The Melbourne-based think tank argues in a new report that even taking into account recent commodity prices and exchange rates "the level of protection in the draft legislation is unjustified and costly" and compensation, especially to the LNG and coal sector, is "protectionist”.
The report maintains that the viability of LNG projects would not be significantly affected even under a higher carbon price scenario.
"With no protection, even if carbon prices rise, for example, to $40 per tonne of CO2 – well above the Treasury forecast to 2020 – it is difficult to foresee large job losses in black coal mining or LNG production,” it says.
"Exemptions for LNG production put a particularly heavy burden on the rest of the community because its emissions are set to double in the next decade.”
The report notes that the proposed carbon price of $23 per tonne of CO2 or even a higher price of $40 is unlikely to change investment decisions for new LNG facilities or production from existing facilities.
Furthermore, an imposition of a carbon price in Australia is unlikely to increase global emissions by preventing fuel switching from coal to gas.
"Bereft of these justifications, free permits or an exemption for the LNG industry will simply increase the cost to Australia of achieving its emissions target,” the report says.
The report claims proposed government assistance to the LNG industry will amount to $4 billion from 2012-2020 and says it would be unfair if the free permits allowed the LNG industry to avoid its fair share of carbon costs.
The report also points out that a carbon price is of second-order factor in the economics of LNG projects and investment commitments made since July 2008, when the government released the CPRS Green Paper, suggesting that companies are fairly confident of returns on investment despite the likelihood of a carbon pricing scheme being implemented.
Similarly, with regards to coal mining, the report notes that the substantial rises in the price of thermal and metallurgical coal- which rose by $25 per tonne and $90 per tonne July 2009 and July 2010 respectively and have outpaced the rise in the Australian dollar- provides the industry with greater flexibility to absorb the carbon costs.
"...for 90% of thermal coal mine production and 70% of coking coal production a carbon price of $40 would add less than $4 per tonne of coal produced.
"The risk of carbon leakage in the coal secgtor from carbon prices currently in contemplation ($23 /t CO2 up to $40 /t CO2 or possibly $50 /t CO2) is too small to justify any assistance from the government, let alone the complete exemption the industry has sought," Grattan concluded.
The report also seeks to refute claims that a carbon price would significantly erode Australia's international competitiveness. It points out that since coal markets across the world are highly fragmented, "suggestions that our industry is therefore in fierce competition with every other coal-ming region in the world and easily replaceable are exaggerated."
"In markets in which Australia competes (largely the Asian seaborne coal market and in particular Japan, Korea and Taiwan) Australian coal production represents a large proportion of supply. Australia's dominance of these markets is likely to continue," the report stated.