SCHOOLS CONSTITUTIONAL CONVENTIONS

A collaborative project of

· Department of Education and Early Childhood

· Canterbury Girls’ Secondary College

REGIONAL CONVENTION

Should the Federal Government take over environmental issues like carbon emissions trading scheme and water resources?

McMillan Hall

Canterbury Girls’ Secondary College

29 July 2011

CONVENTION

workbook

Introduction and background

What are we trying to achieve at this convention?

1. Introduce and inform you about the current topic as well as consider why this is considered as an issue in our community and in government? Consider the current issue – Should the Federal Government take over environmental issues like carbon emissions trading scheme and water resources? – and just as importantly – why is it raised so often by politicians, media and environmental groups?

2. Consider the options for change. Is there sound scientific evidence to support climate change? Is it time to introduce the carbon tax? What do Australians believe about this issue? How should the Federal Government tackle this issue?

3. Ask whether carbon tax and water related issues matter for future generations? How does it impact our community?

4. Model how a constitutional convention is held.

Working Group Activity 1

Part A – Reading the articles

There are three parts to this activity. Take about twenty minutes to complete all three parts. Read the following articles and record the main ideas and arguments made by the authors.

Themes

Differences

Reflections on what these article tell us about drinking

Each group will report back some of their reflections.

Patchy carbon plan assistance threatens industry competitiveness

The Australian chemicals and plastics industry today expressed concerns with inadequate transitional industry assistance measures under the Federal Government’s planned carbon pricing scheme.

Plastics and Chemicals Industries Association (PACIA) Chief Executive, Margaret Donnan, said “the Australian chemicals and plastics industry is highly trade exposed, yet transitional industry assistance under the carbon plan offers only patchy assistance to sections of industry at varying rates”.

“We have the unfortunate situation where a small number of our companies will be offered assistance at 94.5%, some will receive only 66%, and most others will receive no ongoing assistance at all”.

“We particularly fear for the future of those companies who will not receive ongoing assistance, such as our plastic product manufacturers who are already faced with significant challenges including the high Australian dollar. Sadly, it is these companies that also provide the greatest number of employees across the sector”.

“The Government must recognise that our competitors are not just Europe and the US, or even China. They are found throughout Asia and the Middle East, where the prospect of equivalent carbon pricing is very low”.

“Unilateral action without adequate industry assistance runs the very real risk of imposing greater costs on the Australian economy with little to no net environmental benefit”, Ms. Donnan said.

“It is critically important that we get the timing and design of the scheme right and in a way that recognises what is truly happening around the world - this scheme does not yet do that”.

The Australian chemicals and plastics industry has long supported action to address the challenge of climate change and is uniquely placed to meet the needs of a sustainable society, including through climate change mitigation and adaptation. Industry leaders are already taking proactive steps to lower their own emissions and broader environmental footprint though PACIA-led initiatives.

In addition, a global study by McKinsey & Co found that for every ton of CO2 the industry emits in manufacturing, our customers save between two and three times the emissions when using these products.

Media Enquiries:

John Osborn, Director - Communications, PACIA, (03) 9611 5409, 0417 997 774

Understanding how climate change affects water supply

The Water for a Healthy Country Flagship is improving understanding of longer-term climate variability to better manage water resources.

· Climate determines water supply

· Better climate forecasting and projections

The Water for a Healthy Country Flagship is working toward better management of water resources from climate risk associated with climate variability and climate change. 

Fast facts

· Climate is a fundamental driver of the water cycle

· Predicting climate variability and its impacts will lead to better management of water resources

· The Flagship is improving understanding of longer-term climate change to help water managers maximise agriculture, urban and ecological water use

Climate determines water supply

Climate is a fundamental driver of the water cycle. It determines how much water is available (supply) and how much water we need (demand) in the short and long term.

In the short and medium term, weather patterns determine variability in water supply and demand on a day-to-day and season-to-season basis – the weather one year may be drier or wetter than the last.

In the long term climate, that is the average of the weather over a period, differs from decade to decade. This alters our perception of what we regard as the normal climate. In eastern Australia the period from 1900-40 was generally drier, while the period from 1940-80 was generally wetter. In recent decades it has been generally drier.

 

In addition to natural variability, increased concentrations of greenhouse gases are leading to climate change, inducing a long term trend which superimposes on the natural variability, as is the case with a winter drying trend over south-west Western Australia since the late 1960s.

Flagship research is using climate change and variability predictions to maximise agricultural, urban and ecological water use opportunities.

The sustainability of water systems, irrigation systems, farming systems and dryland landscapes is dependent on climate variability and their future viability may be threatened by climate change.

Better climate forecasting and projections

Research into the risk posed by climate variability and change is being integrated into all of the projects across the Water for a Healthy Country Flagship through:

· observations and analyses

· model simulations

· seasonal water outlooks

· climate scenario constructions

· assessment of hydrological sensitivity of catchments

· interpretive tools.

