Climate Change Update

Today the Minister for Climate Change and Energy Efficiency, The Hon Greg Combet AM MP announced more detail on the Gillard Government’s carbon price mechanism.

Minister Combet emphasised that the carbon price will be revenue neutral, resulting in no net spend by government. All of the money raised by the carbon price will go to either household assistance, support for jobs in affected industries and measures to encourage the transition to cleaner energy.

More than half of the revenue generated will go to assisting households, so that millions of Australian households will actually be better off. This household assistance will be permanent.

Minister Combet re-stated that action on climate change is in the national interest, since “the evidence of atmospheric warming is very strong, and the potential for dangerous climate impacts is very high.” He cited examples from around the world of government action on climate change, saying that in acting now Australia is not moving ahead of the pack, but rather in concert with other nations, including China, the United States (at both state and federal level), South Korea, India and across Europe.

According to Minister Combet there are six key arguments that back the government’s decision to implement a price on carbon:

  1. Australia is amongst the top polluters in the world and releases more carbon pollution per capita than any other country, with emissions continuing to rise. We therefore have a responsibility to act.
  2. It is necessary to cut Australia’s carbon pollution levels. It is a myth that other countries are not acting on climate change. Although the process through the United Nations is slow, many countries are already taking action to reduce their emissions and emissions intensity in the absence of a global agreement.
  3. A carbon price is the most efficient way to cut carbon pollution, because it will create a financial incentive to do so while driving investment in cleaner energy sources. As a result of the carbon price, the economy can continue to grow without the associated growth in carbon pollution levels. The technology is already available to move towards a lower emissions future.
  4. The carbon price will directly affect less than 1,000 companies and will create the incentive for them to find the most cost-effective way of cutting their emissions.

“The Government is committed to providing transitional assistance to our emissions-intensive, trade-exposed industries to avoid carbon leakage, and to provide for a long-term transitional adjustment for these industries.”

The Government has negotiated with industry stakeholders to ensure that the imposition of a carbon price does not result in Australian job losses and carbon leakage, whereby production is moved to countries without similar carbon constraints.

  1. Generous household assistance will be provided to offset the costs that may be passed on to consumers by high-emitting companies. The priority will be to assist pensioners and those on low to middle incomes.
  2. Lower emissions energy sources will become relatively cheaper and more attractive; and the carbon price will provide certainty for investors in clean energy.

The Minister recognised the competitive pressures faced by energy-intensive trade-exposed sectors including currency fluctuations and commodity prices, however he stressed that these factors are not driven by the carbon price and are in fact more likely to have a substantial price effect than a carbon price would. He explained that, for example, if the carbon price were to be set at $20 per tonne of pollution:

“the carbon cost relating to the core pollution activity for steel would be one third of one per cent of the value of a tone of steel and three quarters of one per cent of the value of a tone of aluminium.”

The detailed design of the carbon price mechanism is underway, with Treasury modelling due to be completed later this year. Minister Combet announced that the detailed design of the scheme would be finalised in time for the legislation to be introduced into the Parliament in the third quarter of 2011.

A copy of the Minister’s speech is available here.

Hawker Britton’s previous analysis of the Government’s carbon price is available here.