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It’s the greening of industry, stupid…

By John Mathews - posted Tuesday, 26 July 2011

Australia has been caught up in a frenzy of debate over the so-called carbon tax, and finally on Sunday, July 10, the full package agreed to by the Greens, Labor and independents, was unveiled. Despite the torrent of ink spilled over the details, the core elements of this package remain elusive in the public debate. Yet it is simplicity itself.

There will be a charge on the biggest polluters of approximately $25 billion over the next five years, and this $25 billion will be redistributed to households and businesses impacted by price rises induced by the charge. In addition, there will be a new fund created for the promotion of investment in renewable energies, capitalised with $10 billion. This fund will be invested in projects to green industry and the economy generally. It will be created out of government finance, which means effectively that it will be created through new debt, achieved via the issuance of Treasury Certificates.

Whether these Treasury Certificates will be designated as being targeted to the fund (the Clean Energy Finance Corporation, CEFC) has not yet been clarified; if they are so targeted, it would be quite correct to label the CEFC as a ‘Green Bank’ issuing ‘green bonds’ or climate bonds.


In addition to these central planks of the Clean Energy Future package there are further elements, such as a consolidation of all renewable energy promotion and innovation programs into a new Australian Renewable Energy Agency (ARENA) with a budget of $3.2 billion over nine years; and a variety of inducements to farmers to keep carbon in the soil, under the $1 billion Carbon Farming Initiative and associated packages. Some of these proposals have come from the Multi-Party Climate Change Committee and some from the government itself.

So why the hysterical response? The $25 billion charge on the major carbon polluters is really no more than a signal that they represent the old, brown economy, and will have to start to upgrade their activities if they wish to join the green future. The rest of the world, notably China, Japan, Germany, Spain are all putting huge investments into such a green future. It is long overdue that Australia joins them. Now the Solar Flagship program, which stood in glorious isolation before, is joined by a raft of new programs to promote the green industries of the future.

The $25 billion charge on brown industries ($5 billion per year) has to be compared with the approximately $80 billion invested in Australia’s fossil fuel industries each year. So the charge in fact represents 1/16, or 6 per cent of the current investment in coal, iron ore, gas and oil. The way to portray this is as a charge on the industries of the past to create the industries of the future.

One has to ask why the government is putting itself through the travail of the bad-tempered debate over the carbon ‘tax’ portion of the package. After all, the CEFC could be created with a government bond issue of $10 billion quite independently of the proposed charge on carbon polluters of $23 per tonne. The whole of the $25 billion charge to be levied over the course of the next five years is to be redistributed to households and businesses affected by price rises associated with the charge – not to the new green sector.

And the biggest reform needed in Australia to promote green energies, namely a national system of feed-in tariffs (modelled on the very successful system introduced in Germany) is conspicuous by its absence in the Clean Energy Future package. Businesses in Australia that wish to build their green energy portfolios still face a bewildering variety of state-based systems of partial feed-in tariffs and renewable energy certification schemes; it is long overdue that these were rationalised and streamlined in a powerful national system that would effectively channel investment into the green sector.

So far I have not mentioned the topics of climate change or global warming. And the reason is that they are irrelevant. Everyone knows that what goes into the atmosphere over the next 20 years will be the result of investment decisions taken in Beijing and New Delhi, not in Canberra. And the fact of the matter is that while China is adding one new thermal power station a week (1 GW of coal-fuelled power) it is also adding even more power utilising renewable resources; or at least it will be in the life of the current 12th Five Year Plan.


China will continue to increase its carbon emissions until the 2030s, by which time its renewable energy industries will take over, and the country’s carbon emissions will fall while its national wealth and income rise. Ditto for India, a few years later. This global shift to renewable energies and a green industry generally will be the historic transformation needed if the phenomenon of global warming is ever to be dealt with effectively.

Australia can play its role by helping to build momentum for the new green industries (thereby giving itself a chance to play in these key industries of the future) rather than seeking to justify its actions in terms of notional reductions in future carbon emissions. Getting global agreement on carbon emissions and instigating mitigation measures is one thing – but getting moving on the greening of industry is another, and an even more immediate issue.


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About the Author

John A. Mathews is the Eni Chair of Competitive Dynamics and Global Strategy at LUISS Guido Carli University, Rome. He is concurrently Professor of Strategy at Macquarie Graduate School of Management, Sydney. His most recent paper is ‘Naturalizing capitalism: The next Great Transformation’, published in the journal Futures.

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