Coles will sell the Gillard carbon plan

Julia Gillard's messaging on a carbon tax-driven inflation spike is unlikely to hit home with voters. But she's not the only one talking about price rises.

Prime Minister Gillard did a decent enough job explaining the carbon tax on the ABC's Q&A last night, though as a thoroughly coached media performer she should have dwelt a little longer on one phrase in particular: "in line with Treasury forecasts".

Gillard mentioned once or twice that the flow-through of increased energy costs to consumer prices looks, at this stage, to be pretty much what Treasury said it would be at last year's carbon tax announcement in Canberra.

Treasury expects power prices to rise by about 10 per cent, for instance, and the New South Wales and Queensland energy regulators have recently released their own estimates of 9 per cent and 11 per cent respectively.

Gillard said that around 1 percentage point would be added to CPI in the year ahead – a rounded version of Treasury's 0.7 per cent forecast.

As luck would have it – and Treasurer Swan secretly knows his beautiful numbers reflect a good deal of luck – inflation is currently low (Swan's beautiful numbers check out, June 7). Underlying inflation is just over 2 per cent (headline CPI is 1.6 per cent y/y), making this a pretty good time to experience the one-off carbon-tax CPI spike.

So Gillard's message last night was the right one – and as usual, it will fail to cut through with the voters she needs on board to have any hope of holding power at a 2013 election. Today's Newspoll shows no upward momentum in Labor's primary vote. Gillard just fails to cut through.

But then Julia Gillard is not the only one talking about CPI and the carbon tax. Our all-powerful grocery retailing duo, Woolies and Coles, are threatening to give extremely close scrutiny to any price rises suppliers attempt to pass on.

Coles merchandise director John Durkan told The Australian: "We will pass on legitimate supplier cost increases arising from the carbon tax, in line with Treasury forecasts, but we will be looking for full transparency on cost inputs to ensure such requests are justified."

So there it is again – "in line with Treasury forecasts".

The truth is that the Treasury forecasts are eminently survivable, and put the lie to what Labor calls the "scare campaign" run by climate bogeyman Tony Abbott. The Abbott line, which Climate Minister Greg Combet thinks will start to unravel after July 1, is that a market-based approach to pricing carbon will be a much greater drag on the economy than his own tax/spend plan – an argument that attempts to overturn decades of market-based wisdom.

But there are still market-based thinkers in Treasury. Following the one-off CPI rise, Treasury expects average economic growth to run at 1.1 per cent per annum, rather than a business-as-usual rate of 1.2 per cent.

Within that growth pattern, the economy will be undergoing two dramatic structural adjustments – a re-weighting of the workforce towards the minerals and energy extraction industries, and a rebuilding of Australian energy infrastructure around renewable, or at least lower-carbon-emitting, energy sources. (Let's skip, for the moment, the irony of shipping coal to the world as fast as possible while building wind farms at home).

Way back in the early 1990s, celebrity scientist David Suzuki explained climate change with a simplified risk management statement (and I'm paraphrasing here from memory): "If we act as if it matters, and it turns out not to matter, it doesn't matter. If we act as if it doesn't matter, and it turns out to matter, we're in big trouble."

That statement, at that point in time, highlighted the extremely low cost of climate change risk mitigation – but only if acted on there and then. It was perhaps the biggest ever 'stitch in time to save nine' we've ever seen.

We didn't do it, of course. The West instead pumped vast quantities of capital and blood into fighting the two Gulf Wars (1990-91 and 2003-2011), to keep oil flowing from the Middle East.

The cost of carbon emissions abatement in 2012 is much higher. And it will be much higher again when an Abbott government has been and gone – and after it has cost the economy a lot more than the current Treasury forecasts by opting for an expensive command-and-control 'Direct Action' carbon abatement program.

That's assuming it actually tries to hit the 5 per cent by 2020 emissions reduction that both sides of politics have written into their policy platforms.

Gillard's message on climate action is strong. And it gains her absolutely no traction with voters. That's a job Coles and Woolies, with their infinitely superior communication resources, may have to do for her.

Follow @_Rob_Burgess on Twitter.

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