of electricity generation, with renewable energy contributing only about five percent, and Howard said prices would have to increase.

''We can't curb greenhouse gas emissions over the years ahead, without paying higher prices for electricity,'' Howard told reporters today.

Australia is responsible for 1.5 percent of global greenhouse emissions, and while it has not ratified the Kyoto Protocol, the country is broadly on track to meet its Kyoto target of 108 percent of 1990 levels by 2012.

Electricity generation accounts for half of Australia's greenhouse emissions, with agriculture, forestry and land use accounting for 22 percent and transport 14 per cent.

Labor criticised the report for not setting long-term targets for cutting emissions, while the Australian Greens party said the recommendations protected the nation's biggest polluters.

''The task group's approach would hand even greater profits to today's big polluters through delayed and weak action, meaning that all Australians will be paying a huge economical and economic price for today's inaction,'' Greens Senator Christine Milne said.

REUTERS SBC PM1355