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Iron Ore Mining

Garnaut vs Basic Resources: Australia's Carbon Price Battle Enters A New Phase

Wednesday, 01 June 2011

Will Australia ever implement a carbon price? The debate on the Australian emissions trading scheme continued to rage, following the release of ‘The Garnaut Review 2011’ on 31 May. Ross Garnaut, the Australian Government’s top climate change adviser, proposed a starting price of A$26 per tonne of carbon for the carbon pricing system starting in July 2012. This is comparable to the May 2011 price of emissions permits in the EU Emissions Trading Scheme, €17 (A$23) per tonne of CO2. Garnaut states a carbon price of A$26 per tonne will raise A$11.5 billion in the first year (2012-2013), 10% of which will be re-directed towards cleantech research and innovation. The majority will be used to compensate households and low-emission industries. Basic resources firms have stepped up the fight against the carbon tax. Mick Davis, Xstrata CEO, argued that a carbon tax will push mineral processing plants off-shore as Australian firms will not be able to compete internationally.

With the introduction of a carbon price so essential to driving sustainability investment, stakes are high (see Verdantix Australian Sustainable Business Spending 2009-2014). Brandishing the threat of carbon leakage, and hence job losses, is a standard response to carbon price proposals. In practice this impact is difficult to disentangle from a greater trend, the de-industrialisation of developed countries in the face of low cost competition. This is exemplified by Xstrata’s proposed 2016 closure of copper smelting and refining plants in Queensland, blamed on competition from China. In this instance the economic trade-off for moving fixed assets off-shore is the increased cost from the bulk transport of raw minerals. Amidst the miners’ “we’ll move elsewhere” threats, there is evidence that the Australian basic resources boom will continue despite the proposed carbon tax. Witness Rio Tinto’s $1 billion expansion of the Alcan Weipa bauxite mine in 2012 to extend the mine’s life by 40 years.