MARKET WATCH: How is the Carbon Tax likely to impact my Business?

In a Snapshot:

A Carbon Tax is coming and there is no practical experience with which to cushion its impact. Likely most businesses and your people and their families will be effected. The tax is being introduced to reduce Australia’s Carbon Dioxide emissions, which currently total 1.4% of global emissions.

It is a discriminatory tax aimed very much at australia’s cheap coal power generating industry, which will affect us all.

It is important to get facts and substance on the issues, not be swayed by emotion and spin, if you are to prepare your business.

Be as efficient as you can; take hard decisions sooner rather than later.

Key Issues:

At BizExchange, we expect this to be one of the most asked questions over the next 6 months.

Purpose of the Carbon Tax

First then, what is Government trying to achieve with this Carbon Tax? The minority Labor/Green/ Independent Coalition Government, rightly or wrongly, believes they want to achieve a reduction in “Carbon Pollution”. What exactly is that? “Carbon Pollution” is a term the Government and its Advisers use to describe anything entering the atmosphere containing Carbon Dioxide, that is a result of manufacturing, refining, or usage of fossil fuels. So, Power Generation, much Mining, Commercial Aircraft, Factory Exhausts, Shipping, all Transport emissions are carbon dioxide makers.

Basically, the Government believes if you can increase the cost base of the companies in these so-called polluting industries, the response will be increased prices, and, over time, other less polluting technologies will dominate, with a desired decrease in “Greenhouse Gas” emissions.

Australia’s Carbon Polluting Footprint

Just how bad a Polluter is our Country? In the whole of the Carbon Debate, this is perhaps the most fundamental piece of information needed to make an informed response. It is also the hardest to get people to provide. Well, here it is: Australia produces 1.4% of the World’s Carbon Emissions! This is NOT a mis-print, nor mis-information, it is THE FACT: 1.4%.

Will Australia’s Carbon Tax help reduce emissions, and hence reduce temperatures? Yes: by 0.00005 of 1C!

Clearly then, Australia is NOT a top polluter, and in fact, if we switched off the entire country, it would make NO SIGNIFICANT difference!

Costs & Outcomes for Business

ABC’s “The Drum” journalist, Annabel Crabb, recently aptly named the 500 companies to be targeted for their polluting as the “Misfortune 500”, and for them the impact of this new Carbon Text will be direct, and straight to the bottom line. They will have either to get efficient or get out! That is after they have raised their prices, which clearly could effect your business.

Assuming you are not in the “Misfortune 500”, then the degree to which your business will be impacted will come down to your own Carbon Footprint, that is what inputs you have that require carbon emitting energy, whether it be electricity, transport, etc. Measuring these additional costs is not yet possible, and this inability to estimate is a major problem with introducing a whole new tax! No one has any experience on which to build.

Impacts maybe gradual but direct, such as increasing electricity costs, or subtle and indirect, such as increased costs for products and goods, which arise because to produce those involves greater energy costs.

The best outcome your business is likely to feel is being able to increase your charges to cover at least some of the increased costs caused by the Carbon Tax.

Government Bureaucracy

We should not forget in all this that the Government is going to absorb $382 million of the tax raised to administer the scheme. That’s probably something like 2,000+ new Public Service jobs!! Maybe there will be some good outsourcing or consulting work here, if that’s your thing!

Inconsistencies & Exemptions

Thanks to pressure from the Independents, the Trucking Industry, the least efficient way of moving stuff, will be exempted from the Carbon Tax. Railways, a relatively efficient way to move particularly Passengers and Commodities, will not, and will be therefore disadvantaged! As well, the Petroleum Refining Industry, an energy hungry machine, will also be exempt, so individuals will not be charged more for fuel at the bowser.

Compensation

Where a co-ordinated backlash is expected, there will be compensation. As for the claim that “90% of households will not be worse off”: that will, no doubt, depend on the extent that they depend on jobs and incomes from negatively effected businesses.

Business Plan Implications

For those who are used to preparing detailed Annual Business Plans for running their businesses, or to underpin various financial facilities and arrangements, it gets more complicated. As there are few other countries with a Carbon Tax, and none with a Carbon Tax across the whole Country, there is no REAL, anecdotal evidence, of the flow through effects onto the supply sides of businesses. Yes, there is modeling, but no experience.

As we all know: Planning in a vacuum is neither good nor easy. If this is where your business is, you will have to plan and estimate very carefully.

Uncertainty & Other Risks

By far and away the most toxic effects of the Carbon Tax will come from the Uncertainty, [with a capital ‘U’!!] that arises from the confluence of a Labor/Green/Independent Minority Government, a Green balance of power in the Senate, the exemptions, the set up of the Administration for the Scheme, how many, [and how soon?], Carbon rich jobs get exported off shore, and how vocal people and companies are about Compensation realities.

Bottom Line:

The seat belt sign is definitely ‘ON’, and turbulence is ahead!
The most important thing to do is see that your business is as efficient as you can make it. If there are ‘hard decisions’ to be made, make them now!
Understand the issues. Pray for an early election.

About Collins Street Group Pty Ltd

Boutique investment banking group specializing in small cap corporate advisory and underwriting activities together with pre IPO fundraising for resource and technology companies in particular.
Website: www.collinsgroup.com.au