Industry backs Garnaut plan
BY DAVID HASSALL | 8th Jul 2008
Including fuel in the ETS was the most controversial – but nevertheless expected – aspect of the draft report on climate change handed down last Friday by government advisor and economist Professor Ross Garnaut.
The trading scheme – which the report recommends should be introduced as soon as 2010 – would also directly affect local manufacturing industries, putting further pressure on Australia’s three embattled car makers in an already difficult market environment.
However, the chief executive of the Federal Chamber of Automotive Industries, Andrew McKeller, told GoAuto that the car industry “acknowledges the need for it to shoulder its share of the burden”.
GM Holden spokesman John Lindsay said it was too soon to say if the cost of emissions trading would affect car prices but that Holden supports the scheme.
“We are supportive of the view that ETS has to have as broad a coverage of greenhouse gases as possible since one tonne of CO2 has the same impact on the environment whatever its source,” said Mr Lindsay.
Toyota Australia external affairs manager Peter Griffin said that the Garnaut review is part of the government’s broader long-term policy settings on climate change and the company is continuing to study the review recommendations.
The Garnaut Climate Change Review was commissioned by Prime Minister Kevin Rudd and last week’s 537-page draft report will be followed by a supplementary report late next month before the final report is handed down by September 30.
ETS will effectively require users of carbon-emitting energy, including fuel and electricity, to pay a fee for their emissions, and the government promises this will fund low-emissions technology research, development and commercialisation.
In the case of petrol, oil refiners will have to pay according to the amount of petrol or diesel they produce, which will ultimately be passed onto consumers at the bowser.
Although the draft Garnaut report does not specify what the emissions offset price would be, Mr McKeller said that the FCAI expects it will be at least $25 per tonne of carbon and possibly higher.
According to the Australian Automobile Association, a $25 per tonne carbon price will result in an extra 6.0 cents per litre on the retail price of petrol, 6.8 cents on diesel, 4.0 cents on LPG and 5.3 cents on biofuels.
Those increases will be proportionally greater if the government opts for a higher carbon price.
The AAA, which represents 6.5 million Australian motorists through the NRMA, RACV and other motoring clubs, says that the car industry has a very good environmental improvement track record.
It says that cars now produce 75 per cent fewer emissions than the first unleaded petrol cars in 1986 and that those meeting Euro 4 standards (which are mandatory in Australia from this year) emit 50 per cent fewer pollutants again.
AAA data indicates that passenger cars are now responsible for only 8.0 per cent of greenhouse gas emissions and that other forms of transport, including aircraft, contribute only another 7.0 per cent.
While supporting in principle emissions trading, the AAA says that motorists should not be expected to bear more than their fair share of the burden and has called on the government to reform fuel taxation and introduce a new road pricing system (including vehicle registration).
Consumers will also be hit with higher home energy bills as a result of the ETS and manufacturers will not only have to pay more for power but will also have to buy ‘carbon credits’ according to the amount of CO2 their facilities produce.
Federal opposition leader Brendan Nelson supports the ETS but says that any increase in the cost of petrol should be offset by the government reducing fuel excise.
“With petrol now at $1.70 a litre, Australians have already received a significant price signal on petrol,” said Dr Nelson. “The coalition is determined to protect Australian motorists from an additional tax on petrol.” Dr Nelson’s deputy, Julie Bishop, told The Australian newspaper that the government is risking jobs and said that “there should be no new net tax on petrol”.
“(The price) of petrol has increased significantly just in the last six months, so the price signal is being sent and we shouldn’t clobber the Australian motorist by making it just unaffordable when there is no alternative,” said Ms Bishop.
However, Prof Garnaut said he could see no good reason to offset the price of petrol.
“If you were simultaneously reducing excise, then you would send some funny sort of signal because this is all about encouraging people to economise on activities that are intensive in emissions,” Prof Garnaut told the National Press Club in Canberra on Friday.
“It would also contradict some of the massages that Australia and many other countries are trying to send to developing countries (to cut emissions).
“The more sectors included in the ETS, the more efficiently costs will be shared across the economy. Transport should be included.
“The cost to consumers of rising energy and petrol prices can be balanced through payments to households, while preserving incentives to reduce emissions.” The FCAI believes that the ETS is a better approach to the challenge of climate change than that proposed by the European Commission, which wants all car manufacturers to meet a fleet average emissions level of 130 grams per kilometre from 2012.
Car makers failing to reach the target would be fined for every car and every gram that they exceeded that carbon emissions figure.
“We support a broadly-based ETS and believe that transport needs to be part of that,” said Mr McKeller. “That is far and away preferable to alternate approaches – for example, what Europe have (proposed).
“An EPS that incorporates transport … is the most cost-effective path to encourage abatement across all sources of emissions in the economy, including transport.
“The evidence available now is that the European approach is far more costly. The penalty arrangements that go with that would amount to a significantly higher effective carbon price than if they were simply to include transport as part of the European emissions trading system.
“It makes no sense to go down that path. A tonne of carbon is a tonne of carbon and it should be priced accordingly.
“There are obviously still a lot of details yet to be resolved, but the industry is supportive of including transport. The final (ETS) details still need to be resolved, but the government should press on, seek to establish those arrangements as early as it can and it does so with the support of the (car) industry.” Mr McKeller does not believe that even more expensive fuel prices will contract the new car market, but does expect it will continue to push buyers into smaller and more fuel efficient cars.
“The improvements in affordability that have been achieved in recent years are likely to be sustained, so there are no fundamental reasons why the market would go backwards,” he said.
“The ups and downs in the market are going to be driven by broader economic conditions, economic growth, employment growth and incomes, and ultimately by things like the financial markets and asset values because that’s been one of the strong positive drivers of the market in recent years.
“Higher fuel prices have so far not had a measurable or significant impact on overall demand it has tended to show up more in terms of its impact on segmentation. One of the reasons is that people get better fuel efficiency and cheaper mileage out of a newer car versus an older car.
“Clearly, the vehicle brands are doing a number of things to bring into the Australian market a range of new products and new technologies with the emphasis on fuel efficiency, so those things are occurring already. The implementation of an ETS would add further weight to that process.” Although Prof Garnaut’s opponents warn of the economic damage his proposals could cause, he has painted a grim picture for Australia economically as well as environmentally if nothing is done, saying that $425 billion a year could be wiped from the economy by the end of the century unless strong action is taken globally.
“Australia needs to play its full part in the international effort if global mitigation is to have a chance,” he told the National Press Club.
“The first step is to take action as part of the developed world, with a view to bringing in developing countries – first of all China – on the earliest possible timetable.
“Australia would be hurt more than other developed countries by unmitigated climate change and we therefore have an interest in encouraging the strongest feasible global effort. We are running out of time for effective global action and it is important that we play our full part in nurturing the remaining chance.
“Australia has the opportunity to play a leadership role in funding and co-ordinating a major global effort to develop and deploy carbon capture and storage technologies, and to transfer those technologies to developing countries.”