14/07/2011 - 00:00

Key carbon tax issues still remain

14/07/2011 - 00:00


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Last Sunday's launch of the federal government's carbon pricing scheme has had remarkably little effect on the debate.

It was meant to be a game changer. The federal government had a media lock-up and in-depth briefings to support the launch of its voluminous carbon pricing scheme report.

The uncertainty and speculation that had characterised the debate up to that point in time was supposed to be replaced by informed commentary, underpinned by hard data and analysis.

Unfortunately, that does not seem to be the case.

When Prime Minister Julia Gillard and her key ministers released the key policy parameters, they largely confirmed what had been leaked already.

This included the carbon price, which starts next year at $23 a tonne, and the businesses that will pay it, about 500 large emitters.

Where they did release new information, they just added to the enormous complexity of a policy package that some excitable press gallery journalists said would transform the economy.

Well, that’s not so clear. In fact, very little is clear, which is hardly surprising when the government releases a package with so many elements affecting so many industries.

We can safely make a few broad generalisations. For instance, costs will go up, but by how much is anybody’s guess. Treasurer Wayne Swan released modelling that estimated costs for the average household would rise by $9.90 a week.

He even had precise estimates for the impact on electricity costs (up $3.30 a week), gas ($1.50 a week) and food bills (80 cents a week).

Without wishing to impugn the hardworking Treasury boffins who prepare these estimates, the reality is that economic modelling is an imprecise art, especially when looking at the economy-wide impact of policy measures.

These forecasts also assume that most variables remain unchanged, but of course that is never the case.

Changing global economic conditions, and fluctuating commodity prices (for oil and gas in particular) could well have a much larger impact on electricity and gas bills.

Similarly, these factors could well have a larger impact on the viability of particular industries than the carbon-pricing scheme.

Looking past the specifics, it’s hard to disagree with the Chamber of Commerce and Industry of WA’s key conclusions.

First, the international competitiveness of local industry will be compromised.

Second, the tax will add to the cost of doing business and discourage investment.

Third, small business is ill prepared for a carbon tax.

It is also without question that Australia’s scheme on its own will have no appreciable impact on global carbon emissions.

Australia accounts for just 1.5 per cent of global carbon emissions; nothing will change globally until the big emitters, especially China, the US and India, take action.

If anything, there is a risk Australia’s policy will have a negative effect, if it discourages investment in relatively clean production in this country.

A critical example is the liquefied natural gas (LNG) industry, which as expected, will get substantially lower ‘permits’ than other emissions-intensive trade-exposed industries like coal and steel.

This could have a perverse impact because, while LNG production is carbon intensive, it generally replaces much dirtier fuels such as coal in places like China and Korea.

So while LNG production helps to make Australia a large emitter in per capita terms, it actually helps to reduce global emissions. That makes it an industry that should be assisted, not penalised.

Another disappointing change that was slipped into the policy package was the reduction in the fuel rebate.

The carbon tax is projected to be a large revenue raiser for Canberra and much of that money is being doled out in the form of tax cuts to households and industry grants.

The latter includes a $10 billion scheme for ‘clean’ energy, a $3.2 billion scheme for renewable energy, a couple of $200 million schemes and more.

That is cause for worry, given the federal government’s track record.

Think pink batts, think Building the Education Revolution, think solar panels.

All of these schemes involved Canberra dishing out money and all resulted in enormous waste and inefficiency.

There is a very real danger the new schemes will repeat these problems.



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