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Summary of Carbon Tax Webinar Q&A


Click on the below questions, or scroll down to read the entire transcript.

Questions:

 

 Q. While small and medium businesses won’t directly have to pay the carbon tax, do you envisage a change to this in the future?


No immediate change is on the horizon.

However the Australian Government has made a binding unconditional commitment to reducing greenhouse gas emissions by 5% compared to 2000 levels by 2020; and to reduce emissions by 80% compared by 2050. If the current pricing scheme in its current form does not achieve this commitment, we could reasonably expect changes to the scheme to ensure we meet our commitments.

The Government intends on setting a cap on emissions. During the first three years (July 1 2012 to July 1 2015), when the price of carbon is fixed, emissions will not be limited. Thereafter the government will set an annual cap. The extent of the cap will be based on the how many emissions we have to cut back to meet the target and will get tighter as Australia’s emissions reduction targets go up.

More than the original top 500 businesses may be progressively included in the scheme to ensure Australia’s emissions reduce over time. But the majority of SME’s will unlikely be affected by future changes. However this does not mean you do not need to take action to reduce energy or your use of emissions intensive goods. The price of these items will continue to go up, and to remain competitive and viable you may have to change your business processes and purchasing behaviors.

 Q. Is there a correlation between obtaining a permit for the carbon tax and the price increase?


Yes. One permit is equivalent to 1 tonne of GHG emissions. In 2012 one permit/one tonne will cost $23. 

Every product and service has its own specific carbon footprint to which the carbon tax will be applied. For example, if producing one glass bottle produces 0.96 kg (or 0.00096 tonnes) of carbon, this one bottle will cost an additional 2.2 cents due to the carbon tax.

Remember however that the top 500 companies will be buying permits based on their total annual emissions and not based on the per item amount of carbon. The top 500 businesses will also take into account other factors such as their electricity and fuel costs, the cost of their inputs/resources, and other business operating costs (e.g. wages, rent, borrowing expenses) when recalculating the prices they pass onto their customers.

For this reason, do not expect price change to be uniform nor for the impact of the carbon tax to be specifically itemised on bills or prices.

A further note is that the carbon pricing scheme in some industries will have a compounding effect. Those businesses with a direct liability will not only have to pay for their permits but will also face increased prices/costs for electricity, resources, inventory and stock, business supplies, waste, etc. and all of these costs will need to be either passed on or absorbed. So price increases passed onto customers may be greater than the exact impact of the carbon permit price alone.

 Q. If electricity companies are given free permits or compensation, why has the electricity pricing tribunal allowed a 21% price rise for electricity from 1 July and the ACCC has done nothing?


The price of electricity paid by consumers reflects the cost of both generating and supplying electricity to your business premise.

Many variables such as the global market price of coal and gas, the cost of building and repairing the power lines and power stations, the cost of borrowing money/interest for new assets, the cost of market regulation and compliance, the wage costs for electricity companies and all other general business operating costs are included in the calculations for electricity prices.

Electricity prices have unfortunately increased by over 65% over the past five years even before the commencement of the carbon tax due to all the factors listed above. Yes the carbon tax will increase the price of electricity further, but the above factors are also part of the story for why the pricing tribunal awarded a 21% increase this year.

It is hoped that compensation and grant programs awarded to electricity companies will help them invest in technologies that reduce their carbon footprint, as well as move away from their reliance on gas and coal to alternative renewable electricity generation so that over time the price of electricity might actually start coming down.

 Q. Can we trade in carbon permits and the hedging and selling of unused permits? Who will set the rules for trading of these carbon permits?


Limited to no trading is expected in the first three years. Trading and carbon markets will emerge one the scheme moves to a flexible price in 2015.

