The Carbon Tax explained

Posted on by Mark Fernandez

With the recent hype about the government’s new proposition to tax carbon emissions, many of us are questioning just what effect this tax will have on businesses and consumers alike. Our guest columnist this week, Gerry Magee from Energy Corporate, is an expert on energy and greenhouse gas management and compliance, and provides some insight into what effect this tax could have on our businesses!

First it is not a tax on carbon, but a tax on greenhouse gas emissions.  Greenhouse gases are carbon dioxide, methane, nitrous oxide, and a range of every day refrigerants listed in the Kyoto protocol. Greenhouse gas emissions occur when fuels are combusted or gases are released to atmosphere. Typical sources of emissions are fuels like petrol, diesel, natural gas, wood, coal, lpg, and bio-fuels; refrigerants used in fridges, air conditioners, and cars air cons; and, organic waste like food, paper, green waste, wood, rubber, nappies, and natural textiles.

The Federal Government is proposing to put an initial price on carbon in 2012 of between $20 to $30 per tonne of Carbon Dioxide equivalents (t CO2-e) emissions. Carbon dioxide is used as the reference gas against which all other greenhouse gases are measured so the other greenhouse gas emissions are converted into tonnes of Carbon Dioxide equivalents (t CO2-e). Gases will be converted to their Carbon Dioxide equivalents and then the tax will be applied.

Details on the tax and the emissions sources included are yet to be released, but the indications are that fuel sources are included and this will directly impact on the cost of generating electricity and transportation. It is anticipated that these prices will be applied upstream and have a trickle down effect as each layer of business adds its costs and fees. As a consequence, it is highly likely that the costs of goods manufactured in Australia and the services you purchase will increase as the additional cost incurred is likely to be passed on to the end user.  The tax will not apply to emissions generated by products manufactured overseas and their transportation to Australia. Of course, there is the potential for additional administration costs, mark-ups, and GST to be applied as well on top of the tax at each stage.

Whilst electricity will increase the amount of tax per unit will vary between states and suppliers due to differences in their efficiency, fuel, and type and mix of generation (coal, gas, solar, wind etc). Fuel cost will also increase; the amount however, will depend on how much of the processing is undertaken in Australia. Lower emissions products and services will not necessarily equate to lower prices as some lower emission sources of electricity etc will most likely change a premium for their services and products to recoup investment.

The carbon tax will increase each year and more so once the emissions trading scheme is in place. So now is a good time to plan strategies on how you will manage the tax impacts, and what can be done to reduce your emissions, wastes, and costs.

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