Global Emission Cuts Should Be Policy Focus

The Australian

By Jennifer Westacott
Chief Executive, Business Council of Australia

As we await the federal government’s release of details of its carbon pricing policies, it is worth reminding ourselves of the objective of the whole exercise: an Australian contribution to reducing global greenhouse gas emissions in coming decades.

Much of the current debate is instead focused on putting a price on greenhouse gas emissions at any cost and within an artificially short timeframe.

So we are not adequately focusing on the best way to contribute to reducing global greenhouse gas emissions at least cost to all Australians.

We are also losing sight of the scale of the challenge involved in reducing emissions in our emissions-intensive exports and economy, and the risks if we get it wrong in designing a mechanism to price greenhouse gas emissions.

Reducing emissions in Australia will involve a major long-term structural reform and long-term behavioural changes.

That change will come from long-term policy, economic and financial signals that begin to change consumption, and gives industry an incentive to invest in new technology to cut greenhouse gas emissions.

The best way of achieving that is to make a slow and careful start to policies in Australia and ensure that the policies recognise the unique aspects of each industry.

We need to move in tandem with our competitor countries while not shirking responsibility for action. In other words, we need a greenhouse gas emissions pricing policy that has the flexibility to recognise what our competitors in each industry sector are actually doing.

Pricing Australia’s greenhouse gas emissions should not reduce the competitiveness of Australian industries relative to overseas competitors who do not price greenhouse gas emissions.

The Productivity Commission is best placed to assess whether actions being taken in competitor countries are like-for-like and translate into an effective ``carbon price’’ on products that those countries export.

Competitiveness is fundamental to our ability to make long-term structural changes to the economy and to invest to drive economic growth, reduce greenhouse gas emissions and create jobs. This will ensure Australia’s prosperity.

The strength of the total economy matters. Growth is now uneven and there are real pressures in the non-resource sectors. Overall capital expenditure – driven by resource-related investment – is expected to be 12.4 per cent higher in 2011–12, but investment in the non-resource sectors is expected to fall of 22.8 per cent.

Considering the government’s hybrid model for pricing greenhouse gas emissions, and taking seriously the competitiveness and strength of Australia’s economy, the BCA has recommended a slow and steady start to pricing greenhouse gas emissions with support for industries to enable them to make the transition to a lower emissions future.

That is why we have proposed a low price, starting at $10 a tonne of greenhouse gas emissions in the first (fixed-price) stage of the government’s model, 100 per cent compensation for the impact of the carbon price on trade-exposed industries until they are on a level playing field with overseas competitors, and adjustment initiatives for the electricity sector.

We advocate a sensible, workable approach to reducing global greenhouse gas emissions. Three myths have emerged about the contribution of the Business Council of Australia.

Myth No 1: The BCA in supporting a price on greenhouse gas emissions delivered through a market-based mechanism is supporting the government’s approach to pricing carbon.

Reality: Until we see the detailed approach from the government, the BCA can neither support nor contest the government’s proposal.

We do know the government’s approach, as it stands now, brings greater investment uncertainty than previous models and a major risk that Australia will not make its contribution to reducing global emissions at least cost, partly because it appears there will be either no link to international opportunities to reduce emissions, or limits to such links.

Myth No 2: The BCA is a spoiler of climate change action and is only focused on the self-interest of its members ahead of the national interest.

Reality: The BCA has engaged constructively in this complex debate on how to reduce global greenhouse gas emissions and embark on a long-term structural reform of the economy in a way that ensures Australia remains competitive and businesses are able to invest in technology to reduce greenhouse gas emissions.

It is the responsibility of the BCA to set out the principles we believe must underpin this important economic reform. This should not be painted as self-interest. It is in the national interest to support a strong economy able to deliver prosperity and the investments necessary to drive growth and resource efficiency.

Myth No 3: The BCA’s support for an emissions trading scheme as a market-based mechanism to reduce emissions means we support the former carbon pollution reduction scheme.

Reality: The BCA supports a well-designed emissions trading scheme to reduce emissions at least cost to all Australians. With progress to an international agreement including all major greenhouse gas emitters looking remote, and the economic recovery in many of Australia’s trade-exposed manufacturing sectors having slowed, the old CPRS is no longer appropriate.

We are committed to a workable emissions trading scheme.

What we remain concerned about is the lack of detailed consideration of ways in which such a scheme could be introduced and how best to accommodate the government’s agreement to an extended fixed-price period, no clarity on international linkage and no clarity on when targets will be set.

Australians deserve a well-informed discussion on how best to manage the risks associated with increasing greenhouse gas emissions and their impacts.

The only way we are going to get good policy is if all parties have an opportunity to contribute in an informed way and be heard with equal respect.

Properly addressing these issues can be a challenge for a minority government, but the make-up of the parliament should be no excuse for poor policy outcomes.