During the initial three-year fixed price phase of the carbon pricing scheme, liable entities will be able to acquire all of their carbon unit requirements from the Clean Energy Regulator at a fixed price (with these carbon units being subject to immediate and automatic surrender), so the only carbon units that will be able to be traded will be those that are issued for free to emissions-intensive trade-exposed industry participants under the Jobs and Competitiveness Program and to emissions-intensive coal-fired electricity generators under the coal-fired electricity generation assistance program. Even then, trading will be minimal because such units expire on the 1 February following their 'vintage' year and they can be sold back to the Regulator prior to that time.

During the following floating price phase, carbon units will be supplied through auctions conducted by the Regulator, as well as through these industry assistance programs. Such carbon units will be able to be banked indefinitely and so can be traded on the secondary market. When the “flexible price” phase of Australia’s Clean Energy Scheme commences on 1 July 2015, with it will come new opportunities for spot trading in over-the-counter (OTC) carbon derivatives.

Carbon units will be “financial property” under the Corporations Act. Therefore any person who engages in the business of: providing carbon unit advice; "dealing" in carbon units; "making a market" for carbon units; operating a market for carbon units; or providing a custodial or depository service for carbon units; will need an Australian Financial Services License (AFSL). A person who engages in any of those activities in relation to derivatives in carbon units will also require an AFSL.

 Q. We have a supplier who has already sent notification of a ‘carbon tax’ price increase that they will be charging us. Should we be questioning this notice and reporting them?


The companies with a direct liability – the so called “Big 500” – who have to directly buy permits to cover their emissions have been required under law to monitor and report their GHS emissions for more than 5 years (refer to this link to see a copy of the National Greenhouse Gas Report which lists out some of the top 500 companies and their reported emissions http://www.cleanenergyregulator.gov.au/National-Greenhouse-and-Energy-Reporting/Publication-of-NGER-data/greenhouse-and-energy-information/Greenhouse-and-Energy-information-2010-2011/Pages/default.aspx#3). Because they have been monitoring and reporting for some time many of these big businesses do already know how much the carbon tax is going to cost them. In this case, many of these businesses could realistically be providing advice to their customers on the price increases expected.

In the case of all other businesses with no direct liability, it will be somewhat more difficult to calculate a cost/price increase and attribute this solely to the carbon tax, however there might be some exceptions. For example, some businesses across Australia have paid consultants and financial business advisors to audit their books and develop new pricing strategies, especially those expecting an above average impact from the carbon tax.

The full impact of the carbon tax will not be immediate and the carbon tax will impact business through a number of variables. For example businesses may see price increases in the areas of electricity, gas, inventory and stock, business supplies, waste disposal, fuel. All these costs will take a little while to be absorbed into operating costs and then passed on through prices and bills.

However no price change, regardless of whether it comes from a business with a direct carbon tax liability or those other businesses with indirect cost impacts should be passing on increased prices until after 1 July. They are within their legal right to advise you prior to the commencement as long as the new prices do not commence until after that time. I would be questioning this if that is the case.

A final note is that the carbon pricing scheme in some industries will have a compounding effect. Those businesses with a direct liability will not only have to pay for their permits but will also face increased prices/costs for electricity, resources, inventory and stock, business supplies, waste, etc and all of these costs will need to be either passed on or absorbed. So price increases passed onto customers may be greater than the exact impact of the carbon permit price.

 Q. Are businesses able to itemise a carbon tax levy on invoices/quotes?


No, businesses will not be required to itemise a carbon tax levy on invoices and quotes. But there is nothing preventing businesses from doing so, as long as they can demonstrate the accuracy and basis for the surcharge or levy amount.

For many small and medium businesses it could be difficult to identify precisely how much carbon tax is incorporated into the price of a good and service. It is not a good idea to estimate and advise customers of estimates/approximate figures as the Australian Government and ACCC are carefully monitoring business claims about carbon tax impacts.

If your operating costs have gone up and you feel that the increased costs are unsustainable and making you unprofitable, then you are entitled to increase prices. But ensure that you truthfully advise your customers about which aspects of price increases are directly attributable to the carbon tax to avoid action from the ACCC.

