Carbon trading pressure is rising

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The Australian Government insists that it is not changing its plan to launch an emissions trading scheme in just over a year’s time, but the pressure to do so is rising as bad economic numbers roll in, and the advice it is getting from the business community has split in a very interesting way.

The general impression is that business lobby groups are pushing back uniformly and predictably against the emissions trading regime as economic headwinds roar in from overseas and sweep across the Australian landscape.

But that is not the case. Business groups agree that the global financial crisis has to be taken into account by the Rudd Government, but two of the most important ones advocate radically different responses.

The Australian Industry Group was a key backer of the plan to introduce a carbon trading regime in 2010, and it is now urging a moratorium. It says legislation enabling emissions trading shouldstill be passed this year, toeliminate uncertainty, but that the start-up of carbon trading should be delayed for two years, until mid-2012.

A 2012 start-up date would not see Australia miss its Kyoto targets - we are on course to satisfy them and will do so even more easily as the global recession pulls down growth and economic activity - and a 2012 start-up is more “attainable and realistic”, according to Australian Industry Group chief executive Heather Ridout, a key player in Kevin Rudd’s 2020 Summit.

Australian Industry Group argues that two forces make the existing July 1, 2010, start date for emissions trading impossible.

The first is that companies are struggling to put systems in place to handle the change, particularly as they work overtime to absorb shock waves from the global crisis.

The implementation pressure they are under is partly down to the Rudd Government’s decision to introduce carbon trading two years earlier than the Howard government had proposed.

The Howard government launched a three-year staged introduction of carbon emissions auditing and accounting that runs until 2011, a year after carbon trading is now slated to launch, and it was not brought forward when the launch date was advanced because there was no time left to do so.

The second force is, of course, the global economic slump. “Businesses are strapped for cash and with tightening credit markets, it is very difficult to see how extra liabilities and costs can be accommodated,” Ms Ridout wrote in The Age yesterday.

The Australian Industry Group issued its call for a moratorium a week ago. The reply from the Minerals Council, which represents the Australian mining industry, came two days later.

Superficially, it was another call from the big end of town for a retreat from carbon trading; the mining lobby group said commodity export income was sliding as the downturn hit our big export customers including Japan and China, and that the carbon trading scheme would multiply the loss of income, investment and jobs.

But it went on to say that “a simple delay in the start of the (scheme) is not the answer. That would simply be a stay of execution for jobs and projects in the minerals sector.”

What followed was a reiteration of the council’s argument in favour of an emission trading scheme, but against the structure of the scheme that the Federal Government is poised to introduce.

The Australian scheme sees permits sold off for $11.5billion in year one, raising funds the Government will then apply to provide offsets across the economy.

The Minerals Council has, however, been arguing consistently that permit auctions should be phased in, and given away initially, to dramatically ease the start-up cost to the economy and individual companies.

The precedent is the giveaway of permits in 2005 when Europe’s carbon trading system was launched, as part of a process that culminates in full-price auctions.

The conventional wisdom is that the European launch failed. European companies overestimated their emissions, were allocated permits that exceeded their needs, and booked big profits by selling the surplus into the carbon trading market. The result was a glut of permits that collapsed carbon prices and compromised the scheme’s ability to bear down on emissions.

The council argues, however, that this was a result of poor execution of the trading scheme, not poor design. The error was in the incorrect guesstimate of emissions, and the subsequent over-allocation of permits - a mistake the council argues need not be repeated here.

The Howard government’s decision to phase in compulsory accounting of carbon emissions over three years to 2011 reflected awareness that Europe’s system was launched before accurate data on emissions existed.

And while the accounting timetable is being pressured by the Rudd Government’s subsequent decision to introduce trading two years earlier, Australia will launch with a much greater understanding of its emissions profile than Europe had.

The miners will lead the way: mining and minerals processing is a dirty, emissions-heavy game, but the industry has been under pressure to reduce emissions for much longer than others. The big miners in particular know exactly how much they emit, and have been cutting their emissions for years.

Suggestions that Australia’s carbon trading system should be either redesigned or delayed will be opposed by those who believe that emissions must be pulled down quickly regardless of the state of the economy, and the Government is officially ploughing on after calling off a parliamentary inquiry last month.

Calls for relief are likely to gain traction and political weight as the economic downturn deepens, however, and the Minerals Council is reminding the Government a delay is not the only way to temporarily shelter the economy.

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