The BCA, Junk Economics And Mainstream Media Naivete

A Crikey article by Canberra writer Bernard Keane on the Business Council’s emissions trading submission and the way the mainstream media ‘falls for junk economics’ turned up in my inbox today. Bernard writes:

“Independent consultants’ reports, that businesses and peak bodies regularly commission, …demonstrate exactly what those who commissioned them want demonstrated. And the media falls for it every time…

The Australian – “Rudd thrown an emissions time bomb!…Carbon plan a company killer!

The AFR – “BCA warns Rudd on carbon fix”
The SMH – “Pollution price will kill jobs”
The Age – “Carbon bill to backfire”

Continuing…

“We’ve seen a procession of businesses and sectors coming forward to whinge about the Government’s lamentably weak emissions trading scheme.

• The LNG producers
• The miners
• The power generators”

And now

“The BCA … (with) its own ‘independent’ research (junk economics).. argues for more and bigger handouts for businesses.”

Totally Skewed Assumptions

1. “Trade-exposed businesses have no capacity to pass on any increased costs. In sectors where currency movements can savage bottom lines or hand out massive windfalls, we’re expected to believe that our exporters or import-competing industries can pass on not a cent of ETS-related costs, and that ETS-related costs would swamp all other cost factors in their pricing decisions

2. Trade-exposed businesses will not be able to adjust their operations to reduce carbon emissions…7 out of the 14 companies considered in the report, in response to an ETS, ‘must reduce operating costs in some way’…wasn’t that the point of having a trading scheme? … Since when did Australian businesses become so inflexible and incapable of innovation that they can’t do that?

3. A seamless capacity for trade-exposed industries to relocate to other jurisdictions… businesses don’t up and flee based on one cost factor – particularly if there’s no guarantee that the jurisdiction they’re shifting to won’t impose a carbon abatement scheme of its own five minutes after they’ve built the new cement factory. The capacity for carbon leakage is not 100%, nor is it 0% – it’s somewhere in between depending on each industry, each company and each country.”

BUT

Some Useful Criticisms Of The Green Paper

There are some sensible alternatives to the Government’s proposal to base compensation on emission thresholds, an ‘open-ended hand-out system providing free, uncapped permits as carbon-intense industries expand’, that could actually create incentives to increase emissions and miss the whole point of the scheme.

Actually reducing emissions would be left to businesses with lower carbon intensity, to domestic businesses, to households and this burden would accelerate if we aim for an emissions target lower than our current emissions level.

NB Ross Gittins – Economics writer for the Sydney Morning Herald – strongly agrees with Bernard Keane, writing:

“There’s a strong whiff of mercantilism behind the line being pushed by the Business Council and other lobby groups…Be clear that what they want is for more of the burden of emissions reduction to be shifted to households and domestic industries. Thanks guys.”

The report condemns the Government’s mandatory renewable energy targets and Bernard follows this up with ACF advice that when Colorado imposed a 10% renewable energy requirement on its utilities, power companies predicted gloom and doom but the target was met well ahead of schedule and as the process was so successful it was increased to 20%.

The Upshot

Businesses CAN innovate quickly when they have to and so shouldn’t the BCA be encouraging this?