Crikey

The naivete of our mainstream media occasionally surprises.

“Rudd thrown an emissions time bomb!” shrieked The Australian today about the Business Council’s emissions trading submission. “Carbon plan a company killer!”

The AFR was at it as well  — “BCA warns Rudd on carbon fix” and the SMH  — “Pollution price will kill jobs” and The Age: “Carbon bill to backfire.” (The Telegraph fortunately was focussed on real stories: “$1m for Sophie to STRIP”).

So, for all those journalists inclined to believe whatever comes out under the cover of a consultant’s report, here’s a sort of methodological note. Back when I was a public servant, a favoured technique for reinforcing the case for something was to hire a consultant who would provide an “independent” report. You never directed the consultant on what you wanted, you didn’t have to  — good consultants knew.

And it wasn’t just bureaucrats that did that  — ministers would as well. External reports, with lots of graphs, tables, boxes, a glossy cover and a consultant’s logo, look much better than a boring minute from a public servant.

The private sector understands this. Businesses and peak bodies are forever commissioning “independent” reports that, strangely, demonstrate exactly what those who commissioned them want demonstrated. And the media falls for it every time. The AFR, in particular, is shocking at running reports on new studies blatantly serving the interests of the bodies that commissioned them. Even the ABC has a particular weakness for medical studies that demonstrate the need for new pills and products.

We’ve seen a procession of businesses and sectors coming forward to whinge about the Government’s lamentably weak emissions trading scheme. The LNG producers. The miners. The power generators. And now the BCA has come forward  — only it has its own “independent” research, produced by consultants Port Jackson Partners.

It’s no different to any other commissioned research. It is junk economics, produced for the purposes of arguing for more and bigger handouts for businesses.

The report purports to be the first actual account of the impact of the Green Paper ETS on real businesses. Accepting for a moment than some of our major companies in areas like aluminium and cement production gave a consultant untrammeled access to raw financial information, the problem is that reports like this are only as good as the assumptions on which they’re founded. In fact, it’s the assumptions that are the levers that control what outcome you want. And the report’s assumptions are all totally skewed.

• The report assumes trade-exposed businesses have no capacity to pass on any increased costs. In sectors where currency movements can savage bottom lines or hand out massive windfalls, we’re expected to believe that our exporters or import-competing industries can pass on not a cent of ETS-related costs, and that ETS-related costs would swamp all other cost factors in their pricing decisions.
• The report assumes trade-exposed businesses will not be able to adjust their operations to reduce carbon emissions. The BCA laments that 7 out of the 14 companies considered in the report, in response to an ETS, “must reduce operating costs in some way.” Quelle horreur! Oh, hang on, wasn’t that the point of having a trading scheme? That it puts pressure on businesses and consumers to reduce their emissions because they will now have a cost? Since when did Australian businesses become so inflexible and incapable of innovation that they can’t do that?
• The report assumes a seamless capacity for trade-exposed industries to relocate to other jurisdictions where they don’t have this greenhouse abatement nonsense. In the real world, where supposedly this report is set, businesses don’t up and flee based on one cost factor  — particularly if there’s no guarantee that the jurisdiction they’re shifting to won’t impose a carbon abatement scheme of its own five minutes after they’ve built the new cement factory. The capacity for carbon leakage is not 100%, nor is it 0%  — it’s somewhere in between depending on each industry, each company and each country.

The report does make some useful criticisms of the Green Paper  — in particular, it offers some sensible alternatives to the Government’s proposal to base compensation on emission thresholds that would actually create incentives for some industries to increase emissions. But its prescription for compensation is in essence an open-ended hand-out system that would provide free, uncapped permits as carbon-intense industries expanded  — thereby defeating the entire point of the scheme.

Moreover, it would shift the burden of actually doing anything about reducing emissions to the rest of us  — to businesses with lower carbon intensity, to domestic businesses, to households. And that burden would accelerate if we aimed for an emissions target lower than our current emissions level.

In short, like all rent-seekers, the BCA wants to impose costs on the rest of us for the advantage of a few.

The report also condemns the Government’s mandatory renewable energy targets. Here’s an interesting story, drawn to our attention by the ACF. On Monday, the Washington Post reported on what happened when Colorado imposed a 10% renewable energy requirement on its utilities. Gloom and doom were predicted by power companies and yet, oddly enough, once the requirement was imposed, it was met well ahead of schedule. In fact it was so successful they bumped it up to 20%.

Turns out businesses – even electricity generators – can innovate quickly and successfully when they have to. The BCA should be directing its energies into that sort of innovation, not pleading for handouts.