The purpose of a price on carbon, whether delivered through a tax or an emissions trading scheme, is to increase the relative prices of high-emission goods, making comparable goods with lower emissions intensity more price competitive. The intended outcome is that people will buy fewer emissions-intensive products and businesses will respond by reducing the greenhouse gases they emit in getting their products to market.
Whatever your views are on a carbon price, it is an important issue for some (but definitely not all) businesses in Australia because it is aimed at changing business decision-making. CPA Australia members will therefore play a critical role in advising on and managing the impact of a carbon price (or alternative policies) on affected businesses. Some examples of areas in which members may provide advice on carbon pricing are:
- Assessing the impact of a carbon price on overheads and factoring that into pricing decisions.
- Assisting liable entities to comply with their carbon tax obligations, including verifying emissions.
- Factoring in a carbon price or increased input prices into the appraisal of investment options.
- Encouraging businesses to focus on cutting costs, like improving energy efficiency.
- Identifying and exploring opportunities that a carbon price may create, such as research and development into low-emissions technology.
- Promoting low-emissions products or exploring the costs and benefits of moving production to lower-cost countries.
- Advising business of the threats a carbon price can pose and presenting strategies to overcome or reduce those threats.
It is unwise to think the debate will just go away. Both main Australian political parties have policies to reduce carbon emissions by 5 per cent by 2020, so regardless of which policy is implemented it will have an impact on businesses and the business decision-making process. Only a small number of entities (possibly the 1000 largest emitters) will have a direct liability for a carbon tax or emissions trading scheme. However, other businesses will see an increase in the prices of some of their inputs, for example, electricity. For the vast majority of businesses, electricity is a minor component of their overheads, therefore such rises should not cause any material pressure on margins. However, it will have a significant impact for some businesses, so the question is whether they can pass on such costs to maintain their margins.
The ability of affected businesses to pass on such costs depends on several factors, such as whether a competitor produces their products in a country without a carbon price or produces their products in Australia more efficiently (say, with less electricity).
While a carbon price might, for instance, encourage businesses to improve their energy efficiency and invest in existing low-emissions technology to lower their overheads, for large-scale reductions in emissions to be achieved, new “clean” technologies need to be developed and deployed. While a carbon price may encourage businesses to undertake research and development into cleaner technology and, as demand for such technology will increase, significant independent and authoritative research says it would be foolhardy for the government to rely on a carbon price alone to encourage the research and development needed to cut Australia’s emissions.
CPA Australia has therefore argued for several years that the government should set aside part of the revenue it collects from a carbon price and use it to encourage research and development into low-emissions technology, and the early commercialisation and deployment of such technology. To encourage research effectively into low-emissions technology, CPA Australia has recommended to the government that it should implement a premium tax credit for research and development on low-emissions technology.
Gavan Ord is CPA Australia’s policy adviser, business environment.