After weeks of escalating complaints about its emissions trading scheme, the Rudd Government has agreed to work with the major polluting industries to find a fairer way of distributing compensation in the early years of the scheme. The Government had been warned that its proposed formula might seriously harm the economy.

An informal paper circulated by the Department of Resources ahead of a meeting between the Resources Minister and industry peak bodies and chief executives “canvasses alternative approaches” for compensating high-polluting industries that are unable to pass on the cost of emissions permits.

The $50 million Geothermal Drilling Program, to be officially announced by Martin Ferguson at an industry conference today, will be used to give grants to cover the cost of drilling geothermal wells. Mr Ferguson said if drilling proves successful geothermal energy could provide a “significant” contribution to the Government’s target of 20 per cent renewable energy use by 2020.

The industry is concerned that the Government’s proposed emissions trading scheme makes no provision for emissions from the more than $60billion of proposed new natural gas projects, putting that investment in doubt, even though gas usually replaces far dirtier fossil fuels in the countries to which it is exported.