Carbon Price Package Raises Risks and Costs of Reducing Emissions

The Business Council of Australia (BCA) will carefully examine the details of the federal government’s proposed carbon pricing package to fully consider its potential impacts and risks to the Australian economy, and the extent to which it is fiscally responsible and sustainable, Chief Executive Jennifer Westacott said.

This will include consultation with BCA members to assess the implications for Australia’s competitiveness on an industry sector by industry sector basis, both in the fixed-price period and the years after that, Ms Westacott said.

“The government has not considered alternative ways to introduce an emissions trading scheme that would pose less risk to the economy, particularly in light of the weaknesses currently being experienced in some sectors,” she said.

“The BCA continues to advocate for a workable approach to reducing global greenhouse gas emissions at least cost to all Australians. This should include a well-designed emissions trading scheme and winding up all current high-cost carbon policy measures to ensure the least-cost approach to emissions reduction.

“The right policy for Australia should be a slow and steady start, with a low initial carbon price during the fixed-price period. It should impose no additional costs on trade-exposed industries; move in tandem with real action by our major competitor countries; and ensure that our electricity sector remains viable and able to reinvest in lower emissions generation technologies.

“On a preliminary reading it appears the government’s proposal fails to meet these criteria and will bring a range of additional risks and costs to industry and the economy.”

Ms Westacott questioned why the carbon price has been set at $23 per tonne of carbon emissions, which is well above the forward international price of between $15 and $17 and more than double that being paid in New Zealand. 

“Such a high price in the fixed-price period and no opportunity to access cheaper ways of reducing emissions internationally will not ensure a least-cost approach to emissions reduction. International linkage is an essential feature of a least-cost emissions trading scheme,” she said. 

“While there has been some improvement in the arrangements for the electricity sector they do not fully address the treatment of asset impairment. The steel package will bring some assistance in the short term. The expanded role of the Productivity Commission in assessing what is happening at the industry level in competitor countries is welcome.

“Despite these changes there are a range of further concerns.

“Among these, the cost of the package on trade-exposed industries has not been fully offset. New limits on access to international permits, increased frequency of reviews, shortened notice periods for any change and the annual reduction of compensation for emissions-intensive, trade-exposed industries will bring additional risks and costs to industry and adversely impact their competitiveness.

“The governance and administrative arrangements have the potential to be complex and costly.

“There is little in the package that gives the signals to change consumer behaviour in support of emissions reduction.”

Ms Westacott noted that the recently released report of the independent Productivity Commission points the way to managing the costs associated with implementing a carbon price and achieving reductions in greenhouse gas emissions at a lower cost than the approach announced today.
 
“The BCA will continue to engage constructively in this complex debate on how to reduce global greenhouse gas emissions and embark on a long-term structural reform of the economy,” she said.

“The fundamental challenge for both the government and the parliament is to ensure this process is focused on delivering good policy rather than politics.

“All Australians would agree that the goal must be to achieve a cohesive and balanced policy that delivers emissions reduction and ensures Australia remains competitive. Only this approach will ensure that businesses are able to invest in technology to reduce greenhouse gas emissions.”