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Good Move on Carbon Pricing – Trim the Concessions

February 25, 2011

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.

3 Comments
  1. February 25, 2011 3:10 pm

    “But as the Grattan Institute argues, their relocation is likely to reduce global emissions, and they will probably relocate in the long run anyway”

    “Is likely” is no definite answer to suggest that it will. Either way, what we reduce here will be filled out by some other country rendering the whole endeavour pointless and a waste of money.

    But thats ok, it seems tax payers dont mind being rear ended with constant increases in their expenditure as their wages decrease and their jobs devalued, so long as we try to feel good about “saving the environment”. Bah!

    • Michael Longley permalink
      February 26, 2011 7:40 pm

      This is the most annoying and wrong argument in the entire denialist edifice.

      While the US and China do produce ~40% of the worlds industrial CO2 emissions and together with Russia and India output 50% as a quartet, countries with contributions of 2.5% or less make up 50% of the worlds emissions. Countries with contributions under 2% emit 40%. Just as it is impossible for action to happen without movement from the giants, it is equally impossible if the minnows like us did nothing either.

      If you accept that we must do something about climate change due to industrial production (which you should if you believe that science is a thing that exists) and it must be done in a timely manner, you must also accept than the vast bulk of nations must also do something.

      The very worst that could happen is if the nations all sit around in some sort of international prisoners dilemma, with noone willing to take any sort of hit to preventing the resulting unimaginable crisis.

  2. Peter Pando permalink
    February 26, 2011 3:48 pm

    Dr Mr Carr,

    How is relocating aluminium and oil refining from one country to another likely to reduce global emissions? Are you suggesting that practices will change as soon as the industries get exiled to operate under a stronger regulatory system? And what happens to the economic benefits of having those industries in Australia -I suppose we’ll sing for our suppers again will we? If you and the tax lobby are really so determined to push through legislation that will make industries likely to move overseas, can you please explain what’s so good about the other countries of the world that they need all the help our government can give? Whilst it appears from the outside that a few packages of silver pieces may be floating around the exchange, it actually sounds like you’re promising Australians ‘all the gold they can eat’.

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