Let’s strip away all the carbon tax political rhetoric. It is becoming clear that the looming carbon tax is simply a disguised resources tax on gas and coal exports. It’s the Ken Henry-Wayne Swan first mining tax all over again but without iron ore and copper.
I reached this conclusion by moving around some of the major players in all aspects of the electricity industry. They explain that the tax will have a marginal effect on carbon consumption and that Treasurer Wayne Swan these days no longer emphasises carbon abatement. To make a significant difference to carbon, the tax would either need to be much higher or be combined with direct action.
And today’s amazing Liddington-Cox graph derived from ABARE material shows that the new resources (carbon) tax embraces the output from about three-quarters of the advanced new energy export projects. While some of those energy projects will be non-carbon (mainly uranium), the tax is going to be enormous long-term revenue raiser from exports.
The electricity and gas companies supplying the local market will also receive a tax but the proceeds of that tax, and perhaps a bit more, will be recycled back to the Australian community via lower income taxes and direct aid to some of the enterprises affected.
The most effective way to reduce carbon emissions in Australia is to shut down one or two Latrobe Valley power stations. But the tax would need to be around the $60 a tonne – three times the likely level – to justify a new major gas-fired power station in the Latrobe. And that would also require Queensland gas coming to Sydney so that the Bass Strait gas currently being sent to Sydney would be available for Victoria. The federal government is not even contemplating these sort of strategies – they are after the money
Currently the Latrobe Valley power stations run flat out for most of the time. There is spare capacity in NSW black coal and several gas stations. Because the NSW stations have a lower carbon content, under the proposed carbon tax black coal power will suddenly be cheaper than brown coal power, so NSW will go flat out and the Latrobe Valley will generate less power. This will lift Latrobe costs and lower profitability. Because it only affects part of the output the carbon change is not really significant. The NSW power sector is not so sure the Latrobe people have it right and want a bigger share of compensation.
Australian and overseas banks are owed around $6 billion by the Latrobe stations. They will need to write off a big chunk of the debt unless they receive help as what happened in the Rudd carbon trading scheme. It is potentially a huge loss to the banking sector. The banks will probably leave the current power station owners in charge but will pull the strings. Given that Latrobe power will be the carbon sourced “power of last resort” the Latrobe power stations may increase the price substantially to cover the higher costs.
The big winners will be Snowy Hydro Power and gas-fired stations.
One way or another we will cobble together a compensation scheme that will spend all the local money and a bit more leaving the export tax as the big money spinner.
The new carbon resources tax is a massive blow to the energy export sector. In the original Henry-Swan mining tax the projects had not been announced, so a capital strike
took place. This time, by accident, Canberra is much smarter and the exporters are stymied because they have since announced the projects. They may have to take it on the chin and to some extent the tax is offset on the capital side because the higher Australian dollar has slashed the costs of all the projects.
If Australia was serious about reducing carbon instead of just being interested in raising money and using the tax as a resources tax the Gillard government would combine the tax with some of the Abbott-style plans. And indeed we would use the money raised by the carbon resources tax to fund those carbon reduction plans. By combining the government and opposition plans we would achieve real carbon abatement.
But nothing could be further from Treasury’s mind. They are intent on balancing the budget and the energy resources (carbon) tax is their secret weapon.
This article first appeared on Business Spectator.
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