 Q. Burning ethanol or bio-diesel releases Co2, why are they not being taxed?


The government documentation advises that they have made the decision to exempt ethanol and bio-diesels from the pricing scheme as they want to encourage their use over the more emissions intensive fuels such as petrol, diesel and gas.

Ethanol and bio-diesels release fewer carbon emissions into the environment then other forms of liquid fuels. To be honest there are not any other alternative low cost fuel sources commercially available in Australia and until Australia shifts our electricity generation away from coal and gas fired sources, electric powers cars and machinery are not economically viable.

 Q. Is there a calculator or guideline to measure carbon usage in each business?


There are a number of carbon calculators available and I have provided a few links to these below. You will need to have copies of your electricity, gas and other bills on hand to be able to accurately enter your energy usage and business costs.

Please also be aware that many of these tools are general/average cost and emissions estimators. If you wanted to an accurate measure of your carbon emissions and costs, then you should engage an environmental consultant to do a full carbon audit.

 Q. Am I correct in assuming that normal business enterprises do not actually purchase permits, but rather are the end receiver from those entities exposed to having to pay this tax and purchase permits?


Only the top 500 or so emissions businesses in Australia have to measure their emissions, report to the government and buy permits. No other businesses will have any direct obligations under the carbon pricing scheme.

The top 500 businesses can be expected to pass on the cost of monitoring, reporting, buying permits, the cost of retrofitting their businesses to reduce emissions as well their own indirect costs such as electricity or fuel through the price of their goods and services.

Increased prices and costs, as well as the option of shopping around for better deal or seeking out lower emissions and lower cost products is the impact on all other businesses.

 Q. Can we get a list of the businesses in Queensland impacted by the carbon tax?


Despite numerous requests from many parties, the Australian government refuses to release the full list of all companies who will be paying the carbon tax.

However, many of the top 500 businesses have already been reporting through the NGERS scheme and a report has been published for each of the past 5 years. Approximately 250 of the top 500 businesses are listed in this report so you can get an estimation of who these businesses are by reviewing the list available at emissions http://www.cleanenergyregulator.gov.au/National-Greenhouse-and-Energy-Reporting/Publication-of-NGER-data/greenhouse-and-energy-information/Greenhouse-and-Energy-information-2010-2011/Pages/default.aspx#3

 Q. Where do we get a list of the 500 businesses the government claims will have a direct carbon tax bill?


As per above response.

 Q. The ACCC wrote a letter to a fish and chips shop because of what one of the waiters said about the carbon tax. Isn’t this a little extreme and does this mean we have to control what our staff say also?


The ACCC has been given responsibilities to monitor carbon tax price related claims. They will respond and investigate any report made to them that they suspect might be false and/or misleading. It is unfortunate that a customer of this business reported the claim based on what a staff member has said, however business owners have an obligation to ensure that any price related advice is “it is truthful and has reasonable basis”.

Businesses are allowed to increase prices as they see fit. If your costs have increased then increasing your prices is completely your discretion. Just ensure that you accurately advise your customers of why prices have increased.

If it is not solely due to the carbon tax and other cost pressures such as wages, rates, electricity etc are involved, then it is best to tell your customers that your prices have gone up due to increased total business operating costs.

Refer to the ACCC Carbon Pricing Guide for Business here.

 Q. Can you provide more information on the carbon tax impact on fuels; in particular the off-road fuels are a big proportion of our costs. Our fuel supplier advised there will be no increase in prices from them, is this correct?


The treatment of fuels under the carbon pricing scheme is a little complex. No transport fuels will be covered directly under the carbon pricing mechanism. Where a carbon price applies, it will be achieved in a different way - through changes in fuel tax credits or changes in excise.

Exempt from the carbon tax is fuels used in household and commercial passenger vehicles, heavy on road transport sector (at least until 1 July 2014) and off-road use in the agriculture, forestry and fishing sector.

