Fears are mounting in the mining industry over the emissions trading scheme, especially as the strength of the mining sector is being eroded by prevailing economic headwinds, increasing royalty payments to states and an ongoing slump in prices across all commodities, from coal to iron ore, nickel, zinc and gold.

Representatives from across the mining, oil and gas sectors gathered in Perth on Friday under the auspices of the Western Australia Chamber of Minerals and Energy and the Minerals Council of Australia for an update on both the federal government’s proposed emissions trading scheme and an alternative proposal from the CME and MCA.

MCA director of corporate affairs Brendan Pearson said on Friday the government’s current plan was flawed and risky.

In its ETS green paper, the Australian government has proposed that companies buy permits to cover 100% of their emissions.

As an emissions heavy and trade-exposed industry, mining will suffer heavily because it cannot compete with overseas operations that are not exposed to any carbon costs, according to the two industry bodies.

The government’s scheme is a “cap and trade” model which places a limit on the amount of carbon a company can emit, and the scheme as it stands will require businesses to buy a permit for all carbon emissions – with some exceptions to be “carved out” from the plan.

It is this format which is being questioned by Australia’s mining industry, which has proposed an alternative plan that would give the industry time to transition to a full trading scheme.

According to the CME and the MCA, this transitional phase will also reduce the likelihood of Australia’s mining industry losing market share to its global competitors.

Economic modelling is due this week which is expected to show just how much the two schemes would impact the mining, oil and gas industry, but it is already clear that some resource companies will be better off than others.

The coal, aluminium and zinc sectors are expected to fare the worst under the government’s proposed scheme, with zinc refiner Nyrstar last week warning its smelters would be unviable under the government’s proposed scheme.

Under the government’s scheme, the CME and MCA have estimated a company which emits 1 million tonnes of carbon would have to pay around $100 million in permits over four years.

Meanwhile in Europe, which has the only other mandatory ETS in the world, costs for such a polluter would only be around $6 million over the four-year period, according to MCA figures.

The scale of this impost is huge, the CME and MCA said, and the details of the scheme are also far too complex.

Another concern of the industry is that the government has already flagged it will “carve out” 20% of all pollution from non-agricultural industry – creating haves and have-nots in emissions trading, a situation the mining industry believes is inherently unfair.

A 1Mtpa polluter that is lucky enough to be included in the 20% of exemptions would only be up for around $40 million in costs.

The mining industry bodies have proposed an alternative plan which splits the economy into two sectors – trade exposed and non-trade exposed.

The non-trade exposed sector includes electricity, domestic gas production and domestic transport. The MCA and the CME argue this sector is capable of passing on its costs, although Pearson said the mining industry was in favour of phased auctioning across all industries.

For every other trade-exposed business which is limited in its ability to pass on the costs of the ETS, the CME and MCA suggest auctioning permits to cover 10% of a company and industry’s emissions.

For a 1Mtpa CO2 polluter this would bring the cost of permits to around $9.7 million over four years, according to MCA and CME figures.

“The government could still argue this is a tougher regime than the rest of the world but it would be fairer and simpler … all trade-exposed companies are treated the same. It is the option we will be putting to government,” Pearson said.

The 10% figure would then be fixed for several years, giving industry a transitional phase during which both the international response to climate change and the introduction of new technologies can be assessed and responded to.

Pearson said this response was clearly “better than starting at 100 per cent and seeing who survives”

Additionally, CME chief executive Reg Howard-Smith said given the current economic circumstances it was also likely the global response to climate change would be muted and given this Australia should not be rushing into a scheme.

Pearson agreed and said there was concern in the mining industry – and broader Australian industry and business – that the ETS was venturing into perfect-world territory with the government’s scheme, one that would work only “if the rest of the world was taking comparable action”

Industry instead wanted a scheme that developed a framework and then transitioned, giving all businesses time to transition, embrace new technology and reduce emissions without being slugged with heavy penalties.

One of the attendees at the information session, Alcoa environment and sustainable development manager Tim McAuliffe, said Alcoa – one of the biggest energy users in Western Australia – had been working to reduce emissions for years and the scheme the CME and MCA were proposing would not be a “free ride” for the mining sector.

He warned the government scheme could cause “carbon leakage” and force businesses to relocate offshore – a situation neither the mining industry nor the government wants.

McAuliffe said industry would also be looking at other opportunities to reduce, offset or hedge its ETS commitments.