Explained: Why business won’t enlist in Morrison’s energy war on Labor

What if the government invited everybody to a climate and energy war and nobody came?
  1. What if the government invited everybody to a climate and energy war and nobody came?

    Prime Minister Scott Morrison and Energy Minister Angus Taylor seized on Labor’s policy of turning the goverment’s ineffective carbon cap and trade system into a real one – with a 45 per cent emissions cut – as “a massive revival of a carbon tax on everything” and “$35 billion that Australian companies are going to have to spend” on “carbon credits for Kazakhstan”. Then they went into overdrive on Labor’s target for 50 per cent of new vehicle sales to be electric by 2030.

    But the other protagonists from climate wars past – including most big energy using companies and business groups – reacted with the kind of mild decorum you might expect from the main characters in Jane Austen novels.

    Qantas, Virgin Australia, Linfox, Santos, Woodside Petroleum, Manufacturing Australia and the Australian Industry Group all recognised business and government had to do more to tackle climate change. They supported “ambitious and achievable” emissions targets, talked up their own emissions cuts, praised Labor’s offer of “tailored treatment” for energy intensive, trade exposed (EITE) industries and sought close consultation for the “tough trade-offs” to be negotiated if Labor wins the election.

    Only the Minerals Council of Australia and the Australian Petroleum Production and Exploration Association got their hackles up, demanding that Labor follow the government – and the Ukraine – in using “carryover credits” earned by overachieving against Australia’s soft 2020 Kyoto targets.

    What’s changed in the six years since Tony Abbott led the Coalition to victory in the 2013 election vowing to axe Labor’s carbon and minerals taxes is that business and the world have moved on.

    Over the last 12 months Labor’s shadow energy and environment minister Mark Butler road-tested Labor’s approach exhaustively in roundtable with major business groups, big carbon-emitting companies and shadow cabinet colleagues. At the same time the government was imploding over climate and energy and shredding its third policy in three years.

    A few things became clear. Labor’s emissions target wasn’t negotiable, but business wanted a clear statement of the principles that would underly Labor’s approach should it win government.

    First, Labor was open to designing a carbon and trade system from scratch but business had spent too much time and energy working out how the government’s Safeguard Mechanism worked. From the first meeting the business groups and companies were adamant: not a single one wanted Labor to start over. The Safeguard Mechanism would be aligned with Labor’s 45 per cent emissions target. Electricity would be dealt with separately, under a revitalised National Energy Guarantee.

    Second, every business group wanted access to international carbon credits as a pressure valve for the carbon scheme. Warwick McKibbin, the economist and former member of the Reserve Bank board asked by the government to model Paris climate agreement targets, found in his second report in 2015 that limited access to international carbon credits would ease the burden and make the cost of a hypothetical 45 per cent emissions cut no greater than the government’s 26 per cent emissions cuts of international credits weren’t used. It wouldn’t be open slather but it would help make Labor’s target more manageable, given emissions have grown again under the government.

    “We have to turn an oil tanker around,” Butler says. Labor calculates the nation is on track to be about 11 per cent below 2005 emissions by 2020, leaving another 34 per cent to be achieved from 2021 to 2030. Helpfully, that is the level of cuts achieved in Britain over the last decade.

    To ease the pain a bit more, Labor plans to revitalise the Carbon Farming Initiative with a $40 million grant to create more domestic soil-based carbon credits. Labor also expects the power sector to overshoot the 45 per cent target – given the dramatic fall in clean energy costs – and will look for a way to make credits created in the electricity market available to industry.

    Third, business wanted protection for EITE industries to maintain their competitiveness, market by market. For example, LNG exporters such as Woodside, Santos and Chevron Australia compete with exporters from Qatar, and potentially the US, where there are no plans for a carbon tax. Labor gave generous protection to EITEs under its shortlived carbon tax but there will have to be limits under a 45 per cent emissions target to spare non-exempt high emissions firms.

    “Without genuine, comprehensive consultation with trade-exposed industries, no future government will be able to deliver a practical, sustainable, bipartisan policy that will last long enough to help Australia fulfil its Paris Agreement commitments,” Butler says.

    The same applies to Labor’s proposed $300 million strategic industries fund: every industry wants to be on the list. Butler is focused on “the big building blocks of the economy” – steel, aluminium, cement, the metals used in electronics and LNG.

    Butler thinks Labor’s gamble is well founded. Business has moved on dramatically since 2013 when Labor was last in government and Australia led the world in climate policy. Multinational companies are developing business cases to meet the Paris target of capping global temperature increases at 2°C. Businesses won’t fight the idea that it has to plot a 2°C path, but they will negotiate hard on the detail, he says.

    Source: Financial Review