NSW treasury modelling on the Federal Government's Carbon Pollution Reduction Scheme shows the Illawarra economy will be one of the "worst affected" in the country.
While the modelling remains secret, a source who has seen it told the Mercury it shows the impact on the region's economy to 2050 will be many times worse than in the rest of the country.
The Federal Government has said the scheme would mean the national economy would grow about 0.1 per cent per year more slowly than it would without it.
But for industrial areas including the Illawarra, the impact on growth would be "significantly more" than that.
"The whole point of the scheme is, where there are not technological advances, to effectively reduce activity around industry that involves using a lot of energy or CO2 - and it wouldn't work if it didn't do that," the source said.
"So it's no surprise that industrial regions, like the Illawarra, are going to be affected more adversely and dramatically than other areas."
The modelling shows how the impact of the scheme would flow through from large industrial companies to the employee.
In steel making, for example, the extra cost of production would at some point result in a reduction in real wages, causing people to spend less. This in turn would mean less business activity and, finally, job losses in the steel industry and beyond.
BlueScope Steel believes Australia should not act alone.
The country accounts for less than 2 per cent of global greenhouse gas emissions and the Australian Steel industry 3 per cent of Australia's emissions, BlueScope argues.
A spokesman for the company, which employs 3800 people and provides work for 2800 contractors at Port Kembla, said the scheme was also placing doubt around plans to build a $1 billion cogeneration plant there, which could save 800,000 tonnes of greenhouse gases per year.
"BlueScope Steel faces the imposition of higher costs if the scheme in the white paper is implemented and this will put steel jobs and investment at risk," the spokesman said.
"The proposed scheme needs an effective transitional plan to minimise the financial impact in the early years and minimise competitive disadvantage to Australian industry until its major global competitors are carbon constrained.
"We are engaging constructively with the Federal Government with proposals that promote reductions in carbon emissions while protecting this vital ... industry and Australian jobs."
Earlier this month, mayors from industrial cities Newcastle, Gladstone and Mt Isa called for the scheme to be put off until the economy rebounds from the financial crisis.
But Federal Wollongong MP Sharon Bird said delaying the scheme was not practical.
"The Prime Minister has made it clear, you hold it off and you just create more uncertainty," Ms Bird said.
She believes it is the global financial crisis, and not the emissions trading scheme, that is the biggest threat to the region's jobs. She said the Government was well aware of the challenges facing industrial areas, but argued new green jobs can be created.
"The key to this is getting the balance right," she said.
"In terms of our region, Jennie (George, Throsby MP) and I have been putting forward the view of BlueScope ... mining companies and unions."
Wollongong council's administrators expressed concern at the potential impact of the scheme on "key Wollongong industries".
Administrator Gabrielle Kibble said while the city had been diversifying away from steel and coal for some years, they were still a "key plank of our economy".
"Apart from their direct employment, they provide the core base workload for many other smaller businesses who are then able to service clients in other industries," she said.
"While accepting the importance of responding to the threats of climate change, it is important that major industries are not put under threat by gestures that will make no meaningful impact on overall global emissions.
"It is critical that the Federal Government's short term response does not impact on our global industries where competitors are not similarly handicapped.
"There is no doubt this is a global problem which requires a global response," Mrs Kibble added.
Whether the Government seeks an emissions target greater than 5 per cent will depend on the response of other nations at the United Nations Climate Change Conference in Copenhagen later this year.
EDITORIAL Region needs help to tackle climate issues - Page 42
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