29 June 2012 – Following is an  edited transcript of the interview by  ABC Lateline’s Tony Jones on Thursday night with Climate Change and Energy Efficiency Minister Greg Combet, from Mr Combet’s office.

TONY JONES: Let’s start with the ground that’s been very well traversed over a long period of time. Just remind us exactly why you’re bringing in this new tax. What exactly is it meant to achieve?

GREG COMBET: Well it’s meant to achieve reductions in greenhouse gas emissions in our economy over time, because it’s important for Australia to play its part in international efforts to tackle climate change. We’re part of the United Nations Framework Convention on Climate Change. An advanced economy like ours has to play its fair part. We are one of the top 20 greenhouse gas emitters internationally and we are the highest per capita emitter amongst the developed economies. So, we have to play our role and the intention here is to put a price tag on pollution so that there’s an incentive to cut greenhouse gas emissions.

JONES: OK, but how effective will the carbon tax be in actually doing that? Because even with the carbon price in place, according to Treasury forecasts, Australian emissions will keep going up for the next 15 years – not down, up.

COMBET: Well you’ve got to bear in mind that what we’re implementing of course is an emissions trading scheme. I know we’ve discussed this previously, but when it does migrate to a flexible price in 2015, the government of the day will be setting caps so we can achieve a targeted emissions reduction.

Essentially what that means is the number of permits to emit greenhouse gas will be limited, and cut each year, so that we can achieve a specific emissions reduction target by 2020. So it

will be effective, but of course we’re part of the international community. Other countries are doing similar things and a tonne of greenhouse gas emissions cut overseas or in Australia is – it doesn’t matter whether it’s here or overseas, as long as there’s greenhouse gas emissions cut and that’s why linking carbon markets is important.

JONES: That’s a fundamental thing, isn’t it, because even the carbon tax, the carbon price, is not going to reduce emissions here? And in fact, in order to make the 5 per cent cut, the fairly modest cut by 2020, you’re actually going to have to buy credits, carbon credits from overseas in order to do that.

COMBET: Well, as I say, a tonne of greenhouse gas emissions reduced here or overseas is not material to the overall effort to tackling climate change. The important thing is that the tonne of greenhouse gas emissions is being cut. And the reason that we enable Australian businesses to be able to purchase a tonne of reduced greenhouse gas emissions overseas as well, is to reduce the cost. To make sure that we achieve our obligations at the least cost. If you only design a scheme that reduces emissions in the domestic economy and has no linkage internationally, then you’re going to be doing it at much greater cost. And the Treasury has indicated that it would be at least twice the cost we’ve put forward and that’s not in our economic interest at all.

JONES: Let’s go to the economic costs. And we’ll take one industry, the housing industry, the home building industry. How much extra will it cost by your estimates to build a new house of an average size in Australia?

COMBET: Well it depends what the house is made of, but the important thing is that in industries like glass, which are common to every house, and of course steel manufacturing, pretty much common in some form of building material in housing, many of the inputs into housing which are produced in emissions intensive industries like glass or steel will attract a free allocation of around 95 per cent of their carbon permits, so that their effective carbon price is reduced to an average of only $1.30 a tonne. And that’s very important when you’re thinking about housing or car manufacturing, for example, that very significant inputs to those industries are in fact very significantly offset in the cost that’s incurred.

The cost of a house

JONES: And yet, there are different estimates out there. Allen’s Consulting Group says the extra cost of an average two storey 200 square metre house will cost – will be $3,800. The Housing Industry Association puts it at $6,000. Who’s got that right?

COMBET: Well it’s definitely on the lower side than the HIA estimates because as I remember it, when they first announced that they hadn’t taken into account the free allocation of permits to glass manufacturers and steel makers and others that I indicated.

