There’s a spectacular number of vested interests at work in this morning’s media: FIRB is racist; the banks are hard at work discrediting the ratings agencies and Gittins! notes the work of the baccy companies, raised by Boganomics on Friday. But the one story that has me in a lather is Heather Ridout and her call for “common sense” in the climate debate.
As we know, Heather Ridout runs the Australian Industry Group (AIG), which by and large represents manufacturing. Let’s take a look at Ms Ridout’s demands:
A low starting price would be essential to allow businesses to get used to the new scheme. The scheme would also need to be linked as soon as possible to international markets.
Any emissions reduction arrangement, including the opposition scheme, would only be viable if there was strong and effective shielding for the trade-exposed businesses which would bear costs not imposed on their competitors abroad.
For the government, this means getting the emissions intensive trade exposed (EITE) provisions right.
… For other trade-exposed activities, improved versions of the electricity cost adjustment scheme and the Climate Change Action Fund proposed in 2009 should also be made available.
To effectively and efficiently reduce emissions on an economy-wide scale, any proposal needs three other key components.
First, it is essential to ensure continuity of electricity supply and new investment in the generation sector while it undergoes substantial transformation.
Second, the up to 550 existing state and federal emissions reduction regulations and programs should be removed as they become unnecessary under a carbon price. This would cut burdens across the economy.
Finally, any carbon pricing arrangement needs to be accompanied by a concerted effort to invest in research, development and deployment of low-emissions technologies.
All very impressive for the members. But, all of these proposals are already recommended in the Garnaut updates.
So, what is the AIG actually proposing? In a new submission to government, it has put forward a $10 carbon price (so has the BCA). Let’s use a case study to check on what that will achieve. From Carbon E. Coyote recently:
Making steel in a blast furnace has a greenhouse intensity of roughly 2.4tCO2e per tonne of steel. So if you apply a carbon price of $20/tCO2e and then provide free permits to 94.5%, the actual price impact is around $2.6 per tonne of steel. This is in the context of steel prices forecast to rise significantly this year, and perhaps track towards US$1000/t by the end of the year according to some reports. Note also that a 10% appreciation in the Aussie dollar has a far more significant impact on exporters than a carbon price, on a $ per tonne of steel basis. I’m not saying there won’t be an impact from carbon; clearly there will be, and it will be material in EBIT terms, but given the other factors involved, it can’t possibly be the difference between continuing to operate versus shutting up shop.
It’s hard to imagine a more emissions intensive manufacturer than steel production yet the cost imposed by a $20 carbon price is marginal, at worst. Expectations are that the carbon price will come in somewhere in $20 range. The AIG, God love it, is proposing to reduce Bluesope’s costs by $1 and change per tonne.
The AIG is barking up the wrong tree. The dollar is it’s members problem. It should get together with the other non-resource trade-exposed industries – farmers, tourism and education – and set about undermining the power of the Minerals Council. They should form a secretariat and commission extensive research into the benefits of enormous new mining taxes that get funneled into an SWF. They could even get the services industries on board and call the whole caboodle the “Coaltion for Growth”. Together, they’re a lot bigger than mining.
It’s not rocket science. This carbon price balther is simply an excuse for it to do nothing.
