Sydney, 4 May, 2009: The Australian Bankers’ Association (ABA) said the Federal Government’s changes to the proposed Carbon Pollution Reduction Scheme (CPRS) will create additional complexity, uncertainty and costs for businesses and other market participants, as well as, inhibit the development of markets to help businesses manage their carbon price exposure.

Banks recognise that the global financial crisis has created economic pressures across countries and economies. With this in mind, the ABA understands the Federal Government’s decision to delay the commencement of the scheme for a year.

However, the Federal Government’s decision to delay and to introduce a fixed carbon price will have broad effects in the Australian marketplace.

David Bell, Chief Executive of the ABA, said: “Without a real price of carbon, there are broader economic implications for businesses, such as decisions about investment and lending.”

“Businesses that are already taking steps to address the risks and opportunities of the CPRS will now have to put these plans on hold. This will have real implications for jobs related to the scheme.”

“Efforts to position Australia as a ‘carbon hub’ within the Asia-Pacific region will now be more challenging to realise.”

“Inevitably, this additional price intervention will create artificial market distortions and lead to greater and unnecessary administrative burden and costs.”

The ABA believes price controls, such as the $10 fixed price phase announced today, will obstruct the efficient functioning of the market and ultimately are a disincentive for the development of markets.

Mr Bell said: “It is important to establish a sound framework for the carbon market, and then allow it to operate. A carbon market should enable the exchange of emissions units to take place in a manner which is economically efficient.”

“A fixed price phase, which is in addition to the already announced price cap phase, will offer some degree of business certainty in the early years of the scheme, but in doing so will undermine market certainty.”

“The more interventions in the market, the more difficult it is for all participants in Australia. And the more difficult it is to link with other global markets and efforts to reduce global greenhouse gas emissions.”

The ABA believes an efficient carbon market will be fundamental to changing the behaviour of governments, businesses and the community – which is critical to shifting Australia to a lower-emissions economy. 
 
A market-based solution is likely to be the most effective and economically efficient way for Australia to undertake the structural adjustment required to shift to a lower-emissions economy and meet our international legal obligations under the Kyoto Protocol.

The ABA supports the need to implement effective policy frameworks to underpin and promote a cost-effective reduction in greenhouse gas emissions. The scheme should be part of a comprehensive policy response to addressing climate change and achieving sustainable reductions in greenhouse gas emissions.

Mr Bell said: “Practical strategies that assist businesses, individuals and the community as a whole, transition to a future carbon-constrained economy, will be needed.”

“Transitional assistance for the most affected businesses and households is an integral part of the scheme.  However, assistance should not be provided in such as way that it directly and adversely impacts the efficient functioning of the market.”

Notwithstanding the concerns outlined, the ABA is pleased that the Federal Government remains committed to implementing the CPRS legislation this year.

Mr Bell said: “It will be important for the legislative and regulatory settings to be finalised this year so that businesses and households can properly prepare to take the necessary actions to contribute to meeting Australia’s emissions reduction targets. With this in mind, we support the Federal Government’s efforts to finalise a sensible legislative framework this year.”

The ABA and member banks will continue to work with the Federal Government on the technical details of the scheme and carbon market.