Improved understanding of long-term climate variability and change is being applied to:

· assist practice and productivity in irrigated and dryland agriculture and grazing

· facilitate improved urban water supply systems

· maximise opportunities for sustainable management of ecosystems such as rivers and landscapes

· design water resource management options and policy response. 

Together with CSIRO Climate, this cross-cutting program delivers directly to clients through collaborative projects with external partners such as:

· the Australian climate change science program

· Indian Ocean climate initiative

· South-East Australian climate initiative

Dr Wenju Cai, CSIRO

Principal Research Scientist

Marine & Atmospheric Research

Phone: 61 3 9239 4419 

Fax: 61 3 9239 4444 

Carbon scheme fails on three key levels

Judith Sloan

From: The Australian

July 09, 2011 12:00AM

Carbon tax fails the test Source: AP

ALL economics undergraduate students are taught to assess taxation measures according to three criteria: efficiency, equity and simplicity. This is a useful starting point when it comes to assessing the carbon tax package to be announced tomorrow.

When gauging the efficiency of any tax measure, it is necessary to define the objective of the tax and then estimate the cost-effectiveness of the measure relative to other possible measures as well as doing nothing.

The carbon tax is what economists call a Pigovian tax -- it is designed to dissuade undesirable behaviour. Excise on cigarettes and alcohol also falls into this category.

One of the issues about the carbon tax -- tipped to be set at $23 a tonne -- is whether it will actually be high enough to dissuade CO2 emissions.

At least in the short run, the demand for many emissions-intensive products -- electricity and transport, for instance -- is relatively inelastic.

Over time, the demand may change to a greater degree, but this will only occur if the tax is high enough to remove the advantages of the ongoing production (and consumption) of emissions-intensive products relative to the production of substitute products with lower emissions.

Given what we know about the cost structures of the various means of generating electricity, it is absolutely clear the tax will not be high enough to induce the behavioural change that is the purpose of the tax in the first place. It is what I like to call a homeopathic approach to dealing with CO2 emissions.

What this means is that if the government is determined to meet the target of a 5 per cent reduction of emissions by 2020, then the jumble of inefficient schemes such as the Mandatory Renewable Energy Target will have to do the heavy lifting rather than the carbon tax.

If economists are unanimous about one thing, it is that these various schemes, designed to favour renewable industries, for instance, are a drag on per capita income and should be avoided.

So what about the equity effects of the carbon tax? The government is quick to point out that nine out of 10 households will receive some compensation and about 70 per cent will be fully or more than fully compensated.

So should the carbon tax be positively assessed on equity grounds? The first thing is that providing compensation to households actually operates against the purpose of the tax -- which is to change behaviour in order to reduce emissions. And to over-compensate some households suggests that the government has snuck in a redistributive objective to the tax.

What household compensation means is that it will only be the substitution effect that is in play in terms of changing behaviour, rather than the combined impact of substitution and income (the tax would reduce household disposable income without compensation) effects. This amounts to poor economics but probably good politics.

Of course, there are others who are affected by a carbon tax apart from households. The owners and shareholders of businesses who will pay the tax initially, the workers who are employed in emissions-intensive industries, the small businesses that will be affected by the carbon tax in a number of ways -- the tax for these groups will be perceived as highly inequitable.

Even if a tax measure more or less meets the criteria of efficiency and equity, if the means by which the tax is levied involves disproportionate transaction costs, then support should not be forthcoming. Transaction costs mount where there are exemptions, loopholes, excessive paperwork, compliance costs and a bloated bureaucracy created to administer the tax.

The manner in which transport fuel is being handled is a case in point. To have two classes of users -- one that is exempt and one that must pay the tax -- is a recipe for complexity and high transaction costs. And many of these costs will be borne by small business, even though we are assured that tradies will be exempt. The brighter students might add an additional point to their assessment.

Rather than simply reducing CO2 emissions in Australia, the real point of the carbon tax is to make a contribution to reducing global emissions. Only if there is a global effort will there be any impact on the climate and average temperatures.

Using the theorem of the "tragedy of the commons", however, the notion that all nations will get on board to reduce their emissions is fanciful. As a consequence, Australia's efforts alone -- contributing under 2 per cent of global emissions -- will be insignificant. An heroic assumption is required that our efforts will prompt other countries to follow our example.

Without equivalent global action, particularly among our competitor nations, measures will be necessary to prevent carbon leakage whereby local emissions-intensive operations shut down, only to be replaced by a similar operation in another country.

But measures to protect or exempt emissions-intensive industries only further complicate the tax package.

This constitutes another cross against the tax on the grounds of unachieved simplicity.

To secure top marks, overall, students need to point out that the tax must be set high enough to induce behavioural change. Without this, the tax is all compliance costs and unwarranted redistribution. Dealing with the equity considerations by compensating households mutes any behavioural impact and there are many losers from the imposition of the tax in addition.

To offset carbon leakage and to accommodate politically dictated special deals means the tax also fails the test of simplicity.

