CARBON TAX CATCHES BUSINESSES UNAWARE

ALAN KOHLER, PRESENTER: Prime Minister Julia Gillard's announcement this week that her Government would be imposing a tax on carbon from July 1 next year caught business unawares and led to complaints it had been left on the sidelines as the politicians thrashed out a political deal. The scheme is intended to start with a tax before converting to an emissions trading system over the next five years. Among the most unimpressed are the steel makers who are already doing it tough at the moment.

Here is Bluescope Steel CEO Paul O'Malley.

ALAN KOHLER: Paul O'Malley when you announced a $46 million first-half loss this week, you said to the analysts that being a steel maker in Australia at the moment is a tough gig. Does a carbon tax make it an impossible gig?

PAUL O'MALLEY, CEO, BLUESCOPE STEEL: It makes it an even tougher gig. I think in manufacturing in Australia with a high Aussie dollar, parts of the economy in recession so low demand, and steel making being difficult, more costs being thrown at us by the Government just really do put a bit more pressure on the business than we'd like to have.

ALAN KOHLER: But they say they will compensate you. All the money will go back into trade-exposed industries like yours to compensate. Don't you trust that compensation process?

PAUL O'MALLEY: Fundamentally, imports will get a free ride, and Australian manufacturing will be taxed, and there will absolutely be leakage because I don't think we have a commitment to carbon neutrality.

ALAN KOHLER: When you say we don't have a commitment to carbon neutrality, do you mean in Australia or the world?

PAUL O'MALLEY: Oh in Australia. I think to really reduce greenhouse emissions we have to reduce global emissions. I think if you look at the experience in Europe, production emissions are flat since 1990, so Europeans are claiming victory, but carbon consumption has increased 47 per cent.

So there has been a hollowing out of manufacturing in Europe and a moving or a hiding of that carbon overseas. I think if the same program is put in place in Australia, effectively you're assuming that policy is that they don't want manufacturing in Australia.

ALAN KOHLER: But your problems are all about, at the moment, high iron ore prices and coal prices making your margin disappear, isn't that right? I mean you've had basically a $250 million disappearance of spread in the latest year because of iron ore and coal. In that context, isn't the carbon tax relatively marginal?

PAUL O'MALLEY: I think from a macro perspective, we've been very clear to say the high Australian dollar - if we were at 80 cents rather than parity, our annual profit would be up $200 million. So there's no doubt that the high Australian dollar is difficult. We have to deal with that.

Raw material costs cost us $2.5 billion today: eight years ago, $400 million, so there is no doubt that we are supporting a significant value transfer to the raw material supplies.

From a macro policy perspective in Australia, we are all riding on the back of resources at the moment, but if you're in education, tourism, manufacturing, the high Aussie dollar and high interest rates are making it tough. Those parts of the economy are in recession.

In that framework, you would expect policy to say we need to ensure that we have more than a resources economy when the boom breaks. Throwing a carbon tax on top of that basically says 'No we don't want to be anything but a resources economy'.

ALAN KOHLER: But I suppose the question is, even if whether there's a carbon tax or not, if the Australian dollar stays at parity and the iron ore and coal prices stay where they are, are you going to be able to survive as a steelmaker?

PAUL O'MALLEY: I think through the cycle we've got a great business and a very good business model. But if you've got policy settings and macro factors that make it harder for manufacturing in Australia, there is no doubt that things are going to be tough anyway.

ALAN KOHLER: Do you actually make money on a tonne of steel you produce at Port Kembla?

PAUL O'MALLEY: So in the last half our industrial business at Port Kembla lost $100 million. In the last quarter of fiscal year 10, we made a couple of 100 million dollars. So as steel prices go up, which they are at the moment - steel prices have increased $250 to $300 dollars in the last four months - we can start to make money again.

But an incremental cost, which could be material. If you take one part of the policy, which is that there's no assistance for industry, we'd be paying an extra $300 million a year. That is clearly economic vandalism. It clearly says we don't want manufacturing in Australia.

Under the CPRS regime, what the policy said was 'We would prefer steel to be imported with the carbon produced overseas than produced domestically'. And that's the issue. It is unfair, and it basically says 'We don't want manufacturing in Australia'.

ALAN KOHLER: So under the CPRS, would it have resulted in the closure of Australian steel making?

PAUL O'MALLEY: I think under the current environment with the CPRS, you have to look at the long-term and see, to your question, is steel making viable in Australia?

You also have to look at the intent of the policymakers to determine whether they want to support manufacturing in Australia. There is a huge question mark on that at the moment.

If Bluescope AND Alcoa go offshore -  Australia will be stuffed,  pollution will NOT be reduced, merely moved,  and steel etc will be produced in countries that have no interest in reducing carbon.

I posted the following  elsewhere slightly earlier . 


Reply #377 - Today at 10:16am      I have just heard that Alcoa will move offshore if the carbon tax impacts heavily on them.    That would absolutely decimate towns like Portland where the smelter is the main provider of jobs.

And it  won't lessen world wide carbon pollution,  it will just move it to another location.

Labor is being blackmailed by the Greens .

http://www.perthnow.com.au/news/bhp-boss-marius-kloppers-its-time-for-carbon-tax...

In fairness and interests of related party views and all that I will declare I am a shareholder in both BHP Billiton and Bluescope Steel.

(Yep as well as Monstanto too Buzz  )

Please delete wrote on Mar 1^st, 2011 at 11:39am:


I've always said, in every argument on the subject, that carbon emissions are a problem and affecting climate change.

I am not a climate change denier and never have been.

Please delete wrote on Mar 1^st, 2011 at 11:44am:



In 2007, China's emissions increases alone were FIVE TIMES the amount of all the emissions reductions of the Kyoto Protocol countries added together.

Do you see the folly of us shooting ourselves in the foot whilst allowing those two international environmental terrorists to pollute wantonly.

India grew their emissions by over 58% in the last decade alone.

They have said they regard reducing poverty as a higher goal than addressing their growing emissions.

So can I ask you - why do you think we should reduce ours but yet not cap them to the same levels?
Why should they get away with it? I am not in the business of feeling sorry for countries.

You address the problem or you don't.
There is no room for compassion for others.

Because we need them, and becasue the genie is out of the bottle.

Who made China so powerful? We did.

You try and stop them industrializing. Since they will, we have only one choice - work with them.

You seem to take the attitude that if they don't, we shouldn't either, which is a recipe for disaster.

Who is the third big emitter?

Andrei.Hicks wrote on Mar 1^st, 2011 at 11:50am: