Political heat’s on over carbon tax plan

21/05/2009 - 00:00

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If we are to have a carbon tax, it’s important we get it right – first time.

Political heat’s on over carbon tax plan

SOME of the submissions to the Senate Select Committee on Climate indicate what a carbon tax has in store for Australian communities. The submission by the cement industry is a good guide.

Cement is a low tech, bulk commodity that competes on price. There is an established import share and wharf facilities are being built to handle increased imports. Excess cement-making capacity in South-East Asia and China is estimated to be more than 20 times Australian demand. Cement demand displaced from Australian facilities due to non-competitiveness resulting from a carbon tax will be imported from China. Once Australian cement plants close, they are very unlikely to restart.

Cement plants are big employers in some regional centres. Closure of the Railton cement plant in north-west Tasmania would mean the loss of 230 direct jobs and 1,150 indirect jobs. Closure of the Kandos plant near Lithgow, NSW, would result in the loss of 125 direct jobs and 625 indirect jobs, which is 58 per cent of the labour force within a 30-minute drive.

So more than a few regional centres have the prospect of being wiped out by the carbon tax, and that is just in the cement industry.

Norsk Hydro, operator of the Kurri Kurri smelter in NSW, provided a detailed analysis of the effects of the carbon tax. These included cancellation of a $4 billion expansion with the loss of 3,000 long-term direct and indirect jobs, and a similar 15,000 jobs during construction. A further $500 million of maintenance capital expenditure would also be cancelled.

The Minerals Council calculated that the carbon tax would cost the minerals sector up to $2 billion a year. As the Minerals Council notes, the federal government's own Treasury modelling forecasts that coal mining output will be slashed by between 33 per cent and 35 per cent by 2020.

Separate modelling estimates that the carbon tax will slash output in other sectors by a similar amount. So there will be 35 per cent less employment, and very little company tax to be paid by the companies that survive.

Last year, Exxon went to the federal government and told them that the carbon tax would result in the closure of the seven remaining operating oil refineries in Australia. With growth of the market and closure of the Adelaide refinery, these refineries only produce 75 per cent of Australian refined product demand. Most of the balance is imported from Singapore. As with the cement plants, once Australian refineries close it is unlikely that they would reopen against import competition.

China overtook the US a couple of years ago as the world's largest producer of atmospheric carbon dioxide. Most of the industry that will be displaced from Australia as a result of the carbon tax will end up in China. If Australia reduces its carbon dioxide emissions by 20 per cent, that will be offset by less than two months of Chinese growth.

Let's now examine another couple of green initiatives. South Australia has in place a ban on free plastic shopping bags. It is estimated that this will reduce the annual consumption of such bags by 400 million. I weighed a shopping bag, from my inventory of plastic shopping bags awaiting reuse, at seven grams. This means that the ban will shift 2,800 tonnes of plastic per annum to some other use.

The people behind that ban would be the same sort of people promoting 'clean coal' technology.

From a sustainability point of view, the big problem with clean coal is that it would burn through our coal reserves 80 per cent faster.

Australia currently burns about 130 million tonnes of black and brown coal annually to generate power. Clean coal technology would increase that by 100mt a year. That might provide work for some of the displaced miners, but it would effectively halve the economic life of the coal deposits that future generations of Australian would otherwise use.

On the subject of power, Western Australia will pay dearly for our over-reliance on natural gas, which is the fuel for 65 per cent of the power supply here. Natural gas has been cheap for the past 25 years with long-term contracts at about $2/gigaloule. Most of those long-term, cheap gas contracts run out mid next decade.

In the interim, gas has started up a price trajectory, driven by the LNG market, which could see it priced equivalent to oil in energy terms. This is exemplified by the Reindeer contract with Sino Iron for the Cape Preston magnetite plant, which was for four years at $7.80/gj and then switching to the oil price energy equivalent after that.

In 2008, an LNG cargo sold for more than $US20/gj when oil was $US147 per barrel. If more natural gas use is mandated at the expense of coal over global warming concerns, we will pay dearly for it.

If a carbon tax is wrong, and the world keeps cooling despite increased Chinese and Indian production, then it will not be an easy matter to set right simply by abandoning the tax. The carbon tax will cut like a scythe across the Australian countryside, and many of the plants that will close won't be able to be re-opened. It will be a great hollowing out of Australian industry.

Many have said that the carbon tax is so important that we should make a special effort to get it right. Perhaps that effort should be so great that it includes examining and confirming the scientific basis for the tax before proceeding any further.

The oceans started cooling in 2003 and they have cooled fast enough to prove the computer climate models wrong. If the carbon tax is wrong in science, a great deal of grief and suffering will be inflicted upon the Australian people for no benefit whatsoever.

Any politician feeling the heat over the carbon tax would be wise to call time out by asking for a formal review of the state of global warming science. That won't please the Greens, but then nothing does.

n David Archibald is a Perth-based scientist in the fields of climate and cancer.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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