More than $2.5 billion to pay industry to reduce carbon

MORE than $2.5 billion could be spent paying Australia's heavy industries to reduce their carbon emissions to meet the Abbott government's target of a 5% reduction by 2020.

Environment Minister Greg Hunt on Thursday released the government's white paper on the emission reduction fund, the centrepiece of the Coalition's direct action plan.

The fund will put aside $1.5 billion over the next three years, with an extra $1 billion to be spent on buying carbon emissions from companies in future years.

Funds will be spent on securing contracts from businesses with proposals to reduce their emissions in quarterly government auctions starting later this year, with some larger project able to secure funds outside of the auctions.

Among those likely to be eligible are state governments, landfill operators, coal and coal seam gas operators, electricity suppliers, and land-based abatement activities.

It would also be open to "aggregated" bids, from groups that could include consortiums of businesses and households offering larger reductions.

However, Mr Hunt said the contracts would be based on a "safeguard mechanism", due to the potential for some businesses to be unable to meet commitments - but the safeguard will not operate until July 2015.

He said the safeguards would also likely limit the number of "covered businesses" to about 130, or the nation's heaviest emitters of carbon dioxide.

Mr Hunt said the government aimed to ensure the lowest price possible would be paid per tonne, to reduce Australia's emissions by 421 million tonnes of carbon dioxide by 2020.

While Mr Hunt refused to put a figure on the price paid, should the government spend the total $2.55 billion allocated over the period and achieve the abatement target, an estimated price would be around $6 per tonne of carbon abated.

He said the fund would be in the coming budget and made reality through budget appropriations bills, but "enabling legislation" would still need to go through usual parliamentary process.

With Palmer United Party leader Clive Palmer threatening the government he would block the legislation, it could open the government up to having a fund that was unusable.

The government's plans to repeal the carbon tax and Clean Energy Finance Corporation have already been knocked back in the Senate by both Labor and The Greens, and both parties oppose the direct action plan.

But Mr Hunt said he had a brief encounter with Mr Palmer on Thursday, where they agreed to a formal meeting in coming weeks to negotiate.

Mr Hunt said the legislation would be released as an exposure draft in coming weeks, while he wanted feedback on the discussion paper released Thursday.

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