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Punitive carbon tax threatens Australian LNG investment

Australia's planned carbon tax threatens hundreds of billions of dollars of oil and gas investments, according to Peter Collier, Western Australia’s (WA) minister for energy, training and workforce development


Prime minister Julia Gillard’s federal government said on Sunday that the country’s most polluting industries would have to pay A$23 a tonne ($24/t) tax for carbon dioxide (CO2) emissions from 2012. The levy would increase by 2.5% every year before moving to a market-based emissions-trading system.

But the local government of WA – home to a number of large planned liquefied natural gas (LNG) projects, including Pluto, Gorgon and Wheatstone, with a combined capacity of nearly 28 million t/y – said the carbon tax is not the best way to tackle Australian CO2 emissions and that it threaten billions of dollars of investment in energy and mining projects.

‘Projects at risk’

“I don’t want to be alarmist, but there’s a real possibility that some projects will be at risk,” Collier said. He estimated around A$225 billion of projects are in development, half LNG and the other half in the mining sector – mostly iron ore. “Punitive action is not the way to go,” Collier added. “We think it could have been done in a better way, but it’s a government decision and we’ll have to readjust accordingly.”

Reg Howard-Smith, chief executive of the WA Chamber of Minerals and Energy, said: “Industry would like to focus on efficiencies and using technology rather than a tax system. This seems to be a taxing exercise based on income redistribution rather than genuinely cutting carbon emissions.”

The country’s resource industries are concerned that the carbon tax would price Australian producers out of the global market. Australia is expected to nearly quadruple its LNG production in the coming decades, overtaking Qatar as the world’s largest producer.

Howard-Smith said he would be “surprised if the tax made any LNG project unviable. The impact in the short term would be around the power generation and coal sector rather than LNG.”

But he conceded that the levy would put Australia at a disadvantage when competing with large resource-producing nations that do not tax carbon emissions. “When you make a policy decision on your export industry, it’s often cited that you look at Europe or the US and take similar sorts of action. They’re not our competitors. Our competitors are countries like Russia, Qatar, the Middle East, or in South America, especially Brazil and Chile,” Howard-Smith said.

“And most of those countries are not engaged in this [climate-change] discussion. I don’t think there’s anybody that argues that we shouldn’t be cutting carbon emissions. But it’s not the correct way to go, in particular with the absence of international collaboration.”

While Qatar and Russia are LNG producers, Brazil, Chile and Colombia are large miners and exporters of iron ore, copper and coal, which are WA’s other big mineral exports.

Help wanted

WA is also heading for a jobs crunch and desperately needs workers for its mega-resource projects. Direct employment in the resources sector of around 42,000 in 2002-03 has more than doubled to 87,000 in 2011. Truck drivers and welders are routinely paid around A$150,000 a year, in some cases even more for specialist skills such as underwater welding, according to the Chamber of Minerals and Energy.

“For the next 18 months, an estimated 33,000 extra employees will be needed, largely for construction. What we see after the construction period is an increase in production and processing, so that changes the nature of the employees, but the numbers continue to grow until the end of this decade,” Howard-Smith said.

Government figures put the additional skilled workers needed at 150,000 by 2017, including non-resource jobs such as chefs, teachers and doctors.

Minister Collier said he expected the jobs to be sustainable and that WA would not see ghost towns when the labour-intensive construction phase had finished. “We don’t talk about a boom, but sustained economic growth,” he said. Although, he added, some workers would be “on loan” until after the construction phase. Kwok W Wan, London

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