New hybrid agenda for Australia

THE election of Australia’s first Labor government in 14 years will not automatically expedite a headlong march towards full-scale production of hybrid vehicles in Australia, despite their headline act within its $500 million pre-election pledge to establish the Green Car Innovation Fund.

That is the cautious assessment of the nation’s peak automotive industry body in the wake of prime minister-elect Kevin Rudd’s historic federal election victory on Saturday.

Instead of endorsing rose-coloured enthusiasm for the local manufacture of high-profile hybrid vehicles specifically, the Federal Chamber of Automotive Industries (FCAI) expects petrol-electric technology to be just one of a range of environmentally friendly vehicle measures to gain financial support from government.

Moreover, the FCAI has reiterated its call for the urgent commencement of discussions over continued government assistance for the local car industry, before any green-car funding arrangements are concluded.

In a wide-ranging interview with GoAuto this week, FCAI chief executive Andrew McKellar also said that issues including exchange rates, the vehicle import tariff, free-trade agreements, the components supply chain, industrial relations, emissions reduction targets and a carbon trading scheme needed to be debated before “informed decisions” on the Labor government’s proposed green-car fund could be made.

Mr McKellar described Labour’s enviro-car plan, which was announced in March, as both an important new incentive for the development of green-car technology and more targeted than the current Automotive Competitiveness and Investment Scheme (ACIS), which is due to enter its second stage in 2010 when the new passenger vehicle import tariff is scheduled to drop from 10 per cent to five per cent.

But he stopped short of specifically backing the imminent local manufacture of the technology that powers Toyota’s Prius, Lexus models, Honda’s Civic and, if Toyota Australia achieves its stated ambition, the Altona-built Camry.

“What it (the Green Car Innovation Fund, GCIF) does is provide an important incentive – there’s no doubt about that,” he said. “(But) the important thing here to understand is that hybrid is not the only option. It is an option and there may well be consideration given to (hybrid) production vehicles in Australia, but it’s not the only option and the incoming government I think will be very conscious of that.

“It’s important to ensure the program is structured in such a way as to encourage a broad range of environmental responses from the industry and that’s the best way to get the outcome that the program will be seeking, which I presume will be improved environmental performance from Australian car manufacturing.

“There’s a vast range of ways of doing that. Around the globe, vehicle manufacturers are developing a raft of technologies and different approaches and the important thing is to ensure we are taking advantages of those where we can in Australia. That program will be designed, I expect, to assist in that regard, to provide an incentive for those state-of-the-art advances to be applied in Australia,” he said.

“We’re at the stage where one or more of the companies may want to make a hybrid, but we’re not yet at the point where there’s an investment decision to allow that to go ahead. Now, this may assist that. It may be that more is required.

“Undoubtedly, that will be one of the sort of issues that is picked up in the review and looked at in terms of what is the business case going forward and what’s required in terms of the full policy arrangements.

“Hybrid is by no means the only one – there are a range of strategies that car companies are pursuing globally in addition to petrol-electric hybrid. We are seeing advances in battery tech, bio-fuel, fuel cells, which may be on the long-term horizon, but there are a raft of different configurations of hybrid vehicles and other technologies.

“I’m not playing it (hybrid) down, all I’m saying is that what it has to be is a broadly based approach – hybrid is just one part of that.” Asked if Toyota’s chances of building a hybrid vehicle were better or worse under a Labor government, Mr McKellar said: “Well, I would hope they would be better.” Mr McKellar also described Labor’s green-car plan, which aims to generate $2 billion in investment by requiring industry to contribute $3 towards green vehicle technology for every $1 of the government’s promised $500 million spend, as “a big ask”.

“The ACIS program is quite flexible and if there’s a view that it’s best invested in environmental enhancement, then certainly some of that has occurred. We’ve had an R&D scheme under that and some of the funding from that has gone to environmental purposes, such as improvements in engine technology and performance,” he said.

“But the new program, which will come in from 2011, will be more targeted in that regard, so it will be more specific. We have to work through the detail of that clearly, but it’s the policy of the incoming government and we’ll obviously want to work with them to ensure that it is successfully implemented.” The Rudd Labor government said the GCIF, which is proposed to run for five years from 2011, aims to “tackle climate change by manufacturing low emission vehicles in Australia”, including hybrid, flexible fuel and low emission diesel vehicles.

The fund was proposed in addition to federal Labor’s Green Car Challenge, which pledged “to purchase for the Commonwealth fleet value-for-money environmentally friendly vehicles, such as hybrid vehicles, if they were produced in Australia”.

Road vehicles contribute 13 per cent of the nation’s greenhouse gas emissions and the average Australian-built vehicle produces about 250g/km of CO2. Labor says that by increasing the number of locally-built low-emission vehicles, which typically produce half as much CO2, vehicle manufacturing can continue to play an important role in the national, Victorian and South Australian state economies – and reduce carbon emissions at the same time.

The green-car fund joins a range of planned Labor measures to deal with climate change, including ratifying the Kyoto Protocol, cutting Australia’s greenhouse gas emissions by 60 per cent by 2050, setting up a national emission trading scheme, setting up a $500 million national clean coal fund, “substantially” increasing the mandatory renewable energy target and convening a National Climate Change Summit.

But Mr McKellar said the 60 per cent emissions reduction target by 2050 had not been confirmed.

“That sort of number has been talked about, but my understanding is the Garnault report will establish recommendations on exactly what the targets should be and the pathways to achieve those targets, so I expect that that advice will be available to the government some time next year,” he said.

“I have no reason to believe it will be anything other than an ambitious target. All I’m questioning here is exactly what they’ve actually committed to.” Mr McKellar said long-term emissions reduction targets would dictate the price of carbon and therefore the cost to industry.

