Tax

Battle over Australia's planned carbon tax heats up

Reuters News
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Posted: Jun 01, 2011 3:43 AM
Battle over Australia's planned carbon tax heats up

By James Regan and Rob Taylor

CANBERRA (Reuters) - Mining giants warned Australia on Wednesday a planned carbon pollution reduction scheme could threaten sovereign risk and slash investment, output and jobs, as they fought to stop or at least minimize the impact of a new tax on big polluters.

Australia's government rejected the claim, citing record resource investment. The country's major mine union labeled the warnings a "scare campaign" similar to one miners used last year to force the government to water down a mine tax plan to ensure backing from major resource firms.

Resource Minister Martin Ferguson said the government would unveil a fair carbon price in July. The government's climate policy adviser has recommended A$26 per tonne of carbon emission. The mining industry has called for a price of A$10, to be phased in.

Prime Minister Julia Gillard, who leads a one-seat majority Labor government, has vowed to tackle climate change but is battling to gain support for a carbon price scheme, which would tax carbon emissions to encourage cleaner energy.

Australia, the world's biggest coal exporter, produces only about 1.5 percent of global emissions, but is the highest emitter per capita as it relies on coal for 80 percent of power.

Labor has struggled to introduce its climate policy since first coming to power in 2007. The carbon price issue has seen three leaders, one Labor PM and two Liberal party leaders, toppled and Labor's carbon price legislation defeated twice.

Another defeat could see Gillard's leadership at risk and her government seriously damaged ahead of elections due in 2013.

MINERS WARN OF LOSSES

Miner Anglo-American Plc said the scheme could cost the industry up to $25 billion through 2020, cut coal output by a third and send investment in that sector tumbling 13 percent.

"Australia is walking the plank," Seamus French, who runs the coal division of miner Anglo-American Plc, told a mining conference in Canberra.

Xstrata Plc said a carbon price would threaten Australia's reputation as stable investment environment.

"Sovereign risk is an important consideration in this regard, both for initial investment and when considering the courageous investment of billions of dollars in magnitude for returns which are only realized quite some time in the future," Xstrata Chief Executive Mick Davis said.

Treasurer Wayne Swan rejected the warnings, citing record investment flows.

Australia is the world's biggest exporter of iron ore and coking coal. Mining investment in Australia will rise to A$76 billion in 2011-12, and there is A$400 billion on the drawing board for the resource and energy sector.

"Companies are investing like they have never ever invested before in the Australian mining industry, and they did last year and it has kept increasing," said Swan.

"I know for a fact that many of the companies that are making those investments have factored a carbon price into their plans, as they do anywhere in the world."

Most Australian coal mines would easily manage the cost of a carbon price, which was assessed as being negligible, said Treasury documents released in April. The average coal mine would face increased costs of less than 80 cents a tonne of coal at a A$25/tonne price, according to the documents.

Australia's Coal & Allied Industries Ltd reported overall costs of about A$63 ($67) a tonne in 2010, whereas thermal coal prices are currently almost twice that, at about $120 a tonne.

A carbon price would have only a minor impact on the competitiveness of 90 percent of Australia's black coal mines, climate adviser Ross Garnaut said on Tuesday.

"The average carbon cost in the first year is likely to be extremely modest - in the order of A$1 to A$1.90 per tonne of coal, depending on the carbon price and the final rate of assistance," said Tim Jordan, carbon analyst at Deutsche Bank in Sydney.

Australia's main mining union, the CFMEU, said studies showed that resource investment would result in strong jobs growth, with 16,000 new jobs in the next decade.

"This is just a scare campaign," said Tony Maher, general president of the CFMEU (Construction Forestry Mining and Energy Union). "They are just trying to pressure the government to completely seal them from any costs and the government would be derelict in their duty if they did that."

"They have the capacity to pay," he said.

Mining profits hit a record A$24.7 billion in the June quarter 2010 as insatiable Asian demand led to huge price jumps for coal and iron ore, Australia's two biggest exports. Profits slipped to A$21.1 billion in the March quarter this year, but were still up a healthy 34 percent year on year.

(Additional reporting by Mark Bendeich, Ian Chua and Sonali Paul and by David Fogarty in Singapore; Writing by Michael Perry; Editing by Balazs Koranyi)