It wouldn’t be the case that a major polluter was making exaggerated claims about the impact of a carbon price, would it?

During the development of Labor’s ill-fated CPRS, Bluescope Steel provided one of the examples of the credibility gap between what it was saying publicly about the impact of an emissions trading scheme, and what it was telling investors. In particular, it repeatedly claimed that emissions trading would inflict massive damage or even destroy the Australian steel industry through the imposition of “unbearable” and “unsustainable” costs.

Its message to investors, however, was that the CPRS might cause “competitive disadvantage”, to the company, and it was working with government to secure an effective transitional regime. No word about destroying the industry.

A more independent view of how the steel industry would fare under a carbon price was provided by the Grattan Institute, which found that Onesteel’s Whyalla furnace may in the long-term have to close, and the rest of the industry would have to operate on smaller margins.

Bluescope was at it again yesterday, with CEO Paul O’Malley warning that a carbon price “is basically the end of steel manufacturing in Australia.”

In fact what may be “basically the end of steel manufacturing in Australia (i.e. Bluescope Steel and Onesteel), is record commodity prices and the Australian dollar. This is the “hollowing out” of the Australian manufacturing sector being driven by the resources boom, both through higher input costs for materials and labour, and the higher Aussie dollar. Neither are going away anytime soon.

O’Malley, announcing yet another loss for the half-year in early February, said he’d be making $200m more in profit if the Australian dollar was at 80 US cents. At the dollar’s current value, lower cost, quality Chinese steel manufacturers are Bluescope’s chief worry, not a carbon price.

O’Malley also appeared to be caught out in particularly blatant verballing of the Greens yesterday after he claimed the Greens opposed all compensation to trade-exposed emissions-intensive industries and particularly to the steel industry. Challenged by Greens Senator Christine Milne to back up the claim, Bluescope chairman Grahame Kraehe produced a newspaper article extract and suggested it represented a direct quote from the Greens, as well as a three-year old press release, and said “the principles outlined on your website do not make any mention of emissions intensive trade exposed (EITE) industries.”

The Greens’ position, reiterated for the umpteenth time most recently in early February, is similar to that of Ross Garnaut, that EITEs should be compensated to the extent that they are disadvantaged compared to foreign competitors — and no more.

This is exactly the issue on which the carbon price debate will again turn — whether EITEs should be compensated in an economically-efficient manner, as per Garnaut, or via the sort of elaborate handout regime developed and repeatedly expanded by Kevin Rudd and Penny Wong during the course of the CPRS debacle. The difference now is that the Australian dollar is significantly higher and not, in anyone’s book, likely to return to the sorts of levels that would see Bluescope making decent profits in the foreseeable future, short of another global recession that kills the commodities boom.

This will drive an even more ferocious round of rentseeking from trade-exposed industries, and particularly the heavy manufacturing sector, which will try to conflate their own poor position vis-à-vis foreign competitors with a carbon price and the need for compensation.

The hollowing out of the rest of the Australian economy driven by the resources boom will hit manufacturing particularly hard. And it dwarfs the impact of even the highest carbon price.

Peter Fray

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