The Minerals Council of Australia will not support a carbon pricing system that fails to maintain the international competitiveness of Australia’s export industries.

The Rudd Government’s Carbon Pollution Reduction Scheme (CPRS) did not adequately protect Australia’s export sectors and should not be the template for the new carbon pricing scheme.

A new economic analysis shows that a CPRS style approach to the treatment of internationally trade exposed firms under a carbon pricing scheme will expose the vast majority of Australian exporters to the full brunt of the world’s highest carbon costs ahead of their international competitors.

The analysis follows increasing concern that the Gillard Government’s approach to transitional arrangements for trade exposed sectors will be based on the flawed CPRS model. This is the wrong approach.

We agree that it is necessary for Australia to make a measured transition to a low emissions economy, but we do not accept that we need to unilaterally sacrifice the competitiveness of Australia’s trade sector in the process.

Where carbon pricing schemes are being implemented or planned internationally, governments are adopting a phased approach to the introduction of a carbon price in order to protect the international competitiveness of their export and import competing industries. The European Union (EU) is principal among them.

The EU scheme recognises the importance of a firm’s trade exposure when assessing eligibility for measures to ensure continued competitiveness, recognising that export and import competing firms operating in fiercely competitive global markets cannot pass on the additional costs to their customers.

The CPRS model failed to do this, focusing instead only on a firm’s emissions intensity.

The EU scheme gives the same weight to a firm’s trade exposure as its emissions intensity. The upshot is that more than 70% of EU sectors (117 of the 164 European industry sectors) will qualify under the EU’s trade intensity test, and be allocated permits for up to 100% of their direct emissions. EU trade exposed firms will also be eligible for assistance from EU member states for higher electricity costs.

In contrast, under the CPRS model, more than 80% of Australia’s merchandise exports will face the full brunt of carbon costs from the outset of the scheme.

Under the CPRS EITE framework, sectors accounting for 90 per cent of total manufacturing employment in Australia will receive no transitional assistance to preserve their competitiveness.

The EU also applies a non discriminatory and practical approach to the treatment of all its trade exposed sectors. The EU has taken a more pragmatic approach where fugitive emissions from coal production are excluded from the EU ETS until uncertainties about the accuracy of the measurement of fugitive emissions are resolved.

In contrast, emissions from coal mining (including fugitive emissions) under the CPRS were arbitrarily excluded from eligibility for assistance despite qualifying under the scheme criteria.

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