Big polluters are pulling no punches in shifting the cost of tackling carbon in the atmosphere onto others, write Marian Wilkinson, Ben Cubby and Flint Duxfield.
Not long after Oleg Deripaska was named Russia's richest man for 2008, his company's Australian chairman wrote to the Department of Climate Change in Canberra with a dire warning: the oligarch's considerable investment in Australia was being threatened by the plan to tackle global warming being advanced by the Rudd Government.
Deripaska had built his fortune, estimated then at over $US28 billion, by becoming the major shareholder in RUSAL, an aluminium empire that reaches across the globe from Siberia to Australia. Along with mining and minerals giant Rio Tinto, Deripaska owns the Queensland alumina refinery in Gladstone, a plant that employs 1050 workers and each year churns out about 4million tonnes of alumina, a white grainy substance that is the essential ingredient in aluminium. Like aluminium, alumina is made by using vast quantities of electricity. And in Gladstone, electricity comes cheaply – from burning black coal that spews greenhouse gas into the atmosphere.
In his climb to the top, Deripaska has survived a stand-off with the Russian Mafia, developed a close friendship with the Prime Minister, Vladimir Putin, and fought the US State Department when it revoked his visa. Characteristically, he also managed to hire as RUSAL's local chairman one of Australia's cannier lobbyists.
A decade ago, John Hannagan helped the Australian Aluminium Council shield the industry from climate change laws. By last year, his extensive industry experience was at work for Deripaska's refinery, warning the Government that its plans to cut Australia's greenhouse gas emissions would be "destructive for jobs, destructive for existing and new investment, and destructive in terms of global energy efficiency".
Hannagan is just one of scores of influential lobbyists, business executives and union leaders who have fought over the past year to weaken or "brown down" Australia's first comprehensive plan to cut greenhouse gas emissions – the carbon pollution reduction scheme. Having failed to pass the Senate in August, it's set to return to the upper house this month – and lobbying has resumed in earnest. The centrepiece is an emissions trading scheme that would put a price on carbon emissions in Australia for the first time.
As the hottest and driest continent, Australia is particularly vulnerable to climate change. Without a global effort to reign in greenhouse gases, the CSIRO warns that declining rainfall and extended drought could slash food production by almost half in the Murray-Darling Basin – Australia's breadbasket.
But many Australians, especially those in business, are not gripped by an urgency to change their ways.
Australia's heavy reliance on cheap coal-fired electricity makes it per capita the developed world's highest greenhouse gas emitter. But cheap power also underpins our enviable national wealth. As Australia grapples with the question of who should bear the cost of cutting emissions, some of the biggest polluters argue it shouldn't fall too heavily on them. They're making the same case globally.
A Herald analysis of government registers of lobbyists reveals about 120 companies potentially affected by climate change laws employ firms with a total of more than 300 lobbyists. The top 20 companies expected to receive the most government assistance under the proposed emission trading scheme employ 28 lobbying firms. Nearly half the lobbyists working for these firms are former politicians, senior government bureaucrats, or political advisers. They include John Dawkins, a former federal treasurer who is now a director of lobbying firm Government Relations Australia, which represents the global oil company BP, the US coal company Peabody Resources, and the National Generators Forum. Rio Tinto's executives have also joined the fight against the Rudd Government's plans, along with senior figures from the world's wealthy coal, gas, aluminium, and power companies.
The cumulative result is a softening of the ETS impact on these companies' bottom lines. Government assistance to the 20 biggest greenhouse polluters affected by the scheme will be about $11.7 billion, according to a study by RiskMetrics for the Australian Conservation Foundation. It estimates that over the first five years of the scheme, Rio Tinto would get $2.7 billion in assistance and the US giant Alcoa $1.7 billion. Other top 20 recipients include Shell, Chevron, Woodside, BHP Billiton and Caltex.
"I think the aluminium sector has done particularly well," says Paul Toni, a climate campaigner for the environmental group WWF. "I think it was excessive."
This kind of concession-making – as the ETS bill goes back to the Senate – has Government supporters in the environmental movement on the verge of walking away.
Bearing the brunt of much of the industry lobbying is the Climate Change Minister, Penny Wong. A skilled lawyer who worked with the forestry and construction union before she became a senator, Wong argued forcefully with many corporate chief executives in initial negotiations over the climate bill. The crux of her argument was that the scheme had to be credible and financially responsible. The more concessions went to one industry, she argued, the less compensation there would be for households and other businesses.
