Will the Carbon Tax really apply to Coal Exports?

At the rate the Australian Coal Association is pumping out media releases you could be forgiven for thinking that the upcoming Carbon Tax will apply directly to coal exports.

Let me make this clear. The proposed carbon tax will not apply to the emissions embedded in the coal we export. Those emissions will be for some other country to worry about (where the fuel is burnt and released to the atmosphere).

This is a critically important point which the media is letting go. Yes, the coal industry will face billions in increased costs, but this has nothing to do with the commodity itself (see below).

If you search the web on this topic you will find some people asserting that the carbon tax applies to exports. They are wrong.

A myth perpetuated by industry

Industry leaders know this, but they are choosing their words very carefully to confuse the public. Take for example Marius Kloppers, the head of BHP Billiton. He recently stated:

This, if you boil it down to its barest essentials, is a tax on coal exports from Australia.

Notice his heavy caveat before saying a tax on coal exports? The reason for his caveat: in actual fact it's a very small and wholly indirect tax when it comes to exports.

What the Carbon Tax will apply to

There is no denying that the Carbon Tax will apply to some aspects of coal mining.

There are three main areas where the tax will increase costs for coal miners:

1. Tax on fugitive emissions such as methane gas leaked directly to the atmosphere (80% of forecast impact).
2. Removal of some fuel excise subsidy (9% of forecast impact). [Isn't it crazy that they still receive fuel subsidies?]
3. Increase in electricity price (10% of forecast impact).

And that's by the Australian Coal Association's own numbers (Media Statement, Tuesday 30 August 2011).

A few dollars per tonne of coal exported

The following is an extract from a recent 4 Corners episode 'The Carbon War'.

Claims of massive job losses are completely absurd. The coal industry has at least $70 billion worth of investment coming into it that's committed, 19 new mines opening up that are committed.

You know, the average carbon price cost per ton of coal mined once the carbon price legislation comes into place is only $1.90 per ton of coal in the first year - $1.90, as against a coke and coal export price currently in excess of $300 a ton.

It's a modest impost on the industry and it will create an incentive to reduce their methane emissions - and that's a positive thing.

- Greg Combet, Climate Change Minister

Sure, at some level it's a case of who do you believe. But a few things are quite clear:

• The carbon tax will not apply directly to coal exports. It will apply indirectly to just a few areas. Is it a bad thing that the industry will be forced to clean up their act (fugitive emissions) and pay more realistic prices for their fuel? I don't think so.
• The total cost of a few dollars per tonne is tiny compared to the fluctuations that coal exporters must face on a daily basis with respect to exchange rates and other market conditions.

- Ryan McCarthy