We need 'free' pollution permits to survive: Loy Yang


ONE of Australia's biggest polluters, Loy Yang Power, has asked to be given free permits under a new national emissions trading scheme.
Loy Yang, in the LaTrobe Valley, has told Prime Minister John Howard's emissions trading task group that free permits would protect it from going out of business once a new pollution price was imposed. The protectionist position taken by Victoria's largest coal-fired power station is echoed by the industry as a whole.
Generators have asked the task group to consider free permits to protect the value of existing investments.
Mr Howard was given a private briefing by his emissions trading group yesterday, and said in Parliament that his Government would not impose new policies that would damage "the great coal industry of Australia".
Opposition Leader Kevin Rudd, meanwhile, continued his clean-coal pitch, unveiling $110 million for carbon capture projects.
He told reporters that a Rudd government would have an emissions trading scheme "up and designed and implemented" by the end of 2008.
The prime ministerial task group, which hands its report to Mr Howard on Thursday, has been examining ways to help business manage the introduction of carbon trading — including setting a price in the first phase to prevent price fluctuations in the new carbon trading market.
The final report is also likely to recommend that Canberra consider "complementary policies" to emissions trading — such as more money for research and development into clean technologies. There are two conventional ways of allocating permits under emissions trading schemes.
The first is through an auction, where business bears the financial costs.
The second is through allocating "free" permits, which some economists and environmentalists argue are a huge subsidy to industry, and help keep the dirtiest power plants going.
Loy Yang says existing power generators need compensation for cleaning up their pollution because they have made investments under the old rules.
But overseas there has been criticism of free permits because polluters have overestimated their emissions in order to be granted large numbers of free permits that they can then trade, which delivers windfall profits.
Emissions trading imposes an explicit price on greenhouse pollution and works on a "cap and trade" principle. Governments cap the level of greenhouse gas emissions, and companies obtain permits to emit a set level of pollution.
If they pollute above the cap, they must buy permits from other companies that have reined in their emissions.
This creates a carbon trading market, where polluters are forced to pay more and companies with lower emissions are rewarded by paying less.