Professor Judith Sloan is an economist and company director

Climate change and water resources

Scientists around the world now agree that the changes in climate we are seeing globally are the result of human activity. However, while the responsibility for environmental change rests with industrialised nations, the effects will be felt most by the poor.

Source: WaterAid

Current predictions

Climate change threatens to alter established weather patterns and is set to accelerate. The influential report Stern Review – Economics of Climate Change predicted that climate change would have the following affects on water resources:

Stresses:

· regional rainfall patterns change (ie areas become drier, or wetter, on average)

· precipitation falls as rain at higher altitudes, glacial melt

Shocks:

· extreme events become more likely, for example droughts and floods – flooding has huge impact on sanitation facilities

· salinisation of groundwater / surface water due to sea level rise

Impact on WaterAid's work

Changes to water quality, quantity and availability will all impact on WaterAid's aim of enabling the world's poorest people to gain access to safe water in the coming years.

In response to this WaterAid is:

· strengthening the management of water resources within its projects and programmes to respond to existing water stress and, with climate change and increased rainfall variability, future water stress

· seeking to understand the water resource balance in locations where it works, identifying appropriate technical options for domestic water supplies, bearing in mind affordability

· supporting interventions that enable aquifers to recharge

· seeking to minimise pollution of water resources, particularly from latrines and waste water

· collecting data at water points it has supported and sharing this information with national and international bodies with the responsibility for water resource information and data management

· working with watershed management organisations to ensure the voice of domestic water users is heard

· forming alliances and partnerships with organisations that have expertise in other aspects of water resource management for project / programme work and joint advocacy activities

· adopting the concept of a 'light' approach to Integrated Water Resource Management (IWRM) that is based on all sub-sector actors applying good IWRM practice at their own level and in their own work; this will in turn lead to the emergence of better local level water resource management and will be an important first step in the process of IWRM

In addition to issues of adaptation described above, WaterAid is establishing a mitigation programme which, starting with UK operations, seeks to understand trends and thinking in climate change and establish standards for WaterAid's environmental impact which are monitored on a regular basis.

WaterAid's principal interest is ensuring access to water and sanitation for poor, excluded and vulnerable people. We are committed to strengthening our capacities on water resource management and that of our partners, and are developing clear strategy and guidelines to integrate water resource management in all areas of our programme and policy work.

WaterAid International site

Statement 10 July 2011

Carbon Tax implications to Cement Australia

Cement Australia has reviewed the details of today’s Carbon Tax announcement and has determined it will be required to obtain $63.9 million in permits in the first full year of the scheme’s operation, with expected industry assistance of $58.2 million reducing the cost to the company in 2013 to $5.7 million.

Beyond 2013 the assistance to the cement industry will reduce, ultimately increasing the expected cost to Cement Australia from $5.7 million to $63.9 million.

Chris Leon, Cement Australia CEO and Managing Director highlighted a range of concerns regarding the Carbon Tax package and the expected impacts on the cement industry in Australia.

“Despite the initial assistance we receive as an emissions intensive, trade exposed industry, the Carbon Tax adds a significant additional impost on our business as we struggle to compete with imports under a high Australian dollar,” he said.

Mr Leon also raised a number of concerns regarding the uncertainty in the price of carbon beyond 2015 when the Carbon Tax converts to an Emissions Trading Scheme (ETS).

“We are very concerned about the uncertainty in the price of carbon post-2015, which is exacerbated by our experience with the Renewable Energy Target (RET) where the assistance from the government unfortunately fell well short of what was promised,” he said.

Mr Leon noted the assistance being afforded to other emissions intensive, trade exposed industries in the package announced today.

“Additional assistance has been afforded a number of industries, including the Steel Industry. In our view, the Cement Industry’s position is similar to the Steel Industry and we believe we should be afforded the same benefits,” he said.

Mr Leon explained that the entire cement manufacturing process was not included in the activity definition for assistance that was announced today.

“We welcome the government’s offer to work with industry on issues regarding the Carbon Tax and we look forward to participating in those discussions,” he said.

“As we do so, we will continue to highlight our concerns regarding the activity definition in order to have the entire cement manufacturing process included in the assistance program.

“Ultimately, our desire is that our industry should continue to be internationally competitive to avoid sending jobs and economic benefit offshore without any benefit to the environment.”

Media inquiries

Marsha Cadman

Phone: 07 3229 4499 or Email: marsha.cadman@rowland.com.au

Working Group Activity 1Part B – Consider the arguments for and against

Consider the arguments you have heard making a case for and against the Federal Government take over environmental issues like carbon emissions trading scheme and water resources? As a group discuss the dominant Australian ideas that would support this argument.

Main ideas and sediments

As an individual list the ideas and sentiments that you would wish to see in any proposed change. Make sure you give a honest assessment of what defines this problem of drinking and youth?

Each one of your lists will be used to compile a collective list that will inform your decisions over the proposed change and the subject of a referendum.

