Editorial - The true cost of carbon emissions

On 16 July 2008 Senator the Hon. Penny Wong, the Minister for Climate Change and Water, released a Green Paper titled the Carbon Pollution Reduction
Scheme (CPRS). The CPRS introduces the Emissions Trading Scheme (ETS) which essentially puts a price on greenhouse gas emissions not currently priced in the Australian economy. The Government has confirmed plans to implement the ETS by 2010.

Of all the issues with climate change, one of the biggest challenges remains that reducing the carbon dioxide emissions of Australia alone cannot have any meaningful effect on the global problem of climate change. This really is the true “diabolical problem” as referred to in Canberra Professor, Ross Garnaut’s report. 

The implication of the CPRS is that the consequences of climate change are directly related to Australia’s carbon emissions. The sad reality is that there is nothing Australia alone can do to reverse or even decrease global carbon emissions. Australia contributes less than 2% of the world’s carbon emissions.  Six countries and the EU together account for the majority of carbon emissions, bringing in a combined effort of 75% between them. Without a global agreement, Australia’s futile effort is essentially inconsequential, apart from creating a risk of exporting jobs and emissions offshore.

Until now you may have been relaxed in your approach and barely even skimmed over the details of the CPRS, but be assured that all businesses will be impacted. While only around 1,000 businesses are estimated to have a direct ETS liability, the effect will be felt far more broadly through price increases from the affected sectors, such as electricity, gas and petrol, as they try to recoup their costs by passing them on to their customers. Indeed, this will impact more than mere businesses.  It has been indicated that petrol will be included in the ETS scheme from 2010, although the impact will be minimal in the first three years as the increase in price is offset by decreases in the current fuel excise. This effectively provides three years for businesses to prepare themselves for the price increase and how it will impact their bottom line. 

This is not to say we should ignore the move towards a sustainable economy, and many agree that the risk of doing nothing may be equally high.  While most Australians would likely agree on “doing the right thing”, it does not assist in softening the blow of the ETS which is arguably yet another indirect tax for consumers to wear. The Government is already considering the revenues the ETS will provide and the redistribution thereof throughout the economy. According to Professor Garnaut’s report, a disproportionate effect of the ETS will be felt by low-income families. The obvious solution to this is to pass the collected revenues to these families via the tax and social security system.

Notably, the Government has somewhat distanced itself from Professor Garnaut’s report, despite being the instigators of his research.  

It will be interesting to monitor the Government’s treatment of the revenue and expenses from the ETS. At this stage the details are largely unknown as the CPRS Green Paper does not contain any specific information, but is an outline for discussion only. As per general practice, businesses will have an opportunity to contribute a submission to Government. For those 1,000 businesses directly impacted, they will be writing one of the most important submissions they have ever prepared and without the benefit of any detail. At this stage we anticipate the Government will release its final decisions on the ETS before the end of the year.