With the new carbon tax becoming law in Australia in 2012 targeting the worst polluting companies in the country to the tune of A$23 a metric tonne, which will rise by 2.5% a year until 2015, Australian manufacturing will have to find the extra money to pay the tax. This perspective explores what will be the impact on the manufacturing industry in Australia.
Under the scheme, any company that has a factory or plant that produces 25,000 tonnes per year will be required to pay the tax. It is estimated that this will equate to around 500 organisations initially. The Australian Federal Government expects that between now and 2020 the biggest contributor to the new tax revenues will come from electricity generators, certain types of manufacturing that are intensive producers of greenhouse gases (aluminium, steel, flat glass, paper particularly), and transport, with electricity generation expecting to contribute 50% of the new tax revenues. However, certain industries affected by the tax, with a reliance on exporting their goods internationally, will have access to government assistance in the form of free carbon permits. For the worst polluters affected, the free carbon permits will cover 94.5% of average costs.
The Australian financial markets responded to the announcement of the carbon tax immediately, with share prices of coal miners, steel firms, and airlines for example all experiencing falls, whilst prices for shares of those companies involved in green energy rose. Looking beyond the short-term impacts, those companies that are going to be forced to pay the tax will need to embark on two key strategies. The first is to reduce the amount of carbon they currently produce, and the second is to drive for ever greater efficiencies to offset the increased costs.
To this point, the desire for greenhouse gas emission reductions has mostly been driven from a corporate social responsibility perspective and viewed as a "nice to have" rather than essential. However, this has now changed, and greenhouse gas emissions now have a tax cost associated with their creation.