Carbon detail is still missing

WITHOUT the facts, the government's proposal is impossible to judge.

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BIG corporations have a keen appreciation of what happens when the good environmental intentions of their customers collide with reality at the cash register.

Electronics giant Panasonic recently commissioned Macquarie University to study the difference between what shoppers think about saving the world and how they act.

The research was undertaken by Tim Flannery, Macquarie's chair in environmental sustainability and the federal government's climate change ambassador. It found that while 75 per cent of consumers considered environmental features before shopping, only 20 per cent purchased goods with eco credentials.

Fresh food giant Woolworths has discovered a similar trend. According to its research, 93 per cent of Woolworths customers surveyed think it is important the company reduce its environmental impact. And while 84 per cent of shoppers say they are concerned about the impact of their own purchasing decisions on the world, only 13 per cent follow this through and buy green.

According to a Woolworths executive, the financial pain threshold, the point at which interest in buying an environmentally favourable product disappears, is a price difference somewhere between 10 per cent and 15 per cent.

These figures are significant in the carbon tax debate. And given Flannery's involvement in the Macquarie research they should not surprise a federal government trying to impose a new tax to benefit the environment.

Julia Gillard and Climate Change Minister Greg Combet may well claim there is overwhelming public support for something to be done about global warming but the $64 million question has always been: what are they prepared to do about it? If they shop at Woolworths, it is fair to assume people are happy the federal government takes action as long as it won't cost them much, if any, money.

This reality of consumer behaviour explains why Tony Abbott has been getting plenty of traction with his campaign against the government's proposed carbon tax. And it is why Gillard and Combet are firmly on the front foot to insist that a carbon tax will have no impact on the weekly budgets of low and middle-income families.

Treasury modelling has estimated the impact of a $30 a tonne carbon tax to be about $800 a year for average households.

In his address to the National Press Club yesterday, Combet said planned compensation arrangements would leave millions of households better off after a carbon tax was introduced.

He says the government has committed that "every cent raised from the carbon tax will be used to assist households, support jobs in the most affected industries and to encourage the transition to a clean energy future". And he insists that generous assistance will not remove the incentive for households to become more energy efficient. This is because the compensation will be paid through the tax and welfare system, so households can keep the extra money if they also cut energy consumption.

The government's argument is that the main behavioural change a carbon price targets is at the industrial level.

Combet's promise of generous compensation for pensioners and low and middle-income earners still leaves the government open on a couple of fronts. Small business and industry groups say the promise may cover the higher cost of electricity but it does not take account of the higher costs that will cascade down through small and medium businesses that will receive no compensation.

The federal opposition says it is another example of Labor's desire to redistribute wealth. Combet says it is Labor tradition to direct its efforts towards helping those worse off. Abbott, meanwhile, says he does not believe the government's compensation arrangements will be adequate or permanent. The Opposition Leader says Labor's carbon tax will impose a big burden on every Australian's cost of living.

But the financial impact on households is only part of the government's carbon tax big-sell. The Gillard government still has a long way to go in brokering a carbon tax regime that is acceptable to the Greens and independents in parliament as well as industry, special interest groups and the broader community.

It has set a timetable to introduce an unspecified fixed carbon price from July 1 next year. The fixed-price scheme will morph into a trading scheme in which carbon permits can be traded in an international marketplace after three to five years.

At the Press Club yesterday, Combet did not provide any more detail. The missing facts include the price at which a carbon tax will start, the rate at which it will increase, the carbon emission targets that will be set, the industries that will be covered and the compensation arrangements for households and industry. Without these details it is not possible to judge the merits of the government's plan.

The reality is, the federal government is still trying to re-establish the case politically that something must be done. The fact Combet is quoting the words of John Howard to defend the government's position illustrates how far backwards the debate has gone.

For those who still doubt the science, Combet says Will Steffen, a leading expert in climate science, has advised that there is 100 per cent certainty the earth is warming, and that there is a high level of certainty it will continue to warm unless efforts are made to reduce the levels of carbon pollution in the atmosphere.

Combet says it is important to adopt the most economically efficient way of cutting pollution, and that means a market mechanism to set a carbon price. Under the government's proposal, a carbon price will be applied to fewer than 1000 companies as incentive for them to cut pollution and drive investment into cleaner energy such as natural gas, solar and wind power. In theory, a carbon price will mean big polluters will take the cost of pollution into account when making investment and business decisions.

Combet says demand for cleaner energy can be expected to grow because it will become cheaper relative to the cost of burning coal, which accounts for 80 per cent of Australia's electricity generation. Carbon savings also can be achieved by:

► Encouraging chemical plants to install scrubbers to reduce nitrous oxide emissions.

► Converting coal-fired boilers to gas-fired boilers in manufacturing plants, commercial buildings and hospitals.

► Increasing the use of blended cements, which substitute other materials for high pollution clinker.

► Making energy-efficient buildings more attractive to tenants.

►Providing incentives to use energy wisely.

Research shows only a relatively small number of companies produce the largest amount of carbon pollution in the Australian economy. According to the latest National Greenhouse and Energy Reporting data, Australia's 50 largest polluters account for more than 50 per cent of carbon pollution. When sectors not to be covered by the carbon price are excluded, the 50 largest polluters are responsible for about two-thirds of carbon emissions.

But small business is concerned it will bear the brunt of flow-on costs from a carbon tax and receive no compensation. Peter Anderson, chief executive of the Australian Chamber of Commerce and Industry, says he is worried that hundreds of thousands of small to medium businesses would not be eligible for compensation. "The issue is not just the impact on large emitters," he says. "The issue of compensation is secondary to whether the benefit of a carbon tax is outweighed by costs."

Combet says it is understandable that much of the carbon tax debate centres on the effect of the carbon price in the trade-exposed parts of the economy. The concept of "carbon leakage" is the potential for carbon-intensive jobs and industries to be lost to overseas competitors that do not have a carbon tax. Combet says the government recognises that carbon leakage is an environmental as well as economic issue.

"The government is committed to providing transitional assistance to our emissions-intensive, trade-exposed industries to avoid carbon leakage and to provide for a long-term transitional adjustment for these industries."

Under previously negotiated compensation arrangements, at a carbon price of $20 a tonne, the impact on the steel industry, for example, after 94.5 per cent assistance for the core pollution intensive activity would be about $2.60 a tonne of steel, out of a price per tonne of steel of about $800.

As in household compensation, the government argues that industry compensation does not undermine the incentive for industry to change its behaviour. This is because businesses have an opportunity to reduce their carbon emissions and sell surplus permits.

Visiting British climate change academic and economist Michael Grubb says Australia has good economic reasons to act. He says there's a potential for trade sanctions against countries that do not take action.

"A lot of economists argue the failure to price carbon properly is itself a major failure of free trade," Grubb says. "It is entirely sensible for countries to structure it that if they start to charge domestic producers for carbon they need to get that on a level playing field by charging importers."