THE DISTILLERY: Pressed carbon

Only one issue this morning for the jotteratti: the carbon tax. But offshore a bigger threat continues to evolve: Italy, or fears that questioning markets have decided it needs to deleverage. Markets slumped yesterday (except for gold). If this continues to develop, it's possible the carbon tax debate could be swamped. But more carbon was emitted by our covey of commentators and their sources yesterday, analysing and criticising the tax and all those other bits. And one deal yesterday completely undermined much of the criticism. So let's allow the jottery to tell us what they think this morning.
 
Fairfax's Ian Verrender wrote: "Brace yourselves for the onslaught of the ideologues. Between the rapturous claims from the green movement that Julia Gillard's carbon tax will save Mother Earth and the ranting from highly paid shock jocks and their political masters pronouncing the nation's impending doom, it is worth taking a deep breath and looking at a few hard facts. As the debate over pricing carbon moves to the extremes, the shrill cries from either side long ago drowned out the truth."
 
The Australian's economics editor, Michael Stutchbury, wrote that the carbon tax package will be lucky to "survive": "And any hiccup in our China luck could expose the budget weakening produced by $4 billion of extra carbon package spending over four years that Swan suggests does not have to be offset to meet Labor's fiscal rules. The Treasurer is clinging to his promised 2012-13 surplus by shuffling this spending so that it actually improves his bottom line that year. The problem is that Australia now has to digest two massive price shocks and the threat of global economic instability. It will be a triumph – even a miracle – if Gillard's carbon price survives the pressure."
 
The Financial Review said: "Economists have raised questions over the federal government's claims that the carbon tax will cause little harm to growth amid uncertainty about how the impost will affect investment, consumption and sentiment." And it also said: "Investors are considering pouring billions into clean energy projects but there are doubts whether there will be sufficient opportunities to spend the money." The paper further reported: "The Greens are keeping an "open mind” on the government plan to spend $300 million on the steel industry to help it adjust to the looming carbon tax, as steel makers BlueScope and OneSteel praised the government assistance."

Fairfax's Adele Ferguson wrote: "The Gillard government would do well to remember the ghost of the disastrous Victorian Economic Development Corporation when it is scoping out its new $10 billion green bank, which will be bankrolled by taxpayers as part of the new carbon tax program. The VEDC was set up as a venture capital fund in the 1980s to pick winners. It collapsed ingloriously due to poor management, a lack of transparency and a blatant inability to pick winners. Tricontinental Bank was another government-inspired bank that lent money to entrepreneurs, only to collapse in a heap in 1990. In the case of the Clean Energy Finance Corporation, it is already carrying the hallmarks of being half baked, agenda-driven and creating profound distortions in the renewable energy market."

The AFR and other papers reported that: "Macarthur Coal has received a $15.50 a share takeover offer from US miner Peabody Energy and global steel maker ArcelorMittal just a year after Peabody made an unsuccessful takeover offer for the miner." So much for the negatives for the coal industry from the carbon tax. And The Australian's Bryan Frith wrote this morning: "There is also greater certainty now about the mining tax, following its reworking by the Gillard government. This time around Peabody is proposing a takeover bid rather than a scheme of arrangement and it will be conditional on a minimum acceptance of only 50.01 per cent, which means that it would not be dependent upon acceptance by CITIC. Moreover, Peabody has secured the support of ArcelorMittal and the pair propose a joint bid."
 
The Australian's John Durie wrote this morning: "Timing is everything. Last time Peabody Energy had a crack at Macarthur Coal, the local mining industry was about to be hit by plans for a mining tax. This time it is the carbon tax that worries the industry, even though its impact is less significant. The mining tax was used to cut a $16-a-share bid to $15 a share, but this time Peabody has clearly figured the carbon tax isn't a big issue. This should please the government, coming as it does when voluble mining industry lobby boss Mitch Hooke is screaming "we will all be ruined"."
 
