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Industry welcomes excise cut

On the up: New emissions trading scheme will drive fuel prices up further.

Car industry welcomes federal promise to cut fuel excise to offset carbon tax

General News logo22 Jul 2008

THE Australian automotive industry has welcomed the federal government’s intention to cut fuel excise on a three-year, cent-by-cent basis to screen drivers from the higher fuel prices that would have resulted from its new emissions trading scheme (ETS).

The government’s so-called Green Paper on the Carbon Pollution Reduction Scheme (CPRS), which aims to reduce greenhouse gas emissions by 60 per cent by 2050, was released in Canberra last week and outlines the floating measure to counter the retail cost of fuel at the bowser as a result of Labor’s climate change plan.

“Certainly, we believe the government has made the right move in relation to fuel by committing to offset the initial price impact on fuel associated with the introduction of the CPRS by cutting fuel excise on a cent-for-cent basis. This should protect the motorist from petrol price rises for the three-year assessment period,” said VACC executive director David Purchase.

“However, VACC believes the same three-year assessment period should be applied to heavy vehicle road users, who transport goods across the country. As it stands now, the government is to review this measure after just one year for heavy vehicle users.

“Small business recognises it has a part to play in the climate change challenge but solutions must be realistic if we are to win the support of small business in tackling these important issues,” said Mr Purchase.

80 center imageTop to bottom: Ford Australia president Bill Osborne, VACC executive director David Purchase and professor Ross Garnaut.

Ford Australia president Bill Osborne backed the inclusion of fuel in the ETS framework and welcomed the three-year petrol excise compensation plan, but said end-users of fuel should be held accountable.

“I think that’s going to be important as we transition to a low-carbon economy. I don’t think you can exclude consumers from the contributions to CO2 reduction,” he said.

“No matter what you do technology-wise, at the end of the day the consumer makes the vehicle purchase, the consumer decides how many kilometres they wish to drive and how well they maintain the vehicle, and those are huge elements in the CO2 equation, so I think for any government to make progress on CO2 reduction the consumer has to be part of the equation, not just industry.

“We applaud the Rudd government for including transportation in the emissions trading scheme - we think that’s important - and we believe the Rudd government is trying to make real progress, not just headlines.

“That’s been my criticism of some other jurisdictions that have specifically targeted certain industries and excluded others, and we think that is a recipe for political posturing, not for making real progress.

“In the long run, what has to happen for the large car segment is we have to reduce the CO2 footprint of those vehicles and we have to make them more fuel-efficient, and that is our plan. That’s why we are looking at modern powertrains for those vehicles,” said Mr Osborne.

A draft report into the effects of an Australian ETS by government climate change economist, professor Ross Garnaut, earlier this month recommended that fuel be included in the ETS.

But it also stressed that 50 per cent of carbon permit profits should be channelled to compensate households in one form or another, including paying for energy efficiency measures in the home or via social security concessions or tax cuts.

However, professor Garnaut vehemently rejected an Opposition proposal for a petrol excise cut to offset a carbon tax, as proposed by shadow treasurer Malcolm Turnbull and Liberal environment spokesman Greg Hunt earlier this month.

"If you were simultaneously reducing excise, then you would send some funny sort of signal, because this is all about encouraging people to economise on activities that are intensive in emissions," professor Garnaut told the National Press Club on July 4.

"It would also contradict some of the messages that Australia and many other countries are trying to send to developing countries (to cut emissions)." The inclusion in the CPRS Green Paper of a fuel excise variation to offset the new carbon tax followed Cabinet agreement that there should be not a ''net increase'' for motorists.

It has been reported the move may cost government as much as $1 billion in revenue but, depending on the price it puts on carbon permits as part of the ETS, government stands to earn total revenue of between $7 billion and $20 billion. Economists have calculated a carbon price of $30 a tonne would deliver the government $13 billion a year in revenue.

Australian households could receive increased financial assistance, as recommended by professor Garnaut, ahead of the next election - before the trading scheme begins on July 1, 2010.

Government has admitted its climate change plan will drive up inflation, but says it will compensate the community via either tax cuts or increased family payments to offset higher electricity and fuel prices.

It says preliminary economic modelling shows that a carbon price of $20 a tonne would add a one-off 0.9 percentage points to Australia's inflation rate, depending on the carbon price that will be set by the market when the permits are auctioned. The number of permits to be created is yet to be determined by each permit will effectively cover 1000 tonnes of carbon dioxide.

Climate change minister Penny Wong said Australia faced economic and environmental risks if it ignored the threat of climate change caused by man-made carbon emissions.

"It is about taking responsibility for what we are doing to our planet," said senator Wong. "It is about taking responsibility and preparing for the future.

"We confront a daunting reality: we cannot continue to pour carbon pollution into the atmosphere as if there is no cost.

"The tough economic reforms of the past - opening up the economy and floating the dollar - mean Australia is now well placed to undertake this tough new reform." While petrol, electricity, industry, coal, oil, gas and waste will be included in the CPRS, land clearing and logging has not been included and no has agriculture until at least 2015.

How CPRS will work:

- Government sets a cap on total amount of carbon in covered sectors.

- Government issues permits up to the annual cap each year.

- Polluting industries will need to acquire a permit for every tonne of greenhouse gas they emit.

- Quantity of carbon pollution by each firm to be monitored and verified.

- At each year's end, each liable firm must surrender a permit for every tonne of carbon pollution produced in that year.

- Firms compete in market for the permits they require. For some, it will be cheaper to reduce emissions than to buy permits.

- As a transitional assistance measure, certain categories of firms might receive some permits free.

- Price of permits emerges from the market once cap is set by Government.

- Cap is set for a period of five years.

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