Working Group Activity 1

Part C – Collective view for and against

Generate a ‘long list’ of the issues that, in your collective view at least, have helped to inform your decisions over the proposed change.

Collective reflections

Working Group Activity 2

Part A

There are two parts to this activity. Your task is to reflect upon the work completed so far and look at the generated ‘long list’ of ideas that will inform your decisions.

By the end of this Working Group you should have a clear idea of which issues/ideas (that were generated in all of the first Working Group Activity) you would like to see included in any proposed changes.

Be ready to make persuasive case for or against these later this afternoon.

Use this discussion and exercise to test and shape your views. Here is an example to support your reflections.

Issue/principle:

(for example) carbon emissions is a worldwide problem and cannot be fixed

Attraction:

Enjoys wide acceptance by the community except for environmentalists

Possible consequences:

Carbon emissions continues to burden society with increased climatic changes seen in water level rises, significant increase in severe weather conditions (drought, floods etc)

Use the following table to record your ideas and reflections as a group for and against the proposed change.

Issues and principles for and against the proposed change of whether the Federal Government take over environmental issues like carbon emissions trading scheme and water resources?

Issue/principle:

Attraction:

Possible consequences:

Issue/principle:

Attraction:

Possible consequences:

Issue/principle:

Attraction:

Possible consequences:

Issue/principle:

Attraction:

Possible consequences:

Issue/principle:

Attraction:

Possible consequences:

Issue/principle:

Attraction:

Possible consequences:

Working Group Activity 2

Part B – Persuasive view for and against

Compile your ideas and be prepared to make a persuasive case for and against.

Persuasive case for or against

Additional Reading

When it comes to forestry, carbon tax follows ideology and not science

By putting a price on carbon the Federal Labor Government, along with the Greens and independents, has embarked upon an ambitious reform agenda. This could have assisted Australia’s sustainable forest and wood products industry by recognising the lower levels of embodied energy in its products, the carbon sequestration in productive forests and carbon stored in wood products, and the benefits of using renewable bioenergy powered by forest residues.

Unfortunately, this opportunity was missed.

Overall, the outcomes of this scheme do not appear to encourage productive use of forests. It could reduce the supply of domestic wood; damaging the wood and wood-based products manufacturing sector and encouraging consumers to purchase imported wood or substitute materials with larger carbon footprints.

Cost and competitiveness

Forestry and agriculture as well as off-road fuel use will not be covered by the carbon price. Neither will fuel for on-road haulage during the first two years of the scheme. This means that timber harvesting in plantations and native forests will not face the carbon price.

However, energy prices are will rise. And despite compensation packages for households and emissions intensive trade-exposed industries, the carbon price will reduce the competitiveness of domestic producers against imports. The Master Builders Association of Victoria has warned that the cost of building will rise due to increased material costs, adding about 2 per cent to the cost of building.

The pulp and paper sector will receive some assistance for the emissions intensive trade exposed activities which it undertakes. This should partially offset the reduction in international competitiveness that will be caused by the imposition of the carbon price.  Unfortunately the rest of the wood manufacturing sector will not receive this initial level of assistance.

Native forest residues excluded from RET

One of the biggest disappointments in the Clean Energy Future package is the exclusion of biomass from native forest wood waste ― including products, by-products and associated waste ― from eligibility under the Renewable Energy Target.

This political concession to the Greens will not only undermine commercial opportunities for the timber industry, it responds to ideology and ignores environmental science.

There will also be perverse environmental outcomes resulting from this decision. It will reduce investment in a cost-competitive renewable energy source that ― when the fuel is sourced from a sustainably managed forest, which is the case in Australia. It will also encourage wood waste being burnt for no environmental gain following harvest.

Bioenergy and biofuels will not be subject to a carbon price and where the price of energy significantly increases, all forms of wood-based bioenergy could have role. This includes firewood and native forest wood waste. Processors generating their own energy from native forest wood waste will be shielded from higher energy prices.

Exclusion from the Renewable Energy Certificates scheme does not prevent the use of native forest wood residues for bioenergy, but it will not compete on a level playing field with other sources of renewable energy if this change is finalised.

There are likely to be new business opportunities for residues from plantation forestry, including for energy and biofuels. Domestic aviation will be covered by the carbon price and this is one of many sectors developing biofuel alternatives; potentially including forestry residues.  However, they will need to compete economically with fossil fuels, even under a carbon price.

It will also be essential for the industry to ensure that forestry is included in research, development and commercialisation initiatives for bioenergy and biofuels.

Advantages of sustainable forestry not recognised

Despite advice from the Intergovernmental Panel on Climate Change that sustainable, productive forest management, which delivers timber products storing carbon and residues for bioenergy to offset fossil fuel use, the Clean Energy Future package does not appear to support productive forestry or the carbon benefits of wood products.

The carbon stored in harvested wood products is not recognised. This is an opportunity missed for Australia to recognise the scientific evidence, send a signal about the carbon benefits of wood products and to lead internationally on this issue. The industry will need to relay on its own promotion of the climate credentials of wood products.

