Australia, the world's biggest per head polluter, unveiled plans on Wednesday to rein-in greenhouse gas emissions, but said it would shield some companies and motorists from a carbon emissions trading scheme expected to drive up inflation.
The centre-left government, which swept to victory last year on the back of fury among working voters at rising prices under conservative rule, released an options paper for how emissions trading is likely to work from 2010.
"The effect of putting a price on carbon will be profound," Climate Change Minister Penny Wong said in a national television address.
"Placing a limit and a price on pollution will change the things we produce, the way we produce them, and the things we buy. It will open new doors to a cleaner energy future," she said.
The government's plan aims to curb Australia's carbon emissions by forcing 1,000 of the country's biggest-polluting firms, including global miners BHP Billiton and Rio Tinto to purchase permits placing a cost on their emissions.
The regime would cover 75 percent of emissions in the A$1 trillion economy, with the inclusion of fuel from the 2010 start and hard-to-measure agricultural emissions from 2015, the government said.
But with officials predicting the scheme could add 0.9 percent to consumer prices in its first year, the proposals also pose deep political risks for Prime Minister Kevin Rudd in an economy already battling inflation at 16-year highs.
To ward off a ballot backlash in 2010, when the scheme is to come into force, Wong said low-income households would be buffered from inevitable price hikes through tax and welfare breaks.
Motorists angered by soaring fuel pump prices, already up by 30 percent in recent months as world oil prices soar to fresh records, would be mollified by "cent-for-cent" fuel tax cuts balancing price hikes coming from the emissions scheme.
With Treasury officials on Wednesday estimating the sale of permits could net government up to A$20 billion, big polluting energy firms would receive up to 30 percent of total permits free of charge, including agriculture, the government said.
The largest polluters, producing more than 2,000 tons of carbon emissions per A$1 million of revenue, would initially pay for only 10 percent of their total emissions. Companies producing between 1,500-2,000 tons would pay for 40 percent of emissions.
Assistance would taper off with time to allow companies to replace dirty technology with cleaner production methods, the report said.
Other energy-intensive firms like cement and aluminum manufacturers exposed to cheap competitors in Asia would also receive grants from a new Climate Change Action Fund to be set up with the proceeds of emission permit sales.
Environmental critics and the government's top climate adviser, who two weeks ago recommended no assistance for motorists or major polluters, will accuse Rudd of taking too soft a line on climate shift.
The report did not say what Australia's overall emissions cap should be, or place a price on carbon emissions apart from a working assumption of A$20 a ton, used for the inflation estimate.
The government is to release those figures, which will set the market price, later this year ahead of laws to go to parliament in early 2009 setting up the emissions scheme.