Rusal Australia chairman fears jobs loss from carbon tax

THE Australian arm of the world's largest aluminium producer has warned that a higher carbon cost is adding to the risk that Australia will lose jobs and investments to China's refineries and smelters.

Rusal Australia chairman John Hannagan said China's producers were already competing aggressively with Australia -- which has six smelters and seven refineries -- but faced a significantly lower carbon price.

"In case anybody doesn't know where the competition is, it's China," Mr Hannagan told The Australian yesterday. "They will build more capacity than gets shut down this year. The rest of the industry can shut down a million tonnes this year; China will build that again without even blinking. China will replace that capacity."

Russian giant Rusal has a 20 per cent stake in the Queensland alumina refinery based in Gladstone and globally is the biggest aluminium producer.

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While Mr Hannagan stressed he was not commenting on Alcoa's business at its Port Henry smelter, he said the carbon tax was going to have "a really significant impact" across the industry more broadly.

A study commissioned by the Australian Aluminium Council found Chinese producers did not pay any direct carbon price but paid an indirect price through a renewable energy surcharge equivalent to about US85c a tonne of emissions.

On top of this, Chinese manufacturers gained a competitive benefit from the undervalued yuan, which makes Chinese products artificially cheap.

"Whatever anyone says about the carbon tax, it does have an impact," Mr Hannagan said. "It does have a significant impact.

"The system being put in place for the carbon tax is really based on, I think, a very flawed assumption that our competitors are going to have similar or more aggressive carbon or energy policies attached to them."

He said it was widely accepted that the Australian currency was having a major impact on the industry, but this was "at the mercy of the market". Energy costs, however, were something the nation could "do something about".

The office of Climate Change Minister Greg Combet defended the government's assistance. A spokesman said the Jobs & Competitiveness Program was expected to provide more than $3.5 billion of assistance to the aluminium and alumina industries over the next three years and the Productivity Commission would later review the competitive impact of the carbon price on each industry sector and take into account the comparable carbon costs of competitor countries such as China.

"Aluminium and alumina producers will receive free carbon permits at an initial industry average rate of 94.5 per cent of their direct liability and increased electricity costs," Mr Combet's spokesman said. "Overall, this means that the impact of carbon pricing is about 1 per cent of revenue for an aluminium smelter."

China was likely to impose additional carbon costs on Chinese producers, the spokesman said.

The chief executive of NSW's Tomago Aluminium, John Lemberg, said the main pressures facing the smelting industry were the dollar and lower metals prices, but he expected there would be long-term growth for the aluminium industry as the product could be recycled, was lightweight and was increasingly used in the transport sector.

"Certainly higher electricity prices is something that is going to start to feature more and more in the view for Tomago going forward," Mr Lemberg said. "It's not just carbon, it's electricity, the price of transmitting electricity "

Rio Tinto Alcan -- which owns Tasmania's Bell Bay smelter and Queensland's Boyne Island smelter, as well as refineries -- declined to comment.