Australia forecasts drop in carbon trade revenue

(For Reuters global climate change coverage [ID:nCLIMATE])

CANBERRA, Nov 2 (Reuters) - Australia's government revised down forecast revenue from the future sale of carbon permits on Monday, and said there was now little room to offer more compensation in order to secure political support for the scheme.

The government wants carbon trading to start in July 2011, but laws for the scheme are deadlocked in parliament, with the government in talks on possible amendments with the opposition, which wants more money for the coal and electricity sectors.

But updated budget and economic forecasts found the scheme would run at a A$1.2 billion ($1.1 billion) deficit in its first two years, instead of a small surplus, leaving little money to boost compensation for the coal miners or electricity generators.

"They don't leave a lot of room for any further discretionary decisions," Treasurer Wayne Swan told reporters on Monday.

The government plans to use the revenue from selling carbon permits to compensate householders and business for higher power and fuel costs, and to help big polluting export firms compete with overseas rivals that don't face carbon costs at home.

The government's mid-year budget update blamed the increased value of the Australian dollar, which has risen 24 percent against the U.S. dollar since May, for lowering the assumed Australian dollar price of carbon permits.

Carbon permits will be set at A$10 a tonne in the first year. From July 2012, the market will then set the price, with the government assuming a price around A$26 per tonne, down from a previous estimate of around A$29 per tonne.

Australia's carbon-trade scheme will allow unlimited imports of U.N.-backed carbon permits, which will also become more affordable with a stronger currency.