By Keith Orchison
(Published in The Weekend Australian special report on Energy & Mining, 3-4 December 2011)
Michael Roche believes that the hugs and kisses seen on the nation’s television news when the federal government’s carbon bills were approved in the House of Representatives were not confined to the parliament in Canberra.
Roche, CEO of the Queensland Resources Council, reckons there may have been similar outbursts of happiness in company boardrooms elsewhere in the world in countries that compete with Australia in world trade.
His point is that policy steps now being pursued in Australia “not in the interests of reducing global emissions but to ensure domestic political harmony” will work to the benefit of these competitors.
This concern conflicts with the views of others, notably the federal government, that the national mining and energy industries are big enough and resilient enough to cope with new taxes and carbon abatement policies.
The importance of the outcome is highlighted by federal Resources Minister Martin Ferguson, who describes the resources and energy sectors as “the backbone of Australia’s economy.”
Ferguson says the government’s tax reforms are a “key tool to help spread the benefits and mitigate the pressures of the mining boom across the broader economy.”
From next July, in addition to the price on carbon, Australia will have a minerals resource rent tax applying to iron ore and coal and will extend the existing petroleum RRT to all onshore oil and gas production.
The test of the arguments for an against the taxes and the carbon price will be seen not only in large-scale, export-oriented projects but also in the domestic electricity and gas industries and in the thousands of businesses that deliver goods and services to them.
Who is right will not become apparent in months but over years as developments go ahead or are shelved and, in the case of electricity supply, as existing, often aged power stations, as well as new ones, take decisions on spending capital on greenfield or brownfield projects.
Attempts to estimate the impact of policies are bedevilled by strong disagreements between the federal government and the resources and energy sectors (plus analysts who have undertaken work for them).
In just one area, the Centre for International Economics, in a modelling exercise undertaken for the Minerals Council of Australia, has estimated that, if the world does not undertaken widespread carbon abatement actions, the emissions trading scheme will cause power prices to rise by 30 per cent compared with federal Treasury claims of 10 per cent.
The situation is made more complex because investment decisions will be influenced not only by the new tax regimes but also by a range of other issues, including the value of the dollar, the cost of labour and imported equipment, global economic trends and consumer and political reactions in Australia to rising energy bills.
They will also be influenced by development approval regimes at state levels for mines, petroleum wells, pipelines and power delivery lines.
At stake are hundreds of billions of dollars worth of investments and tens of thousands of jobs.
Ferguson estimates that Australia could spend $240 billion over 20 years building power stations and gas pipelines to feed them fuel plus constructing the wires, pylons and substations needed to carry power to consumers.
Looking to the long term, he claims that policies being rolled out will see $100 billion (in today’s dollar values) invested in renewable energy and clean energy projects by mid-century.
An even larger outlay will be needed to build new export capacity in the mining sector, and especially in the coal industry, to maintain Australia’s existing trading status.
Ferguson and the upstream petroleum industry have also estimated that expenditure on LNG developments in northern Australia could run to another $200 billion over the next 10-15 years.
At present, he says, Australia has 94 minerals and energy projects at an advanced stage of development, involving $173 billion in planned investment.
He argues that the MRRT is not a disincentive to investment, pointing out that 42 project announcements have been made in the 12 months since the tax was announced. Half of them will be subject to resource rent tax.
West Australian Premier Colin Barnett, who claims he governs “the world’s leading mining province,” says there are more than $300 billion worth of projects in the WA investment pipeline for the next five years, including $107 billion worth already building or committed to construction.
Barnett says 65 per cent of the revenue the tax is setting out to capture will come from WA developments and claims that it is discouraging investment in certain sectors, especially magneitite iron ore.
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