The demands came as the government’s climate change adviser, Ross Garnaut, warned yesterday against more industry compensation under the “arbitrary” carbon reduction system devised by the government – against his advice – saying it had led to “ugly money politics” and unnecessary budgetary costs.
Professor Garnaut said demands for more compensation for electricity generators to make up for lost asset value because of the carbon price was an “abominable” policy idea.
The BCA was part of the industry-green alliance that gave provisional backing to Kevin Rudd’s revised and delayed ETS, unveiled in May, but it is now demanding higher compensation for emission-intensive industries, guaranteed for at least 13 years after the start of the scheme.
The demands, the result of extensive internal discussion in the business group, come despite the fact that senior government sources have indicated they believe there is limited room for amendments.
However, the BCA has rejected the centrepiece of the Opposition Leader’s proposed “greener, cheaper, smarter” hybrid emissions trading scheme – the Frontier Economics’ proposal for a different treatment of the electricity industry – saying it does not solve industry’s problems.
“We sat down with Frontier Economics, but quite frankly you still end up with the same problems,” BCA president Greig Gailey said.
Opposition emissions trading spokesman Andrew Robb is consulting with industry before finalising amendments to be put to the deeply divided opposition partyroom, but the BCA’s rejection of the Frontier model undercuts the Coalition’s assertion that its proposal presents a cheaper alternative for households and businesses.
Mr Gailey said business hoped an amended carbon reduction scheme could pass the Senate as soon as possible, with bipartisan support.
“We want the two parties to put their heads together. This is such a fundamental economic change, it is critical it has the support of both major parties,” he said.
“Our concern about a double-dissolution election is that it means we would not have bipartisan support, and that after the election the government is unlikely to be inclined to accept what we consider to be necessary amendments … a lot depends now on the Coalition and the view they come to about what they are able to support. We hope they come to the view they can support amended legislation.”
Mr Gailey said a double-dissolution election fought on the emissions issue would be a bad result for business.
Climate Change Minister Penny Wong said she would consider the BCA’s proposals, but welcomed the fact that “business wants us to get moving, so investors have certainty”.
Mr Robb said the BCA concerns “confirmed that the CPRS in its current form is far from being right”.
In the letters, the BCA said the compensation proposed by the government for emission-intensive industries and electricity generators – $5.8 billion over the first two years of the scheme – should be increased and then left in place for longer.
The chamber says the compensation scheme should operate until “at least 2020” and should be varied after that date “on an activity by activity basis and with five years’ notice”.
The BCA proposes that compensation be removed only when 80 per cent of a particular industry’s trade competitors face a similar carbon price, even if those competitors are in developing nations – a far tougher hurdle than proposed in the government’s arrangements.
And the chamber wants the so-called “decay rate”, which scales down assistance by 1.3 per cent a year to force industry to become more energy-efficient, abolished after five years.
The Rudd government has pledged to reduce Australia’s emissions by 5 per cent by 2020, but has said it could lift that target to 15 per cent depending on the ambition of any global deal struck at the UN climate change conference in Copenhagen in December, and to 25 per cent, if approved by an expert review.
Those targets and conditions have received bipartisan support from the opposition. But the BCA is now demanding a public review of any promise to take Australia’s target above 5 per cent.
Speaking before a speech in Canberra last night to mark the anniversary of the delivery of his climate change report, Professor Garnaut said many of his recommendations had been accepted, but he railed against the government’s rejection of his proposed principles for offering industry assistance.
He said the absence of principle had led to “arbitrary distribution … and to the ugliest ‘money politics’ we have seen for a generation”.
He said more compensation for industries such as coalmining “within the current arbitrary mechanism … would make the system more costly to the Australian economy”.
“Once we have committed to targets, the main question is how costly it would be to reach those targets, and for those who support handing out more permits to the coal generators, are they actually in favour of bigger budget deficits or lower expenditure on other things by government? They have to answer where is the money coming from,” Professor Garnaut said.
He said the idea of compensating electricity generators for asset value loss was an “abominable innovation in Australian public policy”.
“If we had worked other reforms on that principle, we would not have had reform … it is not a valid basis for making payments to someone affected by a change in economic policy or an economic reform,” he said.
