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Caltex Australia Says Carbon Costs Threaten Refining Industry

Bloomberg

 

 

By Angela Macdonald-Smith

Oct. 23 (Bloomberg) — Australia’s oil-refining industry would be threatened by “high” costs for carbon emissions permits under the government’s proposed trading system, said Caltex Australia Ltd., the nation’s biggest refiner.

Under the proposed design for the trading system 20 percent of carbon allowances would be allocated free to emissions- intensive trade-exposed industries, Des King, managing director of Sydney-based Caltex, said today in an e-mailed statement. That is half the amount of permits they need, meaning they must incur an extra cost to buy the rest, he said.

The Australian government plans to start the carbon trading system on July 1, 2010, to help reduce greenhouse gases blamed for global warming. Australia’s four oil refiners compete against rivals in Asian nations that don’t place a cost on carbon pollution.

“In the bottom half of a business cycle, carbon costs for refining could consume 100 percent of earnings before interest and tax as the costs would not be recoverable,” King said today in a speech in Sydney, according to a transcript on Caltex Australia’s Web site. “That would be a formula for shutting down operations.”

Caltex, half-owned by Chevron Corp., last month called for an initial 100 percent free distribution of carbon permits to all emissions-intensive industries that compete against rivals outside Australia. Once overseas competitors have comparable carbon costs, all permits can be auctioned, it said.

Under the government’s proposal, Australia’s four oil refining and marketing companies will need to buy more than 25 percent of the available permits, mostly to cover emissions emitted by their customers, the Sydney-based company said. Caltex itself will be the largest purchaser of carbon permits in Australia, approaching 10 percent of the market, it said.

BP Plc, Shell and Exxon Mobil Corp. also own refineries in Australia.

If the system is implemented as proposed, Caltex’s two refineries could face extra costs of about A$90 million ($60 million) a year at a carbon cost of A$40 a ton, the company has calculated.

To contact the reporter on this story: Angela Macdonald-Smith in Sydney at[email protected]

Last Updated: October 23, 2008 02:16 EDT

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