Sunday, 3 August 2008

AWU quackery on the aluminium industry and greenhouse

Dick Nichols
2 August 2008

The Australian Workers Union has many members in the aluminium refining and smelting industry, which accounted for 45.3 million tonnes of greenhouse gas emissions in 2006 (7.9% of Australia’s total). Obviously, such a major greenhouse polluter — the dirtiest for every dollar of value added — has to be radically restructured if carbon emissions are to be cut to sustainable levels.

But what about the 12,000 workers in the seven alumina refineries and six aluminium smelters, mostly working in regional towns where jobs are hard to find?

If you believe Per Capita consultancy’s David Hetherington in his report for the AWU (The Full-Cost Economics of Climate Change Aluminium: A Case Study), closing down the aluminium industry could be a disaster. “In the most extreme scenario, where all aluminium plants were to close, the average unemployment rate would jump from 4.9% to 31.2% in refinery towns and 7.4% to 14.9% in smelter towns.”

However, this figure assumes that no aluminium industry worker would find a job after the industry ends — no retraining, no alternative work, nothing.

Hetherington next looks at nine more realistic scenarios of partial or complete industry closure combined with varying degrees of re-employment, with from 10-50% of displaced workers finding new full-time jobs and 10-50% new part-time jobs.

Using what he calls “full cost economics” he then calculates that the total annual value (to the worker, local community and government) of an average aluminium industry job is $89,700 a year ($1.215 billion for the entire industry). This total value breaks down into $870 million for individual workers (“private value”) and $345 million for the community (“social value”). Hetherington rightly leaves out of his calculation the “private value” that goes to the aluminium corporations and their shareholders.

Against this annual value of $1.215 billion, Hetherington next sets the annual (negative) value of the aluminium industry’s 45.3 million tonnes of carbon emissions (calculated at $19 a tonne). That’s $861 million ($264 million for refinery and $597 million for smelter emissions).

The “net value” loss or gain from part or full industry closure (measuring the gain to the environment against the loss to workers and the community) then ranges from $312 million to -$263 million according to scenario, with the positive environmental impact outweighing its negative social impact in six out of nine cases.

Dodgy assumptions

According to AWU national secretary Paul Howes, the message of this analysis is that “we know by keeping good jobs in industries like these smelters and refineries here in Australia we are actually helping in the battle against greenhouse gases”.

“The Federal Government must help these industries to clean up their act, and bring in new technologies such as carbon capture and storage”, Howes said on July 14. “If we do that then decent, well-paid, secure jobs will not be lost to Australia and taken off-shore to countries like China, India and Brazil whose pollution levels are far, far higher.”

The Per Capita report shows no such thing. Leaving aside the fact that the Australian aluminium industry had the highest carbon dioxide emissions per tonne in the world in 2002 (because it overwhelmingly uses coal-generated electricity), the Per Capita report shows most of all that you can prove anything you like with a calculator and some dodgy assumptions.

It gets its results by:

•arbitrarily valuing carbon dioxide emissions at only $19 a tonne (the price reached in the inaugural trade in “Australian Emissions Trading Units” between AGL and Westpac); and

•not accounting for the massively subsidised electricity supplied to the aluminium industry through deals with various state governments. These were estimated by Hal Turton at between $210 and $250 million a year in his 2002 Australia Institute study of the industry.

In short, Per Capita’s “full cost economics” works by not accounting for the full cost!

Per Capita’s bad arithmetic

What happens if we apply Hetherington’s method but insert a realistic price for carbon — around $40 a tonne, the present price in the European Trading System market (and still far too low to produce the falls in greenhouse gas emissions called for by climate science)?

At this level (which would value total 2006 aluminium industry carbon emissions at $1.813 billion), Per Capital’s nine “net value” results all become positive — “society” gains between $761 million and $1.052 billion from closing down the aluminium industry partially or completely.

Add in the cost of the $210 million annual electricity subsidy and this annual “net value gain” from industry closure grows to between $971 million and $1.262 billion!

But doesn’t Per Capita understate the benefits of the industry? Weren’t alumina and aluminium exports worth over $10 billion to “the Australian economy” in 2006? They were, but $4.2 billion of that (in 2005-06) was trading profit. Aluminium’s huge profit margin is due to each worker producing up to five times the value of his or her wage (the average for the manufacturing industry as a whole is around 1.75 times).

According to the Per Capita method, if the Australian aluminium industry was nationalised and its private profit (and not just company tax) went into the public purse, the “social value” would again increase, even to the point of representing a “net social gain” for a nationalised aluminium industry run exactly as it is now.

Per Capita’s bad method

But in that case the aluminium industry would still be unsustainable. That’s because the main problem with the Per Capita report isn’t so much its dodgy assumption about carbon price or its omission of electricity subsidies, but its approach to the issue of environmental damage.

Putting a price on a tonne of carbon in no way measures the real damage that this extra tonne of carbon released into the atmosphere may actually do. It is simply a way of creating (or appearing to create) a specific economic incentive to reduce carbon emissions. Yet an industry that is churning out 8% of Australia’s total greenhouse gas emissions has already been doing enormous damage to our planet — however much we try to put a monetary value on this damage.

The vital job is not to make a case for or against the aluminium industry on the basis of artificial and falsely precise valuations like those in the Per Capita report, but to move to convert it to a zero carbon status over a definite time span (10 years at most), all the while guaranteeing the workers and their communities a future.

Of course, the owners of the industry — the big multinational aluminium corporations — aren’t interested in doing that. The only force in society that can develop a sustainable future for aluminium is its workers and their organisations — in collaboration with a climate change movement as committed to social justice for working people as it is to fighting global warming.

This will require access to the true costs of the industry, by opening its commercial accounts and by studying its real environmental and health impact over the production and distribution cycle. Instead of funding shabby efforts like the Per Capita report, aluminium industry unions should now set up their own commission to work out pathways to the industry’s sustainability as well as to a stable future for workers and communities at risk.

[Dick Nichols is the national coordinator of the Socialist Alliance. For references contact]

From: Comment & Analysis, Green Left Weekly issue #761 6 August

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