The draft report of the Garnaut Climate Change Review in Aust recommends up to 30% of revenue raised from emissions trading should be returned to businesses to compensate for increased costs. The report warns emissions trading could start an exodus of businesses from Aust unless the scheme is carefully planned. The report, by Kevin Rudd’s chief climate change adviser Ross Garnaut, recommends a further 50% of the revenue should be ploughed back into the economy in the form of tax cuts for households. The remaining 20% should go towards researching and commercialising new technologies, a move applauded by the Clean Energy Council for its potential to unlock more than $20 billion in clean energy investment.

While Garnaut believes emissions trading should be left largely to the market, he raises the option of the Govt easing into the new system by setting a low, fixed carbon price for the first two years. This would keep a lid on price rises, he says. The report recommends transport fuels be included in emissions trading from the start, a suggestion which is sure to be controversial. Climate Change Minister Penny Wong will not be drawn on the call for petrol to be included in the scheme, but promises the Govt will weigh the issues “carefully, methodically and responsibly.” Business lobbies have cautiously welcomed the panel’s recognition of the risks to business of becoming uncompetitive internationally. But some sectors are concerned the level of compensation suggested in the report may not be high enough to reimburse so-called trade-exposed, emissions-intensive industries. These include cement, paper, steel, minerals processing, liquefied natural gas and aluminium.

The report also rules out compensating the coal-fired power industry, one of the main contributors to climate change. Instead, power generators that invest in new technologies to lower emissions could receive financial incentives. The report recommends a major effort should be put into clean-coal technology, so coal-dependent regions such as Victoria’s Latrobe Valley continue to prosper. Garnaut’s final report is due to be handed down in September. The Rudd Govt is planning to begin auctioning carbon permits from July 1, 2010.

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