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Will business support Abbott to repeal a price on carbon?

04 Jul 2012

Tony Abbott is unlikely to have uniform support from business if he moves to repeal the Government's clean energy legislation, wrote Maurizio Floris and Christopher Wright in the Australian Financial Review on Tuesday 3 July.

Tony Abbott says he will repeal the so-called 'carbon tax' if the Coalition wins the next election. The political process, through either a slow double dissolution or a faster but unlikely Labour and Green 'annihilation' in the Senate, has been widely canvassed in the media and elsewhere. Most of the coverage highlights support from the business community for Abbott's plans. However, our research into the business response to climate change suggests that this support may not be as forthcoming as it seems today.

A number of issues are likely to stand in the way of Abbott's ability to gain widespread business community backing, particularly if he is forced to take the slow double dissolution path to repeal the tax.

First, by the time that he has the power to act, a price on carbon will be  embedded in activities ranging from the carbon price mechanism itself to fuel surcharges, fuel and electricity contracts, forward hedging contracts, mining products, energy management and CO2 audit and reporting services, compensation packages to businesses and families, biodiversity and land management funds, and the Clean Energy Finance Corporation. Trying to disentangle a price on carbon from these activities may require the same effort and expense as bringing it in.

Second, while some companies will try to avoid locking themselves into investments that rely on Abbott keeping his 'blood pledge', many will make more pressing investment decisions on an assumption of future carbon pricing. As one senior executive told us, his company avoids 'billion dollar bets' one way or another, but not all investments can be postponed. As 75% of senior executives seem to believe that the carbon tax is here to stay (GE research reported in the Australian Financial Review, June 26), this will impact investment decisions accordingly.

Third, despite Liberal Party's claims to the contrary, demands for compensation for emission permits rendered worthless by the Coalition's action is likely to become an expensive legal quagmire that may have to be resolved by the High Court. According to one company we spoke to, if you ask half a dozen lawyers for their opinion on this issue, you get six different answers.

Fourth, the recent business opposition to the carbon tax, which has appeared in the media, has come largely from companies that expect to lose as a result of the Gillard Government's action on climate change. However, for every loser there is a winner and the winners include not only a handful of small companies and fringe industries. There are also large and mature corporations that, through serendipity or early mover strategy, seek to gain a competitive advantage. Some senior executives in our research stated that currently they largely avoided public support because their customers included companies that are against a carbon tax. Also, we know from research into behavioural finance that a dollar lost is perceived as significantly more valuable as a dollar gained. The business 'winners' from a price on carbon may well become vocal if Abbott tries to repeal the legislation at their expense.

These business hindrances add to the political hindrances that Abbott may face, and taken together they explain why the senior business people we spoke to in our research struggled to see how the Coalition can reverse a price on carbon without creating havoc.

Of course, as the broader climate change discourse has shown, overwhelming evidence does not win an argument. Persuasiveness depends more on rhetorical skills, and so far Abbott has shown to be the more effective communicator with a simple and highly negative campaign. He may or may not repeal the current legislation, but before we get that far, we are likely to see some creative redefinitions of 'repeal', 'carbon tax', or - a term Abbott has avoided - 'price on carbon'.

A recent foretaste of such reframing was evident in the increasingly untenable image of a 'cobra strike' killing the Australian economy on July 1 being replaced by the image of a slow 'python squeeze' in the years to come. Expect much more creativity in the future, from both sides of politics.

Professor Christopher Wright leads an ARC funded team at the University of Sydney Business School that researches Australian business responses to climate change. Maurizio Floris is an Associate of the University of Sydney Business School and contracts to companies, some of which may benefit and others which see themselves disadvantaged by carbon pricing.