Low polluters could be hurt most

Sydney Morning Herald
Tuesday 30/9/2008 Page: 23

COMPANIES with relatively low carbon emissions could suffer the most under an emissions trading scheme, through cost increases passed on from suppliers, private sector research shows. Although heavy polluters have dominated the debate over Government assistance, consultants from Business Development Partners say higher prices for carbon-intensive goods could shave up to 48 per cent off pretax profits of companies further down the supply chain.

The findings come as Professor Ross Garnaut releases the final report from his climate change review today. The report will include Treasury modelling on the economic impact of a carbon pollution reduction scheme. Carbon-heavy industries such as aluminium will be cushioned by free permits to emit carbon, but the effect of carbon pricing on sectors without such assistance is uncertain.

The study said a carbon price of $20 a tonne could translate to $11.5 billion in extra costs for business - or 9.6 per cent of pretax company profits - based on 2006 figures. This increase was equivalent to petrol rising to $2.65 a litre,it said, compared to recent levels of about $1.55. Construction businesses could be the hardest hit, with carbon costs eroding 48 per cent of the sector's pre-tax profits. Prices of building materials would rise sharply because of their high carbon intensity, and competition between builders would prevent them passing on these costs to customers, it said.

"The construction trade services are a large consumer of steel, concrete and wood products, all of which are emissions intensive inputs to produce and transport," the report said. "The introduction of a carbon price will see an unprecedented shift in the economics for companies in many industries as a result of these changes in input prices." Makers of other consumer and commercial goods - such as electrical appliances, textiles and mining machinery - could also be exposed to carbon costs worth between 18 per cent and 44 per cent of pretax profits, it said.

Last month Professor Garnaut said the Government should aim to cut Australia's 2000 carbon emissions by 10 per cent by 2020, which sets the carbon price at $34.50. But 16 Australian scientists from the United Nations Intergovernmental Panel on Climate Change are calling on the Prime Minister, Kevin Rudd, for more aggressive cuts. The Government will indicate the pace at which it intends to cut emissions by the end of this year.