Finally the Business Council of Australia has been subjected to some scrutiny over its emissions trading submission last week.

Suggestions The Australian has used the report as a basis for scaremongering aren’t entirely true. Paul Kelly certainly seized on the report with glee — to the extent that Kelly could ever do anything with glee – on the weekend. But Lenore Taylor explained, some of the absurdities in the compensation scheme advocated by the BCA as well as those offered by other stakeholders.

I called the Port Jackson Partners report on which the BCA’s submissions is based “junk economics”. A closer look suggests this understates things. The report is bullshi-t of the highest order, a composite of worst-case scenarios carefully presented to create the impression of corporate slaughter if the model outlined in the Government’s Green Paper — a model which is already absurdly pro-industry – proceeds.

The basic argument of the report is that without compensation, a number of trade-exposed, emissions-intensive companies would have to close or substantially change their operations or relocate overseas, and that the Green Paper compensation arrangements, in addition to being flawed in themselves, will still mean three of the 14 companies examined would close, while others would be forced to significantly curb their costs. The BCA extrapolates this to all trade-exposed emissions-intensive sectors.

The assumptions on which this is founded — that companies cannot pass on cost increases, that they can’t reduce their costs, that they can relocate easily to other countries — are nonsensical. But there are other problems with the report.

In spite of all the graphs, analysis and calculations offered by Port Jackson Partners, there is some basic maths they can’t get around – that under the Green Paper the most emissions-intensive industries will get a handout of 90% of their carbon permits, based on an industry average of emissions for that sector. Which means a reasonably efficient emissions-intensive business will get close to 100% of its carbon costs covered under the Green Paper.

Somehow it’s hard to see how that business is going to fail under such circumstances. And the report reluctantly admits this. Buried at the bottom of p.91 is the bland statement about the Green Paper compensation proposal and the paper’s own handout proposals: “businesses with relatively high emissions intensities, and high margins, may find little difference between the three approaches…”

Little difference indeed.

You can look long and hard in the report but you won’t find the crucial information that would permit a serious analysis of its contents — the proportion of carbon costs out of total costs for the 14 emissions-intensive firms. All the report offers is carbon costs as a proportion of revenue, which allows for plenty of fiddling. An accurate assessment of the true impact of a carbon price is therefore impossible, although it is perhaps significant that the three firms that apparently would go out of business under the Green Paper proposal have not thought it fit to advise the ASX of their demise within 24 months, despite the serious impact on their share price that Port Jackson Partners also model.

There’s also the slight problem that a significant proportion of countries in which some of the industries examined operate already have an emissions trading scheme or, like the US and Japan, are likely to move to one in a similar timeframe to Australia. Not to mention that the report has to lump in agriculture — which won’t be in the Green Paper ETS model — in order to boost the employment significance of the industries under examination to 10%.

The BCA is making a virtue of its professed willingness to embrace the costs of an emissions trading scheme. It is doing no such thing. The “coming clean” that should be done is by the BCA, to admit it is using a rubbish report to argue for handouts to businesses and shifting the burden of addressing climate change onto other industries and households.

The response of Australian business to the emissions trading issue has been dismal, consisting of doomsday scenarios, threats to pack up and leave or demands for handouts. Just for once, it would’ve been refreshing to have heard a major Australian business stand up and declare that not merely was it prepared to respond to climate change, but that it saw it as an opportunity to innovate and explore new commercial possibilities. At the moment Australia’s corporate elite are being shown up by Rupert Murdoch, who wants News Ltd to be carbon-neutral by 2010.

Maybe it’s all too hard for Australian business. Maybe we should just have a carbon tax. Nice and simple. Forget about giving business the flexibility and opportunity to respond creatively to the challenge of reducing emissions, because they’re not up to it.

Australia’s major environmental stakeholders should also lift their game. The likes of the Climate Institute, the ACF and the Australian Greens all criticised the BCA report, but they should’ve been ripping the report apart in detail and exposing its flaws the moment it came out. There’s going to be a lot more of this garbage from rentseekers. Green groups need to muscle up with in-house economists who can influence the debate in real time. On the evidence of last week, it’s not like the media is going to do their job for them.

Peter Fray

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