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Study suggest carbon tax will harm aluminium and steel industries

PHILLIP LASKER: A new study claims Australia's resources sector faces ruin if we dramatically scale down the use of gases widening the hole in the ozone layer. Ways of reducing greenhouse gases will be the subject of an international conference this June, to be held in Brazil.

The idea of a tax on carbon emissions has been touted by green groups, and the Industry Commission says it warrants further consideration, but the study claims such a tax would force a shutdown of the aluminium and steel industries. The study has been commissioned by the nation's top mining companies and the Mine Workers Federation.

Andrew Sholl has been speaking to CRA's Chief Economist, John McLeod, and the British consultant who carried out the study, Nick Morris.

ANDREW SHOLL: Well, first thing, Nick Morris: why would Australia be harder hit than other OECD countries if everybody introduced a carbon tax?

NICK MORRIS: The problem is that Australia's main competitors are not OECD countries, they are typically Third World developing countries where the introduction of a carbon tax will probably be less effective and, unfortunately, those countries do not have the infrastructure required to impose this type of control. They have the problem that they have undeveloped tax administration systems, they have a problem, quite often, that there are high levels of corruption and, certainly, markets are not as well developed as in Western nations. So however good ... much goodwill there is from the politicians of these countries, the reality is that it's going to take a very long time to deliver in those countries.

ANDREW SHOLL: Should Australia, though, as a developed country, as an intelligent country, perhaps take the lead through?

NICK MORRIS: There is of course that, but there are a number of ways of taking the lead and it may well be that the costs, the way of getting the best benefit at the lowest cost to the world, is for Australia to join a group of donor nations, for example, in helping to subsidise these other countries. Issues like that really do need looking at and I hope they'll be on the agenda at Rio.

ANDREW SHOLL: Why does the study start with the thinking that there will be a 20 per cent carbon tax?

NICK MORRIS: Because Australia is one of a very small number of countries. The Netherlands, Denmark, Sweden and Austria are the others to have made a commitment to a 20 per cent cut by 2005.

ANDREW SHOLL: Well, John McLeod, in dollar terms, what would that mean to your operations - to CRA's operations?

JOHN MCLEOD: Well, aluminium, coal, iron ore and the steel industries of Asia are absolutely the heart of our business, and we are looking at this industry in a different light. We have coal, particularly steam coal, that is low in sulphur and competitive in world terms, with coals elsewhere that are not as good as ours. And we see a competitive advantage here, possibly, endangered by a carbon tax on us domestically and, therefore, the effect to us here would be devastating.

ANDREW SHOLL: How far ahead, though, do you think the Government is with its thinking that there may or may not be a carbon tax?

JOHN MCLEOD: Well, Rio will tell this I think, what sort of agreements come out the meeting in Rio at the middle of this year....

ANDREW SHOLL: But concerned enough to mount a study?

JOHN MCLEOD: Oh, sure, sure. I mean, the whole of the world is talking about carbon taxes and we think it's realistic to say, 'Well, let's look at them and see what would be the effect.'

ANDREW SHOLL: Nick Morris, does the study work from the premise that the greenhouse effect is taking place?

NICK MORRIS: We weren't asked to comment on that. I think it's fair to say that there is considerable uncertainty, but I would also like to say that the study is not trying to say that we should not do anything about that, more that we should choose the most cost effective method worldwide of doing something about it.

ANDREW SHOLL: So if carbon use must fall, what other ways are there of implementing that?

NICK MORRIS: Well, the first question is: where should you implement them? And it could well be, and probably is the case, that developing countries, eastern Europe and so on, are ways you should do it. The second is that there may be other mechanisms. International tradeable permits is one that is being discussed at the moment, or conceivably manipulation of the oil price or something, which are alternatives. But all of these things are not the subject of the present study which was focused on the effects of a carbon tax on Australian industry.

JOHN MCLEOD: And I think we should just make the point that the countries Nick's talking about, namely, China and India, are potentially very large customers for Australia, in the very products we're talking about in this study, namely: aluminium, steel, coal and those sorts of things.

ANDREW SHOLL: So the price goes up - you're saying they won't buy them?

JOHN MCLEOD: No, if we are going to say to them in some international agreement, 'You must not grow as quickly as otherwise you would like to grow,' then we are cutting off ourselves from a major growth market, one where Australia has comparative advantage over the rest of the world.

ANDREW SHOLL: Gentlemen, thank you very much.

PHILLIP LASKER: Andrew Sholl speaking to John McLeod and Nick Morris.