The historic carbon tax passed without much fanfare recently.  You may be wondering how it will affect you and your business.

The details

The tax on carbon will come into effect on July 1, 2012 and will apply directly to 500 of the largest carbon emitters in Australia.  Under this tax, these companies will pay $23 for each tonne of carbon that they release into the environment. This price will then continue to rise at a rate of 2.5% per year above inflation up until 2015. After this point, there will be a transition to an emissions trading scheme where the price will be determined by the market.

Implications for businesses

For businesses outside of the top 500 carbon emitters there is likely to be both a direct and indirect cost of the new regime. In particular, the cost of inputs is likely to be influenced by a number of factors including:

• The level of the direct use of energy;

• The level of processing involved in producing the final product or service;

• Whether the product or service is predominantly completed in Australia or overseas; and

• The level of transport required and the type of transport used.

The exact effect on any entity will be dependent on the industry sector that the business operates in, the types of inputs used, as well as the ability to pass on those costs to customers. However, businesses most likely to be adversely effected by the new regime will be those:

• Less able to pass on an increase in their costs to customers; or

• Who have entered into long term contracts with little (if any) room to change the price over the period of the contract.

PJT Thoughts

We believe that the effect of a carbon tax on the thousands of businesses that operate in the middle market is not just an important question ‐ it is a crucial one. The middle market is the largest employer group in Australia and any increases in the cost structures of businesses in this market will have a direct effect on not just the profitability of these businesses, but also on the employment prospects of thousands of workers.

It is unlikely any of our clients will be classified as ‘polluters’ (and thus bear the direct cost of the proposed carbon tax). However, the carbon tax is not just an impost about which only our manufacturing clients need be concerned ‐ service industries (including accounting, law and financial planning) will also bear the indirect costs of the tax and thus, should consider becoming familiar with how the tax will impact their operations.

As a number of commentators have pointed out, the costs which are likely to increase as a result of a carbon tax include power supplies, information technology, manufacturing inputs, transportation and general travel.

Repairs and maintenance costs are also likely to increase as the design and operation of existing plant and equipment may need to be modified ‐ i.e. in order for it to become more energy efficient and reduce emissions.

In summary, in our view it is crucial that businesses consider the potential effect of the new regime on their operations well before 1 July 2012.

If you would like help to understand the complexities and implications of the carbon tax, please don’t hesitate to contact an expert at PJT on 5413 9300 or by email.