But the pressure intensified last year when the global financial crisis brought job losses. Paul Howes – the Australian Workers Union federal secretary representing aluminium, steel and gas workers – echoed industry arguments that jobs would be lost without the planet being saved. "The global financial crisis was my greatest ally," Howes told colleagues.
The legislation needs Opposition support in the Senate. The Opposition Leader, Malcolm Turnbull, is under intense pressure from within to insist on more concessions for business. At the same time, he promises to cut greenhouse emissions.
An emissions trading scheme is built on the principle that companies pay to pollute, buying a permit – expected to cost about $25 after July 2012 – for every tonne of carbon dioxide they release to the atmosphere. When passed to the consumer, the cost is intended to encourage businesses and consumers to buy goods that are less polluting.
Companies such as Rio Tinto and Alcoa say they'll be disadvantaged because overseas rivals won't pay for emissions, even though both have American and Canadian aluminium plants. They say the Chinese are their greatest threat. The Government has offered aluminium smelters and other big exporting polluters nearly 95 per cent of their permits free for the first five years to ease adjustment and to save jobs.
That would slash carbon costs. Martin Parkinson, the head of the Federal Department of Climate Change, says companies such as aluminium producers would pay just $2 a tonne in 2012. Against the price of aluminium – $US3300 a tonne on the London Metals Exchange before the global financial crisis, and still trading at about $US1900 – the cost is relatively small.
Wong has tried to hold the support of environmental groups by promising that the Government will periodically review the free permits and gradually reduce the concessions. The Government also made a qualified offer to put a tougher limit on Australian greenhouse emissions for 2020. If the UN climate talks in Copenhagen next month result in an agreement to cut global emissions, Australia undertakes to cut emissions to a level 25 per cent less than that from the year 2000. Without an agreement, Australia's promise is for a 5 per cent reduction.
But critics say most of the cuts will not be made by companies in Australia. The Rudd Government's ETS would permit business and government unlimited purchases of carbon permits on the world market. Australians more likely would be paying people in countries such as India and Indonesia to cut greenhouse emissions for them.
Indeed, Treasury modelling reveals the 2020 target would be achieved only through purchases of many international carbon credits. Companies and countries earn these UN-verified permits when they fund projects that cut greenhouse gases in poorer nations.
Wong denies Australia's cuts will mostly be bought overseas. But her argument relies on measuring the proposed cuts in 2020 against a big theoretical increase in Australian emissions: that is, the assumption that nothing is done to reduce emissions before 2020.
Some environmentalists believe rich countries should make their cuts at home. Otherwise, rich countries have little incentive to switch to cleaner fuels. "You have got to walk the talk," says Toni. "We can't credibly go overseas and say that we will reduce emissions but in fact we outsource the whole lot to other countries."
Coal-fired power stations are expected to stay in business in Australia well beyond 2020. Their owners argue the ETS will penalise them. They want more than the $3.5 billion compensation already offered by government. Leading this argument are foreign owners of Victorian generators. Their pressure on the State Government is enormous.
CLP Group, formerly China Light and Power, is chaired by Hong Kong's fourth-richest man, the billionaire Sir Michael Kadoorie. The company's Australian arm, TRUenergy, operates Yallourn, one of the heavy power station polluters. TRUenergy's chief executive, Richard McIndoe, kicked off the campaign by writing to the Victorian Premier, John Brumby, and the Prime Minister, Kevin Rudd, warning of "supply failures" if power companies don't get more help.
Most of the $3.5 billion offer would go to foreign-owned generators. The British giant International Power – operator of Hazelwood, Australia's biggest greenhouse polluting generator – would get about $1.15 billion. Yet International Power's Australian chief, Tony Concannon, has asked Rudd to triple the assistance and suggested the Government buy Hazelwood.
Generators burning the more polluting brown coal complain their asset values will fall. Combined with big debts, banks are wary of refinancing them without more free permits, they argue. Indeed, the credit squeeze could force closures.
In June, the National Generators Forum wrote to all MPs painting a bleak picture of the "systemic failure of the electricity market". Without more compensation, some generators would be left "technically insolvent", the letter claimed. Generators want $10 billion, and the Opposition supports this.
Concannon and McIndoe declined to be interviewed for this article, but both have briefed financial reporters on the threat of power shortages. One power industry figure likened the pressure on Victoria's Energy Minister, Peter Batchelor, to that of a steamroller.
