Carbon polluters cry wolf Treasury

Sydney Morning Herald
Wednesday 29/10/2008 Page: 1

THE federal Treasury has disputed claims that many of the nation's biggest polluting industries would be forced to move offshore because of price rises caused by the Government's proposed emissions trading scheme. It is understood that Treasury modelling to be released this week concludes that the assistance measures proposed in the July green paper to help the big polluters adapt to an emissions trading scheme would be sufficient to keep them competitive.

Even the most extreme option facing the Government - a cut to emissions by 25 per cent by 2020, resulting in a carbon price of $60 a tonne - would not be severe enough "to induce industry relocation". The findings are made explicit in the Treasury report and will be controversial, given big industry has been critical of the structure of the proposed scheme as it was outlined in the green paper.

Two weeks ago, Exxon-MobilExxon-Mobil warned petrol refining would cease in Australia as the carbon price rose from $20 to $50 a tonne. The company's head of refining in Australia and New Zealand, Glenn Henson, told a meeting of Coalition MPs and senators that Australian fuel would be supplied from refineries in Asia where there would be no emissions trading scheme.

In August, the Business Council of Australia released a study of 14 industries. Based on a carbon price of $40 and the compensation scheme as outlined in the green paper, the study concluded three industries would have to shut immediately, four would suffer a loss of earnings of between 32 per cent and 63 per cent, and the other seven would have to slash costs to remain viable. "Many potential investments will not take place," it said.

But the Treasury modelling challenges these types of claims, saying so-called emissions intensive, trade-exposed industries are not expected to relocate offshore under the ETS. The modelling shows that under the compensation - in which industries are given between 60 per cent and 90 per cent free emissions trading permits, depending on how much they pollute - the pollution from their rivals in countries where there is no ETS will not increase. This is because the carbon price in Australia would not send any local firms offshore.

The modelling also concludes the assistance would reduce the impact of the additional costs a full-blown ETS would have on the firms' bottom line. It does acknowledge there would be some slowing in growth due to climate change but this would be significantly more gradual than without the assistance and could reflect a more general decline in global demand. Industries such as LNG, which will receive no assistance because they are "clean", would not be adversely affected despite their own claims to the contrary. If they did not qualify for assistance, by implication they would not need it.

The Treasury modelling will reinforce resolve within the Rudd Government to have an emissions trading scheme running in 2010. Despite the global financial crisis adding to the concerns of business, Mr Rudd and his ministers have argued that it is no reason to put off the ETS. However, it is now more than likely that the scheme will be gentle when it starts, to avoid hurting business and consumers. Big business supports a scheme but does not want it in full force until the world's major polluters join in. The Opposition Leader, Malcolm Turnbull, urged the Government again yesterday to wait at least until 2011.