Carbon Decision Must Focus on National Interest

The Australian Financial Review

By Jennifer Westacott
Chief Executive
Business Council of Australia

When the government’s carbon pricing policy is released on Sunday, attention will turn to how parliament manages its biggest test since the past election.

When the current parliament was formed last year the Business Council of Australia (BCA) urged it to look beyond the temptation of narrow, short-term populism.

We encouraged it instead to identify and build common ground on issues that are fundamental for Australia’s future prosperity. The ultimate test of this unusually constructed parliament would be its ability to progress reforms in the interests of all Australians, and in a fiscally responsible way.

This challenge could hardly be more evident than it is this week as the parliament learns the details of the government’s carbon pricing plans.

While parliaments come and go, this challenge could hardly be more evident than it is this week as the parliament learns the details of the government’s carbon pricing plans. We need our elected representatives to achieve a solution that transcends politics, to deliver an outcome that acknowledges this as one of the most complex and far-reaching economic reforms in decades. The ramifications of this decision will be felt for generations.

The task ahead is a long-term restructuring of the economy, and what is at stake is nothing short of Australia’s continuing ability to compete with the rest of the world.

Yes, Australia should contribute to reducing global greenhouse gas emissions. But surely we should be approaching it in a way that minimises the costs to the economy for the sake of all Australians and does not damage its strength in an uncertain world.

The BCA has long said that a well-designed emissions trading scheme is a market-based mechanism that will allow Australia to contribute to reducing global greenhouse gas emissions at least cost to the economy. We fear that the package the parliament will be asked to consider will not be a least-cost approach and will not include the pointers to change consumer behaviour.

The costs of the policy to the community and business are likely to be greater because of a range of measures and additional programs being agreed in the closed door negotiations of the Multi-Party Climate Change Committee.

A range of options exist for introducing an emissions trading scheme to begin the long-term restructure of the Australian economy at least cost, while providing sufficient revenue to compensate low-income and vulnerable households, as well as trade-exposed industries.

The parliament owes it to all Australians to ensure it has considered these options before determining the final shape of any legislation that will price carbon.

Emissions trading schemes that have been adopted by other countries have been characterised by a slow and considered implementation. They have been limited to a small number of sectors or implemented with a low initial price, or started in only one industry sector with others being included over longer time frames. It would be wise for Australia to adopt a similar approach to implementation.

The Australian Government has not yet released modelling that evaluates the competitive impact of a carbon price on individual industry sectors in the international market. Before industries can be responsibly incorporated within the proposed carbon pricing policy this work needs to be done.

The Productivity Commission recently found that Australia was in the “middle of the pack” in reducing emissions, but our policies were expensive and inefficient, and the impact on individual industry competitiveness has not been modelled. None of the countries reviewed had an economy-wide carbon price.

We ask that parliament consider applying a low carbon price to the electricity sector only during the initial fixed-price period. We also ask that the level of compensation arrangements for other industry sectors be determined on the basis of advice from the PC.

In our view, there should be no additional cost burdens imposed on Australia’s trade-exposed industries until the PC determines that a comparable effective price on greenhouse gas emissions has been placed on 80 per cent of relevant competitor products and countries.

The combination of these two proposals would simplify the introduction of a carbon pricing scheme, reduce the cost of living impact for Australian businesses and consumers, and reduce substantially the need for compensation to vulnerable households. It would materially reduce the risk to the economy and industry competitiveness and viability.

Business will not be able to play its part unless there is a strong economy with strong businesses able to invest in the low emissions technology that is vital for reducing global emissions while preserving our enviable quality of life.

The Australian economy has a high energy intensity compared with many other nations. It is critically important that carbon pricing does not jeopardise the competitive advantage key industries have enjoyed from low-cost electricity. Policy must allow time for gradual and affordable economic adjustment to a higher energy cost operating environment. To do otherwise will risk Australian jobs, exports and our ability to make the necessary reinvestments in lower-emission technologies in the years ahead.

How the parliament handles this challenge will largely determine whether the current minority government succeeds in building common ground between different parts of the community in the long-term interests of all Australians.