And The Australian's Matt Chambers pointed out: "While Tony Abbott was addressing workers at Peabody Energy's Wambo mine in the Hunter Valley on the perils of the carbon tax yesterday, promising he would devote the rest of his political life to overturning it, he gave no sign he knew his host had hatched plans to make his quest a little bit harder. Julia Gillard had barely finished the Sunday afternoon announcement of her carbon tax plans when St Louis-based Peabody, which bills itself as the world's biggest private-sector coal company, and ArcelorMittal, the world's biggest steel company, lobbed a joint proposal to buy Brisbane-based Macarthur Coal for $15.50 a share. Last night, Macarthur made the approach public."
   
Fairfax's Adele Ferguson wrote yesterday on smh.com.au: "The local stock market was always going to take a beating after the details of the Gillard government's carbon tax were announced. What wasn't expected was the extent. In the first few hours of trade the stock market was off more than 1.5 per cent, wiping billions of dollars from the value of stocks. The worst hit were the companies the government has targeted as the biggest 500 polluters, including the steelmakers, miners and building materials companies. Despite the compensation that will be paid to these companies and the formalisation of the carbon price at $23 a tonne from July next year, investors took the package as a negative for investment." More than $7 billion was wiped off the market's value, but more will be shed today after a very red night in offshore markets.
 
Michael Pascoe wasn't particularly impressed, writing on smh.com.au: "So that's why Wayne Swan was talking down the global economy last week – he was preparing the soil for a mini cash splash, the pensioners' "clean energy advance”. Or maybe it's part of a compensation plan for the pokies industry. It's hard to tell when politics and policy are so entwined. Swan is getting his compensation in first for the 3.4 million or so Australians on everything from the aged pension to Austudy, a nice little tax-free bonus of up to $250 each being delivered next May and June. Well, it's cheaper than installing a set-top box and it's a long way short of the GFC's fabled cash splash, the $900 cheques all round, but it still promises a healthy end-of-financial-year kicker for retailers. That's the benefit of giving pensioners, the unemployed and students money – they tend to spend it. Sure, the Department of Climate Change might set up another website and mail out brochures to offer advice on how to husband the lump sum in order to meet higher quarterly power bills down the track, but my guess is that most of the money will be gone when the electricity company calls."
 
And The Australian's John Durie was wary of some of the market reaction yesterday: "Initial stockmarket reaction to the carbon tax plan was muted, in part because most punters are still assessing the impact. The weak US job numbers and higher than expected Chinese inflation numbers are having as much influence on the bourse today as the government's carbon policy. Ironically, the biggest price falls came from steel stocks even though most argued they were the biggest beneficiaries of the compensation package."
 
And Tim Boreham, also on The Australian, yesterday noted the odd market reaction: "The sun may have risen in its usual manner this morning – albeit through a photochemical haze for city dwellers – but investors are taking fright after Carbon Sunday. Led by Bluescope Steel, down 6 per cent, most of the "polluters" were sharply lower today, despite the generous transitional measures that mean the trade-related stocks are compensated by up to 94.5 per cent. The overall market was 1.2 per cent lower following Wall Street's poor lead, so it's a chicken and egg (organic, low-carbon footprint) situation. Today's emerging expert view is that the main polluters – such as the steelmakers, building-material stocks and oil refiner Caltex – have been spared the full brunt of the carbon busters. So too have most households, which receive tax cuts, thus blunting any further deleterious effect on consumer sectors such as retailing."
 
This morning Boreham wrote: "Unimpressed by the government's efforts at replacing emissions with a new range of carbon-neutral acronyms, investors sent shares in prominent polluters (former manufacturers and power companies) south yesterday. Not even the promise of exemptions and compensation for trade-exposed polluters was enough to save them from a selldown, led by BlueScope Steel (BSL, $1.26) and the US-centric James Hardie Industries. While many bizoids welcomed a frisson of certainty after months of second guessing, investors remain either confused or worried. But it's hard to glean too much from the day-one reaction."