Although the carbon price is linked to credits available under the Carbon Farming Initiative (CFI), the narrow range of forestry activities accepted mean that productive forestry is likely to be ineligible.

Furthermore, the scheme discriminates against sustainable forestry activities through ‘forest protection projects’ as part of the $1 billion Biodiversity Fund and the CFI. The Biodiversity Fund includes incentives to end sustainable timber production in native forests. This proposition supports a questionable short-term gain in keeping carbon in the forest, whilst not recognising the largest and sustained mitigation benefits is from sustainable and productive management. Tasmania’s forest peace deal may also be the beneficiary of the Biodiversity Fund.

Overall, the Clean Energy Future package is a case of increased costs for Australian producers and missed opportunities for the increased storage of carbon in forests and wood products.

Copyright © 2011 Victorian Association of Forest Industries

NATIONAL PRESS CLUB ADDRESS

MR RALPH HILLMAN, EXECUTIVE DIRECTOR, AUSTRALIAN COAL ASSOCIATION

CANBERRA, 6 JULY 2011

HOW THE GOVERNMENT’S CARBON TAX WILL IMPACT THE AUSTRALIAN COAL INDUSTRY AND DIMINISH ECONOMIC GROWTH

Ladies and gentlemen

It is a pleasure to be here today to address the National Press Club.

The Australian government is about to propose legislation to the Parliament that will have Australians embark on a major restructuring of our economy over the coming decade. The objective of this radical restructuring is to reduce Australia's contribution to global greenhouse emissions.

The Government's proposed carbon tax would be the centrepiece of a set of policies aimed at improving energy efficiency, switching electricity production away from coal towards gas and renewables and shifting economic activity away from emissions intensive industries. The proposal incorporates provisions to compensate some Australian consumers and some industries for the costs they will incur as a result of this policy. However, it also exempts some emitters from the tax – including large emitters such as agriculture and motorists.

The government's proposal has stimulated vigorous political and economic debate – more intense than when it introduced an almost identical proposal in 2009. The coal industry is actively engaged in this debate. You may have seen the advertisements the Australian Coal Association has run in recent weeks in National and regional press. As in 2009, we want to explain to people, particularly in coalmining regions, the potential effects of the proposed carbon tax on their lives through its impact on coal mining.

I should point out however that while we have been arguing that this is not a good tax for Australia or for Australian coal mining in its proposed form we recognise that action on climate change is necessary. We also support a carbon price as a means of reducing emissions – but not one that will cut Australian jobs but with minimal impact on global emissions.

Whereas the coal industry was almost alone in publicly opposing the CPRS legislation in 2009 this year it has been part of a wide and growing chorus from manufacturing industry, from workers and from concerned citizens warning of the dangers to Australia's prosperity posed by the carbon tax.

The main arguments mounted against the government proposal are:

· that Australia is moving well ahead of major global emitters such as the United States, China, India and most of the countries with whom we compete in global markets;

· that Australia's 1.5 per cent contribution to global emissions means that our actions will be futile in terms of influencing global climate; and

· that the tax will impose costs on Australian mining, manufacturing and even service sectors that will render them less competitive in global markets and at home where they face competition from imports.

The end result will be reduction in the wealth of all Australians – unlike the reforms of the Hawke, Keating and Howard governments.

Unfortunately for the average Australian, the proposed compensation to consumers may ultimately prove to be a redistribution of shares of a diminished national economic pie. I would like to take this opportunity today to tell you about the Australian coal industry; how it fits into the Australian economy and into global coal markets; and why we oppose the government's carbon tax.

Over the past 40 years the Australian black coal industry has been transformed from a supplier to the local power and steel industries into Australia's largest export industry.

Australian black coal exports were $55Bn in 2008/9, $36Bn in 2009/10 and projected to be $46 Bn in 2010/11 and $60Bn in 2011/12 – that's about 20% of the value of Australia's merchandise exports.

The coal industry employs around 40,000 Australians directly and 100,000 indirectly mainly in regional Australia. With over 54% of electricity generated from black coal and a further 27% from brown coal it also underpins the security, reliability and comparative low cost of Australia's electricity supply.

The importance of coal to our economy is further evidenced by its growing share of GDP. In the mid-1990s, this stood at just over 1%. By 2008/9 it was around 3.5% making it the largest mining industry. Just how important coal is to the economy has been demonstrated this year by the impact on Australia’s GDP figures of the flooding of mines in Queensland – those floods pushed the National economy into a quarter of negative growth.

Just as a hiccup in coal exports reverberated through the National accounts this year, coal's strong performance in 2008/9 is widely recognised as having sustained Australia during the Global Financial Crisis. In fact Australia was the only OECD economy to grow in 2009 during the worst global recession since the great depression of the 1930s.

Research from RMIT economists released this week affirms that "the coal sector effectively provided insulation to the wealth of each Australian as measured by GDP per capita during the financial crisis”.

