Albanese’s federal budget ‘small steps’ leave a mess
The federal budget showcased classic Albanese timidity. It’s time to bring back the carbon price so everyone knows where they stand.
This week’s budget showed the key problem with the Albanese government is its timidity: it makes baby steps in the right direction but not enough to actually shift the dial on issues like climate, and without big steps change won’t happen.
Case in point the $300 handout to help households cope with electricity prices, which just happens to be same amount suggested by Rod Sims back in February in his Press Club speech, but without the fossil fuel carbon levy he was spruiking.
The levy on carbon would be an effective carbon price which by inflicting pain on the big emitters would force them to act and the money raised would help offset the customer damage.
Carbon prices are seen as a carbon tax, which is poison in the eyes of both sides in Canberra.
The $1.7bn over 10 years is a little bit of good news for the sustainable aviation lobby but there’s no mandate forcing airlines to use alternative fuels.
The government has a quasi carbon price already through the safeguards mechanism, which forces the 215 biggest emitters to cut emissions by 5 per cent a year or face penalties. These are by way of buying carbon credits from other companies in the existing carbon market.
Sims and colleague Ross Garnaut argued for a levy to raise money to compensate for the costs, which would offset the pain caused by higher fuel prices for the airlines en route to sustainable fuel.
The safeguards policy was first introduced nearly a decade ago by then Environment Minister Greg Hunt but was rendered meaningless by Angus Taylor when he took the job in the last government.
The budget offered up the compensation in the form of the $300 per house electricity rebate suggested by Sims without first hitting big emitters with a big stick and instead a potentially big reform has become piecemeal and complicated.
The Sims-Garnaut model would serve several roles to repair the deficit, cut carbon emissions and encourage new industries to take advantage of Australia’s comparative advantage in renewables with solar and wind.
No need for government to pick winners but the money would help pay for tax credits to support new industries which would both cut Australia’s and global emissions through exports.
Foran joins Green Collar
The Ontario Teachers-controlled Green Collar has a new chair with former Greening Australia boss Brendan Foran replacing Grant King, who now serves as Climate Change Authority chair.
The dual roles performed by King, the former Origin boss, raised potential conflicts for the environmental markets investor and developer.
When Ontario Teachers replaced KKR as the major investor last year, it valued the 16-year-old firm at around $760m.
Foran left Greening Australia in 2023, after 11 years as boss of the not-for-profit aimed at boosting biodiversity and supporting local communities.
He first started in the conservation sector as a volunteer learning the ropes and applying the methods on his property, before being hired by Alcoa in 2003 to help the company tell its environmental story better.
Foran is also chair of seed supplier AustraHort, and sits of the boards of the North East Catchment Management Authority, Landcare Australia and The Talia Foundation.
In a statement he said he had long admired Green Collar’s work in “establishing and developing environmental markets, in partnership with private landholders, both as scalable solutions to nature repair and the mitigation of climate change and as a mechanism for attracting private investment”.
The Pilbara problem
A little known fact about the path to green steel is that Pilbara iron ore is relatively low quality at between 58 and 62 per cent iron content, against Vale in Brazil and Rio’s Simandou in Africa at between 62 and 66 per cent.
This means it sells for less and requires more processing, which will become increasingly important in the move to green steel.
Pilbara ore will be on the back foot which explains why BHP and Rio are working on ways to offset the issue.
In round terms iron ore sells at around $US115 a tonne; if it is lump ore, which is better for blast furnaces, add a $US10 premium, plus another $US30 if higher quality.
The steel mills mix the ores to get the desired product to make the best steel.
The advantage of traditional blast furnaces is they both convert the ore into iron by burning off the oxygen and removing impurities, but they are high-end emitters using coal — which explains the hunt for alternatives.
An electric arc furnace (EAF) simply melts the ore so doesn’t do anything about quality.
Normally scrap is the EAF feedstock and accounts for 25 per cent of all steel, just in case there are calls to block scrap exports.
Alternatives include direct reduced iron (DRI) method which uses ore of 67 per cent-plus purity.
Just as BlueScope is relaxed about green steel any time soon, it and the iron ore giants are busily testing alternatives.
There is a billion tonnes of blast furnace capacity in Asia but clearly if the Australian companies can use the comparative advantages of sun and wind in Australia and the right technology they can stay if not ahead of the curve then not too far behind.
But competition is coming and the big Chinese mills including BaoSteel will shortly shout about their green progress.
POSCO in South Korea is working on demonstrating electric smelting furnaces (using electricity not coal) with a plant up and running in 2030 and change over 2050.
Thyssen Krupp using German engineers is also ahead.
BHP has finished its contract with Canadian engineers Hatch but it is in the mix should a pilot program proceed as with SMS.
Alternative steel making also includes using electrolysis to covert ore to metal and carbon capture and storage from the blast furnace, but the bottom line is better quality ore produces the best result which means the Pilbara premium is under threat.
Wheels turn slowly
Back in April the federal government trumpeted merger reform “for a competitive economy” but seemingly as with all things government the process is slow.
Proposed draft legislation to execute the reform looks like arriving in June at the earliest before it is released.
The major changes include compulsory notification and a more streamlined process, which gives the ACCC more hands-on power before the courts get their hands dirty.
While the wheels of government turn slowly forward the ACCC has a busy few weeks, starting with this week’s decision to defer clearance of the Louis Dreyfus purchase of Namoi Cotton pending a formal statement of issues. Dreyfus is competing with Singapore-based Olam for control of Namoi.
Given the political focus on cost of living with energy front and centre, the Queensland government’s CS Energy is likely to face a statement of issues before being cleared to buy the 50 per cent of coal-based power station Callide C it doesn’t already own.
The ACCC tends not to like such ownership consolidation but given CS already owns 50 per cent and there are countervailing regulations the deal is likely eventually to be cleared.
But CS Energy has competing bidders in existing shareholder Sev.en Global Investment and faces a shareholder court case over the 2021 explosion at the generator.
The ACCC may just be the first hurdle.