P 120457Z SEP 08
FM AMEMBASSY CANBERRA
TO SECSTATE WASHDC PRIORITY 0122
INFO AMEMBASSY BEIJING 
AMEMBASSY SEOUL 
AMEMBASSY TOKYO 
AMEMBASSY WELLINGTON 
AMCONSUL MELBOURNE 
AMCONSUL PERTH 
AMCONSUL SYDNEY 
USMISSION USUN NEW YORK 
USEU BRUSSELS
THE WHITE HOUSE WASHINGTON DC
DEPT OF ENERGY WASHINGTON DC

C O N F I D E N T I A L CANBERRA 000902 
 
NOFORN 
SIPDIS 
 
STATE FOR OES/EGC WATSON, WHITE HOUSE FOR CEQ SCHULTZ 
 
E.O. 12958: DECL: 09/13/2018 
TAGS: SENV KGHG PREL AS
SUBJECT: AUSTRALIAN VIEWS ON EMISSIONS TRADING AND UNFCCC 
 
REF: A. CANBERRA 897 
     ¶B. CANBERRA 819 
 
Classified By: Deputy Chief of Mission Daniel A. Clune, Reasons 1.4(b)( 
d) 
 
¶1. (C/NF) Summary:  Department of Climate Change (DCC) 
Secretary Martin Parkinson, who is in charge of developing 
Australia's emissions trading plan, highlighted the 
challenges of dealing with Emissions Intensive Trade Exposed 
(EITE) industries and the importance of the U.S. role in 
international negotiations during a September 8 lunch hosted 
by the DCM.  Acknowledging calls for a consumption based 
system (now termed a Carbon Pollution Reduction Scheme aka 
CPRS), Parkinson, said that any shift away from 
production-based carbon pricing schemes would wreck 
international negotiations toward a post-2012 framework.  It 
would also open the door to rampant trade protectionism. 
Though convinced that their methods for addressing 
compensation for EITE industries will work, Parkinson and his 
colleagues suggested that the Prime Minister has set the 
government back by indicating so early in the process a 
willingness to negotiate with business on this issue.  In 
international negotiations, Australia is very concerned that 
progress toward an agreement by December 2009 will be 
seriously hampered by the change in administrations in the 
U.S., and that domestic action in the U.S. is more likely 
before agreement to a binding international treaty.  End 
Summary. 
 
¶2. (SBU) A well-respected former Treasury official, Parkinson 
heads DCC under Minister Penny Wong, and was selected by the 
Rudd Government for his expertise developed as the head of 
the Prime Ministerial Task Group on Emissions Trading under 
former PM John Howard.  He was accompanied to the September 8 
lunch by Deputy Secretary Blair Comley and Ambassador Jan 
Adams.  Comley is responsible for developing the nuts and 
bolts of the CPRS.  He is a transplant from Treasury, where 
he worked with Parkinson in developing and implementing the 
General Services Tax (GST) scheme (Ref B).   A career 
diplomat who has served in Washington, Ambassador Jan Adams 
is the senior international negotiator under Deputy Secretary 
Howard Bamsey.  She has been carried over by the Rudd 
government to continue working towards an international 
agreement to succeed the Kyoto Protocol in 2012. 
 
Consumption Function 
-------------------- 
 
¶3. (C/NF) The DCM asked why there had been so little 
discussion of consumption-side measures in Australia, which 
has placed its focus entirely on pricing carbon at the point 
of production through its CPRS.  Parkinson said that while 
there were some theoretical attractions to pricing carbon at 
the level of consumption, the practical challenges are 
overwhelming.  This is because of the complexity of 
determining the carbon emissions represented by a given good 
depending on the source of energy and the production 
techniques.  As a result, any move to a consumption-based 
system would run contrary to the current international 
framework and trading system.  Since the inception of 
international climate change negotiations in the early 1990s, 
Parkinson said, the focus has always been on pricing carbon 
in production.  To switch now, or to suggest that consumption 
Qin production.  To switch now, or to suggest that consumption 
measures would be a more effective mechanism of reducing 
emissions, would fundamentally undermine progress towards a 
new global agreement.  Australia would be "laughed out of the 
room" if they now suggested that consumption measures be 
considered in the global context, he said.  Further, the 
development of rules of origin and other monitoring tools to 
determine the carbon content of widely-traded goods in the 
international trade arena was a "stalking horse" for 
protectionism.  Those tools, Parkinson said, would be crafted 
by special interests seeking trade protection, not emissions 
reductions.  He noted that it is no coincidence that some of 
the support in Australia for such measures comes from those 
who opposed trade liberalization in the 1980s and 1990s. 
 
