The burden of the Rudd Government’s climate change plan will be carried by Australia’s big business, particularly those operating in the resources sector.
From the Green Paper it would seem resources companies have been chosen because they can afford to pay, they are internationally competitive, and they don’t employ many voters (certainly not as many as there are petrol consumers or users of electricity produced by coal-fired power stations, especially in NSW, Queensland and Victoria).
It’s very hard to relocate an Australian iron ore of coal mine, or bauxite operation, especially when demand is strong and some buyers are paying such high prices already and the likes of China and India will continue to demand rising supplies of these and other resources into the future.
The Green Paper outlines that the pollution penalty will apply for businesses that emit more than 25,000 tonnes of carbon each year. There are only some 1,000 companies estimated to emit more than 25,000 tonnes of carbon a year in this country.
It is a political document, contains little in the way of new information on greenhouse gas reduction targets, but it is at least a starting point for discussion.
And the whole greenhouse gas reduction package, the trading and assistance parts, everything, will have to be passed by the new look Senate before it can start.
Labor has guaranteed that it will apply protection towards domestic industries that are emission-intensive, but could be threatened by overseas competition if production prices were to rise and it says every cent raised will be spent helping families and on investing in new low carbon technologies, adjustment and processes.
That in itself is a bit of a hollow threat as possible relocation sites in countries like China, India and Southern Africa are battling pollution problems and huge power shortages.
The unions have warned 15,000 jobs in the Australian aluminium sector alone could be lost if the industry was left without protection, but again that’s a bit hollow seeing the Chinese aluminium industry has just banded together to cut production for the next quarter at least to help Beijing have enough power for the games, and to meet demands from provincial governments for enough power for farming, especially in a couple of northern provinces.
The Chinese lead and zinc refining and smelting industries have announced output cuts for the next quarter to try and reduce unwanted stocks and force prices higher.
That’s (like aluminium) is a short term problem, but it shouldn’t be taken for granted that an Australian company will automatically move to a low cost producer with few pollution and greenhouse control costs.
The Green Paper, which is a consultation document, says all industries will face higher cost structures as a result of the scheme coming into effect from 2010.
And, judging from media reports yesterday, industry is cautiously supportive.
Broking analysts say that a carbon tax would hit listed power and energy groups and big users and emitters: Bluescope Steel, OneSteel, Alcoa, Qantas, Origin Energy and Boral have been mentioned if the tax is set at $20 a tonne of carbon. We won’t know that until later in the year.
"Entities and industries will be able to pass on most of the additional costs resulting from the scheme and those costs will be reflected in the final price of finished products,” the paper said.
"The demand for particular good may then change, depending on how consumers react to the change in prices. This might not be the case for industries that are ‘trade exposed’.
"In those cases entities could be constrained in their ability to pass through cost increases because they are price takers on world markets."
Trade exposed industries are in the processing sector, such as lead, copper steel, alumiunium (smelters and processors), alumina etc. Car companies would have to be on the list, especially given the poor state of the industry, while oil and gas is exposed in that both are high carbon fuels.
But natural gas is considered to be a much cleaner fuel than either coal or oil (as will be methane from coal seam gas operations in Queensland and NSW).
The Green Paper recommends those emission-intensive industries be given effective tax breaks through the granting of free permits.
That’s the ‘get out of jail’ card for the NSW Labor Government which is trundling towards an attempt to sell parts of its power industry and lease other bits.
The Rudd Government is helping maintain some value in those businesses ahead of the sale.
A business with emissions above 2000 tonnes of carbon per $1 million of revenue will be given three free permits, which would cover 90% of the cost impact.
"The government proposes to provide assistance on the basis of industry average emission intensities rather than the intensity of a particular firm or facility,” the paper said.
"This approach will ensure that businesses have an incentive to reduce their emissions leading up to the introduction of the scheme and would reward those firms that have already taken action to reduce their carbon footprint.”
The government plans to cut back the assistance rate to spread the burden across the economy.
The number of permits to pollute will be designed by the government based on modelling trajectories to be released by the end of this year. The government plans to allocate 30% of the permits to emission-intensive trade-exposed businesses.
