With the Carbon Pollution Reduction Scheme White Paper clocking well over 800 pages in length, both the Australian Coal Association and the federal Opposition will need some time to assess its ramifications, with the latter commissioning an independent assessment.

Under the scheme, the first carbon permits are to be auctioned in the first half of 2010 with the initial carbon price to be around $23 per tonne if the 5% long-term target is adopted, or around $32/t if the 15% target is adopted.

The government will also provide assistance worth $3.9 billion in free permits over five years to the most emissions-intensive coal-fired generators.

However, not all coal-fired electricity generators will receive assistance, which will be determined by the historic energy output of the power station and the extent to which the generator's emissions intensity exceeds the “threshold” level of emissions intensity.

“In designing the carbon pollution reduction scheme, we’ve been mindful of the challenges facing the Australian economy today,” Prime Minister Kevin Rudd told a Press Club address.

“We will be attacked from the far right for taking any action at all. We will be attacked from parts of the far left for not going far enough by refusing to close down Australia’s coal industry.

“The government believes we have got the balance right.”

Coal mining impacts

Amid various doomsday claims about climate change and its possible role in future droughts, tidal surges and Great Barrier Reef destruction, the white paper contained some measures which will specifically affect coal mining operations.

As part of the establishment of a $A2.15 billion Climate Change Action Fund over the next five years “to smooth the transition” for various groups to an operating environment which includes a price on carbon, an additional $300 million will flow to the coal adjustment stream.

“Coal mine operations with high fugitive emissions have been identified as an industry sub-sector that will not be eligible for other forms of scheme assistance,” the white paper dictates.

“Adjustment assistance of up to $250 million over five years will be provided to affected coal mining operators to promote emissions abatement.

“A further $500 million over five years will be provided as direct assistance to gassy coal mines to assist them adjust while they explore abatement opportunities.”

A committee including industry, environmental and community stakeholders is expected to be convened early next year to nut out the details of how the action fund will operate and be implemented.

Immediate industry response

The Australian Coal Association said it would examine the white paper for the impact of emissions trading on future investment and jobs in the industry.

“It is in Australia's best interests to ensure the coal industry is not disadvantaged compared to its competitors in countries that aren't planning to impose the same carbon limits and fugitive emission penalties on their coal producers,” ACA executive director Ralph Hillman said.

He said the ACA was concerned the white paper did not address the new risks stemming from competition with overseas mines that do not have emissions scheme costs.

“The risks associated with the introduction of emissions trading have been greatly increased by the current global economic downturn and rapidly falling commodity prices,” Hillman said.

“The coal industry is clearly trade exposed and emissions intensive. Inclusion of coal in the emissions-intensive trade-exposed (EITE) arrangements is the best way to address the risks to its international competitiveness.”

The Minerals Council of Australia was also concerned about the effects on the nation’s competitiveness.

“The white paper would impose the most aggressive emissions trading scheme and interim targets in the world,” MCA chief executive Mitchell H Hooke said in a statement.

“This will impose the highest carbon costs in the world on industries severely constrained in their ability to adjust due to current economic circumstances and the rate of development of new low emissions technologies.”

Hooke said affected Australian businesses would be required to raise more than $A8 billion per annum under the scheme during “an unprecedented credit crunch”

“Under the white paper an average firm emitting 1 million tonnes of CO2 per year will bear costs in the order of $A100 million over four years whereas its European competitor will pay less than $A6 million,” he said.

“In the first three years Australian businesses will have paid up to $A30 billion for permits before a single European competitor has paid a euro.”

Hooke was also disappointed the government had not adopted a phased approach to the auctioning of permits for the trade-exposed sector, as done in emissions trading schemes in the European Union, seven US states, four Canadian provinces and New Zealand.

“By moving too fast on emissions trading and without a global protocol in place, trade-exposed energy-intensive businesses will face the highest carbon costs in the world, while their competitors pay nothing,” he said.

“The bottom line is that the incentive to adjust will be to either scale down, shut down, or move offshore.”

Queensland Resources Council chief executive Michael Roche welcomed the “cautious” 5% target level and the previously announced carbon capture and storage elements of the white paper but also noted the scheme would not be well timed.

“The coincidence of the CPRS with the global economic downturn is going to have an obvious impact on project development timetables, new investments and job opportunities,” Roche said.

“Just as clearly, these will be felt first and hardest by resource-based communities.”

While the white paper is a foundation, drafting for the scheme is currently underway with an exposure draft expected to be available for public comment in late February.

If the legislation is passed it is expected the scheme will start on July 1, 2010.

The European Union is targeting a 20% reduction in greenhouse gas emissions by 2020, while incoming US President Barack Obama has proposed cuts of 25%.