Chapter 6
Assistance for electricity users
6.1
As with the CPRS, there are plans to assist heavy users of electricity
and there have been strong criticisms that such assistance is either excessive
or insufficient.
6.2
Regulations will be made to provide partial exemptions under the RET for
those activities that are regarded as emissions-intensive trade-exposed
activities under the CPRS. The exemptions will apply to either 90 or 60 per
cent of the increase in liability in moving from the 9,500 GWh target to the
20,000 GWh target.
6.3
This is a new feature. Under the MRET established by the previous
government there were no exemptions or assistance.
6.4
Heavy electricity users argue that the exemption applying to the
increase rather than the total gives the impression they are being giving
larger subsidies than they really receive. For example, the aluminium industry
claims that the '90 per cent' exemption is really only a 55 per cent exemption.
6.5
Industry groups representing electricity users generally oppose the RET.
But if the RET does proceed, they want more assistance:
...an industry which is both electricity and emissions intense,
aluminium should receive a true 90% exemption from both the current and
expanded Renewable Energy Target.[1]
Specifically, if the continuation of the RET is an
inevitability – AIGN supports the exemption of trade exposed industry from the
effects of the RET as a whole.[2]
6.6
Notwithstanding their attitude of in principle supporting 'reforms aimed
at "internalising" environmental costs and risks, most notably with
regard to greenhouse gas emissions and the risks associated with climate
change', when it comes to assistance, the Business Council say 'the exemption
from the expanded RET for EITE activities should be a full exemption'.[3]
6.7
This industry assistance has been criticised by most environmental
groups, some renewable energy groups and some academics:
...on the proposal to exclude favoured large electricity
consumers from contributing to the costs of the expanded renewable energy
target, the first thing to note—as was noted in the Tambling review of the
mandatory renewable energy target, where this was also on the table—is that any
such exclusion would also undermine the scheme’s basic principle that mandatory
renewable energy target liabilities accrue to electricity users in proportion
to the quantity of their usage.[4]
There should be no exemptions or assistance packages to
industry as a result of the Renewable Energy Target (RET) scheme. Every sector
in Australia must contribute to the transition to a low carbon economy. Any
exemptions or assistance packages will unevenly and unfairly shift costs from
industry to households.[5]
It is of concern that, under the proposal for the extended RET,
large energy users...have been granted exemptions on the basis that they would be
disadvantaged on the international market. This raises two issues; the first
that many of our trading partner countries have renewable energy targets
similar to or higher than that proposed for Australia...so there is no need for
exemption; and the second that the exclusion of this sector will mean the cost
of the Target for the remaining electricity users will rise.[6]
No assistance should be provided to RATE industries on the basis
that many other countries have renewable energy targets and/or a higher portion
of renewables in their energy mix, assistance has not been warranted in the
past, electricity customers already stand to gain economically from there being
more renewable energy in the mix and assistance would contravene the polluter
pays principle.[7]
6.8
The Australian Conservation Foundation notes that:
...in the US—it is not talked about much— there is a renewable
portfolio standard proposed in the Waxman-Markey legislation and in that there
are no similar exemptions for energy intensive industries.[8]
Aluminium industry
6.9
The Committee held a roundtable specifically with aluminium companies as
they are such large users of electricity. Indeed, aluminium has been called
'congealed electricity'. The aluminium industry pointed out that Australia's
six aluminium smelters:
...are by far the biggest user of electricity within Australia,
and the department’s own analysis shows that aluminium smelting is an order of
magnitude more electricity intensive than any other activity.[9]
6.10
An interesting statistic provided by the aluminium industry was that:
It is an extremely important material for future fuel
efficient transport systems and is being increasingly used in cars to
lightweight them while maintaining performance through its properties and its
safety at low weight, therefore saving fuel. It is equally important in other
mass transport systems and aircraft manufacture. I will give you an example. If
you replace two kilograms of steel with one kilogram of aluminium in a car, you
save about 20 kilograms of CO2 over the life of that car. [10]
6.11
The implication of this is that placing a price on carbon and raising
environmental awareness will actually increase the demand for aluminium. This
provides an important offset to the increased costs.
6.12
Concerning the reasons for smelting aluminium in Australia, the
Committee was told by the industry that:
The reason we are in this country is because we have distinct
competitive advantages: we have the natural resources; we have the integrated
supply chain; we have a skilled workforce in operating, trades, leadership and
science; and we have competitive energy supplies.[11]
Annual Reports
6.13
An indication that the impact of the RET is sometimes being exaggerated
by companies is the apparent inconsistency between comments by companies
concerning likely impacts of the RET and CPRS, and communications to
shareholders.
