It’s time to put some common sense in the climate debate. We need to take off the table ludicrous policy options such as a $40 starting price; an ongoing fixed price regime; a ban on all future coal mines; exclusion of credible offshore emission-reducing actions from an Australian approach; and moving to an unconditional 2020 target of 25% below 2000 emission levels. These options would be economically reckless and continued discussion of them unnecessarily complicates an already diabolical policy debate.
As well, it needs to be understood that the timing of this debate is very tough, especially for manufacturing. The industry is facing potential new burdens from any approach to climate change at a time when it is under escalating competitive pressures, magnified several times over by the very high level of the Australian currency – close to 40 per cent above its post float average against the US dollar. Ongoing rises in key input costs such as energy have seen manufacturers’ margins eroded and in many cases disappear altogether, even before a carbon price is factored in.
While it has been painted as trivial by some, Australia’s current unconditional target of five per cent below 2000 levels is a huge ask. Australia’s emissions are currently on track to be 24 per cent above 2000 levels by 2020. Meeting the ‘five per cent’ target is equivalent to cutting emissions in 2020 by almost 30 per cent below latest projections. This would be equivalent to the current combined emissions of our transport systems and agricultural sector.
If, as the Government plans, Australia prices carbon from 2012, it needs to address the serious risks to the survival of big wealth generating and employing businesses in Australia. Central to Ai Group’s submissions to the Government is that if carbon is to be priced we need to start low and provide strong and effective shielding for trade exposed industries. The latter is particularly important because at this stage in the debate we do not know what our relevant international competitors are proposing.
A low starting price would be essential to allow businesses to get used to the new scheme. The scheme would also need to be linked as soon as possible to international markets.
Any emissions reduction arrangement, including the Opposition scheme, would only be viable if there was strong and effective shielding for the trade exposed businesses who would bear costs not imposed on their competitors abroad.
For the Government, this means getting the emissions intensive trade exposed (EITE) provisions right. Adding a third tier would correct the inequitable and heavy burden imposed on businesses just outside the original CPRS arrangements, including upstream food processors; metal casting and fabricating businesses; some plastics and paper manufacturing activities and some metal smelting and refining operations. These businesses and their employees are amongst the most vulnerable to the impacts of a carbon price – just as they are vulnerable to alternative approaches to emissions reduction.
For other trade exposed activities, improved versions of the electricity cost adjustment scheme and the Climate Change Action Fund proposed in 2009 should also be made available.
To effectively and efficiently reduce emissions on an economy-wide scale, any proposal needs three other key components. Firstly, it is essential to ensure continuity of electricity supply and new investment in he generation sector while it undergoes substantial transformation.
Secondly, the up to 550 existing state and federal emissions reduction regulations and programs should be removed as they become unnecessary under a carbon price. This would cut burdens across the economy.
Finally, any carbon pricing arrangement needs to be accompanied by a concerted effort to invest in research, development and deployment of low-emissions technologies.
Often overlooked is the fact that both the Government and the Opposition are agreed on an unconditional five per cent target to be met regardless of international action. Their different ways of reaching it will both impose significant costs.
If this is not done right, Australian industry would be exposed to potentially severe competitive disadvantages and investment would be undermined.
We are approaching crunch time in this debate and any plan to address climate change – whether from the Government or the Opposition – will need to allay these concerns if it is to get industry support.
Note that Ai Group continues to reserve judgment on whether to support, oppose or seek amendments to any climate policy, including government and opposition proposals, pending availability of full detail and discussion with our National Executive, Branch Councils and broader membership.
[Article first appeared in The Age 30 May 2011.]
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