Overviews far from a carbon copy

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This was published 12 years ago

Overviews far from a carbon copy

Where does corporate Australia stand on carbon pricing? A BusinessDay survey of the 50 biggest companies on the ASX reveals a disparity of views.

By Clancy Yeates and Mathew Murphy

THE government has sharpened its message this time around, having failed under former prime minister Kevin Rudd to explain the emissions trading scheme adequately.

Gone is the rhetoric about climate change being ''the great moral challenge of our generation'' and the importance of protecting the environment from rising sea levels and one-in-1000-year weather events.

BHP Billiton chief Marius Kloppers: His speech a turning point in the debate.

BHP Billiton chief Marius Kloppers: His speech a turning point in the debate.Credit: Reuters

Now the government is spruiking the message that pricing carbon is about ''creating the jobs of the future'' and making the big emitters pay for their contribution to the problem.

At the National Press Club on Wednesday, the tone of Climate Change Minister Greg Combet's speech was less about sending a price signal through the whole economy so that everyone - from big companies to households - could reduce energy use and more about giving the impression that the problem could almost be quarantined to big business.

''The latest data shows that the 50 largest polluters account for over 50 per cent of Australia's carbon pollution,'' he said. ''When you include sectors that will not be covered by the carbon price, the 50 largest polluters will be responsible for around two-thirds of carbon liabilities. Lots of things could happen … but what we intend doing is making sure that the assistance to households is not only permanent but is more than 50 per cent of the revenue for a considerable time.''

How this plays out with households is yet to be seen. But BusinessDay's survey of the ASX 50 suggests a fair degree of ambivalence towards pricing carbon - or at least a reluctance to discuss it publicly.

Twelve of the 50 backed Canberra's plan to introduce a carbon price, including some of the country's biggest emitters. But this support is heavily qualified, with calls for compensation for trade-exposed, emissions-intensive industries that would be disadvantaged against overseas rivals.

Three companies flatly opposed the move - Woodside, BlueScope and Coca-Cola Amatil. They said Australia should not move before rivals overseas, and pricing carbon threatened already struggling sectors.

Eight of the top 50 were uncommitted, while the remaining 27 companies did not respond to the survey. This group included companies with a clear interest in such a big economic change, including Commonwealth Bank, Rio Tinto and Leighton.

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Qantas, BHP Billiton, Newcrest Mining, AGL Energy and Incitec Pivot supported a carbon price, with the proviso that trade-exposed businesses are compensated for loss of competitiveness to overseas rivals. Qantas, for instance, now faces a carbon price in Europe, New Zealand, and Australia - and the company said it was discussing a ''range of options'' to help it.

Newcrest claimed Australia's likely transitional help was ''out of step'' with Europe, where trade-exposed businesses were said to receive more protection.

''Closer alignment by Australia with the only other major international scheme would limit the potential disadvantage to Australian exporters and importers and provide a broader platform for global action in future,'' the company said.

LNG companies make a similar argument and want to be effectively excluded from the scheme until overseas rivals introduce a carbon price.

BHP chief executive Marius Kloppers' September speech declaring support for a model of pricing carbon, since adopted by the government, is seen as a turning point in the debate.

The speech put climate change back on the front page and gave the government momentum to change its ''no tax'' stance and propose a broad framework in line with the views of Australia's biggest company.

But BHP this week was coy on declaring its full support for the government's plan until more policy detail is released.

Energy companies AGL and Origin have long pushed for a carbon price, and stand to profit from the extra demand for gas-generated power. But with Origin also planning a $35 billion LNG project in Queensland, they are pushing for more exemptions for LNG, and did not respond to the survey.

Even among supportive businesses that should be able to pass a carbon price to customers with ease - such as Woolworths and property group GPT - support comes with conditions. Woolworths, for instance, backed compensation for low and middle-income households, as promised by the government this week.

Westpac and Suncorp broadly backed the government's approach, but were the only banks to do so.

Given that lenders stand to profit handsomely from a new carbon market, both would prefer an emissions trading scheme to a tax.

On the other side of the fence, a smaller group of companies, including Woodside, opposes the tax.

Leading the ''no'' camp is BlueScope Steel boss Paul O'Malley. He has been the most vocal critic, saying the tax will push up the price of Australian-made products and exports but do nothing to reduce emissions from Australia's steel sector.

''A better way [to reduce Australia's emissions] would be to adopt a sector by sector approach to carbon pricing that doesn't disadvantage local manufacturers as compared to importers,'' BlueScope said in response to the BusinessDay survey. ''This [should be] combined with tax incentives to promote research and development investment in carbon-effective technologies.''

Coca-Cola Amatil said efforts to reduce emissions should centre on research and development tax breaks, incentives for companies adopting clean-energy strategies and allowing accelerated depreciation on energy-inefficient equipment.

''Australian food and beverage manufacturers … are already under significant pressure from cheap packaged imports due to the high Australian dollar and yet another tax will only exacerbate this pressure,'' a spokesman said.

CCA chief executive Terry Davis said there had also been insufficient detail on how manufacturers would be affected by the moves to price carbon.

Woodside chief executive Don Voelte went as far as to say a carbon price - alongside tax changes and soaring labour costs - could endanger the benefits of the resources boom. ''There's a point where this whole good news story for this country could either be delayed, or at least postponed, until more certainty is given,'' he said.

