Carbon Tax: All you need to know

It was back in 2007 that the Rudd Government commissioned noted economist Professor Ross Garnaut to compile a comprehensive report and suggested actions in relation to global climate change. One key aspect of the report’s recommendations was that in order to reduce carbon emissions – mostly carbon dioxide that results from the burning of fossil fuels such as coal and petroleum – such emissions should have a price put upon them, either via an emissions trading scheme or simply via tax.

The previous government under john Howard had indicated that they were in favour of an emissions trading scheme, and following Garnaut’s report, the Rudd government indicated consent too. The Gillard government, however, finally decided on a tax that will evolve into an emissions trading scheme, combining both options in one statute.

The idea behind the legislation is simple. The price on carbon is intended as an incentive for those that will pay it – nominally those who emit the highest level of CO2 – to change the way they do business. In theory it should encourage businesses to use or generate renewable energy, reduce energy consumption, implement technologies that will improve energy efficiencies and invest in renewable energy such as solar and wind.

The government’s intention is that the Carbon Tax is only to be paid by 500 top “polluters”, but statistics say that 47,000 truck businesses around the country will now be forced to pay it indirectly as well. From mid-2014, they will be charged directly.

So, how much will it cost us? The initial price on carbon emissions has been set at $23 per tonne, rising 2.5 per cent annually for the first three years. In 2015, the tax will then be replaced by an emissions trading scheme, allowing the “market” to set the price. Reportedly, the trade will also be influenced by “polluters” being able to purchase international offset carbon credits.

That may seem complicated, but similar arrangements that are already in place overseas seem to work. Canada, for instance, does not have a national scheme, but each of its provinces (states) does to some degree.

Back home, the first major change will come on July 1, 2014, when the diesel fuel tax credit will be reduced by 6.858 cents per litre, an amount calculated to match the 2014-15 carbon price of $25.40 per tonne. Business analysts expect the industry to face additional costs of $510 million in that financial year. From then on, the fuel tax may fluctuate as the Australian carbon price changes – fuel tax credits will continue to be reduced as the carbon price rises.

Australian transport operators would not have received this two-year breathing space were it not for the efforts of industry associations such as the ATA and the support of two independent MP’s Tony Windsor and Rob Oakeshott.

However, the exception does not include off road diesel users such as mines and railways. They became subject to the Carbon Tax as of July 1, 2012. These diesel users have had their fuel tax credit reduced by 6.21 cents per litre, which is consistent with the initial carbon price of $23 per tonne. Some say that this could result in a temporary price advantage for road transport over rail, as rail’s Carbon Tax obligation has come into effect two years prior to road transport.

Despite the delay, there will be an immediate impact due to cost of the tax being passed on by electricity suppliers, as the cost of electricity affects almost every aspect of how business is conducted in Australia. The extra cost of power to run fuel bowsers, recharge electric forklifts and light up the freight terminal will be reflected in every operator’s electricity bill when it arrives during the third quarter of this year.

Coupled with the separate 2.4 cents per litre rise on fuel tax that came into effect on the same date, this should have every transport operator seriously reviewing their costs and considering how to pass them on to their clients.

But be warned: even if the market is prepared to accept a freight rate increase, the Australian Competition and Consumer Commission will be on the alert for gouging. ACCC Chairman Rod Simms warned: “We are seeing some claims out there that are aimed at getting people to accept price increases that they would otherwise not accept”. He wasn’t necessarily speaking about the transport industry, but it was a timely reminder that a business must not make any representations about price rises due to Carbon Tax that are false or misleading.

One major operator, TNT Express, wrote to its customers in mid-June flagging a rate increase of 4.1 per cent as of July 1. TNT Express cited, “a number of external inflationary pressures which contribute to increases in the cost of supplying our services.” The letter went on to include their higher cost of labour and the increasing price of line haul services, but there was no mention of “Labor’s Big New Tax”, as the Opposition repeatedly refers to it.

The Federal Government, meanwhile, is spending up to $70 million on advertising related to the introduction of the Carbon Tax, but mostly about the support payments to low income households and those receiving government benefits.

The Energy Efficiency Information Grants Program, funded by the Federal Government, has made available $40 million for associations to educate and inform their membership about the impact of the carbon tax. To date, $20 million have been distributed, but none of it to the numerous road transport groups. There is a second round of grants in October, but the total amount is much less than what was spent on feel good advertising.

But, there are some direct measures to make the new tax more bearable – after all, families will inevitably feel the squeeze as those higher running costs hit the tills at checkouts. Compensation for employed people will be via cuts to income tax after July 1, mostly by way of almost trebling the tax-free threshold – the first portion of annual income that is not subject to income tax. For someone on $20,000 per year, this will equate to around $600 a year back in his or her pocket. Workers on $65,000 will save around $300 in tax. Incomes over $80,000 will see no appreciable tax cut.

To assist small businesses (those with an annual turnover of less than $2 million), the instant asset write-off goes from $5,000 to $6,500 for depreciable assets for the 2012-13 financial year. Experts agree that there are a lot of small truck operators who will derive this benefit provided they invest in new assets after July 1.

But, the real challenge has only just begun. Once road transport has come to terms with the immediate implications of the carbon tax, the next challenge, as with every other tax, is to legitimately minimise the amount of tax that needs to be paid. Obviously, fuel efficiency is the key to reducing the amount of Carbon Tax that is paid, hence identifying and acting upon efficiencies – including vehicle size, driving practices and logistics – is an important step in minimising costs. 

Add improved aerodynamics and the installation of low rolling resistance tyres to the list of considerations, as well as ethanol and biodiesel blends and hybrid engines.

While some say that a carbon tax also hikes compliance costs in an industry already strangled by red tape – don’t forget the administrative burden that comes with it – some argue that there no alternative to fight the climate change. “The introduction of a price on carbon in our economy and business sector creates the largest business opportunities since the dotcom days and will most likely dwarf the tech bubble when it goes into full swing over the next few years,” says Richard Nicol, Director of consulting firm Building Green Business.

“As a business owner, by measuring and reducing your carbon emissions you will become more competitive, reduce energy price risk and enhance your reputation in the ever-growing green market. Ultimately a price on carbon will reward businesses that embrace the opportunities and punish the dinosaurs who resist change.”

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