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Carbon pricing. Wots it all about Alfie?

04/03/2011

The above graph I pilfered from The Australian on an article it ran called Nations split on route to reduce carbon emissions.

It is an interesting diagram as at first glance the vast amount of white countries fill the eye. Yet what is also clear that a vast amount of the countries in red are key players in the western world.

While China and Japan, two major export partners, continue to not have an carbon pricing system, India, a country that can offer businesses the same level of growth as China does now, does impose a tax on carbon through a coal tax.

DFAT’s recent publication on export trends is worth a look

http://www.dfat.gov.au/publications/stats-pubs/dme/Direction_of_Exports_2009.pdf

Top 10 export markets – by countryIn 2009

Australia’s top 10 merchandise country export markets accounted for  78.1% of total merchandise exports.

Our major export markets were:

•China ($42.4 billion)– up $10.0 billion (+31.0%)

• Japan ($38.2 billion)– down $12.6 billion (-24.8%)

• Republic of Korea ($15.6 billion)– down $2.8 billion (-15.4%)

• India ($14.5 billion)– up $968 million (+7.2%)

• United States ($9.6 billion)– down $2.5 billion (-20.5%)

• United Kingdom ($9.0 billion)– down $321 million (-3.4%)

• New Zealand ($7.9 billion)– down $1.4 billion (-15.3%)

• Taiwan ($6.5 billion)– down $1.8 billion (-21.4%)

• Singapore ($5.4 billion)– down $773 million (-12.6%)

• Thailand ($4.2 billion)– down $1.1 billion (-20.6%)

As you can see from the above, we had a dozzie of a GFC. Of our top ten export regions, 8 were down. We lost a staggering 12.8 billion in Japan alone.

China’s growth gave us a 31% pick up and in helped bring in an extra 10 billion.

The other region that gave us a hand up export wise was India with a 7.4% pick up and an extra almost billion in trade.

Now here is the thing. A lot of our trading partners from Europe and the USA etc will start to pick up again eventually. We may see further growth in the Indian market as its potential is that of China with its large population.

But what happens when those markets start to pick up?

Well currently we do not have a carbon price although the government has announced a move to one. The coalition want to continue the current status of not having a price.

By not having a price, and say I own a business and I export products to European countries that do. I will be hit with a tariff to simulate the extra cost of their carbon pricing. Now currently of our 250bill in trade, the majority is to China at 42 odd billion and mostly in commodities.

In fact it works out that of that top 10 export regions, about 100 billion is with countries that do not have a carbon pricing system.

However, the majority of the other $150 billion is to countries with a carbon price.

Now if I am an exporter of commodities to China, then I would be pleased there is not carbon pricing.

However if I export my product to countries that DO have a carbon price, then things are getting tighter and tighter.

So what happens if we had a carbon price?

Well when trading with countries that also have a carbon price, my company no longer is subject to that tariff. Because it is market mechanism based, that is what will happen.

On the other hand if I am that commodity exporter to China, I would be slugged the carbon price here. This will mean I will have to lower my profit margin or increase my prices for my product which may lower demand.

Now when you are talking 46 billion a year, the last thing you want to do is lower demand which will force businesses to reduce their profit margin and boy are they pissed!

The coalition alternative is to not impose a carbon tax, but to buy pollution off the big polluters in the form of abatements. So now what that means is not only can I continue to trade in China without a carbon price, I can trade to countries WITH a carbon price and the Australian Taxpayer picks up that tariff via abatements.

Of course this is all well and good if you are a big business or a big polluter. if you are no a big polluter nor a big business, then no abatement payments for you.

In other words. No carbon price and no abatements puts pressure on small and medium exporters.

A carbon price will reduce big miners profit margin AND punish them if they do not seek to reduce their emissions. It opens markets to small and medium exporters that had till then been prohibitive due to the carbon pricing tariff.

A abatement plan on the other hand does little to aid small and medium exporters and gives a free ride for big polluters and miners to markets with a carbon price knowing that any tariff will be picked up by the taxpayer.

This will actually increase the production of commodities as they can now compete in markets where carbon pricing made it unfeasible. Ramping production will NOT reduce emissions. In fact some will increase them as they open new mines to get to new markets and to do so quickly which means using traditional polluting technology.

So what does that mean? It means come 2020, when emissions have not been reduced or dropped, the government has to buy excess international pollution markers and that may be up to 20 billion dollars by 2020 or 17% of our export income.

That is it in a nut shell. It also works re importers. That is by not having a carbon price, foreign markets can dump stuff on the market as the Chinese has done re steel. If we had a carbon price, then China will have to pay a tariff and that means local manufacturers can compete.

Now this is purely how I think it all works. I am most likely wrong about some and please correct me if so.

I just wanted to take the debate off what does the carbon price take away from me back to a what does a carbon price do for me.

 

A. Ghebranious   2011  (All Rights Reserved)

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One Comment
  1. Jennifer Baratta permalink

    Thanks for the post about my home state. Good luck with it was hard to pass here.

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