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Combet: We're still considering compensation -

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ALAN KOHLER, PRESENTER: After weeks of being savaged by the Opposition and manufacturing industries
campaign - and the unions, lately - against its plans to introduce a carbon tax next year, the
Federal Government got on the PR front foot this week, promising not only will the impact be minor,
but millions will be financially better off.

Climate Change Minister Greg Combet used a National Press Club speech to put a bit more flesh on
the policy's bones, but it is still mostly skeleton.

I spoke to Greg Combet at his Newcastle electorate office at the end of a busy week selling the

Well Greg Combet, in your National Press Club speech this week you said that the cost to the steel
industry of the carbon tax would be $2.60 per tonne. Now, that's based on the CPRS principle of
94.5 per cent assistance, and the same definition of what constitutes a core pollution intensive

Do we assume therefore that those things are being carried forward from the CPRS to the new scheme?

GREG COMBET, CLIMATE CHANGE MINISTER: Well, what the Government's indicated to the business
community and obviously those companies that are operating in the trade-exposed,
emissions-intensive part of the economy including steel, is that a lot of good work was done under
the CPRS - the emissions trading scheme that the government proposed in the last term of Parliament
- in how those companies in that part of the economy would be best shielded from the impact of a
carbon price if our trade competitors overseas didn't have a comparable price. And so we're working
on the basis of that initial proposal that was put forward.

ALAN KOHLER: I'm not sure they all think it's good work. I mean, it's not just the 5.5 per cent of
permits that they have to buy, but also the definition they say is too narrow. And BlueScope says
that there's a million-and-a- half tonnes of emissions that they have that are trade-exposed that
aren't covered, and that the real cost to them of the carbon tax is going to be $8 a tonne.

GREG COMBET: Well, there's lots of assumptions that underpin these things, Alan. I mean, the
numbers I put forward were based in fact on industry averages, not for a specific company. And also
what I was putting forward was based on a $20 per tonne carbon price, and of course you can change
the assumptions and produce different numbers, I readily acknowledge that.

I also readily acknowledged in my speech to the press club that I was referring only to the core
steel-making activities and that there are other areas of carbon liability that companies would
have to bear. Some of that's included in the assistance that's provided. Other things companies are
suggesting they would have to accept the cost passed through from their suppliers.

All of these things are being worked through in detail, and I've certainly made very clear to
BlueScope and to OneSteel that we understand that they're under a lot of pressure from the high
dollar - the high value of the Australian dollar - from the high cost of iron ore, from the high
cost of coking coal, and that we're ready, willing and able to sit down further with those
companies on the assistance package, and we need some feedback from them.

ALAN KOHLER: But where is the flexibility going to lie in the definition of what can be compensated
or the percentage of compensation?

GREG COMBET: Oh, well I don't know whether it's appropriate for me to speculate about that at this
point in time. We're really got to have discussions about those issues with the companies
themselves. But there was a lot of good work done - and that is the fact of the matter - a couple
of years ago when these definitions, activity definitions, the scope of assistance that would be
provided, the thresholds that need to be met.

The point that I'm trying to make is there's really good detailed work that underpins all of this.
What it gets down to is the extent of the outstanding carbon liability, and the way in which that
may change in future years, and that's the issue that we're really discussing with the steel

ALAN KOHLER: Well, a couple of things have changed -obviously. You've now said that the households
will get more than 50 per cent of the revenue as compensation, and you've also said it must be
revenue neutral, whereas the CPRS was a drain on the budget, especially in the early years.

Now, if the households get more, and it's going to be revenue neutral, that must mean that industry
gets less?

GREG COMBET: Well, there are a number of categories of support that were provided for under the
CPRS. It wasn't just household assistance, and it wasn't just assistance to emissions-intensive
trade-exposed industries. It also included transitional assistance within the electricity
generating sector, the establishment of a climate change action fund, and a host of other measures.

Now we're in tight fiscal circumstances. The Government intends to be returning the budget to
surplus in 2012/13. We intend this package to be budget neutral.

We've announced a number of parameters that you point to that will use 50 per cent of the revenue
at least to assist households with price impacts. I guess what I'd say is that it is very important
for constructive engagement on the part of the business community with the Government in designing
the parts of the package that are relevant to them.

The time for, you know, a lot of grand statements being made around the place around this issue I
think are passed on everyone's part. We've got to sit down and finalise the detailed design work in
everyone's best interest.

ALAN KOHLER: But they can see that it's not a magic pudding, minister. I mean you can't give
everyone more - households more, revenue neutral and industry more. There's just so much money to
go around.

GREG COMBET: Well that's quite right, so people need to sit down at the table seriously and do
their sums, and work carefully with the government on the design of the arrangements that are of
importance to business. And we've set up mechanisms for that to occur, but it is important for
people in the business community to understand that the Government is committed to making this
reform, and it's better off being inside the room, talking these issues through, and trying to get
the best possible outcome.

ALAN KOHLER: Isn't there a fundamental problem here, which is that the politics have changed
completely in two years? In those days you had the Coalition on side, and now they're dead against
it, and now you haven't even got a majority in Parliament, isn't that right?

GREG COMBET: Well, I must say I'm coping with a number of complexities in all of this and the
politics is part of it. But at the end of the day, you can't choose all the circumstances. You've
just got to work within them, but this is a very important economic reform for the country.

It's of course motivated by the importance of reducing pollution, and driving investment in clean
energy, innovating in low emissions technology, bringing about change in our energy generation

These things are really important for the long-term competitiveness of the economy. We're proposing
a market mechanism so that a price signal is sent to bring the cost of pollution into the cost of

We're proposing comprehensive assistance - transitional assistance measures - for most affected
industries, supporting jobs. There's a complex set of policies, but a really important reform that
is in our long term national interest.

There's no ducking it, there's no squibbing it. There's no choosing the perfect circumstances. Yes,
we're up against Tony Abbott, who's like a scare campaign on a pushbike, basically. He's got
nothing to say of substance to say or contribute to the policy debate. He just runs around trying
to terrify people that they're going to lose their jobs and the cost of living is going to go
through the roof. It's all rubbish.

What we need is a proper, measured policy discussion, and it's very important for the business
community to be actively engaged with the Government so we get the design right.

ALAN KOHLER: Just another specific issue - the starting price of the carbon tax is one thing, but
most people in business say that the real issue is the trajectory from there.

Now, Ross Garnaut has suggested CPI plus four per cent, and that seems to be implied in the CPRS as
well. Is that what you're going to go with? Real growth of four per cent?

GREG COMBET: We announced in February when we put the broad framework out for this mechanism -
which is an emissions trading scheme starting with a fixed price period of between three to five
years - that the fixed price would be increased each year in addition to the rate of inflation. We
haven't settled on what that escalator will be, but it'll be a modest one - just to get the scheme
going, to get the pathway through to an emissions trading scheme, where of course you've got a
floating price regime.

The challenge in the detailed design work is to make sure that transition from a fixed price period
through to a floating price is as smooth as possible. And you're quite right, that the business
community has got a reliable basis upon which to forecast the prices in years ahead, and make
investment decisions accordingly. So that's another reason that detailed engagement with the
business community is important.

ALAN KOHLER: Thanks very much for joining us, minister.

GREG COMBET: A pleasure, Alan. Thank you.