Pricing carbon is essential to our nation's future

IF you believe the prophecies of carbon pricing opponents, the world as we know it comes to an end tomorrow. The sky will fall in, Whyalla and Gladstone will be wiped off the map, the coalmining industry will be annihilated and price rises will be unimaginable.

Now the truth: the carbon price will increase the general price level by 70c in every $100, households will experience average cost-of-living increases of $9.90 a week and average compensation will be $10.10 a week. Treasury estimates that with the carbon price in place 1.6 million new jobs will be created to 2020.

Earlier this month BHP Billiton approved an $833 million investment in the Illawarra. Far from disappearing from the face of the earth, Whyalla's OneSteel is investing $200m in a port upgrade. And around Gladstone, three liquefied natural gas projects under development are worth a staggering $56 billion.

Indeed, the pipeline of new mineral investment is estimated at more than $500bn and investment's share of the economy is set to reach 50-year highs. These investment decisions are being made in the full knowledge of the carbon price.

It is true that the price of electricity generated from carbon-intensive fuels will rise under the carbon price. This is meant to happen, encouraging generators to use more low-emissions energy sources in their generating mix. Generators may seek to pass on the extra costs, but the extent to which they do so will depend on competition in the market.

State pricing tribunals have announced the allowable price rises and they have all come in around or below the Treasury estimate of $3.30 a week.

Critics of the government's carbon pricing decision assert that Australia should wait for other countries to put a price on carbon instead of going it alone. But more than 50 jurisdictions around the world, with a combined population of 850 million, will have a carbon price by next year.

It's further claimed that since Australia's emissions-intensive industries are exposed to international competition, a carbon price of $23 a tonne will cause those industries to relocate to countries with no or lower carbon prices. But because of the government's decision to grant those industries free carbon permits, our most emissions-intensive, trade-exposed industries will face an effective carbon price of only about $1.30 a tonne of emissions.

China is usually nominated as the country to which Australian mineral processing industries will relocate, on the basis that it is not acting on carbon emissions. This, too, is untrue.

Seven Chinese cities or provinces are proceeding with emissions trading schemes and carbon emissions across China are being regulated and penalised.

If anything, relative energy prices are moving in Australia's favour and against China. Domestic price changes and the rising cost of bulk transport are creating renewed Chinese interest in the further-stage processing of iron ore in Australia.

Australia has an abundance of renewable energy and of natural gas, which is regarded as a transition fuel to a low-carbon future. Liquefied natural gas projects in Australia are benefiting from pricing and regulatory policies around the world to reduce carbon emissions.

If Australia were to falter and defer carbon pricing, our industries would be stuck with old technologies in a global marketplace in which production processes are moving to lower-carbon energy sources. Our industrial competitiveness would suffer and we would squander the opportunities that investment in renewable energy sources offers.

Like all major economic reforms, the pricing of carbon in Australia is controversial. The creation of Australia's open, competitive economy and the abandonment of Fortress Australia by the Hawke and Keating governments were unpopular at the time, but locked in two decades of recession-free economic growth.

Repair of the income tax base in 1985 through the introduction of a capital gains tax and fringe benefits tax was strongly opposed by the Coalition but never repealed by the incoming Howard government. The introduction of compulsory superannuation, fiercely opposed by the Coalition, has created a national savings pool of $1.3 trillion, the fourth largest in the world, saving billions for taxpayers in age-pension payments and providing income security for working Australians in their retirement years.

The petroleum resource rent tax, controversial at the time and opposed by the Coalition, has been collecting for Australians a fair share of the profits from oil and gas development for a quarter century, including $16bn for the Howard government.

Putting a price on carbon is another such reform, essential for securing Australia's future. In the reforming Labor tradition, the Gillard government is making the hard decision now to price carbon instead of leaving the task to our children when it would be much more expensive and disruptive to our economy.

Craig Emerson is the Minister for Trade and Competitiveness.