The Australian Government,via Greg Combet, announced this week that Labor’s version of certainty is the kind that is un-certain. For two years they’ve been emphatically declaring that “Australia needs certainty” or it’s variant, “Business needs certainty” . (Right before that, they were emphatically declaring that “There will be no carbon tax”, so later, when they did exactly what they said they wouldn’t do, we found out what certainty means to the Australian Labor Party. It isn’t the kind of certainty that helps business and voters “establish beyond doubt” what a vote for a Labor Government means.)
While people are saying we have now linked Australia’s carbon “price” (from 2015 onwards) to the EU market. In effect it was linked before, as I mentioned here. Now that link is rearranged. Previously Australian companies could buy ultra cheap EU options but had to top them up to the floor price, but now they won’t have to pay extra to lift it to $15/ton.
Mr Combet said the government was not considering any other changes to the scheme. [Source: The Australian]
Yes, and we believe him don’t we?
Things are slightly more sane than they were last week, but the difference is negligible, and may not come into effect if the Coalition wins the next election a year from now. We are discussing changes to a scheme that may never occur in order to solve a problem that never was.
BlueScope Steel chairman Graham Kraehe said that the government’s move to dump the controversial $15-a-tonne floor price was a “tiny step in the right direction”.
“However it completely fails to address the major issue,” Mr Kraehe said. “For three years until July 2015, Australian businesses already struggling to compete due to a high Australian dollar, high costs and excessive regulation will also be subject to the world’s highest carbon price.” [The Australian]
I explained previously that while Europeans can buy credits for $4 per ton (and Australians will pay $23 — or at least $15) This new move would change that from 2015.
Scott the energy trader puts the changes into perspective with some details
When I spoke to Scott on the phone, the word he used about these changes was “panic”. He said he could not explain the details of this madness easily to the man on the street, but the number of changes, the backflips and the unexpected and random nature of them suggested bureaucrats were in a state of panic.
It was …”A development we didn’t expect until about a week ago regarding which scheme Australia could link to for our certificates. Previously we could only have purchased CERs – which are down at $3.50 Aussie for 2012 CERs. Now with the proposed formal linkage to the European scheme we will be tied to their scheme pricing, ie EUAs which for the comparable period of 2012 are currently trading at ~ $9.80 Aussie. Still only a limit of 50% can be used here in Aus until 2018. Included in that 50% limit is a sub limit of 12.5 % for how many Kyoto compliant, ie CERs, (and some other acronyms, ERUs etc..) can be used. It is a significant change. One of the many questions will be how Australian businesses will be saddled with the same price when many Euro businesses are getting free permits (notwithstanding out own Export Assistance aspect to the legislation)…it’s still not apples with apples.
According to the energy trade market, experts don’t think carbon credits will be worth much in 2015, nothing close to the value the Australian Treasury models put on them.
Another interesting aspect which is surely going to end with egg on Combet’s face is the fact that he came out and reaffirmed the 2 year old Treasury forecast of a carbon price of $29 for 2015/16. The market here today smacked down the back end – though in thin volume – because no one really believes it is going to be anywhere near that. Eg NSW calendar 15 carbon inclusive are trading this week at $53 while the carbon exclusive is around $47, ie the market says $6 for carbon in 2015. Given the first part of 2015 will still be fixed price of ~$25.35 and the second half will be floating somewhere around $12 implied by 2012 EUA prices giving approximately $18.50 expected for the full 2015 year….the market is saying it is highly probable that Abbott wins and throws the whole thing out….and certainly no implied $29 there to support Treasury.
The $25 billion revenue hole
Henry Ergas predicts that if the carbon tax falls to only $10 or so (instead of $29), the governments forecast revenue is now missing about $25 billion from 2015-2020.
Labor has lots of revenue holes at the moment.
“Future governments may need to raise $120 billion – or almost $20,000 for the average four-person family – by the end of the decade to pay for Labor’s spending commitments.” [Financial Review via Bolt]
Why hog-tie us to a collapsing EU economy?
The price of carbon after 2015 will depend heavily on what European bureaucrats do. They can, at a flick, wipe out many paper credits, pushing up the price, and Australians will have to pay more for their energy, but we’ll get no say at all in those decisions. The EU is not a mining economy, and doesn’t export a lot of coal either, so they certainly won’t be taking those industries into account when they”fix” the price in this very unfree market. Henry Ergas unpicks it all so well:
Not that anyone would want to say unkind words about the EU’s economic policy skills – it is a sin to speak ill of the dead. But even assuming the EU manages to pull off the second resurrection in recorded history, it is hard to imagine economies less like Australia’s.
And with the EU accounting for less than 5 per cent of world emissions, it is hardly as if we are linking to carbon markets that are particularly representative, deep or resilient. On the contrary, those markets’ most striking feature has been persistent instability.
Then again, maybe that is why the Greens can live with this change: because it means the Australian carbon price will ultimately be set by countries without any base in natural resources, much less in mining.
No need for the Europeans to worry about what carbon prices, if any, are being charged by Australia’s resource competitors – and worry about them the EU certainly won’t.
Yet we should. The EU exempts virtually all its export industries from its emissions trading scheme; we don’t exempt ours. So it is the EU that will decide, but our living standards that will suffer. With the Nobel prize in economics only weeks away, whoever devised this scheme won’t be wasting any money in sending the monkey costume off to the dry cleaners.
But then since we didn’t get a say in the carbon tax in the first place, I suppose you could say not much has changed.
UPDATE: Don’t forget to vote in Climate Prat of The Year at Pointmans blog. It’s a tough choice.