Included in the scheme is fuels (petrol, diesel, LPG, LNG, CNG and other liquid fuels) used for business off-road purposes (i.e. in vehicles, machinery, plant and other equipment on a business premise/work site) and in the rail, shipping and aviation sectors.

The carbon tax will be applied not at the price at the bowser or from your supplier, but in the form of reductions to fuel tax credits or increases in excise rates. Any business who currently claims fuel tax credits must be aware of the new reduced rates and reflect these in your fuel tax credit calculations and claims from 1 July 2012. A full schedule is available at the following link www.cciq.com.au/carbontax

As has been previously discussed, the carbon tax will have a compounding impact across the economy. Some businesses have already raised with CCIQ the fact that their fuel of gas supplier has increased the price of these fuels. What you need to keep in mind is that many of these suppliers are themselves facing increased prices/costs for electricity, resources, inventory and stock, business supplies, waste, etc. and all of these costs will need to be either passed on or absorbed. So price increases passed onto customers may be greater than the exact impact of the carbon permit price alone.

 Q. Other than electricity, I am concerned about other costs incurred by business owners for example fridges/freezer use of refrigeration gases?


Yes, much of the focus and media attention around the carbon price has been focused on electricity. However for some businesses for whom electricity is only a small proportion of total operating costs, electricity may not be your biggest issue. Depending on your electricity tariff and contract, you might only see marginal increases. For example, if you are on a regulated business electricity tariff then you may only see a 1%-2% increase in electricity pricing this year.

Businesses need to be aware that the carbon price is going to affect any good and service manufactured/produced in Australia which emits large amounts of greenhouse gases or requires a lot of electricity during the manufacturing process. It is important for businesses to identify what business inputs/supplies have high carbon footprints as these products will increase in price/cost following the introduction of the carbon pricing scheme.

As a business owner you then have a choice, you either continue to use and source this product from your current supplier; or you can reduce your need for this product and/or seek out other suppliers who produce this product with less carbon emissions/less carbon tax. In some cases you may find that overseas suppliers will be more price competitive as they will not be paying the carbon tax.

 Q. How do they allocate the free permits and decide on compensation?


The matter of free permits and compensation was decided by the Australian Government during the design of the scheme and drafting of the legislation. The compensation and industry assistance programs have been designed to offset the cost and impact for those industries and sectors most adversely affected by the scheme and who face significant competition from international manufacturers.

Free permits will be allocated to the Energy Intensive Trade Exposed (EITE) sectors such as steel and aluminium manufacturing and industrial processing industries. Permits will be allocated to initially cover between 66% and 95% of their current reportable emissions.

Other compensation and grant programs have been designed to support industry adjustment and limit pricing shocks across the economy. For example food manufacturers will be able to apply for grants of over $25,000 to invest in energy efficiency and low emissions technologies; and the electricity generation sector has been provided a $2 Billion program to invest in new low emissions generation infrastructure.

CCIQ acknowledges that very little compensation is being provided to small and medium businesses who are likely to be impacted significantly through higher operating costs and prices.

 Q. Don’t you think companies will seek to increase prices to protect themselves from the impact and not absorb the initial impacts?


Businesses are free to increase prices as they see fit. Pricing decisions and strategies are at the discretion of business owners and managers.

CCIQ entirely believes that many businesses are not in any position to absorb ongoing cost increases and accordingly price increases directly related to the carbon tax will occur across the economy over the next few years.

However CCIQ is also regularly told by our members that many businesses struggle to increase prices when confronted with low cost international competitors and price conscious consumers and for this reason continue to argue strongly to the federal government that the carbon tax will damage the profitability and viability of many small and medium businesses.

 Q. How will I know if my business uses/emits more than 25,000 tonnes of carbon? I might be liable and not even know it?


Greenhouse gas emissions are released in a number of ways, including

  • Burning/combustion of fossil fuels for energy, including coal, gas, oil, timber
  • Cement or steel making, which release industrial process emissions
  • Coal and LNG mining, which release greenhouse gases which are trapped underground; and
  • Waste management and landfill which also releases greenhouse gas emissions as the waste decomposes

Unless you are involved in any of these activities, then you will not have a direct liabilitiy under the carbon pricing scheme

Similarly, if the energy (electricity or gas) consumed/used by your business is less than 100 terajoules (or 27.7million KwH) per year, then you also do not need to worry about scope 2 emissions.