But many companies were unwilling to reveal their hand on carbon pricing. The strategy for many is to keep their powder dry until the government provides details about pricing and transitional help.

''It hardly makes sense for us to state a position publicly until we see the details,'' one spokesman said. ''It would be like showing your cards in the final round of a high-stakes poker game. Seems a bit silly, doesn't it?''

Top executives also say business leaders sense an opportunity to demand more compensation because the government has already caved in once to mining companies.

Beyond corporate gamesmanship, however, some doomsday scenarios that chief executives describe are facing growing scepticism. And it's not just green groups. The investment community is also raising doubts.

For instance, broker research suggests the impact will be nowhere near as great as some chief executives claim.

Citi, for example, assumed the same level of compensation as under the previous scheme, but found fairly moderate effects, with the value of most companies hit by between 0.5 per cent and 4 per cent.

''The numbers as we've crunched them look relatively small,'' said Citi analyst Elaine Prior. ''We think the impact on individual companies won't be nearly as big as is sometimes being suggested, and we know that some of the media debate has been on the basis that there would no compensation for industries.''

It also appears that BlueScope chairman Graeme Kraehe's prediction that carbon pricing would ''sacrifice'' the steel industry may have overstepped the mark. Deutsche Bank analyst Tim Jordan concludes that carbon price impacts would be ''modest'', predicting a 5.2 per cent hit to earnings for BlueScope and 2.3 per cent for OneSteel.

Some of the loudest opponents of a carbon price are also under attack over their transparency on carbon.

Woodside was one of four Australian companies targeted last year by the Climate Advocacy Fund, a joint initiative of the Climate Institute and Australian Ethical Investor, which proposed shareholder resolutions calling for greater disclosure on the portion of shareholder value that a carbon price could affect.

The push for openness and transparency on carbon positions and disclosure is also starting to drive a wedge between traditional allies.

In a rare show of defiance, the Australian Council of Superannuation Funds, the country's largest shareholder-voting adviser, yesterday revealed it would defy Woodside's recommendation to reject the Climate Advocacy Fund resolution at next week's annual meeting.

The Climate Institute's Julian Poulter said investors deserved to know how companies were managing risk.

"Woodside CEO Don Voelte has talked about project risk and carbon regulation,'' he said. ''But in the next breath Woodside wants investors to provide billions of dollars of capital based on some vague hope that global growth in carbon regulation slows down. It's not going to.''

Goldman Sachs's head of environmental, social and governance research, Andrew Gray, said companies were entitled to have no position on introducing a carbon price, but only after a thorough analysis.

''That includes things like having committees and even board members responsible for the company's approach to carbon,'' he said.

''Answers to these questions tell us how considered and well-formulated their view might be, so we then know how the company is managing the risk.''

In a frank assessment of the business campaign against the government's carbon price, GE Capital regional chief executive Steve Sargent warned against accepting at face value the argument that ''the world will end''.

''This is a movie we have all seen before,'' he said. ''When George Bush snr was in the White House he introduced the Clean Air Act, which outraged companies in the US, including GE. We screamed. We said, 'this is going to shut down out business, we will never be able to comply, we will have to put off jobs'.

''We put out all the arguments that you are hearing now and guess what? It didn't happen. But today we sell a locomotive that has 90 per cent less emissions than it did back then.

''There are sectors that will need support as well as some low-income households, but that shouldn't stop Australia moving on this issue.''

A handful of big businesses - including AGL, BP, IKEA, Linfox and Pacific Hydro - joined GE in calling for the government to introduce a carbon price ''as soon as possible''.

''We really need to stop thinking that this will mean acting ahead of the world,'' Sargent said. ''We actually have a long way to catch up. Germany has broken the nexus between strong economic growth, strong trade growth and increasing greenhouse gas emissions. With Australia, we have gotten worse. We have grown our economy but we are No.6 in terms of the worst-performing greenhouse gas emitters per capita behind countries like Bahrain, Brunei and Qatar.''

In their defence, business groups fiercely deny they are only seeking corporate welfare.

Business Council of Australia deputy chief executive Maria Tarrant rejected critics' suggestions that businesses were seeking more compensation out of corporate greed. Instead, she said companies were trying to tell the government that the global environment had changed substantially since 2008 when the carbon pollution reduction scheme was developed.

''Three years down the track, and what we are seeing is a whole lot of regional and individual country approaches,'' she said. ''It's very clear that it's unrealistic to expect that most of our competitors will have explicit carbon prices on their products - we don't think we are heading towards a level playing field internationally.'' Although the public debate focuses on the carbon question, Tarrant said many companies were also under growing pressure from the strong dollar, labour constraints and rising commodity prices.

Businesses that faced higher energy costs but did not qualify for compensation also feared they would struggle to pass the full cost on to more frugal households, she said.

''The impact of carbon pricing, particularly for those that are not in the [emissions-intensive, trade-exposed] group but are exporting, is much greater today,'' she said. ''That price impost comes on top of a lot of other things.''

But the dilemma is that prolonging the debate about compensation only adds to market uncertainty.

And after years spent debating these issues, AMP Capital Investors analyst Ian Woods said more uncertainty was not conducive to shareholder value.

He said there was a valid argument for transitional help, but the longer we wait, the more expensive it would be.

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''It would not be correct to say that somehow we are going it alone or leading,'' he said. ''The longer we wait, the more change is needed to reach the 2020 target.''

With GARETH HUTCHENS

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