RUDD PULLS PLUG ON EMISSIONS TRADING IN 2010

UNCLAS SECTION 01 OF 02 CANBERRA 000437

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STATE FOR S/SECC STERN, OES/EGC TALLEY, USDA FOR FAS/OA AND
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E.O. 12958: N/A
TAGS: SENV KGHG ECON AS
SUBJECT: RUDD PULLS PLUG ON EMISSIONS TRADING IN 2010

REF: CANBERRA 411


1. (SBU) Summary: Australia will delay implementation of its
proposed economy-wide emissions trading plan until July 2011
in response to strong political opposition (reftel) and the
global recession. PM Kevin Rudd announced May 4 changes to
the government's Carbon Pollution Reduction Scheme (CPRS)
intended to secure the votes to win Senate passage this year.
Facing growing resistance among Coalition and independent
senators, and vehement pushback from the Greens, Rudd and
Climate Change Minister Penny Wong have chosen the lowest
cost compromise by delaying the CPRS for a year and then
imposing cost controls to further protect industry from
initial costs of the scheme from 2011 to 2013. If
international agreement on tough emissions reduction targets
is reached, however, Australia's target for 2020 would
increase from 15 percent to 25 percent. The compromise may
not be enough to win Greens support, but may be enough for
the Coalition to support passage of the CPRS legislation
before the international meeting at Copenhagen in December.
End Summary.

START DATE DELAYED
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2. (SBU) Rudd announced the changes to the six bills
comprising the CPRS at a news conference on May 4, saying
they were necessary to adapt to the changed global economic
conditions since the CPRS White Paper was released in
December 2008. The changes will move the start date of the
CPRS to 2011 instead of 2010, fix carbon prices at A$10 a ton
for the first year of the scheme, increase assistance for
trade exposed industries, attach a heavily-conditioned target
of 25 percent reduction above the 15 percent in the CPRS now,
and establish a Carbon Trust to help fund voluntary actions
to reduce emissions. The 25 percent target will be adopted
only if a global agreement is reached that includes
aggressive action to hold atmospheric CO2 concentrations at
450 parts per million by 2050, which Rudd associated with a
"scientific chance" to save the Great Barrier Reef. The
changes are designed to answer many of the attacks from the
Opposition and industry that the scheme was too aggressive in
light of the global financial crisis. Rudd said that the
amended legislation will be put before Parliament as soon as
possible, likely during the next sitting, which begins the
week of May 11. Rudd and Wong still hope to pass the
legislation this year in order to have a credible national
commitment on the table before UNFCCC negotiations culminate
at Copenhagen in December.


3. (SBU) The changes to the CPRS clearly aim to put greater
pressure on the Coalition to support the scheme. Support for
the CPRS has eroded steadily with worsening economic news
over the past year, and major industry and political
opponents have been increasingly vocal against the plan.
Australian Cement Industry Federation CEO Robin Bain told
econoff on May 1 that she was convinced the CPRS was headed
Qeconoff on May 1 that she was convinced the CPRS was headed
for defeat. Most telling, Bain said, was that Rudd had not
made a major public appearance to support the scheme in
several months, and key industries like LNG and
manufacturing, even though they had won government support
within the CPRS legislation were still arguing publicly
against it. Climate Institute analyst Edwin Jackson told
econoff on April 27 that there were "a range of scenarios"
facing the CPRS, including defeat, modification, or passage
with Coalition support. Jackson said that polling showed
general support for climate change was still strong in
Australia despite the global downturn. He acknowledged that
the accelerating pace of action in the U.S. was helping the
government's push here, but said that the plan then in place
was drawing fire from all sides, especially as economic news
worsened. The Coalition-sponsored Pearce Review of the CPRS
was released on April 29, and said that the government had so

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far failed to adequately assess the environmental costs and
benefits of the CPRS and argued that it would lead to lower
wages in real terms over the long haul. Pearce also
suggested the economic analysis of the risks to
competitiveness and transitional impacts of the CPRS were
inadequate. Opposition Leader Turnbull told the press on May
4 that the Coalition would not back the CPRS legislation and
called on the government to refer the scheme, and
alternatives like a carbon tax, to the Australian
Productivity Commission for a detailed review.

ECONOMIC WOES CONTINUE
--------------


4. (SBU) The announcement comes as economic news continues to
worsen for Australia. Unemployment claims continue to rise
and housing prices are falling across Australia as the
recession sets in. The May 12 budget is believed by most to
include large-scale government borrowing to pay for a range
of Rudd's key obligations. Rudd was careful to argue in his
press conference on the CPRS that it was the government's
"aspiration" that the CPRS will be self-funding and not
increase costs on households in the initial phases, but did
not guarantee that Australian families would not see any
significant price increases.


5. (SBU) Comment: In making these changes to the CPRS, Rudd
has recognized that the scheme in its initial form was headed
for defeat in the Senate. While both independent senators
and the Greens are still unlikely to support this new scheme,
the changes are clearly aimed at attracting Coalition support
in the Senate. The delay pushes the impact of the scheme out
beyond the next election and matches Turnbull's demand for a
2011 start date. Big business has now gotten a better deal
from the Government and may decide that this is the best deal
it will get. In addition, the tougher conditional target
could protect the ALP from the flight of disaffected Labor
climate change voters to the Greens, while the delay and
further protection for industry will help protect the jobs of
Rudd's "working families." The changes confirm Rudd as a
pragmatist who sees the benefits of passage of the CPRS
legislation as more important than their economic impact over
the next 5-6 years. With economic problems leading the
headlines, Rudd and Wong have softened their initial bid in
order to get something they can take into both the 2010
elections and the international arena.

CLUNE