Carbon trading drive 'will increase living costs'

The government's proposed "cap and trade" emissions reduction scheme will increase Australians' living costs by "just under one per cent" in its first year, according to reports.

However, Kate Perry wrote on news.com.au that the higher prices generated by the plan - which aims to cut Australia's pollution by offering companies incentives to reduce their carbon output - will be offset by government reductions in areas such as fuel excise duty.

Under the plan unveiled by climate change minister Penny Wong, the government will introduce caps that limit the amount of pollution a particular industry can emit, Bloomberg reports.

Once the cap is established, individual sector permits will be issued so that companies that cut pollution can sell their extra permits to firms with higher outputs.

However, the increased costs the system will incur for businesses will probably be passed on to the consumer in the form of price hikes for products such as petrol.

With global economic conditions already pushing up the cost of fuel, food and energy, the government is keen to mitigate the impact of its carbon trading programme on Australians' bank accounts, Ms Perry stated.

As a result, she added, the government has said it will reduce petrol excise tax on a cent-for-cent basis to cover price increases generated by the carbon trading programme.

The amount offset by the government will be set for three years and "reviewed periodically" after that, Ms Perry noted.

In addition to petrol offsetting, tax breaks and increased welfare payments will also be introduced to help those on low incomes, pensioners and carers cope with the higher prices.

The cap and trade carbon reduction scheme will come into effect in 2010.

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