CME’s Federal Pre‑Budget Submission and recent op-ed in The Australian by CEO Aaron Morey highlight the urgent need to restore WA’s resources sector competitiveness. CME is focused on ensuring federal and state policy settings keep pace with global competitors across approvals, taxes, land access and energy costs.
The same goes for Australia’s climate policy settings. Aaron’s op-ed called out as an example The Superpower Institute’s (TSI) recent report The Case for Pricing Pollution. While CME agrees with TSI on the urgent need to improve productivity, leverage investment in future industries and in achieving net zero, the report proposes two major new taxes that raise significant concerns:
- First a ‘Polluter Pays Levy’, a new tax on fossil fuels, levied on domestic producers and on imports. This levy would tax these fuels based on the carbon dioxide emitted when used, and would be accompanied by a Carbon Border Adjustment levy for energy-intensive imports – both mirroring the European Union’s approach to carbon pricing.
- Second, a ‘Fair Share Levy’ – a new cashflow tax on domestic oil and gas exports, replacing the Petroleum Revenue rent Tax (PRRT) at a rate of 40%.
TSI argues that these are the most economically efficient approaches to drive productivity and investment and contribute to the achievement of net zero. However, any policy changes that lead to domestic carbon prices higher than our direct competitors make the WA resources sector less competitive and risk the exact opposite: driving up global emissions as production and investment (and jobs) move to jurisdictions with far lower environmental standards – dubbed ‘Carbon Leakage’.
In an ideal world our direct customers would pay a price premium for low-carbon products to offset the higher costs involved, or carbon prices would be aligned globally – but we are not in that ideal world.
As such, TSI’s proposal would:
- Raise costs across the economy. TSI argues that the two proposals would apply to sixty fossil fuel production companies only and not to wider industry. This is untrue, as these levies would be passed on to end users: industry, transport, households and consumers. Indeed, the TSI claims that the new taxes will raise over $35bn per year, on average, over the next 25 years, and that households will need shielding from the increased costs of electricity and road fuel with a support package of over $8.5bn per year. There is no suggestion of compensating the resources industry for the pass-through of this new tax.
- Place a significant impost on the sector. TSI proposes that the Polluter Pays Levy would begin at $17 per tonne of carbon dioxide and rise steadily until 2034 when it would meet and track the European Union’s carbon price, which is set through its market-based Emissions Trading Scheme. EU ETS prices have fluctuated between AU$100-150 over the last twelve months. While in principle the best way to drive global decarbonisation is through global carbon price signals, this would be a significant impost on the sector (not least to add that Australia would not necessarily have a say over the EU’s market rules which ultimately set the price).
- Introduce regulatory uncertainty. The Safeguard Mechanism is revenue-neutral: those who invest in emissions reductions below their baselines are rewarded by tradeable credits that can be sold to those who emit more than their emissions baseline. In contrast, TSI’s Polluter Pays Levy that is proposed to replace the Safeguard Mechanism would tax every single tonne of carbon dioxide emitted, eroding the reward for those facilities that have made investments to reduce their emissions under their baselines under the current scheme. CME supports the Safeguard Mechanism, which has been in place in its current form for only two years, and which will be subject to a formal review that will begin later this year. While there is room for improvement, we support stable policy frameworks: changing fundamental policy approaches again will further erode investor confidence.
- Fail to protect the WA resources sector from carbon leakage. To protect Australian industry, TSI suggests that the Polluter Pays Levy would be accompanied by a carbon levy on energy-intensive imports. This would also be pegged to the European Union’s Carbon Border Adjustment Mechanism (CBAM), which is being phased in from this year to protect European industry’s competitiveness against countries with less stringent climate regulation. As CME has noted many times, CBAMs are helpful to avoid carbon leakage for import-competing industries (such as those in the EU) but do nothing to prevent carbon leakage for export-oriented industries like the WA resources sectors. Given WA exports very little to the EU it is unclear why Australia would peg a carbon levy to the EU CBAM.
- Reduce investment. The Fair Share Levy, when coupled with corporate taxes, would put effective taxes of 58% on oil and gas production and would capture more of the sector. TSI argues that this level is below countries such as the UK and Norway, which have taxation levels at 78%. However, these are not WA’s direct competitors: the UK is a net importer of gas, and Norway sells most of its gas to its immediate neighbours via pipeline. In Norway’s case, its oil and gas sector is dominated by its state-owned oil and gas company, Equinor. Australia’s direct competitors in international LNG markets are Middle Eastern states such as the UAE and Qatar, and the USA – all with more competitive tax rates. It is worth noting that in the UK’s case, since the petroleum tax rate was hiked in 2022 there has been a significant, attributable decline in production.
CME agrees with TSI on the importance of emissions reductions towards net zero by 2050, aligned with the aims of the Paris Agreement. However, any policy interventions or new taxes that undermine one of the world’s safest and most efficient resources sectors do nothing to lower global emissions.
CME continues to work through its Climate and Energy Committee as we prepare for the Safeguard Review, which we anticipate the federal government will kick off in July. For more information reach out to Steven Mills on s.mills@cmewa.com.