Tougher limits on emissions and more incentives for new industrial technology is needed to help prevent Australia losing the race on carbon competitiveness and jobs, an inquiry has been told.
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Federal Labor is facing defeat on signature climate policy and a blowout in greenhouse gas emissions if negotiations on a rejigged safeguard mechanism fail, as the Greens dig in on new coal and gas.
Grattan Institute energy director Tony Wood said it was important for new projects to be included in the overall emissions cap and for carbon offsets to have integrity for the mechanism to work.
"There can be no 'get out of jail free' cards on any of that, otherwise the whole thing falls over," he told a parliamentary inquiry on Monday.
"We know there are technologies but they're still quite expensive and we don't want to lose those industries."
Carbon Market Institute CEO John Connor said the United States, Europe and the United Kingdom were pushing ahead and China was dominating the development of low-emission technology.
"This is a race for carbon competitiveness now," he said.
Mr Connor said the scheme needed to be able to scale up with deeper cuts and wider coverage to meet a probable 2035 target of at least 70 per cent emissions reduction.
But Australia Institute head Richard Denniss said new fossil fuel projects that would hurt agriculture and the Great Barrier Reef should be dealt with in a radically different way to new lithium mines.
The existing mechanism is designed to set emissions limits for 215 industrial plants with more than 100,000 tonnes of annual greenhouse gas emissions.
Under a draft bill, overall emissions must fall by 4.9 per cent each year to 2030 and the industrial plants can use new technology and buy carbon credits to do so.
New taxpayer-funded safeguard mechanism credits will be issued to facilities that do more than they have to and outperform on the emissions speed limit.
The Investor Group on Climate Change, with over $3 trillion invested in Australasia, said companies were competing against rivals in other markets that have stronger decarbonisation tax breaks available.
Some companies are concerned local production of steel, chemicals and cement will need to shift offshore, costing local jobs.
An initial cost of $17 a tonne and a long-run carbon price of around $100 out to 2050 has been modelled by the Grattan Institute.
But the independent institute said direct impacts on household bills for electricity, gas and petrol were likely to be negligible.
Greens leader Adam Bandt has made his party's support conditional on a ban on new fossil fuel projects, which Labor rejects.
"Labor needs to get real. You can't tackle the climate crisis while opening up new coal and gas mines," Mr Bandt said.
Critics also warn unlimited carbon offsets will be at the expense of genuine emissions reduction.
But Mr Connor warned against the blanket dismissal of carbon credits, arguing high integrity offsets were a vital tool alongside the decarbonisation of industry - especially in the next few years before technology was rolled out.
Longer term, he recommends the mechanism expand to cover facilities emitting 25,000 tonnes a year, as a step towards an economy-wide carbon limit and price.
Australian Chamber of Commerce and Industry economist Peter Grist warned costs to companies would increase.
"That is an unfortunate consequence of the safeguard mechanism," he said.
Australian Associated Press