Australia is still outperforming OECD economies – thanks largely to coal and iron ore exports driven by growth in China, India and other advanced developing economies.

The coal industry's 3.5% contribution to GDP feeds into the Australian community in a number of important ways.

· First, the coal industry paid $8.4 Bn to the Commonwealth and State governments in corporate taxes and $4.5 Bn in royalties, which were worth $3.1 Bn to the Queensland government and $1.3 Bn to the New South Wales government. Those royalties flow back into the community in the form of state funding including for hospitals schools and roads.

· Second, each year the industry purchases billions of dollars in supplies, equipment and services from regional and metropolitan providers. In 2008/9 that was valued at $16 Bn.

· Third, the industry provided its workforce and contractors payments valued at $9.4 Bn. It is a fact that Australian coal mining employs a highly skilled workforce and pays some of the highest wages in the country. The average coalmining wage is $122,000 compared with the average in manufacturing of $54,000. By way of illustration, a haul truck driver in Blackwater would earn around $130,000 compared to a travel agent in Cairns selling tours to the Great Barrier Reef, earning around $44,000 a year.

Clearly growth in the coal industry not only supports our export income and our GDP but boosts average weekly earnings as the industry expands.

Fourth, the coal industry pays dividends to Australian and overseas shareholders – these were worth $14 Bn in 2008/9. The industry also retains earnings for reinvestment in future mining and related infrastructure activities. In 2008/9 this amounted to $6 Bn that was reinvested in Australia.

Let me now say a bit about Australia's role in global coal markets.

Many in Australia imagine that this country is the largest coal producer in the world, that we dominate world coal markets and that our competitive position is unassailable.

Nothing could be further from the truth.

Although Australia is the largest exporter in the global seaborne coal trade it in fact accounts for less than 6% of global coal production. Most of the world’s coal is used in the country in which it is mined with seaborne trade forming only 15% of global coal use.

China produces around 50% of the world's black coal, the United States 15%, India 9%, and Indonesia, South Africa and Russia around 4% each. Furthermore Australia share of global production is falling – world coal production has increased by 66% since 2000 while Australia's is up by 40%, China's by 141%: Colombia’s by 91% and Indonesia’s by 319% – note the last two – they are major exporters and competitors of Australia. Other major competitors include South Africa and Russia with Mozambique and Mongolia as emerging major players.

There is no doubt that Australia produces very high quality thermal coal for power generation and metallurgical coal for steel making. Our industry is cutting edge in terms of technology, management, safety and work practices. We are relatively close to the growing Asian markets – Japan is our largest customer while Korea and Taiwan are also important and China and India have rapidly increased imports from Australia over the last couple of years.

But the international coal trade is highly competitive.

Because coal is globally abundant, competitiveness of individual companies and countries is largely determined by their cost of production. The competitive advantage of the Australian coal export industry is therefore by no means unassailable. That was proven decisively in 2005 when Indonesia overtook Australia as the world's largest seaborne thermal coal exporter, taking 15% of our market share in the process. How did that happen? Rail and port infrastructure in Australia were not up to the task of getting expanded exports out the door.

The Indonesians with less capital intensive infrastructure requirements combined with lower labour costs were able to beat us to market. Coal analysts do not foresee Australia regaining this lost market share. That was proven decisively in 2005 when Indonesia overtook Australia as the world's largest seaborne thermal coal exporter, taking 15% of our market share in the process. How did that happen? Rail and port infrastructure in Australia were not up to the task of getting expanded exports out the door. The Indonesians with less capital intensive infrastructure requirements combined with lower labour costs were able to beat us to market. Coal analysts do not foresee Australia regaining this lost market share. I will now turn to the future of global demand for coal.

A moment ago I spoke about the spectacular growth in global coal production – 66% since the year 2000. Notwithstanding that growth many ask whether coal has a long-term future in the global energy mix given the need to address climate change by reducing global greenhouse emissions. According to energy market experts like the International Energy Agency (IEA) coal will continue to have a large role in supplying secure energy to a growing global economy for the foreseeable future. The IEA forecast continued rapid growth in global energy demand driven in particular by the continued industrialisation and electrification of China and India and other developing countries. Access to electricity is allowing these countries to grow out of poverty and to improve the standard of living of their people.

The IEA estimates that the global growth in electricity generation between 1990 and 2008 was 71% and that the growth from 2008 to 2035 will be a further 90%. Like the past growth, the projected growth will largely be supplied by coal and natural gas. The contribution of nuclear and renewables – principally hydro – will grow. But electricity supplied from coal and natural gas will still be nearly three times as much is that from all the renewables combined.

The IEA, many governments and the coal industry itself are concerned about climate change. We all point out that if we are to continue to use coal and natural gas as major energy sources, greenhouse emissions from their combustion will have to be drastically reduced.

Carbon capture and storage is the key technology for reducing emissions from continued use of coal and gas.

