(Reuters) - Australia's government has reached a compromise with independent senators and a key opposition party to secure support for a A$2.5 billion ($2.2 billion) fund to cut greenhouse gas emissions, Environment Minister Greg Hunt said Wednesday.
The ruling Liberal party has secured backing from the Palmer United Party (PUP) and independent senators Nick Xenophon and John Madigan on a contentious policy issue that brought down the country's two previous prime ministers.
"This is a tremendous outcome for the government," Hunt told reporters in Canberra.
Under the new Emissions Reduction Fund, designed to allow Australia to meet its target of cutting greenhouse gas emissions to 5 percent below 2000 levels by 2020, the government will pay big polluters to cut their emissions.
To win the necessary support, the government has accepted a proposal by Senator Xenophon to put in place a "safeguard mechanism" to ensure companies comply with the scheme's requirements.
Details of the safeguard mechanism will be mapped out later. Observers expect it to include some form of penalty for companies that fail to meet government-set benchmarks, although it remains uncertain what the penalties would be.
"There is zero revenue in our scheme," Hunt said.
The minister said the government rejected Xenophon's proposal to set aside A$500 million to buy U.N.-issued carbon offsets from abroad to ensure the target is met.
But giving in to pressure from the Palmer United Party, the government will launch a review of climate policies in other big-emitting nations.
The PUP backs an emissions trading scheme (ETS) for Australia, but only after one has been implemented in a host of other countries, including the United States and China.
"Today we've kept hope alive for an ETS," Clive Palmer, the mining billionaire founder of the PUP, said.
Nearly 40 nations worldwide, include the European Union, have nationwide carbon trading schemes in place, while 11 U.S. states and seven Chinese cities and provinces have also launched markets.
The review will be finalised in January 2016, after a crucial U.N. climate conference in Paris where nations hope to agree on a new international climate treaty.
The review will be carried out by the Climate Change Authority (CCA), an independent body set up by the previous government to review Australia's climate targets and policies, which the government has previously sought to abolish, but now has agreed to let continue as part of the compromise.
But while the deal struck in Canberra might create some regulatory certainty for emitters, experts say it is not sufficient for Australia to meet its target.
"On its own, we project that the Emissions Reduction Fund will fall short of Australia's commitment," said Hugh Grossman, executive director at analysis firm Reputex.
The fund would only be sufficient to achieve 20 to 30 percent of the cuts required, he said.
Confronted with the Reputex estimate, Minister Hunt said he was confident the target would be met.
(This version o fthe story corrects year in paragraph four to 2000 from 2005)
(Reporting by Stian Reklev in Beijing; Editing by Jeremy Laurence)