Gillard can't win on carbon tax

The failure of the EU Parliament to pass the European Commission’s proposal to postpone the sale of 900 million emission allowances until the back-end of this decade has reignited a range of criticisms of the carbon pricing scheme. But in some respects it appears that no matter which way this thing goes, the government can’t win.

For the past two years business lobby groups and the opposition have been complaining that the carbon trading scheme will exact a huge cost on industry and households such that it would be like a wrecking ball on the economy.

Now it looks like the price will be so low that households will end up clearly ahead, as tax cuts will substantially outweigh price increases. Industry, meanwhile, will see next to no difference in their cost structure once you consider that those industries with major exposure will receive upwards of 90 per cent of their permits for free. 

The only loser seems to be businesses and investors who took politicians on their word that they were genuinely serious about developing a low carbon economy and avoiding dangerous climate change.

Yet, in the newspapers today, the government is still getting criticised from the same polluting interests that will actually benefit from the EU Parliament’s decision, and from the Coalition who wish to abolish the carbon price altogether.

So while households are now well and truly overcompensated, the carbon price is still bad because even though the economy will now actually be stimulated, the government now has a multibillion dollar hole in the budget.  

What seems to have been forgotten is the Opposition has an even bigger budget black hole. While the government’s revenue from the carbon price will be much, much lower than budgeted, the opposition would see precisely zero revenue from the carbon price while still being locked into the same tax cuts and pension and benefit increases. The Opposition then has to find several additional billion dollars to pay polluters to reduce their emissions.

Also the Business Council of Australia and the Australian Industry Group seem to conveniently ignore the reality that the industries for which carbon pricing is a big deal (steel, aluminium, cement, alumina refining, oil refining) only end up paying less than 10 per cent of the actual carbon price impost thanks to free permits (and in a number of cases will have more free permits than required). This means the fixed carbon price of $23 work out to more like $2.30. 

Is Australia’s temporarily fixed carbon price really such a big competitiveness issue when lobby groups representing the same polluter interests were arguing a few years ago that Europe’s $40 carbon price wasn’t relevant because they weren’t a genuine trade competitor? 

When BCA chief Tony Shepherd was asked yesterday about his views on the Opposition’s climate policy and plan to repeal the carbon price, his heavily hedged response was quite revealing. 

While he strongly criticised the Australian fixed price being above the price of EUAs, he said the BCA supports a market-based mechanism.  He then attempted to partly dodge the question by saying he couldn’t comment on the opposition’s alternative because they hadn’t released it yet (which will come as news to shadow Climate Minister Greg Hunt). 

In reality the BCA membership is aware they’ve got an extremely sweet deal out of the current carbon price policy with its generous free permits and effectively unconstrained links to cheap international credits.  They’d much prefer the known quantity of the current carbon trading policy to the uncertainty involved in dumping it. Plus they can use the existence of the carbon price to justify scrapping a range of other carbon emission control policies they don’t like such as the Renewable Energy Target, as well as block any new initiatives.

The reality is that the Direct Action policy with its reliance on the budget for funding will not last the test of time. And who knows what might come in its place. Far better the mortally wounded carbon pricing devil you know for the BCA and Australian Industry Group.