Business caught in carbon crossfire

by The Australian Financial Review

Australian business groups have been slapped around this week for not being more public spirited. This can be a very convenient tag for politicians to use when they are trying to engender support for unpopular reforms. But it is worth pondering how far businesses should go in pursuing the public interest over their own interests, as the government’s climate change adviser, Professor Ross Garnaut , suggested this week.

When it comes to taking action on climate change, or any other national economic restructuring effort, separating the public interest from self interest is difficult.

Business groups such as the Business Council of Australia and the Australian Industry Group acknowledge the nation must do its “fair share" to reduce emissions.

The challenge for Australia, as a country whose emission mitigation efforts will have little impact on the global performance, is to figure out a carbon reduction scheme that will help us to meet our commitments in a way that does the least harm and may even help the national interest.

Australia’s big businesses tend to argue that what’s in their interest is also in the nation’s interest as they are the foundation of the economy and represent jobs, investment, trade and tax revenue.

Having said that, big business’s embrace of climate change mitigation appears to have waned since the failure of the Copenhagen meeting to secure internationally binding targets. Such an agreement would have imposed a new global order of comparative and competitive advantage that was easier for businesses to navigate, because they would have known their competitors also faced new cost imposts due to reducing carbon emissions.

Now, with each country forging a separate path in carbon reduction, Australia’s business groups have decided it is best to go slowly on a carbon tax and emissions trading scheme with a low price and full compensation for trade-exposed industries.

They want to load the new scheme with exceptions that reduce the impact for most businesses, at least upfront. This approach, they argue, would demonstrate that Australia was moving to meet its stated commitments, but it would do little to change competitive advantage (which has been the provision of very cheap electricity) until other countries also move to change their cost bases.

To achieve a long-term restructuring of the economy that produces less greenhouse gases than it does now, the government must ensure that its carbon price does not lead to large job losses, the mass closure of businesses or the drying up of foreign investment flows.

It’s unsurprising that big business is pursuing the “Be Seen To Be Doing Something But Make Sure Its Impact Is Innocuous" strategy.

Our resource-based economy is populated with a few dominant companies in many sectors, and is dependent on foreign capital. Those active in the debate tend to be large, established companies with sizeable workforces. They are trying to protect their capital investment and are dependent on a comparative advantage that’s soon to disappear.

What business has to come to terms with is the possibility that moving slowly to put a noticeable price on carbon could also lead to a failure to develop new technologies and, ultimately, a failure to build Australia’s next competitive advantage. This would not be in their shareholders’ interests.

We don’t know where the growth will come from, but the voices of innovative companies need to be heard.

The Australian Financial Review