So it’ll depend on the construction of the house. But it’s going to be a modest cost, all of which, I might add, has been factored into the modelling that Treasury has done. That’s led to the outcome that the cost impact across the economy is only 0.7 per cent increase in the consumer price index and in respect of which of course we are providing tax cuts, pension increases, increases in family tax benefits and other payments to assist people with cost of living and to offset the cost impact of introducing the carbon price, which as I say, is a modest impact.

There’s been a lot of grossly exaggerated claims and I think on July the 1st, on Sunday, we’re going to move from fiction to fact and all of these things will become much more evident.

JONES: OK. You say the lower price is more like it. So $3,800, the Allen Consulting Group figures, that’s about right, is it? That’d be the extra cost roughly you might expect for a average new house?

COMBET: Well it depends on the construction of a particular house. But when you consider that something as core as glass is offset in its carbon impact to the extent of nearly 95 per cent, it’s going to be a very small price impact. But a whole lot of things influence housing costs.

Refrigerant costs

JONES: OK, on 7.30 tonight we heard the case of an Italian sausage manufacturer who’s only now discovered that his refrigerant gas costs are about to triple. And he’s now hearing his transport company and other suppliers are also about to put up their costs. How you can be sure there won’t be a whole range of hidden costs across manufacturing, especially small manufacturing, which will be passed on to consumers?

COMBET: Well the first thing is any businesses in this situation where their suppliers are saying these sorts of things, they should cross-examine them pretty closely and if in doubt refer it to the ACCC to have a good look at it. Because if your transport supplier for example is saying that they’re going to jack up prices because of the carbon price, they’d better look out. Because there is no effective carbon price applied to light commercial vehicles, household vehicles or indeed heavy-on-road vehicles at least until 2014. So what’s the cost driver? You know, and with many other elements I’ve heard many small business people express these concerns.

Cross-examine your suppliers, talk to the ACCC, because it’s not lawful for companies to be suggesting that they’re going to be jacking up their prices where in fact they don’t have a material carbon price impact.

JONES: What about these refrigerant costs, because we heard this in Parliament today? I don’t think I actually heard a straight answer from the Prime Minister on this, but it was raised. This manufacturer says refrigerant costs are going to triple.

COMBET: Well there is an effective carbon price being applied to synthetic greenhouse gases and this is because we’re building on a scheme that was implemented by the Howard Government to apply an effective carbon price to them.

So there will be a price rise there, but you’ve got to bear in mind that refrigerant gases are replaced only very rarely and the price for a new fridge, for example, to be re-gassed would be about $4 to the fridge.

Similarly, the re- gassing of an airconditioning unit only happens on rare occasions and the price impact is fairly modest. The major retail outlets would replace the refrigerant gases in their fridges I think pretty rarely and that’s the only time the cost will be incurred.

JONES: OK.

COMBET: There’s also the opportunity to use alternative gases that have less greenhouse gas,global warming impact.

JONES: Alright. All around the country electricity prices have been going through the roof now for a couple of years. The carbon tax is going to put them up as we know another 10 per cent, or roughly 10 per cent. Aren’t you afraid that people are going to blame you for the entire rising costs of electricity?

COMBET: Well of course that’s what Tony Abbott will argue, and we will argue the facts. We’ve been arguing the facts for a long time and we’ll keep doing it. You’re quite right, electricity prices are going up by an average of 10 per cent around the country as a consequence of the implementation of the carbon price. That equates to about $3.30 a week on average for a household and of course we’re providing an average of $10.10 a week in cash to assist households.

That’s the important thing to bear in mind, the assistance is being provided. For an average small business – we’ve done work with the Small Business Association – it’s about a $5 or $6 a week increase in their electricity costs with the carbon price coming in.

It’s important though that we argue out what the drivers are behind electricity price increases because in NSW, for example, they’ve gone up by 55 per cent in the last three years and it’s nothing to do with carbon pricing. It’s mainly to do with the poles and wires investment that’s been taking place. And we’ll explain that to people and continue to put our case. We’ll be talking to electricity retailers about inserting a fact sheet in electricity bills so that people can hear what the case really is.