I am, I have to finally admit, a climate sceptic. A non-believer, a flat-earther, who refuses to accept the demand to believe in the new religion being propagated by a small group of biased special interests.
I reckon it’s all superstition and nonsense and can produce the figures to prove it.
I should be more specific, I guess. What I’m specifically sceptical about is carbon leakage.
No one has ever seen carbon leakage. It’s an economic theory, as yet unsupported by any real-world evidence. It postulates that any attempt to impose a carbon price ahead of a comprehensive international agreement on emissions trading will simply drive trade-exposed industries offshore, along with all the jobs they create and the greenhouse gases they emit, offshore to a country which has no carbon price.
The entire rationale of handing over billions of dollars in compensation under the CPRS is based on “carbon leakage”. Call it faith-based policy.
In the last six months, however, a giant experiment has been underway to test the claims of the likes of our minerals sector, and steel manufacturers, and everyone else who argues that a carbon price would make them pack up and head to the nearest developing country.
The experiment is the Australian dollar, which has dramatically appreciated, particularly against the US dollar. This morning is was at about 92 US cents. The earnings of most of our minerals sector are denominated in US dollars, so the terrible performance of the greenback this year weighs especially heavily on our mining companies since the Aussie began climbing off a low of 63.2 US cents in February.
But the impact of the higher dollar dwarfs any possible impact of a carbon price. Here are some examples. Last month, one analyst estimated that the impact of an appreciation from US$0.67 to US$0.95 would reduce margins on steam coal from $46 a tonne to $8 a tonne. The same analyst calculated the cost of a carbon price on coal-mining emissions would be $12 a tonne. The impact of foreign exchange movements is greater than that of a carbon price by a factor of 3.
Bluescope Steel, a persistent lobbyist for more compensation under the CPRS which has warned it will cut production or close altogether, predicted the CPRS would cost it “tens of millions of dollars” in the first year of operation, in reference to the less generous White Paper model. But Bluescope told the Bracks Automotive Review in 2008 that a one US cent appreciation of the Australian dollar cuts its EBIT by $12m. That means Bluescope’s EBIT will be slashed by $360m this year, an effect that will continue as long as the dollar remains high.
In April, the greatest of the rentseeking leaches, the Minerals Council of Australia, told a Senate committee that the CPRS would impose costs of $2b a year on the entire minerals sector. To put that bloated and unsourced figure in context, last month ABARE predicted energy and minerals earnings for 2009-10 would fall by about $30b because of commodity price movements and a higher Australian dollar.
I asked ABARE if they could separate the impacts but they were unable to given the interrelationship between the Australian dollar and commodity prices. But even assuming 90% of that fall is due to commodity prices rather than the dollar, exchange rates still account for far more than the CPRS, even on the sector’s own apocalyptic forecasts.
No one expects the Australian dollar to depreciate significantly against the greenback anytime soon. ABARE forecasts a higher dollar for the remainder of 2010, and there are plenty of analysts who see commodities prices supporting the dollar into 2011 and beyond, driving by commodity prices increases. A higher Australian dollar, even if not in the 90 US cent range where it is currently, looks here to stay for years to come.
Somehow, magically, our biggest companies are able to handle that shock to their earnings without bailing out to a country with a weak currency. Yet they claim the smaller impact of the CPRS will send them fleeing to the nearest polluters’ paradise.
The appreciation of the Australian dollar has exposed that for the rentseeking try-on it is.
Totally agree BK. I’m calling bullshit on the whole argument.
Pity Penny, Kevin and Malcolm didn’t.
This would be a fair comparison if currency movements were of the same type as legislated changes to an industry’s cost structure. They’re not the same, so your comparison doesn’t hold.
Companies experience currency movements as a business risk – an external risk that they can mitigate by hedging by selling product forward at a fixed price or buying currency futures to offset potential losses from exchange rate changes. A sudden, permanent, legislated change to their domestic cost structure that impairs the value of their investment in the resource, land, equipment, people is NOT the same thing. It DOES affect the fundamental value of $billion resource investments, and can’t be trivialized by superficial comparisons to currency movements.
If you continue to peddle such superficially ignorant mistake-ridden analysis, no-one should take you seriously.
Instead of cherry picking arguments that support your case, how about looking at both sides of the argument.
Look at the news that Bridgestone, Australia’s sole manufacturer of tyres, is closing its last plant and relocating overseas.
From The Weekend Australian
“TYRE manufacturer Bridgestone will close its Australian plant in Adelaide with the loss of 600 jobs because it cannot compete with tyres produced overseas.
The company is also closing its tyre factory in Christchurch, New Zealand, where about 275 workers will lose their jobs.”
This s not because of fluctuations in currency, it is because a structural shift in manufacturing costs has taken place, Australia is too expensive to manufacture tyres (and a lot of other things) in.
The imposition of an Australian emissions trading scheme, which is unlikely to be imposed in China, for a variety of reasons, will make Australia’s manufacturing sector even more uncompetitive than it already is.
That is what ‘carbon leakage’ means.
Cherry picking examples to justify your view is pretty lame journalism, rather it shades into opinion writing.
If you want to be an opinion columnist, fine, just don’t go trying to pass yourself off as a journalist.
Hmmm, I call satire.
Evan
Im often left wondering how Malcolm gets bought into this debate.
as an ex banker im sure he loves the idea of a trading scheme, his banker buddies will all retire rich because of it.
but im sure as you would be aware in private and away from populist policies he is a AGW sceptic, infact im sure most Liberal members are…he is prepared to vote for carbon trading because its popular and seen as the right thing to do.
He is in essence giving the people what they want. He should not get the credit for this scheme though and I hope people hold the government to account and dont point to a weak opposition as to reasons why this is bad policy.
Many in the Liberal party think climate change is BS, but they will vote for it because its popular, in the mean time i think Australa’s media needs to take their focus of the opposition and acknowledge they will vote as their constituents require. but i for one minute do not think that they believe it.
thus the failures or successes must fall on the governments head.
Malcolm is largley irrelevent.