UPDATE 2-Australia backs carbon trade plan, abandons inquiry

(Adds Greens reaction, analysis from policy expert)

By James Grubel

CANBERRA Feb 19 (Reuters) - The Australian government moved to end confusion over its carbon trading policy on Thursday, abandoning plans for a new inquiry and declaring the scheme would start as planned in mid-2010.

Analysts have said the surprise move to review the scheme was a ploy to try to stifle opposition and to try to ensure the legislation passed through parliament as swiftly as possible.

"The government remains committed to the Carbon Pollution Reduction Scheme (CPRS), and we remain committed to the timetable for its introduction," Climate Change Minister Penny Wong told reporters.

Australia has promised to introduce carbon trading in July 2010 to help it cut greenhouse gas emissions by at least 5 percent by 2020, but big business has warned carbon trading might force some big operations to close or move offshore.

The government last week announced a parliamentary inquiry to examine if carbon trading should remain its central policy, fuelling speculation it might delay or change that policy because of the global downturn and a slowing Australian economy.

But Treasurer Wayne Swan wrote to the chair of the committee on Thursday and asked that the new inquiry no longer go ahead.

"This is because the inquiry's terms of reference became politicised and distorted, and misunderstandings were unfortunately created by the politicisation," inquiry chair Craig Thomson said in a statement.

"The government does not want any ambiguity over the implementation of the CPRS or the timeframes it has announced for the implementation."

Carbon traders and analysts said the inquiry was announced at a time when doubts were being raised about how much money the government would raise through the scheme.

Much of the money collected through the sale of carbon pollution permits is to be returned to households and businesses as compensation, according to the government's policy paper on the scheme.

POLITICAL PLOY?

Analysts said the government might have wanted the inquiry to give it stronger evidence for carbon trading, and may have been set up as a political ploy to try to upset the conservative opposition parties, which are deeply divided over climate change.

"This was an attempt to highlight those divisions," Climate Institute executive director John Connor told Reuters. "My view is they are still committed to the CPRS. But this inquiry process has certainly confused people, and confused the markets."

Australian Greens Senator Christine Milne said the government had been caught out trying to build political support for its scheme against growing public anger over a low emissions target.

"Now they have got into a complete mess and had to dissolve the committee before it even meets. It was totally clumsy politics from the start," Milne told Reuters.

The government still faces a tough time getting the legislation through the Senate, or upper house of parliament.

"The real challenge for the government is that they've got to get this legislation through the Senate. And while they've got the numbers in the House (of Representatives), they don't have the numbers in the Senate," said Martijn Wilder, a partner with Baker & McKenzie in Sydney and a specialist in emissions policy. "What the opposition have been saying all along is that when this gets to the Senate, you're going to have a Senate inquiry," Wilder told Reuters in Singapore on the sidelines of a conference, adding it might have been the government's strategy to head-off that inquiry.

"The challenge in the Senate is they have got to deal with the Liberals and they're not really sure what the Liberals' position is," he said. The Liberals are the main party in the opposition coalition.

The government needs a simple majority to pass legislation in the Senate. If opposition parties vote against it, the government needs the 5 Greens and two independents for a majority. If one independent votes no, the vote is tied and the government loses.

"One of the real dangers, though, is if the Greens took a really hard line that it was better to have no scheme than this scheme, and the Liberals took the hard line saying they don't want it, and they came together, that could kill it. That is an outside possibility but it could happen," Wilder said. ($1 = A$1.57) (Additional reporting by David Fogarty; Editing by David Fogarty)