Monday, May 21, 2007

State governments act foolishly on climate change

The NSW Government’s deal with BlueScope Steel undermines Australia’s ability to come up with a carbon tax which significantly cuts into CO2 emissions. Premier Iemma’s deal exempts BlueScope from any future carbon tax for 25 years.

According to the Greens the Premier has been conned by the promise of creating 6000 jobs at Port Kembla. Moreover, other firms will use the BlueScope deal as a precedent to pick up similar favoured treatment.

BlueScope is the largest greenhouse gas emitter on the S&P/ASX100 sharemarket index. The scale of their non-greenhouse gas emissions can be seen at their website.

Indeed the AFR today (subscription requires) suggests the NSW Government will consider exempting some of the country’s largest firms from any emissions tax in exchange for obtaining major investments. As in the BlueScope case, the State Government will be left with a huge and growing liability for the tax because it will compensate the firm for the tax.

The tax would give BlueScope a comparative advantage if other firms in their industry were subject to a tax. Also giving out exemptions from a tax in advance reduces the future ability of governments to control CO2 emissions. It increases the scale of the tax that would need to be imposed on non-exempt firms to meet given emission targets. It is poor policy.

The claim by NSW Environment - Climate Change Minister Koperberg that firms need a lead time to prepare for a tax implies, if anything, an initial case for being moderate in taxing all firms not for exempting the privileged few – it is a case for gradually scaling up the size of the tax. The claim that a carbon tax is something unexpected is ludicrous since this tax has been discussed for over a decade. Koperberg originally seemed to be an attractive appointment but now seems to be a hypocrite.

The Victorian Government has apparently discussed similar offers with Alcoa for a proposed $600 million expansion of the Portland aluminium smelter. One can imagine in the future a competition between the states for awarding greenhouse gas emitters to their states – a competition where the winner’s prize would, as usual, be paid by the state’s taxpayers.

6 comments:

David said...

Harry, is there any information on this deal other than the Greens' press release? That press release seemed to be dated 2 Feb - it's odd there hasn't been any press on this until the AFR piece you mention. It does sound worrying.

hc said...

Its in this mornings AFR p3.

derrida derider said...

If true, it's incredibly stupid - not even good politics, let alone economics. As Ken Henry notes, in times and places of full employment "creating jobs" just means diverting them from elsewhere.

But this being NSW you have to worry that more than mere stupidity was involved.

observa said...

Iemma and Co reckon Howard and Co were right all along that we need time to adjust the economy-like about 25 years or so eh? Sheesh!

Meanwhile in my state with Mike the Pledge Rann and Co, you get the same picture http://www.news.com.au/adelaidenow/story/0,22606,21761016-2682,00.html
Note the tradeoffs-
'In another setback for the public transport operator, engine manufacturers have warned TransAdelaide they will not warrant train engines if higher levels of more environmentally friendly bio-diesel fuel are used.

TransAdelaide has been trialling higher blends of bio-diesel fuels to cut carbon emissions.

There have been calls for SA to follow interstate governments and replace the diesel network with electric rail.

University of Adelaide Professor of Climate Change Barry Brook said this would not solve the problem.

"If they are going to switch from diesel to electric trains, you are not going to get much benefit unless you switch to an electric train run on renewables," he said.'

Damien Eldridge said...

Emmissions restrictions oif some sort, be they taxes or tradable pormits, have been on the horizon for quite some time. Indeed, the AGO released a series of four discussion papers on this topic back in 1999. (Disclosure: I was involved in the production of some of these discussion papers.) As such, it is ludicrous to claim that companies need time to adjust to a policy shock with respect to emissions. If they haven't already bewen anticipating such a shock, then they are negligent.

drwoood said...

I just posted a longh rant on this subject on John Quiggin's Monday Message Board. The agreement between the NSW govt and BlueScope can be found at http://www.bluescopesteel.com/file/download.cfm?DownloadFile=EDFFC0F1-972A-C3A9-6AE449C76968136D

One scary thing about the agreement is that paragraph 13 of the agreement states that the NSW Government will "not intend to support the inclusion of industrial process emissions within the initial framework of the National Emissions Trading Scheme (being developed by the States and Territories)".

It sounds like something out of "Yes Minister" but worse.