¶4. (C/NF) Comley explained current DCC thinking on the 
question of how to treat EITEs, saying that while the 
reaction from industry was strong and understandable, there 
were few better ways to establish clear and transparent 
rules.  DCC's "Green Paper," released at the end of July, set 
out thresholds for determining emissions intensity per 
million dollars (Australian) of revenue (Ref B).  This left 
many of the largest earners in Australia, especially the LNG 
sector, below that threshold, where they would receive no 
assistance from the government to equalize their prices 
against those of international competitors.  The claim that 
DCC should use value added or some other measure as a part of 
that threshold, Comley said, was misguided.  While revenue 
volatility was high, value added volatility was even higher. 
Further, the overhead costs of demonstrating value added to 
any given export product was higher than that needed to 
calculate revenue. 
 
¶5. (C/NF) DCC was frustrated, according to both Parkinson and 
Comley, that industry was resisting so strongly measures that 
would have such a small impact on their current earnings. 
For example, LNG developers were haggling over an amount 
below two percent of revenues.  The DCM noted that even two 
percent of revenue can have a huge impact on investment 
decisions.  DCC is inclined to stick to their guns, but 
Comley recognized the difficult political problem created by 
even such small estimated costs.  The ongoing negotiations, 
Parkinson admitted, had not been helped by the fact that PM 
Rudd had basically agreed right out of the gate in late July 
that there was room to negotiate with industry.  Comley's 
views appear to conflict with that of industry; Australia 
Industry Greenhouse Network CEO Michael Hitchens told econoff 
on September 8 that his membership believes that government 
has admitted it erred by using revenue as a denominator and 
is moving towards using value added calculations instead. 
 
Something Rotten in Denmark 
--------------------------- 
 
¶6. (C/NF) Turning to international negotiations, Ambassador 
Adams said she was "very concerned" that the change of 
administrations in the U.S. will cripple negotiations on the 
UN Framework Convention on Climate Change successor to the 
Kyoto Protocol.  Adams said the bulk of international 
negotiators, including most Europeans, are certain that the 
new U.S. administration will be ready to participate 
substantively in early 2009, and expect a much more 
"cooperative" policy from the U.S.  Adams said her view had 
always been that this was incorrect, and she had argued 
against taking on the December 2009 goal for negotiating an 
agreement because of the U.S. political calendar. 
 
¶7. (C/NF) Adams assessed that any agreement that contains a 
specific target for the U.S. will have a hard time securing 
67 votes in the Senate, and that it is more likely that the 
U.S. will pass domestic legislation on reducing greenhouse 
gas emissions before acceding to a treaty that forces it to 
do so.  The decision to take on an emissions trading system 
unilaterally would definitely increase Australia's moral 
weight in negotiations, Adams said, but in the end all eyes 
Qweight in negotiations, Adams said, but in the end all eyes 
were on the U.S. and China, and if neither was prepared to 
move rapidly, then she saw little hope of a successful 
outcome at Copenhagen.  Australia National University 
economist Ross Garnaut's call for developed and developing 
countries to agree to converge at a common level of per 
capita emissions resonates strongly with China, India, and 
the G-77, Adams noted, but was unlikely to be unacceptable in 
the U.S. or Australia anytime soon.  (See more detailed 
discussion of their views of Garnaut's Draft Supplemental 
Report in Ref A.) 
 
¶8. (C/NF) Comment:  Parkinson, Comley and Adams represent the 
best of the Australian public service that plays such a 
significant role in Canberra. Parkinson and Comley were major 
players in the design and implementation of the Goods and 
Services Tax in 2001 -- a politically controversial move 
strongly opposed by the Labor Party and now widely accepted 
as having been well designed and implemented.  Parkinson and 
Adams were major players in the Howard Government's climate 
change policy, which was widely reviled by the then Labor 
Opposition.  Now, the three are key players in designing and 
implementing the Rudd Government's most complex and 
politically sensitive policy initiative. While the decision 
to press ahead with an emissions trading system will be made 
within Cabinet, it falls on their shoulders to minimize the 
harm to Australia's national interests from those decisions. 
Although they are charged with designing a system that will 
significantly influence Australia's economic future, neither 
Parkinson nor Comley seemed nervous that the system would 
undermine domestic growth or international competitiveness. 
End Comment. 
 
MCCALLUM