Political Uncertainty on Emissions Will Cost Jobs and Investment

This opinion article by Chief Executive, BCA, Katie Lahey was published on the website www.nationaltimes.com.au on 16 October 2009


Right now accountants and lawyers for companies in some of Australia’s most important industries are sitting down to grapple with a big challenge.

How do they account in the coming months for asset values, operational and capital costs, and investment strategies when one of the most serious impacts on their business cannot yet be properly defined?

The impact is coming in the form of Australia’s Carbon Pollution Reduction Scheme (CPRS), but it is an impact with at least two key areas of uncertainty.

First, we have a government that has pledged to introduce a scheme that represents one of the most far reaching changes to the way the economy operates, and will require fundamental and permanent restructuring of business operations.

Australia is not the first country to introduce an emissions trading scheme. But it will be the first to put in place a scheme covering about 75 per cent of its emissions.

Business and the community both want to contribute to the reduction of Australia’s emissions in a way that does not cause unnecessary economic disruption.

This requires careful consideration of the detailed design issues in the legislation. Unless we get the detail right in the legislation, companies, or parts of their operations, could become unviable. Rather than leading to a reduction in emissions this will only result in job losses and investment going to other countries where a carbon price is not imposed.

The Business Council of Australia (BCA) wants to see the legislation address further detail relating to the treatment of coal and transitional arrangements for the electricity sector, and clarify how the scheme will apply to some key industries such as cement, steel, sugar and refining.

The second key area of uncertainty relates to the politics of this debate. This is the question of whether the government and the Opposition can agree on the final detail of the legislation next month. This is certainly an issue that is prominent in the minds of those accountants and lawyers mentioned earlier.

The BCA all along has called for bipartisanship on the detail of emissions trading, for basic business and economic reasons. Without bipartisanship there can be no certainty for businesses considering their investment and accounting strategies. Should the government introduce a scheme that does not have the basic support of the Opposition then it is prone to be changed if there is a change of government in future.

For businesses, such as electricity generators, who must make investment decisions on 15 to 25-year horizons this is a nightmare scenario.

Without certainty in the electricity sector investment may not take place at the desired rate and security of supply could be threatened.

Many other businesses will have the same concerns, particularly when considering whether or not to invest in lower emissions technology or to restructure their operations to meet the requirements of a scheme that may change in future.

It is for these reasons that the BCA calls on the government and Opposition to negotiate amendments to the CPRS legislation that ensures it can work and that they can both support.

Australia has demonstrated to the world it can manage an economy that is able to weather major global economic shocks without major upheaval.

Bipartisan agreement on sensible further changes to our emissions trading legislation to provide business with the certainty it needs would be another example for other countries to follow.