Bank breaks ranks on emissions

Sydney Morning Herald
Monday 15/9/2008 Page: 3

AUSTRALIA'S second biggest bank, Westpac, has spoken out against the business community to urge the Federal Government to pursue a strict emissions trading scheme with tougher reporting standards for business. In a submission to the Government, obtained by the Herald, Westpac warns against handouts for companies seeking to shelter themselves from the full force of the scheme.

"Utmost care must be exercised that compensation measures do not undermine the integrity of the scheme or alleviate the impact of the introduction of a carbon market," says the submission, one of hundreds received by the Government in response to its green paper on the design of the scheme.

The Australian Food and Grocery Council will today release its submission calling for bigger concessions for energy intense, trade-exposed industries, including tariffs on imports from countries with less stringent environmental regimes. Amid the clamour for relief, Westpac has urged the Government to stick to its guns.

"The market must be allowed to function effectively, without overt interference from buffering policy mechanisms or overly generous compensation allocations which distort the market ... [or] provide market participants with the means of avoiding the medium to long-term behavioural change intended by the introduction of a price on carbon." The position is in stark contrast to the Business Council of Australia, which represents the country's top 100 companies. It has issued dire warnings of multiple bankruptcies under the scheme because proposed levels of compensation are "not sufficient".

Westpac is a member of the council but has fallen out in the past over the council's reluctance under the former mining boss Hugh Morgan to state an early position on climate change. Westpac's former chief executive David Morgan, who is married to the former Labor environment minister Ros Kelly, was a driving force in establishing the Australian Business Roundtable on Climate Change in 2004 after frustration with the council over policy.

Westpac's submission offers strong support for an emissions trading scheme. "Doing nothing is not an option. Failure to implement an effective response to the challenges posed by climate change will endanger Australia's future economic prosperity," it says. In an attempt to limit special case pleading by industry, Westpac proposes the process by which a company is deemed "energy-intense and trade exposed" - and therefore forced to participate in the scheme - be subject to regular review and determined five years in advance.

To avoid political interference, Westpac also supports an independent body such as the Reserve Bank to administer the scheme to ensure it is run "as independently as possible, free from political sensitivities or representations from impacted industry sectors".

Other measures advocated include: no cap on the price of permits; quarterly rather than annual reporting on emissions; more regular auctioning of permits; broad industry sector coverage; encouragement of businesses not covered by the scheme to participate by qualifying for and selling "offset credits"; permits not to be labelled "financial products" because of the regulatory hassle involved; and transactions to be GST-free.

"Westpac has sought to propose measures aimed at ensuring an efficient, liquid and transparent carbon market with a smooth process of price discovery and avoiding the sudden market shocks which beset the early stages of the European Union emissions trading scheme," the submission says.

Westpac, like all other banks, stands to benefit from the establishment of a new market for emissions permits, by advising clients on how to cope with the scheme, performing trades for them, and more directly, by trading the permits to make money, as with trading in other commodities.