Most businesses with high emissions are already aware of their emissions and many already report under the NGERS scheme. If you are not currently reporting or monitoring your emissions, chances are you may never have to worry about it.

 Q. What about farmers with cattle and sheep etc.?


The agriculture, forestry and fishing industry is exempt from having to purchase permits for their direct emissions under the scheme.

Emissions from agriculture contribute substantially to Australia’s total greenhouse gas emissions profile. The agriculture sector comprises emissions from livestock and cropping, plus savannah burning. Livestock emissions arise from digestive fermentation processes, manure management and feedlot animal waste as fertilizer in agricultural soil. In 2009 livestock emissions amounted to 59 Mt CO2-e, or 70 per cent of total agriculture emissions. The largest component of livestock emissions was cattle, at 78 per cent, while sheep accounted for a further 19 per cent, with the remainder divided among swine, poultry and other livestock. Cropping accounted for 16 per cent of agriculture emissions, and included rice cultivation, field burning of agricultural residues and nitrogen emissions from synthetic fertilizers applied to fields.

That being said, the measurement and reporting of agriculture emissions is not a precise science and accordingly it would be difficult to penalize the agriculture sector with onerous measurement and reporting processes or enforce permits and a carbon tax based on estimates. There are also no significant abatement measures in the agriculture sector.

However that is not to say that the agriculture, forestry and fishing industry will not be indirectly impacted. This sector will face increased prices/costs for electricity, water, council rates, chemicals and fertilisers, resources, inventory and stock, business supplies, waste, etc.

 Q. Is GST applicable to the carbon tax?


Not directly. There is nothing that most businesses needs to complete additionally in regards to GST and the carbon tax. The GST rate of 10% will continue to apply to the carbon inclusive unit price of goods and services.

 Q. Our gas supplier has advised that the carbon tax will add $74.58 per tonne to our purchase price of LPG? Is this correct?


Each business needs to review price changes and advise separately in the context of their supplier/manufacturer. Each gas producer/supplier will produce their LGP, for example, differently and therefore have different emissions profiles. The carbon tax is applied to a business based on their total emissions across their whole business. Origin energy for example produces/suppliers LPG as well as electricity. Their carbon tax bill will reflect the emissions from all sources of energy.

Your gas supplier will also face increased prices/costs for electricity, resources, inventory and stock, business supplies, waste, etc. and each of these factors also impact on the price passed onto consumers.

 Q. Does the tax apply to overseas suppliers into Australia and what is the point of this if it does not?


No, the Australian Government’s Clean Energy Legislation and carbon pricing scheme is only applicable to facilities based in Australia.

Companies and businesses based in and manufacturing in other countries do not have to pay the carbon price for their emissions, even if they supply/sell their products in Australia. Some countries however do have their own carbon pricing scheme or greenhouse gas reduction policies/programs which may be applicable to the products them manufacture and sell.

 Q. We run a horti-farm and our import costs, insurance, wages, super, electricity, water, packaging material and fuels are all increasing in cost. On a margin of less than 8%, how do you suggest we remain sustainable if we do not increase prices, when at this stage we are seriously considering whether we would be better off closing our doors?


CCIQ agrees that many Queensland businesses are struggling with increased operating costs due to a variety of reasons, many of which are government imposed. This is the basis for our strong and ongoing opposition to the introduction of this legislation prior to similar commitments made by other countries.

As previously outlined, businesses are free to increase prices as they see fit. Pricing decisions and strategies are at the discretion of business owners and managers. An unfortunate consequence of the carbon pricing scheme may include significant price increases and inflation across the economy, particularly if businesses do not wish to compromise their viability and profitability.

