UPDATE 1-Carbon price won’t hurt Australia coal industry – govt document

* Average coal mine to face costs below 80 cents/tonne coal
at A$25/tonne carbon

* Sees 7 coal mines in Bowen Basin most affected by carbon
price

* Says A$30 per tonne carbon price could drive up prices by
up to 1.5 percent

* Treasurer says no final decision on carbon price, industry
compensation

* Coal association says cannot talk about an “average coal
mine”

(Adds details, quotes)

By Rob Taylor

CANBERRA, April 1 (Reuters) – Most Australian coal mines
will easily manage the cost of a carbon price, but government
plans for a fixed carbon tax pose financial risks if the country
is to meet its emissions reduction targets, Treasury documents
said on Friday.

The documents, released under freedom-of-information laws
compelling disclosure of non-classified government records, deal
mainly with proposals developed by former prime minister Kevin
Rudd and now being revived by Julia Gillard, his successor.

In one document, dated October last year, the financial
impact of a carbon price on carbon emissions of the coal
industry was assessed as being negligible.

“The average coal mine will face increased costs of less
than 80 cents per tonne of coal at a A$25 (per tonne) carbon
price,” the internal briefing document said.

Gillard’s minority Labor government plans to put a price on
carbon pollution from July 2012, with a fixed price tax for the
first three to five years on the way to setting up an emissions
trading scheme (ETS) that has drawn heated political opposition
and voter protests.

The government has yet to decide a carbon price or how much
to compensate business and households, but major companies such
as Woodside Petroleum and miner Rio Tinto
have called for compensation against higher costs.

The government’s chief climate adviser Ross Garnaut last
month recommended a carbon price of A$20 to A$30 a tonne.

The Treasury documents said the coal mines likely to be
most affected by carbon pricing were emissions intensive mines
in the Bowen Basin of Queensland state. Seven mines owned
by global giant Xstrata , Vale , Peabody
Pacific , BHP and Anglo American were
named in this category.

Gillard had to back down from a pre-election promise not to
impose a carbon tax in order to win the support of independents
and Greens who support her one-seat government and are crucial
to her passing legislation to curb carbon emissions.

A separate document, dated to February, detailed Treasury
modelling of the impact of carbon pricing on householders, who
have been promised compensation by the government following a
backlash against Labor in opinion polls.

The impact of a A$30 a tonne carbon price would drive up the
cost of living by 1.04 percent, or around A$11.70 a week, if
fuel cost concessions were included, or 1.48 percent and A$16.60
if fuel compensation was omitted by the government.

But Treasury minutes from September said a carbon tax plan,
adopted by Gillard under pressure from the Greens and after
parliament twice rejected Rudd’s emissions trade proposal,
might not be as effective as a market-based mechanism.

A low fixed price period that stretched for several years
could put pressure on the budget because the government might
need to buy carbon abatement permits overseas to meet its 2020
emissions targets.

Otherwise they would have to keep adjusting the price, which
would undermine business certainty.

“Adjusting the tax rate in order to achieve a quantity
target largely undermines the price certainty provided by a
carbon tax,” Treasury officials said.

Treasurer Wayne Swan said no final decisions on the starting
price or industry compensation had been made, and it was far too
early to speculate on any potential price impacts.

“Until the final design and modelling have been settled,
anyone who uses these figures to scare families about prices is
engaging in a dishonest, misleading scare campaign,” Swan said
in a statement.

Ralph Hillman, executive director of the Australian Coal
Association, said it was pointless talking about an initial
carbon price, as it would rise rapidly under the government’s
proposed scheme .