This is bad news for the minerals sector and exporting industries more generally. The CPRS did not adequately protect Australia’s export sectors and should not be the template for the new carbon pricing system.
The Minerals Council of Australia has made it clear to the government that we will not support a carbon pricing system that fails to maintain the international competitiveness of Australia’s export industries.
An economic analysis shows a CPRS-style approach will expose the vast majority of Australian exporters to the full brunt of the world’s highest carbon costs ahead of their international competitors.
While the MCA agrees that it is necessary for Australia to make a measured transition to a low emissions economy, we do not accept that we need to unilaterally sacrifice the competitiveness of Australia’s trade sector in the process.
Unless we safeguard our export industries in the same way other countries are, then we will put Australia at an international disadvantage. The consequence will be a loss of jobs and national wealth for zero environmental gain.
Where carbon pricing schemes are being implemented or planned internationally, governments are adopting a phased approach to the introduction of a carbon price in order to protect the international competitiveness of their export and import competing industries. The European Union is principal among them.
The EU scheme recognises the importance of a firm’s trade exposure when assessing eligibility for measures to ensure continued competitiveness and acknowledges that export and import competing firms operating in fiercely competitive global markets cannot pass on the additional costs to their customers.
The CPRS model failed to do this, focusing instead only on a firm’s emissions intensity.
The EU scheme gives the same weight to a firm’s trade exposure as its emissions intensity. The upshot is that more than 70% of EU sectors (117 of the 164 European industry sectors) will qualify under the EU’s trade intensity test and be allocated permits for up to 100% of their direct emissions. EU trade exposed firms will also be eligible for assistance from EU member states for higher electricity costs.
In contrast, under the CPRS model more than 80% of Australia’s merchandise exports will face the full brunt of carbon costs from the outset of the scheme. Under the CPRS EITE framework, sectors accounting for 90% of total manufacturing employment in Australia will receive no transitional assistance to preserve their competitiveness.
The EU also applies a non-discriminatory and practical approach to the treatment of all its trade-exposed sectors. The EU has taken a pragmatic approach to fugitive emissions from coal production, which are excluded from the EU ETS until uncertainties about the accuracy of the measurement of fugitive emissions are resolved.
In contrast, emissions from coal mining (including fugitive emissions) under the CPRS were arbitrarily excluded from eligibility for assistance despite qualifying under the scheme criteria.
Unfortunately, the government does not appear likely to adopt the same kind of safeguards that Europe offers its exporters.
Climate Change Minister Greg Combet has rejected the EU scheme, describing it as being worse than the CPRS. The minister would appear to be badly briefed on the subject.
Contrary to the minister’s understanding, European trade exposed firms will be compensated for both direct emissions costs and higher electricity charges.
The minister has claimed that the EU ETS scheme will not (after 2013) compensate trade-exposed firms for the impact of higher electricity costs. He also has said the EU will limit support to a cap of 29% of permits. This cap applies to direct emissions only and there is no proposed limit on additional compensation for electricity price increases. Under the CPRS EITE model support for Australian firms (for both direct and indirect emissions) is estimated at 25% to 28%. The Greens propose a 20% cap.
It is difficult to reconcile Combet’s position on the European scheme. He has previously lauded it, citing the scheme as a model for Australia.
On February 28 on Sky News, Combet was asked “which scheme would you hold up as the model you would most like to follow, that has done the best when it comes to pricing carbon?”
He replied: “Well I think the phasing in of the European Union emissions trading scheme has had some teething problems, but is getting underway effectively”.
This article first appeared in the May 2011 edition of Australia’s Mining Monthly magazine.