A sharp fall in the Australian carbon price when market trading starts could produce a big drag on the federal budget, the Business Council of Australia has warned in a last-ditch effort to win some changes to the government’s plan.
The council says that if the carbon price fell to $15 a tonne - from the initial $23 fixed price - when the market starts in 2015, the call on the budget would be some $3 billion annually from 2015-16 to 2019-20.
The current price in the European emissions trading scheme (the biggest market) is $A16.22.
The $3 billion estimate is based on modelling the council commissioned from Deloitte for its submission to the parliament inquiry into the legislation, which will be voted on in the House of Representatives next month.
A low trading price would turn the estimated cumulative surplus of $9.6 billion under the scheme in these years into a deficit of $9 billion, the BCA says. ”Should this eventuate this will put more pressure on an already difficult budget position. Without amendment to the legislation the [industry] compensation arrangements … are then at risk of being brought into question.”
The government has said it is not interested in talking about substantive changes to its package although it will consider drafting alterations.
But BCA chief executive Jennifer Westacott said: ”It’s our responsibility to highlight risks - and hope that people will act responsibly. We’re appealing to the whole parliament.”
The submission strongly challenges the Treasury modelling assumptions, describing a number of them as ”optimistic and untested”, including about what other countries will do.
It calls for removal of a 2050 target - an 80 per cent cut in emissions below 2000 levels - from the legislation, saying the target should only be set by a parliamentary vote following a comprehensive review.
The legislation should contain an explicit commitment to maintain the compensation, the BCA says. It also wants the vote delayed until the Parliament sees the detailed regulations to be made under the legislation, and better protections written in for trade-exposed industries and electricity generators.
It says the scheme as designed presents considerable risks to Australia in the long term and does not fully address ”the competitiveness risks for Australian industry in the absence of binding international agreements including all major emitters”.
The submission argues again for a much lower starting price.