6.14
For example, Dr Xiaoling Liu, President, Primary Metals, Pacific, Rio
Tinto Alcan, provided evidence to the committee that the combined cost of the
RET and CPRS to the company's operations would be $1.3 billion by 2020, and
would harm employment opportunities in regional areas.[12]
6.15
By contrast, the committee heard that the Rio Tinto Alcan annual report
for 2008, published early in 2009, noted that production had fallen by 450,000
tonnes per annum, attributable largely to impact of the economic downturn.
Despite this, the report contained the following assessment by Mr Tom Albanese,
Chief Executive:
The fundamentals of the aluminium industry nevertheless
remain strong.
and:
Higher energy costs are raising the aluminium cost curve,
particularly in China, to the advantage of lower cost producers like Rio Tinto
Alcan.[13]
6.16
This report was published at a time when the government's policies on
emissions trading and renewable energy were well known.
6.17
Dr Liu explained that the annual report refers to Rio Tinto Alcan's
global operations, (including Canadian assets using hydropower) whilst the
evidence to the committee referred to the company's Australian operations.[14]
6.18
Similarly, the committee heard that the 2008 Annual Report from Alcoa
makes only general comments relating to risks posed by climate change
regulations, and does not foreshadow facility closures or job losses in
Australia.[15]
6.19
This information appears inconsistent with evidence provided to the
committee by the aluminium industry seeking further compensation under the
scheme.
Committee view
6.20
The Committee notes that the RET will not change most of the factors the
industry gives as reasons for operating in Australia. In terms of competitive
energy supplies, it notes that other major producers of aluminium such as
Canada, China and the United States either have or are introducing comparable
renewable energy targets. It therefore regards the currently proposed
assistance to the industry as adequate.
Assistance for other organisations
6.21
There were also calls for assistance to other organisations:
... all not-for-profit bodies should be supported in their
efforts to meet the energy cost increases that will arise as a result of the
Carbon Pollution Reduction Scheme and the Renewable Energy Target Scheme.[16]
Linkage between CPRS and RET assistance
6.22
The bill states as the commencement date for the industry assistance
under the RET 'the same time as section 3 of the CPRS commences'.[17]
This implies that while the RET could still operate in the absence of the CPRS,
there would be no exemptions or assistance to large polluters.[18]
6.23
The rationale for this linkage was explained by the Department as
reflecting arguments from industry:
... a number of firms and industry associations put in a
submission to say, ‘You should take account of the cumulative impact of the
CPRS and the RET,’ and ... if you are eligible for emissions-intensive
trade-exposed assistance under the CPRS, you would also be eligible for
assistance on basically the same rates of assistance as you would for the
Renewable Energy Target, representing the cumulative impact of those two
policies. One way of thinking about it is that, if you have a dollar of
additional cost that comes through either the CPRS or the RET, you get the same
rate of assistance for that.[19]
6.24
There was also doubt about whether the impacts of the RET itself were
sufficiently large to warrant a compensation package if it were implemented
without the CPRS.[20]
6.25
There will be no industry assistance under the RET if the CPRS is
rejected, and this has been strongly criticised by a range of witnesses, either
because they want the assistance for themselves or they fear the linkage may
lead to the deferral or defeat of the RET bills:[21]
The intention in the bill to link any exemption from this
bill for ET activities to the commencement of the CPRS should not be pursued.[22]
There seems to be no reason why they should be linked at all.[23]
The linkage between the bills...has been a poor policy outcome
and has detracted from the focus of the bill...[24]
The RET legislation, from our perspective, is a separate
piece of legislation and should be considered separately. What we do not want
to see is RET held up as a result of concerns or further debate around the CPRS
legislation.[25]
We would hate to see the renewable energy target legislation
held up based on the CPRS legislation timetable.[26]
Committee view
6.26
The Committee understands why emissions intensive businesses would like
to be paid assistance if the RET bill passes, and therefore would prefer this
not be delayed until after the CPRS bills are passed.
6.27
However, if the concern is about business uncertainty delaying or
deterring investment, then just decoupling assistance arrangements under the
RET from those under the CPRS may not help, as there will still be a large
degree of uncertainty about costs and returns for emissions-intensive
industries until legislation for an emissions trading scheme is passed.
Rejecting the CPRS bill in August would not resolve this uncertainty as the
bills would be represented in November. Even if the current CPRS is decisively
rejected then, the uncertainty will remain as Labor, the Coalition and Family
First all promised at the 2007 election to introduce some form of emissions
trading scheme[27]
but differ in the targets and compensation arrangements they would include.
Recommendation 4
6.28
The Committee recommends that the Senate pass the bills.
Senator Annette Hurley
Chair
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