CCIQ recommends that businesses may also wish to investigate other opportunities to reduce operational and input costs. Some suggested strategies are outlined in CCIQ’s Guide for Business and include reviewing energy efficiency, supplier contracts and prices, seeking out new lower cost suppliers and/or investigating new market and business opportunities.

 Q. Is there a specific model to follow for different industries that could help us identify areas where the carbon tax is relevant and how to manage these impacts?


The Australian Government has not developed any such tools or resources.

CCIQ’s Guide for Business outlines a number of common areas where prices and costs are expected to increase which are relevant across all industry sectors.

CCIQ is looking to work with industry sectors to develop some targeted industry/sectoral tools and resources over the coming months.

 Q. Will there be a line item on my bills similar to the GST so that I know how much carbon tax I am paying?


In general, no there will not be a separate line item or itemised statement reflecting the impact of the carbon price on goods and services purchased. The impact of the carbon price in most cases is expected to be represented only through the price of the good or service.

However some businesses for transparency reasons may choose to itemise or reflect the cost of the carbon price separately in bills and invoices. For example, carbon surcharges may be included in some bills.

Again we emphasise that

  • Businesses are free to increase prices as they see fit. Pricing decisions and strategies are at the discretion of business owners and managers; and
  • When making pricing claims, the ACCC guidance is that business owners have an obligation to ensure that any price related advice is “it is truthful and has reasonable basis”.

 Q. Is there any subsidised energy audits available to help businesses identify options and way for improving energy use and decreasing costs?

 

No there is not any Queensland based scheme providing subsidies of funding for energy audits. There are a number of organisations who do provide these services. Refer the the CCIQ website for a recommended list of energy auditors and brokers.

 Q. What support is being provided to accountants so we can help our clients meet their tax obligations and understand the carbon tax?


There are minimal to no additional tax obligations for businesses indirectly impacted by the carbon tax and accordingly there is no requirement for accountants to be subsidised for additional services.

Accountants and businesses should be aware of a few minor changes to the taxation scheme including:

1. The increase in the instant asset write-off scheme threshold to $6000 for small and medium businesses effective from 1 July 2012; and

2. The reductions/changes to fuel tax credit rates effective from 1 July 2012.

Information on both of these schemes/changes are detailed on the ATO website.

 Q. Will the 500 companies affected be able to offset their emissions?


Indirectly, yes there is opportunity to offset emissions across the economy.

The policy intent of the carbon pricing scheme is to put a price on the environmental impact of emissions such that companies begin to include this as a cost in their business planning and investment projections. In this way low emissions and energy efficient technologies and production processes will appear more cost effective over emissions/energy intensive technologies and production processes. This will then drive greater investment and a change across the economy towards lower emission industries/processes.

Companies can offset (or reduce) the impact of the carbon price by reducing their emissions and carbon footprint through energy efficiency and low carbon technologies and processes.

The Carbon Farming Initiative is an additional program which aims to reduce or offset carbon pollution. Farmers and land managers can create “carbon credits” by storing carbon or reducing greenhouse gas emissions on the land. These credits can be sold to people and businesses wishing to offset their emissions. Practices recognised by the government to reduce emissions include manure management in piggeries, establishing environmental plantings, capture and combustion of landfill gases and management of savannah fires.

 Q. Are there any reporting requirements for companies that are not the top 500 polluters?


No. Only those companies with a direct liability under the carbon pricing scheme are required to monitor and report their carbon emissions and energy usage.

Even if you supply goods and services to a company with a direct liability, you DO NOT have to report your emissions to that company or the government.

 Q. Will the top 500 companies be likely to ask their service providers and suppliers to report emissions so that they can be included in the total carbon tax bill?


No. Only those companies with a direct liability under the carbon pricing scheme are required to monitor and report their carbon emissions and energy usage.

Even if you supply goods and services to a company with a direct liability, you DO NOT have to report your emissions to that company or the Government.

 

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