Compensation catch-22
Threatening words from some of the biggest of Australia’s big businesses are putting the government under significant pressure to bend to industry’s demands for carbon compensation.
But we’ve seen all this before.
Financial analysts across Australia have been running the ruler over Australian business measuring the impact of a price on pollution. The conclusion is consistent and clear – the government’s carbon tax will have minimal impact on earnings.
Whether it’s analysis by Goldman Sachs, Citi, Deutsche Bank or JP Morgan, the results are the same – very few Australian companies are likely to see earnings impacts of 2 per cent or greater. At a time of soaring profits across the mining and resources sector that cost is marginal at best.
Corporate Australia appears to be in full agreement with this analysis; we are yet to see any warning to investors of earnings downgrades due to imminent pollution regulation. No analysts have been downgrading companies based on future carbon price liability.
But perhaps this is the marginal cost imposition that will break some of our key manufacturing industries?
BlueScope Steel would certainly have us think so. But five years of European emissions trading experience tell a different story.
European experts visiting Australia recently have shed some light on the impacts of the European ETS. Rather than sending steel-making offshore, Deutsche Bank reported that European steel makers have made extensive productivity gains, strengthening their industry.
That really shouldn't come as a surprise – innovation rarely happens without incentive. It’s time Australian businesses had an incentive to cut pollution.
Woodside’s calls last week for exclusion from the carbon tax are an example of the very worst of two-faced corporate lobbying.
The company has developed a reputation for selling the strong prospects of LNG in a low-carbon world at investor briefings, while threatening the loss of tens of billions of dollars of investment in the media.
There is simply no special case to exclude LNG from the carbon pricing mechanism. If we want to harm the economy, the best way is to carve out exclusions like these, which then pile up as additional costs to others.
The Prime Minister should be confident to face down the big polluters as evidence shows industry’s claims are without merit.
Business leaders should tread carefully as they front the government and media claiming a need for compensation without merit. While representing their private interests, their claims risk running foul of corporate disclosure requirements.
A close shave in 2009 allowed six Australian companies to narrowly escape investigation by the Australian Competition and Consumer Commission. The complaint – lodged by the Australian Conservation Foundation and the Australian Climate Justice Program – that companies were engaging in misleading or deceptive statements in their efforts to influence climate change policy, was a warning to corporate Australia.
The ACCC, ASX, ASIC (and indeed NGOs) will be monitoring closely any statements claiming huge potential losses above and beyond what is being reported to investors.
It’s unlikely the Australian public will offer much sympathy for corporate welfare this time around, with most big polluters declaring massive profits and being described as “buried in cash”.
The big polluters ought to be careful what they wish for. The void left after the failure of the CPRS proved scarier, and much more costly, for Australian businesses than the CPRS itself.
Rising electricity prices across the nation are evidence of this, as expensive investments are made in peaking power to bridge the gap until the regulatory frameworks are set.
Pushing too hard, at this stage, for an unfair level of industry assistance could result in a near impossible investment climate and electricity prices increasing well above the modest rises likely to occur due to a price on pollution.
Compensation for corporate Australia takes away funds from compensation for low-income households and investment in clean energy technologies that will generate the cheaper power of the future to fuel Australian businesses in the coming decades.
Simon O’Connor is the Australian Conservation Foundation’s economic adviser
Comments on this article
Fronts for polluters
Not sure what is happening - can't delete double comments but can edit them. My system seems to be going haywire.
Fronts for polluters
It always amuses me how heavy industries creep up to the public with their positions disguised behind organisational names like Australian Industry Greenhouse Network.
Sadly the average Australian doesn't have the time to look at who they really represent and thinks they are an independent group that puts the environment first.
It is, of course, an intentional, cycnical deception by people who have no vested interest in truth or transparency, just the bottom line for shareholders and the lies needed to boost their own paypacket without regard to the consequences for anyone else.
Thermal proflagacy
A blast furnace generates massive amounts of heat from the exothermic reduction process. A truly efficient steel works would be using this energy to generate electricity for sale to the grid. This return could be used to offset the CO2 emmissions costs. It might also be used to warm some of the homes in chilly wintertime Pt. Kembla.
If we have to pay more for
If we have to pay more for electricity - so be it, we will manage. But what is not acceptable is those listed below not taking any responsibilty and trying to manipulate the public with cries that everyones jobs is going to go up in smoke. Go to Africa, go to South America - these companies love the stabilty that Australia provides and they are mostly not going anywhere!
