Australian Carbon Pricing

Australian Carbon Pricing

Ecoal, Vol 75, August 2011

The Australian Government is about to propose carbon pricing legislation to Parliament that will have Australians embark on a major restructuring of its economy over coming decades. The objective is to reduce Australia's contribution to global greenhouse emissions.

Carbon Tax

A carbon tax is proposed as the centrepiece of a set of policies aimed at improving energy efficiency, switching electricity production away from coal towards gas and renewables and shifting economic activity away from emissions intensive industries. The proposal incorporates provisions to compensate some Australian consumers and some industries for the costs they will incur as a result of this policy. However, it also exempts some emitters - including large emitters such as agriculture and motorists - from the tax.

While the Australian coal industry argues this is not a good tax for Australia or for Australian coal mining in its proposed form it recognises that action on climate change is necessary. The industry also supports a carbon price as a means of reducing emissions - but not one that will cut Australian jobs with minimal impact on global emissions. This is the result of the tax based on independent mine-by-mine modelling by consultants ACIL Tasman.
The main arguments mounted against the Government proposal are:

• Australia is moving well ahead of major global emitters such as the United States, China, India and most of the countries with whom we compete in global markets
• Australia's 1.5 per cent contribution to global emissions means that our actions will be ineffective in terms of influencing global climate
• the tax will impose costs on Australian mining, manufacturing and service sectors that will render them less competitive in global markets and at home where they face competition from imports.

Impact

The main impact of a carbon tax on the coal industry will not be via the emissions from the use of coal but from the emissions that arise as coal is mined.

Certainly none of Australia's competitors in coal export markets - countries such as Indonesia, Colombia, Russia, South Africa or even Canada and the United States with their large coalmining industries - are contemplating such a measure. The Centre for International Economics in Canberra recently produced a report confirming this to be the case.

Although Australia is the largest exporter in the global seaborne coal trade it in fact accounts for less than 6% of global coal production. Furthermore Australia's share of global production is falling - world coal production has increased by 66% since 2000 while Australia's is up by 40%, China's by 141%; Colombia's by 91% and Indonesia's by 319% - note the last two - they are major exporters and competitors of Australia. Other major competitors include South Africa and Russia with Mozambique and Mongolia as emerging major players.

Growing Global Demand

In summary, coal production is rising rapidly in other countries to meet growing global demand and any reduction in Australian coal production will simply be replaced by increased production elsewhere. An $18 Bn tax on the coal industry with less than $1.5 Bn transitional assistance to address industry competitiveness doesn't add up.

The coal industry will continue to press its case to introduce a carbon tax based on three principles. These involve phasing-in the tax so Australia can make the transition to a low carbon economy without reducing job opportunities in the short term; ensuring Australia acts in step with our major trade competitors and partners; and Carbon capture and storage is the key technology for reducing emissions from continued use of coal and gas.

The full address, ACIL Tasman and Centre for International Economics research reports are available at www.australiancoal.com