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Goodbye carbon tax, hello ETS: What it means for your business

Monday, 15 July 2013 | By Myriam Robin

If the Rudd government is re-elected to another term this year, it will legislate a move from the carbon tax to an emissions trading scheme effective from July next year, the government announced on the weekend.


The move could see a carbon price of $6-$10 a tonne, Treasurer Chris Bowen said. However the price could be higher or lower based on market demand. Most analysts expect the price to be significantly lower than the $24.15 per tonne of carbon Australian businesses currently pay for their carbon emissions.


What does this mean for your business?


This has the potential to both help and hurt small businesses.


Peter Strong, the CEO of the Council of Small Business Australia, says there are two main ways the weekend's announcement could impact the sector.


The first is through its impact on electricity prices, and the second is through some of the positive business incentives that were funded by the carbon tax, which are now in jeopardy.


"Not a lot of small businesses are directly affected by the tax, but its effect is in the power costs," he told SmartCompany this morning.


"Part of the problem with the carbon tax was that few small businesses were able to pass on their costs to customers," he said. "That's because, if you're a supplier to Coles or Woolworths, they make it very difficult for you to do so."


In June, research by the Australian Industry Group found 70% of businesses surveyed had been unable to pass on any increased energy costs to their customers, and only 6% said they'd been able to pass on the energy costs caused by the carbon tax.


This has meant small businesses have largely absorbed the carbon price, particularly in manufacturing, which uses a lot of electricity. But they weren't the only ones affected.


"Any retail shops or cafes that have a lot of fridges, or big freezer rooms, were impacted," Strong says. "If power bills go up $6000 a year because of the carbon tax, I think it's a lot of money."


Professor John Quiggin, an economist at the the University of Queensland, told SmartCompany the carbon tax had raised electricity prices between 5%-10%.


"So, if the price falls when we switch to emissions trading, which is what we're expecting, other things being equal we'd see a drop of somewhere less than 10%. But that's likely to be swamped by other factors."


The biggest factor in electricity price rises in recent years has been a dramatic increase in the poles and wires charges billed to electricity users, Quiggin says. "And those are likely to rise further."


The government has yet to announce many details about which programs are likely to be cut as a result of the move to an ETS, but has flagged it won't change the compensation offered to households.


The carbon tax has funded some tax breaks for small businesses, including an increase in the instant tax write-off and the loss carry-back measures.


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What do the industry bodies think?


Most business groups have welcomed the move to an emissions trading scheme.


"The government's decision to move early to scrap the carbon tax and commence emissions trading is a positive move that will cut business costs while still meeting the emissions targets shared by the major parties," Australian Industry Group CEO Innes Willox said yesterday.


"We will be looking for more detail. But, in principle, a switch to much lower internationally linked carbon prices next year would be very positive for businesses struggling with high energy prices and lost competitiveness.


"The earlier move to emissions trading would cut the carbon price by as much as three quarters, while not reducing our capacity to meet the objectives of reducing emissions in line with Australia's targets."


However, the Queensland Resources Council has said the changes raise more questions than answers on Australia's carbon pricing.


QRC chief executive Michael Roche said the government had a number of crucial questions to answer, including whether the scheme would allow European Union politicians and bureaucrats to effectively set Australia's carbon price, and whether the scheme would lock in Australian firms to buying local permits, excluding them from the European market.


"If the federal government's answers to each of these questions is 'no', then clearly the intent is no more than a political fix in the shadow of an election, not the fundamental rethink that is so badly needed to ensure Australia's trade-exposed industries can be internationally competitive," Roche said.


The earlier move to an ETS has been criticised as a "cowardly act" by the Australian Greens and "a name-changing exercise" by the opposition.


What about the election? What would the Liberals do?


The date given for a move to the ETS was July 2014, which is after the last possible date for the next federal election.


This means the policy hinges on Labor being re-elected to government, a prospect which, until recently, looked unlikely.


This morning's Nielsen poll is the latest to show the government and opposition neck-and-neck in the polls.


But if the Liberal opposition does what is largely expected and wins government, its current policy remains to scrap the carbon tax.


This would mean no emissions trading scheme, and instead, a range of "direct action" policy measures intended to pay businesses to reduce their carbon emissions.


Some of these measures include paying businesses up to $40 per tonne (though usually less) to reduce their carbon emissions. This means the Coalition's plan values emissions at far above the $6 per tonne currently being proposed by the government. However, it would be a cost borne by the public out of general taxation, and not billed directly to polluters.


This story first appeared on SmartCompany.