Incoming Government must focus on ensuring businesses remain competitive in the international carbon market

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Tuesday 20 August 2013 — The incoming Government must act decisively to firm up a carbon policy that protects existing commitments while supporting long-term investments that reduce carbon emissions, EY said in its report Ensuring Australia’s economic sustainability – Government Agenda 2014.

EY Climate Change and Sustainability Leader Mathew Nelson said the long-term requirement for businesses to remain competitive in an international carbon policy context cannot be ignored.

“The most important feature of any carbon policy must be a focus on achieving the carbon emissions reduction target for the lowest cost to business.

“The incoming Government must provide longer-term regulatory certainty in the pricing of carbon.

“This will incentivise business to reduce carbon emissions in the most efficient way and support the transition to a low carbon economy. It will also help Australia meet its target of a 5% reduction in emissions by 2020 based on 1990 levels,” Mr Nelson said.

The opposition has stated a full repeal of the Carbon Pricing Mechanism (CPM) is one of the first actions it will initiate if elected, while the Rudd Government has suggested it will accelerate the CPM to its flexible pricing scheme earlier than originally planned. As an obvious consequence, businesses are delaying strategic decisions or investments because they are uncertain about the future existence of a carbon price or the structure of any alternative carbon policy — particularly in the short-term.

“While there is a live debate about the respective merits of the two policies, one point is clear: the ongoing debate means further uncertainty about the future policy environment in which businesses will have to operate.

“This uncertainty is damaging, especially in the electricity sector, as businesses require a level of certainty to plan and invest for the future. Australia urgently needs to agree on a policy framework for responding to the challenge of climate change.

“We are not alone in our commitment to reduce carbon emissions — our largest trading partners have or are looking to put in place measures to do the same,” Mr Nelson said.

The USA has announced new rules to cut carbon pollution, China is implementing seven pilot emission trading schemes commencing later this year (with the intention of introducing a national trading scheme by 2015/2016) and Korea will launch its emission trading scheme next year. China has also become the largest investor in renewable energy and its incoming president has proposed other measures to reduce emissions and pollution such as putting a cap on coal consumption by 2015. This is in addition to existing emissions trading schemes already in place in the EU, New Zealand and California.

Mr Nelson said if the CPM remains in place and converts to an international emissions trading scheme, it is likely Australia would reach the minimum 5% emission reduction by 2020.

“The Australian industry sector will be incentivised to reduce its carbon intensity, which will improve its efficiency and relative international competitiveness.

“However a large portion of the abatement associated with such a scheme is expected to occur offshore, as the purchase of international credits is the lowest cost form of compliance,” Mr Nelson said.

General consensus by the scientific community is that if the Opposition’s Direct Action Plan is implemented, significant developments in particular sectors such as soil carbon will be needed to achieve the desired abatement within the cost constraints and it will be much more challenging to achieve aggressive longer term reduction targets.

“It could also leave Australia with an uncompetitive and inefficient industry sector compared to countries that have significantly reduced their industry’s reliance on fossil fuels leaving us unprepared for a future low carbon global economy and a ramp up of carbon reductions beyond 2020,” Mr Nelson said.

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Contact details:

Katherine Meier
Ernst & Young Australia
Tel: 03 9655 2620 or 0417 859 323