The Australian coal industry via its $1 billion COAL21 fund is working with the Commonwealth and State governments on the demonstration of carbon capture and storage in Australia.

I am frequently asked will CCS work? Won't it cost too much? I reply to those questions by quoting the answers of scientific and industry experts who point out that it will work – what is being done is integrating a set of known technologies rather than inventing something entirely new. That is not to say it is easy and we may not see a commercial scale demonstration power plant in Australia before 2020.

But the same timeframes apply to development of the renewable baseload technologies such as solar thermal and geothermal. All of the proposed renewable and low emission technologies will be much more expensive than existing baseload coal fired power. But according to the United States Electric Power Research Institute coal-fired power generation with CCS will be one of the most cost competitive options.

As the Productivity Commission, the government and others have affirmed, Australia has an enormous strategic interest in the successful development and deployment of CCS technology given our need to ensure a secure energy supply and to preserve the value of Australia's coal and gas endowment for future generations of Australians.

It is also in our interest to ensure that China and India have the technologies to reduce emissions for their projected massive use of coal. It is hard to see how the challenge of climate change can be met without carbon capture and storage. So, now to the government's proposed carbon tax and how it will impact on the black coal industry.

When people think about the role of coal in global emissions they tend to have in mind emissions from power stations, steel mills and cement plants where coal is an essential part of the production process. Indeed the problems posed for those industries in Australia by the carbon tax are extremely difficult. Jobs are at risk in both the steel and the cement industry as is the security of our electricity supply.

Those industries have all made their concerns abundantly clear to the Government.

But the main impact of a carbon tax on the coal industry will not be via the emissions from the use of coal but from the emissions that arise as coal is mined.

It is important to realise that the process of coalmining itself produces greenhouse emissions – mainly methane. These so called "fugitive emissions" are released as the coal is mined and broken up. They vary enormously from mine to mine and tend to be more intense from deep underground mines such as those in the Illawarra than from open cut mines.

Those fugitive emissions represent about 5 to 6% of Australia's total greenhouse emissions. To put that in perspective methane emissions from livestock are 11%.

The government proposes to subject fugitive emissions from coal mining to its carbon tax. This will impose a major new cost on Australian coal mining and will weaken its competitiveness in global markets. No other country imposes a tax on fugitive emissions from coal mining. The EU emissions trading scheme specifically exempts them – notwithstanding that theirs are larger in volume than Australia's.

Certainly none of Australia's competitors in coal export markets – countries such as Indonesia, Colombia, Russia, South Africa or even Canada and the United States with their large coalmining industries – are contemplating such a measure. The Centre for International Economics in Canberra recently produced a report confirming this to be the case.

Fugitive emissions have been exempted from carbon taxes and emissions trading schemes in other countries simply because they are difficult to measure and very difficult to abate. It is almost impossible to limit fugitive emissions contained in mineshaft ventilation air or from open cut mines. In that respect they strongly resemble methane emissions from livestock production that are excluded from the government's proposed carbon tax.

The government points out that fugitive emissions from coal mining and LNG production are the fastest-growing emissions in Australia's greenhouse inventory and must therefore be abated if Australia is to meet its target of a 5% reduction in emissions by 2020. But as the CEOs of some of Australia's largest coal mining companies have pointed out to the government, with no available or prospective technology to abate them, there is only one way to cut fugitive emissions from Australian coal mining by 2020 – that is by closing mines.

I should point out that Australian coal miners have not been inactive in addressing fugitive emissions – on the contrary they are at the cutting edge of practices to estimate and reduce fugitive emissions.

Since 1990 Australian coal production has more than doubled – while fugitive emissions have risen by less than 50%. This is partly due to the move to open cut rather than underground mining. But it also reflects the application of best practice approaches.

The coal industry is faced with an $18 Bn tax over nine years under the government's current proposal. This tax will raise the cost of Australian coal mining vis-a-vis its overseas competitors and ultimately lead to premature mine closures and the loss of thousands of jobs. Furthermore it will render investment in Australian coalmining less attractive than in other countries and thereby diminish the expansion of mines and the construction of new ones. It will crimp the growth of the coal industry.

ACIL Tasman have modelled the impact of the tax on the basis of confidential commercial cost and revenue data from 82 existing Australian mines. They found that 18 mines will be at risk of premature closure in New South Wales and Queensland by 2020, that about 4700 jobs could go and $22 Bn of revenue could be lost.

In addition ACIL Tasman estimated on the basis of project by project data the likely impact of the tax on proposed investments in new mines and mine expansions. They found that employment creation from new mine developments would be diminished by between 27 and 35 per cent as a result of the tax. Export earnings from those projects would take a similar hit.

These estimates do not take account of the negative impact on investor sentiment created by a succession of government policies aimed at taxing mining revenues. Nor do they take account of the stated objective of the government’s alliance partner – the Greens – to shut down the Australian coalmining industry.