AIGN Members include the usual bunch:
Industry Association Members
Australian Aluminium Council - Australian Coal Association Australian Food and Grocery Council - Australian Industry Group - Australian Institute of Petroleum - Australian Petroleum Production and Exploration Association - Australian Plantation Products and Paper Industry Council - Cement Industry Federation - Federal Chamber of Automotive Industries - Minerals Council of Australia - National Generator's Forum - Plastics and Chemicals Industries Association
Individual Business Members
Adelaide Brighton Ltd - Alcoa World Alumina - Australia BlueScope Steel Limited - BP Australia Limited - Caltex Australia - Cement Australia Pty Ltd - Chevron Australia Pty Ltd - CSR Limited- ExxonMobil Australia - Limited Hydro Aluminium - Kurri Kurri Pty Ltd - Incitec Pivot Limited - Inpex Browse Ltd - Leighton Holdings Ltd - Origin Energy Limited - Qenos Pty Ltd - Rio Tinto Australia Limited - Santos Limited - Shell Australia Limited - Tarong Energy Corporation Limited - Thiess Pty Ltd - Tomago Aluminum Company Pty Ltd - Wesfarmers Limited - Woodside Petroleum Limited - Xstrata Coal Australia Pty Ltd
ETS and Compensation
Thanks Michael: yes, a bit clearer. I suppose your percentage mirrors the Government's view then - 50% of revenue from the ETS used to compensate households; with the remaining 50% for industry assistance and renewable energy investment.
However, Garnaut proposes 90% compensation to "high emitting" EITEIs; and 60% to "medium emitting" EITEIs (similar to the CPRS compensation but without the recession buffer) - so they will not be paying 100%. I suppose the point is: will these industries still pass on the cost to consumers (as happended under Phase 1 of the EU ETS) and reap windfall profits or will they use the compensation to protect consumers? As "directors" main obligation is to their "shareholders" return on equity - I would say Australian companies will not use the compensation to avoid passing the full cost onto consumers.
Avoid the Carbon Pollution Tax By Switching to Renewables
The simple response to avoid the proposed tax on carbon pollution is to switch to renewable electricity generation and implement energy efficiency measures.
Big business will need to finance and build renewable energy infrastructure as they transition from fossil fuels, with Federal government assistance by virtue of the carbon pollution tax.
Medium and small businesses will source their supplies from companies whose costs are lower by virtue of them switching to sustainable practises and avoiding carbon pollution tax.
Households will have larger electricity bills, again fully compensated by the carbon pollution tax. They can also choose to implement energy efficiency measures to lower those bills, a win/win situation for them and the environment.
Prices of goods and services will not rise as much as the naysayers spruik, if at all, because the usual market constraints will apply. Businesses that adapt and adjust will thrive because they won't be paying the tax on carbon pollution.
Australia, having switched to 100% renewable energy, will be insulated from world fossil fuel pricing fluctuations. In fact, we'll eventually have complete energy security, no longer needing to play the 'chase the ever diminishing energy resources' game. Employment will skyrocket. We will have a competitive world market advantage, pricing our exports below those of countries still reliant upon fossil fuels.
OK, everyone who can catch this vision I challenge you, let's encourage business, unions, householders and government to get on board as strongly as we can for the sake of our great land and it's people.
Sorry Dermot if my post was a
Sorry Dermot if my post was a little cryptic and was misleading.
Electricity generators will initially pay 100% of the tax on their emissions, but they are able to pass most of (but not all) that tax onto electricity consumers, including households. Trade exposed industry will also pay 100% of the tax on their emissions, but they cannot pass-it on because importers and international markets for exports set prices.
The net result is that households will have about 45% of the tax passed onto them, and that is how much compenstaion they should get.
Michael Hitchens
AIGN
Lobby Groups
An excellent example of Industry needing to be careful: Garnaut notes that Australia's 21st Century productivity malaise is in part caused by lobby group's self interest over the national interest. 10% seems an awfully small amount for the "polluters" to pay in proportion to 45% to "low & middle income" earners. I suggest some "scale" be introduced to Michael's statement re: polluters/tax payers being the same people. Yes, we use electricity but the top 1000 or so in the covered sectors product it - we don't have much choice which electricity we use - a little mis-leading.
There has never been any
There has never been any truth to the statement that assisting industry takes away funds from low and middle income earners. The carbon tax means that the "taxpayers" and the "polluters" are the same people.
Treasury analysis of the impacts of the carbon tax on the CPI shows that low and middle income polluters will pay about 45% of the cost of the tax; import and export competing industry polluters will pay about 45%; and coal-fired electricity generator polluters will pay up to 10%.
All industry has ever asked for in the transition to a global agreement is for the "taxpayer" dollars to be transferred to the "polluters" in the same proportion as to where the incidence of the tax finally lies. Treasury's analysis suggests 45% to low and middle income earners; 45% to trade-exposed industry; and 10% electricity generators.
Michael Hitchens
Australian Industry Greenhouse Network