Good Move on Carbon Pricing – Trim the Concessions
The preliminary framework for carbon pricing in Australia is good. Its key elements – with a couple of my observations – are as below:
1 July 2012 start date.
2 Fixed carbon price for three to five years before transitioning to a variable-price emissions trading scheme. (This is too long. The sooner we get to a trading system the better)
3 Potential for phased introduction of sectors, although the agricultural sector is to be excluded.
4 Further discussions required over the level of the carbon price, and industry compensation. (Opportunities here for fewer concessions than in the 2009 version, especially when it comes to brown coal).
On the last point: I’m interested in work by the Grattan Institute that argues the scheme does not have to be as generous in support of polluting industries as the version that the Rudd government settled on after negotiations with Malcolm Turnbull.
The Grattan Institute argued that the package involved “an excessively generous and unnecessary scheme of free permits to high carbon emitters.” They were worth $20 billion. It examined the effect of a carbon price of $35 per tonne of CO2 (expected under the Rudd government’s scheme) on seven major industries – steel, cement, coal, liquefied natural gas, aluminium smelting, alumina refining and oil refining. Because they were exposed to international competition the Rudd government decided to compensate them in the form of free permits to emit carbon.
The Grattan Institute study found that carbon price would not force most of these industries overseas or have a substantial impact on job levels.
Alumina refining, LNG production and coalmining are low-cost producers compared to their international competition. On the other hand, aluminium and oil refining are likely to move overseas. But as the Grattan Institute argues, their relocation is likely to reduce global emissions, and they will probably relocate in the long run anyway. On the bottom line fewer than 10 000 people work in the aluminium and oil-refining facilities at genuine risk of closure.
That’s where the debate can be concentrated and any assistance found.
Meanwhile, any investor in coal-fired power has been long-aware this adjustment – the pricing of carbon – has been headed their way and is not in a position to complain.
The 2009 compensation package can be trimmed.