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October 27, 2008 02:00 AM

Australian trade union claims carbon trading threatens firm

Kate Tilley
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    Australia's largest blue-collar trade union claims the country's planned emissions-trading scheme could see Chinese-owned plastics firm Qenos Pty. Ltd. move offshore.

    The Sydney-based, 130,000-member Australian Workers' Union claims the plan will adversely affect several business sectors, including the plastics industry.

    In a submission to the federal government, AWU used Qenos as a case study, saying there is a ``real risk'' that carbon trading will prompt the company's owners, Beijing-based China National Chemical Corp., known as ChemChina, to close its Australian operations.

    Melbourne-based Qenos produces high, low and linear low density polyethylene at plants in Sydney and Melbourne and employs 830. It was previously operated as a joint venture of Melbourne-based Orica Australia Ltd. and Houston-based Exxon Mobil Corp., but the company was sold to ChemChina in 2006.

    Prime Minister Kevin Rudd plans to have an emissions-trading scheme, which he labels a ``carbon pollution reduction scheme,'' operating by 2010.

    In the lead-up to the Labor Party's victory in the November 2007 election, Rudd, then party leader, campaigned heavily on the need to address climate change and promised to implement a carbon-trading system to cut Australia's greenhouse-gas emissions by 60 percent compared to 2000 levels by 2050.

    His commitment was in contrast to a more cautious approach taken by the former conservative government led by the Liberal Party's John Howard, who argued meaningful cuts in emissions would only be realized if big emitters, such as China and the United States, were involved in global efforts to cut greenhouse gases and that any Australian trading scheme should not be implemented at the expense of industries or jobs.

    The Rudd government has called for feedback on the design of its proposed CPRS and plans to publish draft legislation in December.

    CPRS is envisaged as a ``cap-and-trade'' scheme with the government setting a yet-to-be-determined annual limit on total emissions. Companies that generate greenhouses gases will be required to buy tradeable permits to emit.

    AWU's submission to the government warns of ``carbon leakage,'' that is, the shift of Australian industries to overseas markets that do not impose a carbon tax or have emissions trading.

    ``The prospect of major industries relocating to countries free of carbon constraints in the form of prices or taxes is present and real,'' the submission said.

    The Rudd government has promised assistance in the form of a limited number of free tradeable emission permits for some companies that are big energy users and have competitors in countries without carbon-trading schemes.

    But AWU said the suggested compensation arrangements are limited and unfair to many so-called ``energy-intensive, trade-exposed'' industries, including the plastics and petrochemical sectors, where it has a strong membership base.

    AWU said even though Qenos is in that category, information available so far on CPRS suggests the company will not qualify for free permits and will be at a disadvantage to overseas-based competitors.

    The union said Qenos falls below a suggested threshold for free permits partly because it already has voluntarily cut emissions.

    ``Qenos has reduced emissions by 40 percent since 1995. If they had not, they would have qualified for 90 percent [free permits],'' the AWU submission said.

    ``The cost for them of purchasing permits will be about $A66 million (US$44.2 million). Its profit in 2007-08 was $A65 million (US$43.5 million). There is the real risk that Qenos's owners, ChinaChem, will close the Australian facilities,'' the submission warned.

    Australia's Minister for Climate Change, Senator Penny Wong, said she recognizes the potential problem of carbon leakage. In a September speech to the Australian Industry Group, Wong said if firms choose to relocate offshore there will be no consequent reduction in total global emissions.

    ``The carbon is still produced, just somewhere else,'' Wong said. ``Clearly, this is counter to our objective.''

    Wong said although the final form of the CPRS is yet to be determined, providing free permits to some large carbon users will help address leakage.

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