Rising Aussie dollar bigger shock than carbon price

Australia’s economy has felt a bigger impact from the recent surge of the Australian dollar than it would have from the introduction of a carbon price, according to a report released today.

The research by consultants Access Economics compares the economic impact of the rising value of the Australian dollar with a price on carbon.

The Australian economy has gone through the equivalent of an $85 per tonne carbon price from the sharp appreciation in the Australian dollar, according to the report commissioned by the Clean Energy Council, the peak body representing more than 450 renewable energy companies.

The exchange rate movements had a broader impact on Australia’s international competitiveness, effectively moving the relative price of all traded goods.

“Exchange rate movements and the introduction of a carbon price are similar, to the extent that both have comparable economic impacts and firms are able to adapt to the new environment,” the report says.

Clean Energy Council Chief Executive Matthew Warren said the research showed a carbon price is not going to wreck the Australian economy.

“We have just lived through an exchange rate shock nearly twice as big as an aggressive carbon pollution reduction scheme. There is some sectoral pain but it’s otherwise business as usual,” Warren said.

“The debate should not retreat to ‘if’ we put a price on carbon, but rather ‘how’ we put a price on carbon.

“Australians want action on climate change and cheaper clean energy. A cap and trade system remains the most efficient way to constrain greenhouse emissions and remove the regulatory uncertainty needed to stimulate new cleaner energy investment,” he said.

The Access Economics report considered two scenarios - the introduction of a carbon price and an increase in the value of the Australian dollar relative to the rest of the world.

The exchange rate scenario - a 20% rise similar to what the Australian dollar has gone through in 2010 - was the equivalent of an $85 per tonne price on carbon.

The report said that the Australian economy has demonstrated its ability to cope with significant exchange rate movements despite the substantial changes and underlying uncertainty.