Saturday, 15 October 2011

Abbott stokes the fires with seeds of uncertainity

Tony Abbott tells firms: don't buy carbon permits

TONY Abbott has warned businesses not to buy future carbon emissions permits, in the light of his plan to scrap the carbon tax, while industry is lobbying every federal MP for changes to the government's scheme to protect companies' competitiveness.

In an address to the Menzies Research Centre taxation roundtable in Sydney yesterday, the Opposition Leader said the repeal of the carbon tax legislation, which passed the House of Representatives on Wednesday, would be the "first order" of parliamentary business under a Coalition government. "We will repeal this legislation," Mr Abbott said, a day after his refusal to back Julia Gillard's Malaysia Solution legislation forced the government to effectively abandon offshore processing of asylum-seekers. "We will dismantle the bureaucracies it has spawned. We would take the upward pressure off people's cost of living and the threat to workers' jobs. And we give businesses fair warning not to buy forward permits under a tax regime that will be closed down."

a "hysterical, negative scare campaign". "Business needs certainty over carbon pricing to underpin investments in the clean energy sources of the future," he said.

The row over Mr Abbott's speech came as Australian Industry Group chief executive Heather Ridout and Business Council of Australia chief executive Jennifer Westacott, in a letter to all 226 federal MPs, said amendments to the Clean Energy Future Bill were essential to include safeguards to protect Australia's competitiveness. "It is not economically sensible for Australia to see industries that would be competitive in the context of a global price on greenhouse gas emissions go into premature decline," the letter says.

"Ahead of that eventuality, policies are required to maintain the relative competitiveness of Australian industries in the absence of global action." Under the government's package, a fixed carbon price of $23 a tonne will be imposed from July 1 next year, rising at 2.5 per cent a year in real terms for three years. In 2015, the package will convert to an emissions trading scheme with a floating price.

When the floating price starts, a floor price of $15 will be imposed and a ceiling price, $20 above the expected international price, will also be imposed to prevent volatility. The business groups' letter called for a lower starting price in the fixed-price period and improvements in arrangements for trade-exposed industries to ensure they did not face additional costs their competitors did not.

It also called for the replacement of the 80 per cent emissions reduction target by 2050 with a clause outlining the evaluation process to determine the target and a requirement that parliament agree to the target. The business groups called for the Climate Change Authority's remit to be expanded to allow it to consider all Australian emissions reduction policies - such as solar feed-in tariffs - and for it to recommend whether these be wound back.

In the wake of Mr Abbott's call for business to stop buying future carbon emissions permits, National Generators Forum executive director Malcolm Roberts said forward contracts allowed generators and customers to manage the risk of volatile spot prices. "Policies which reduced the use of forward contracts would fuel higher prices," he said. He was also concerned about the opposition's intention to abolish forward permits with the carbon price. "As generators write post-2014 contracts, they will have to protect themselves against the risk of losses on any forward permits they hold; this is another risk to manage," he said.
Electricity generators have already been critical of the policy to limit the number of forward permits on offer and the demand for upfront payments."This could raise prices by 10 to 15 per cent," Mr Roberts said. "Generators are urging changes to the Clean Energy Future Package to prevent this problem."

Deutsche Bank analyst Tim Jordan said ongoing carbon policy uncertainty had two effects on the electricity sector. "It prevents generators from hedging their costs, which means more risk, higher prices and more price volatility for consumers," he said. He warned uncertainty also weakened the signal for investment in new capacity. "If the carbon price isn't locked in to support investment in new lower carbon baseload generators, then investors will hold off, putting pressure on existing high-carbon plants to meet growing electricity demand. Both of those mean higher costs for electricity customers in the long term," he said.

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