Rudd has dismissed the claims of threats to energy security, relying on advice from the national energy regulator. But wide media coverage of the generators' warning persuaded the Prime Minister to set up a taskforce chaired by Terry Moran, the head of the Department of Prime Minister and Cabinet. The taskforce hired Morgan Stanley to examine the financial records of several generators and report back on their claims of insolvency. The merchant banker's appointment delighted generators. As one director put it, "The guys at Morgan Stanley who did that report have bought and sold more power stations in the country than anyone".
The Morgan Stanley review is secret. But media leaks suggest it backs arguments for more compensation, despite Wong's insistence that the generators' compensation was "both appropriate and well-targeted". Any additional compensation is likely to come from taxpayers.
Amid alarming stories of generators' financial crisis, their profit reports for the first six months of the year went relatively unnoticed. Earnings from CLP's Australian coal-fired generators were up 77 per cent, to $29million, while International Power's Australian profits jumped 71per cent to $212 million.
As the generators' campaign climaxed in August, executives from the world's largest coal companies met behind closed doors. Australia is the world's largest coal exporter, a trade valued at $55 billion last year. After weeks of debate, America's Peabody Resources, British-South African giant Anglo-American, Swiss-based Xstrata, Australian-British BHP-Billiton, British-Australian Rio Tinto, and other companies unanimously agreed to fund a multimillion-dollar attack on the Government's proposed ETS treatment of coal.
Under the banner "let's cut emissions, not jobs," the Australian Coal Association is churning out big coal's message on local television, radio, and in newspapers. It warns workers that the emissions trading scheme will close mines and "cut thousands of jobs", slashing property values and causing families to abandon coal towns. A website directs workers to email local MPs to protest at the scheme.
The campaign is running in coal-mining towns in Queensland and NSW. Ralph Hillman, the head of the Australian Coal Association, denies the industry is targeting Labor marginal seats. "It so happens one of my advisers noted that half of the seats may be marginal, but we are not targeting marginal seats. We are not targeting Labor seats."
The industry used two of Australia's top political strategists for the campaign. Neil Lawrence worked on Rudd's successful election in 2007, and Lynton Crosby is a veteran of past Liberal Party victories. The team also includes Tim Duncan, the one-time head of Rio Tinto's media unit, and Paul White, who worked for the stevedore company owner Chris Corrigan during a bitter dispute with waterside workers a decade ago. Wong's assistant minister, Greg Combet, a former trade union leader, helped run the workers' campaign against Corrigan and is so far not convinced by the industry case. The coal executives say Combet is not listening.
The coal executives' complaint is with the Government plan to include methane released by coalmining in the proposed trading scheme. Methane is one of the most potent greenhouse gases, and it makes up a significant 5per cent of Australia's total emissions. Under the emissions trading scheme, the owners of methane-emitting – or "gassy" – mines will be forced to buy permits for these emissions if they want to continue mining.
The Government has promised the coal industry $750 million in compensation for the gassiest mines. But Combet, an engineer and an economist by training, says most coal companies won't be significantly affected by the proposed legislation and can afford to buy their permits. Half the industry, he says, will pay 80 cents or less a tonne of coal for their emissions. "Given that coal is currently selling for between about $70 and $150 per tonne in exports markets, it is simply misleading to suggest, as some have done, that carbon costs of this magnitude will lead to decisions to close mines," Combet says.
But Hillman rejects that argument, saying that one company told him it will be forced to pay up to $7 a tonne. The coal companies want the same level of free permits granted to the gas industry, which under the plan would get about 65 per cent of their emissions covered. Australia's leading environmental groups, meanwhile, warn Rudd they will withdraw support for the ETS if the coal and power industries get more compensation.
"It's not effective or responsible to give windfall gains to booming coalminers or to give billions extra to businesses who bought brown coal-fired generators knowing a carbon price was coming," says the Climate Institute's John Connor.
He underscores arguments made by Government ministers just weeks ago. If companies keep avoiding actions that shift Australia from its heavily polluting ways, he says, the nation will face a much higher cost of doing so in the future.
Many chief executives of big polluters appear more focused on the bottom line, leaving politicians such as Wong a tough choice: accept their arguments and deliver more compensation, or persuade political opponents that the Government's proposal is the best outcome business is likely to get.
"The chance for us to avoid any climate change at all is gone, it is lost to us," Wong told senators in August. "What we do have is a window to lessen its impact. We have a window to reduce the risk, and this is a window of opportunity which is closing."
Many are not gripped by an urgency to change ways.
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