Of course these mine closures and lost jobs and investments will result no reduction in global greenhouse emissions. As I have pointed out earlier, coal production is rising rapidly in many other countries to meet growing global demand and any reduction in Australian coal production will simply be replaced by increased production elsewhere.

The imposition of the tax on fugitive emissions from Australian coalmining will ultimately be futile because of carbon leakage.

The government has criticised the ACIL Tasman modelling because it doesn’t take account of government assistance to the coalmining industry. The government has not yet made public its proposals. But we understand that for coal the assistance might be less than the $1.5 Bn over five years in the November 2009 CPRS proposal. That assistance was to be delivered to 20 or so gassy mines.

ACIL Tasman has tested this assistance package in its coal industry model and found that it will merely postpone some mine closures for the five-year duration of the assistance. As ACIL Tasman point out in their report the mines at risk of closure from the tax are not necessarily high emission mines – but mines with high marginal costs relative to revenue. And of course a five-year package will not diminish the negative impact of the tax on investment plans. That's because the government's carbon tax is forever – not just for 5 years.

In summary, an $18 Bn tax with less than $1.5 Bn transitional assistance to address coal industry competitiveness doesn’t add up.

Some economic commentators including Professor Garnaut have criticised the ACIL Tasman modelling because it does not take into account growth in other areas of the economy that will take

place as investment in coalmining diminishes and coalmining jobs disappear. After all, says Professor Garnaut, the terms of trade will adjust and new jobs will be created in other sectors.

He fails to point out that as the terms of trade adjust against us, the average consumer walking into Kmart or Bunnings will get less for his or her Australian dollar. Nor does he point out that the young man or woman in the Hunter or Illawarra hoping for a $130,000 coalmining job might instead be looking at a $60,000 job somewhere in the services sector – or perhaps not able to find a job at all in their region.

Australia should be leaping at the unique historical opportunity offered by the industrialisation of China and India to maximise the return on our resource endowment. The carbon tax will diminish that opportunity. Other countries will step into our shoes, reap the rewards and send the emissions skywards.

It is perplexing that the government has arrived at a rehash of its 2009 CPRS proposal already shown to reduce coal industry investment and job prospects to the advantage of overseas competitors for no environmental gain. There has to be a better way to price carbon.

It is obvious that the Europeans had a keen eye to their economic wellbeing and the competitiveness of their industries when they designed their emissions trading scheme. Drawing on that experience in designing a carbon tax – there are three key lessons.

First, a carbon tax should be introduced with phased-in auctioning for Australia to make the transition to a low carbon economy in the long term without reducing job opportunities in the short term.

Second, don't give our competitors an unfair advantage. The EU's approach here is to shield trade exposed and energy intensive industries.

Third, Australia should act in step with, not ahead of, our major trade competitors and partners.

The government is set to announce the detail of its carbon tax proposal in four days’ time, but the debate is not over. The coal industry will continue to press its case through the parliamentary process and to the public. We know that many other industry groups plan to do the same. It is really important that Australia gets this policy right and not put the jobs and livelihoods of Australians at risk.

MEDIA RELEASE 12 July 2011

Carbon tax will punish jobs and investment in coal industry

The Australian Coal Association (ACA) said today that claims by the Federal Government that the takeover offer for Macarthur Coal is evidence that the carbon tax won’t punish the coal mining industry are clearly wrong.

Executive Director of the ACA, Ralph Hillman said these claims demonstrate a lack of understanding of how Australia’s largest export industry operates.

“The industry has made it very clear that the carbon tax will have two significant impacts.

“The first will be to threaten the future of at least 18 coal mines that have a combination of high levels of methane emitted during mining and high cost structures.

“A fact accepted by the government given they have offered financial assistance to attempt to delay the closure of these mines.

“Secondly that employment in future coal mines will be up to 37% less than if there was not a carbon tax.

“Both of these impacts were modelled comprehensively and correctly by ACIL Tasman and released by the ACA last month.

“Simply because there is one potential change of ownership of an individual coal mining company is proof of nothing except that some coal mines will continue operating.

‘Attempting to portray this as vindication for the government’s impost on the coal industry is simply not credible.

“The Government also chooses to conveniently ignore the 49% drop in valuation issued by a UBS Analyst for the Illawarra mining company Gujurat.

“The coal industry, and we believe Australians, should not accept the loss of investment and jobs when there will be no reduction in greenhouse gases.

“The investment Australia loses will instead occur in Indonesia, South Africa and our other coal export competitors and so will the greenhouse gas emissions “The question the government simply cannot answer is what will be the reduction in global greenhouse gas emissions from imposing the carbon tax on Australian coal mines?

“The Government knows there is a better way to introduce a price on carbon. In the case of coal mining the carbon tax should be phased in at the same time as our international competitors – ensuring that we don’t harm Australia’s long term economic interests.

“This would also protect thousands of workers’ and their families in Australia’s regional communities, “Mr Hillman said.

Media Contact: Kath Elliott - Director Communication, ACA - 0412 003 272

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