Hunt replies to Combet

On Monday Climate Spectator published an article by Climate Change Minister Greg Combet suggesting the Coalition's carbon emissions reduction fund was a stop-gap measure and they would ultimately back away from rescinding the carbon pricing scheme. This is the reply from the Coalition Shadow Minister for Climate Action - Greg Hunt.

The government's carbon tax is in tatters and it only has itself to blame. It developed a scheme that was structurally unsound in making it completely dependent on decisions in Brussels. The entirely predictable crash in the EU price has therefore punched a chasm in the federal budget and ruined any prospect of actual emissions reduction in Australia.  

And how have the federal government and its few remaining die-hard supporters responded to this disaster? By claiming their system is a success. Seriously!

Let's understand exactly what is happening now, both internationally and in Australia. The Economist has declared European carbon credits to have junk bond status. The director of carbon trading at Point Carbon, the leading global carbon trading site, has predicted that the European system will not reduce a single tonne of emissions between now and 2020. And not surprisingly, European Parliamentarians have revolted against rising power prices. 

As a consequence, carbon prices in Europe have suffered a 30 per cent drop in a single day.  There continue to be wild swings, with the European system now marked by complete volatility. 

At a time when the US has rejected a carbon tax, Canada has abandoned the concept and Japan has shelved it, the Australian government has said "let's double down" and make our budget and electricity prices completely hostage to a system in wild gyration.

Has there ever been a time in Australian history when a government has willingly outsourced our budget and power prices to such a volatile system, let alone one determined in the halls of other parliaments? 

While the European carbon price has plummeted to about $4, the Australian tax is $23. On any given day it can be up to 600 per cent higher than the European system. And the ALP has guaranteed the Australian tax will go up again on July 1 this year and then again on July 1 next year.

As a consequence, three great problems emerge.

Firstly, the Australian carbon tax is not just six times higher than in Europe, it is also dramatically broader in its coverage across the economy. Australian firms are therefore at a massive competitive disadvantage to similar firms around the world. That is why Boral, Amcor and Penrice Soda have all cited electricity prices as a key cause of manufacturing job losses.

At the very moment that Australian firms are vulnerable because of the high dollar and low competitiveness, the ALP comes along and deliberately drives up electricity prices.

Secondly, the government's modelling claims that the Australian tax is set to soar to $37 per tonne by 2020. On that basis, the government has gone and spent this money – all of it – before it has been banked, by making future commitments.

This is exactly the same mistake they made regarding the mining tax. They spent revenue they hadn't received. A company director who did this would receive a very harsh ‘please explain’ note from ASIC. It's also exactly what has happened just this week with the entire Australian budget.

On budget night 2012 and in the days afterwards, the Coalition said publicly that the expectation of a 12 per cent increase in government expenditure in one year was utterly implausible. Revenue has gone up by $24 billion, so the government should have been able to get its finances under control. Instead, it seems that they were counting on winning Tattslotto. Well their numbers didn’t come up and were never going to.

We have now seen the same pattern three times. Overstating then spending the mining tax revenue before it was banked.  Overstating then spending the carbon tax revenue before it was banked and now overstating and then spending the entire budget revenue. Surely there must be a three strikes rule somewhere here? 

With the government now conceding that they have got their figures wrong, the carbon tax black hole of up to $6-7 billion will have real consequences.

What this means in the real world is that Australians will have soaring electricity prices for the next two years followed by having to pick up the bill for a broken budget.

And in the midst of all this, most amazingly, the government's own figures show that the carbon tax won’t even reduce our emissions. At the cost of $9 billion a year it doesn't even do the job it was intended to do, with emissions set to increase 77 million tonnes between 2010 and 2020 based on the government’s own figures.

The third consequence of the government's actions is that we lose control of our own taxation system. We are not immune to international events and we rise and fall to obvious degrees based on the world economy. But to deliberately tie our taxation and electricity pricing system to decisions in other parliaments is sheer economic irresponsibility.

By contrast, the Coalition’s approach is very simple. We aren't going to tax companies, we aren't going to drive up the price of electricity and we aren't going to make our budget hostage to other parliaments. What we are going to do is support incentives for those reducing emissions, which is precisely the environmental outcome we should be seeking.

It will be supported by an Emissions Reduction Fund beginning at without $300 million a year to buy back carbon, in a similar way to the Australian water buy back system or the international Clean Development Mechanism (CDM).

Instead of trying to crush economic activity, it is designed to reward real reductions in emissions on a lowest-cost basis. It will be determined through a reverse auction process. And it will use the existing Carbon Farming and Clean Energy Regulator systems so as to make the transition as straight forward and as seamless as possible.

Will we reach our targets? Yes we will. Will we do it without a carbon tax? Absolutely. And we will do it through real activities such as cleaning up landfills and waste coal mine gas, rather than a tax which is six times higher than Europe's before blowing our budget.   

It’s an effective environmental policy based on structurally sound financial principles – an approach Minister Combet appears unable to understand.

Greg Hunt MP is the Shadow Minister for Climate Action, the Environment and Heritage in the Federal Parliament.