THE Government's green paper on carbon trading uses adjectives like "smoother", "gradual", and "measured" to describe the scheme's implementation, because cutting Australia's emissions by 60% in four decades is going to produce profound structural change, and, inevitably, political repercussions. Like a dentist poised above you, drill in hand, the Government wants to warn us the process will be difficult and reassure us it will be no more painful than is necessary. The language in the green paper suggests the Government is more alert than it was in Opposition to the political risk involved in being an early adopter of carbon trading (and the first energy-intensive economy to do so). The paper confirms that the scheme will begin in 2010 and restates a target of reducing missions by 60% by 2050, compared with 2000, but offers no interim targets. That means the angle of the attack is undecided, but the Government is positioning itself to capitalise on going early by also beginning slowly. The signs of a slow start are there in the language, the decision to offset the impact of the scheme on petrol and diesel for three years, at least, by lowering fuel taxes by an equivalent amount, and the decision to extend relief for a year to truckies and trucking companies, and to use the tax system to help not only low-income households, but middle income ones, too. There are plans to ease the pain for the 1000 or so companies that will need permits, not only by gifting about 30% of the total number of permits to "trade-exposed" companies that are in competition with overseas groups, but also through direct help at least, and possibly free permits, to coal-fired power stations that have no overseas competition, but are big emitters. Even then, the scheme will have huge repercussions. The specifics are to be negotiated, but the Government suggests heavy trade-exposed emitters such as steel maker BlueScope and Adelaide Brighton Cement will get 90% of the permits they need free (or some equivalent compensation). Less-heavy emitters, including BHP and Rio Tinto's alumina refineries, and unspecified "parts" of the oil and gas, chemicals, minerals processing and pulp and paper industries, will only be compensated for 60% of their emissions. Companies that get less compensation will suffer bigger cost increases, and their propensity to invest will be commensurately lower. And although detail is again lacking, in the longer term, industry help will have to go if Australia is to hit its 60% emissions reduction target on time. But it does look as though the Government intends to try easing the economy into carbon trading and the pace of the global attack on emissions may influence the angle of the ramp-up. The green paper states that instead of establishing a specific interim emission reduction target, the Government may opt for a range of targets, "given the need to take into account the uncertain and evolving state of international negotiations on global action on greenhouse gas emissions". Moving early has given the Government the ability to soft-launch, but it also creates deadline pressures. Work towards an international system will be less developed, creating design risks, and by 2010 the phasing in of full accounting of carbon emissions will be only two-thirds complete. The reporting timetable was created by the Howard government, to fit its 2012 start date for carbon trading. But the central decision-in-principle, to go for carbon trading and not a tax or some hybrid variant, is the correct one. Trading of permits is the key to a concerted global attack on emissions, because it directs investment to where emissions can be reduced most efficiently, quickly and cheaply. While the world wonders whether China will join a global reduction regime, there are already emission-reducing investments there, as a byproduct of Europe's carbon trading scheme. Permits generated by the Chinese projects are verified by the United Nations, and sold back into the European system. HOURS before Rio Tinto unveiled powerhouse quarterly production numbers yesterday, Reserve Bank governor Glenn Stevens warned that the countries whose demand produced the result have to slow down. In a speech that confirmed that the Reserve believes this economy is slowing, Stevens said commodity prices were at record highs because global monetary policy had been too easy. It had to tighten, he said, and the adjustment was needed "more in the emerging world than in the United States or Europe or Japan". China, India, Brazil and Indonesia were now "playing their part in balancing global demand" by tightening monetary policy, he said, "and perhaps more tightening will follow