Lend Lease innovation highlights a carbon tax flaw

The current carbon trading legislation fails to offer a strong incentive to seek lower emission alternatives to cement and steel – and this will hurt the push for greener buildings.

Last Friday, Lend Lease unveiled to the media the world’s tallest apartment building constructed using wood as its structural material, rather than concrete or steel.

Employing a technique known as cross-laminated timber (CLT), where sheets of wood are pressed and glued together, it can achieve similar structural strength to steel and concrete, but with much lower embodied energy and greenhouse gas emissions. Lend Lease claims that a CLT apartment building will also require less energy for heating and cooling.

Unfortunately, the current design of the carbon tax or trading scheme fails to reward the use of wood over steel and cement due to the substantial free permits awarded to steel and cement production in this country and no carbon tax applying to imported cement clinker and steel. Together, the emissions associated with these two commodities alone (including imports) are equivalent to about 5 per cent of Australia’s total emissions. 

While the height of the Lend Lease building under construction at Docklands in Melbourne isn’t all that amazing at ten stories, buildings up to this height would account for just about all residential housing and a fair chunk of non-CBD commercial building construction. Following the outcomes from this current building, Lend Lease is is aiming to develop 30-50 per cent of its apartment pipeline using cross-laminated timber. In addition, as the population of Australian cities swell, residential housing will increasingly need to go upwards rather than outwards.

The ability to continue to construct this housing using wood rather than steel and concrete will be important to containing construction-related greenhouse gas emissions.  

The important thing is that this is not the only instance where there are opportunities to substitute or become more efficient in the use of highly carbon intensive steel and cement clinker. For instance an Australian start-up company called ZeoBond has developed an alternative method of producing cement which involves 80 per cent lower emissions than use of straight clinker. That’s why it’s important that the price of cement and steel reflect the cost of carbon permits, to give users a strong incentive to seek lower emission alternatives.

Importantly, to protect against cement and steel production simply migrating overseas for no emissions benefit, any carbon tax or price must apply to imported as well as domestically produced cement and steel. Just like we do with the GST, it is possible that both domestically and imported cement clinker and steel sold in Australia could have a carbon tax applied. Exported material could then have the tax rebated. This would be far less distortive than the current plans to provide 94.5 per cent of carbon permits for free to steel and cement clinker producers.

Some suggest that such a border tax adjustment would be protectionist and illegal under World Trade Organisation rules. This might be true for the kind of border tax adjustments that many in industry and the union movement probably have in mind. But provided both domestic and imported materials are treated on an equivalent basis, this should not unfairly distort trade and should be consistent with World Trade Organisation rules. After all does anyone argue that the GST is protectionist?

I should note that border tax adjustments should not be a blanket measure applied to all trade-exposed production in Australia. Cement and steel are a special case where production is almost entirely directed towards the domestic market.

However, for materials that are predominately produced for export such as alumina or LNG, a border tax adjustment would be a very bad idea. That’s because such a measure would effectively constitute an exemption from the carbon tax, removing the incentive for them to reduce emissions.

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