Competitive solution to climate change

The biggest dilemma we face when setting climate policy is how we successfully tackle climate change while still maintaining the competitiveness of our national industries and without stifling the opportunities for economic growth within both developed and developing countries.

Climate change policy is a challenging area for governments and is equally difficult for Australian businesses. The uncertainty that surrounds this issue is what makes it so complex: there is uncertainty over measurement and projections of climate change; over the degree to which the accumulation of greenhouse gases is the cause of climate change; and over how much reducing emissions of greenhouse gases will ameliorate future climate change.

Businesses in developed countries such as Australia face added uncertainty as governments individually and collectively edge towards policy responses to climate change. This affects the ability for businesses to plan ahead and make investment decisions.

I agree that an emissions trading scheme is essential if we are to play our part in the global effort to limit the accumulation of greenhouse gases in the atmosphere. And a policy such as this will undoubtedly change the direction of economic and industrial development in Australia.

That said, a number of changes need to be made to improve the government’s existing Carbon Pollution Reduction Scheme (CPRS) as well as addressing the issue of over-regulation. The CPRS should not disadvantage Australian industry in global markets. It can’t be said often enough: there is no environmental benefit if extra costs imposed domestically simply result in a shift of activity, jobs and emissions from Australia to other parts of the world.

To this end, we should be looking at an extension of measures for trade-exposed businesses and less emissions-intensive businesses in industries such as food processing, plastics, chemicals and metals fabrication. This could be achieved by allocating permits beyond currently proposed thresholds and/or by an increasing investment in allowances and other programs under the auspices of the Climate Change Action Fund (CCAF).

There is a clear need to better inform and prepare business for the CPRS. Our own research has identified that almost 70% of businesses expect to allocate extra resources to comply with emissions and energy-efficiency regulation over the next three years. This comes on top of the 40% of businesses reporting increases over the past three years in costs of complying with these areas of regulation.

Later this year, I’ll be representing Australian industry at the United Nations Climate Change Conference in Copenhagen. I believe the best outcome for our industries (and for the environment) at Copenhagen would be a comprehensive global agreement from all major emitters to cut emissions.

The leading concerns that Ai Group and our members have is that Australia will be acting ahead of our competitors, exposing us to the risk of a loss of international competitiveness.

If all major emitters participated in a global agreement, this concern would largely dissipate and there would be substantially less need for measures to fortify trade-exposed industries. The revenue from permits could then be recycled in the form of tax cuts or used to encourage more abatement-related R&D that would stimulate general economic activity and smooth the transition process. Of course, there would still be issues of transition that would need to be addressed more directly; for example, in the energy sector.

While we hope for this, in reality it’s unlikely that we will achieve such an agreement at Copenhagen. If we cannot get the best outcome, we are hoping to get as close as possible to it as we can. It may be that all we get is an agreement around objectives and some key principles with a commitment to reach a solution over the course of 2010 or 2011.

In the meantime, countries introducing their own measures will have to build in measures that minimise the exposure of their industries to uncompetitive cost imposts.

* Heather Ridout is CEO of the Australian Industry Group and a leading figure in public policy debate on issues relating to Australian businesses. She has been three times acknowledged as one of Australia’s top ‘True Leaders’ by the Australian Financial Review’s Boss Magazine included in the newspaper’s ‘Power List’ for 2008.