“It (carbon trading) will have impact in terms of manufacturing costs, input costs, energy costs. The key to knowing what those costs will be is to know what the price of carbon is. To do that you have to know what your longer-term target is and what your target are and the gateways to get through those targets, so that detail is still being developed and is obviously something we will want to engage with the incoming government on.

“It has implications for the industry. It’s one that we have to try and manage to ensure that the competitive position of the industry, particularly from a manufacturing standpoint, is not compromised as a result of the additional cost that our industry might face if our competitors do not face a similar cost.

“It’s a complex equation. The incoming government has been given a strong mandate and they will have our full cooperation in seeking to arrive at arrangements that enable them to follow their policy commitments.

“But for our part we will be working strenuously to ensure that the interests of the automotive industry are taken into account as part of that process.” Mr McKellar reiterated the need for a wide-ranging review of automotive industry issues, which the incoming government has agreed to hold with industry, before any long-term policy is legislated. It’s understood the new Labor ministry, including a yet-to-be-named industry minister, will be revealed some time after Thursday’s caucus meeting.

“Clearly a very important priority will be to initiate the process for the 2008 review, which the incoming government has committed to expedite and which we will be wanting to move forward on with the new minister.

“I think it’s important that the detail and implementation of those (GCIF) arrangements is informed by that review process, so the review is fundamentally important.

“The policies that have been announced are, I think, useful contributions and they were welcomed when they were announced.

“Now we have the chance to implement them and I think to influence the detail that is developed in that process, so that’s what we’ll be seeking to do.

“The review itself is a very useful exercise to go back and ask some fundamental questions about the requirements about competitive and viable auto manufacturing in Australia.

“It will provide an opportunity for both industry and government to sit down and look at those issues in some detail and to work out exactly how those policies that have been proposed should be implemented and whether or not there are no additional things as well, including augmentation of ACIS to ensure that we have the right policy environment going forward.

“So I don’t think anyone should be necessarily rushing to a conclusion on those points. We should go through that review process. We are looking forward to working with the new minister on those issues,” he said.

Mr McKellar said the FCAI would like to initiate review talks with the government within months.

“We’d like to see it initiated asap. The first thing is to announce the new ministry and then for a short transition period to take place. But we’d like to see it happen as early as possibly, certainly within the first 100 days of the incoming government. We think that is quite achievable.

“Terms of reference will be drawn up and we hope there will be consultation with the industry on that, but clearly the industry assistance and investment support arrangements and tariff and trade policy issues will be central issues in the review.

“The environmental issues that you’ve alluded to should be entirely legitimately included in the discussion and training issues are also important, as is supply chain competitiveness.

“Essentially what we’re doing is entering into the mid-term review of that (next plan beyond 2015), so what the industry would be looking for is establishing a long-term view that takes us out well beyond 2015.

“I think what we look for is a degree of certainty for the long-term. The current agreement is mapped out to 2015 but I think it’s appropriate that they need to be adjusted and there is justification there should be some adjustment.

“Point one is whether there should be changes to existing arrangements and then, if you are changing them, how far beyond 2015 they should be changed.” Mr McKellar said the FCAI was yet to reach a consensus view on what the federal vehicle import tariff should be, because of differing views held by importers and exporters including Toyota, which has called for the current 10 per cent to be retained beyond 2010.

“We have not articulated a view on the question of the future direction of the tariff. As with other policy issues, there are a range of different opinions on that. We’ll be seeking to resolve those viewpoints and to present the views of industry clearly and accurately in the review process.

“There are a number of factors that need to be taken into account in looking at that issue, including the impact of current FTAs that have been put in place since that legislation was passed. There are a range of FTAs that are under current consideration and we need to gauge now what the incoming government’s view is of those and the direction those negotiations will head in.

“Even more importantly we need to form a view as to the likelihood of an outcome of the multilateral WTO Dohar negotiations, so all those things are on the table and they all have a bearing.

“But as of today there is not a single position within the industry in relation to whether or not the existing legislated tariffs arrangements should remain as they are. It will be part of the review process that we will seek to get an outcome on that issue. We will develop that position and we’ll articulate it at the review.

“(Ten per cent) may well be Toyota’s view but … what I respond to is the instructions of my board, and my board comprises the chief executives of the four vehicle manufacturers as well as the chairman of Toyota, as well as other elements of industry including the vehicle importers.

“I think our objective is to achieve consensus if we can, but if there are differing views, the chamber will fairly and accurately present those differing perspectives to government.” Mr McKellar again made the case for compensation for vehicle exporters whose business has been severely affected by the strength of the Australian dollar.

“I think that’s one of the terms of reference for the review. You’ve got to look at the impact that the exchange rate … has had on export performance and competitiveness. ACIS is critical in that regard going forward. As I’ve said I think there is a case as of today that under stage two of ACIS there should be some adjustment to at least partially offset that impact.

“The review will look at the future of ACIS going into the next stage after 2010 and beyond and I think there’s a case that ACIS should be continued into the future as an important part of the investment support that is there for the industry if we are continue to be competitive and if we are able to continue down the track to justify the ongoing business case for the investment in the future.

“Regardless of the issue of the review, if you look at the impact of the exchange rate appreciation on the industry over the last two, three years or even longer than that, then what I have said is if you look at that alone, then there is an argument that ACIS should be adjusted in some form in the current stage to at least partially offset that exchange rate appreciation – that’s true whether or not the exchange rate remained at its current high level.

“Exchange rates have been a very critical issue for the industry and the point I’m making is that that case exists, irrespective of the review process we’re about to go through, that exists today. We will continue to put that case to incoming government, just as we have done to the outgoing government.”

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