Processing

Govt carbon tax move has little direct bearing on beef

Jon Condon 30/08/2012

 

AMIC carbon spokesman, Tom MaguireThe Federal Government’s decision to dump its carbon floor price due to come into effect in 2015 will have little direct short to medium-term impact on the beef industry, stakeholders close to the carbon tax issue say.

The surprise announcement on Tuesday, interpreted by some commentators as a major back-down over the unpopular carbon tax, means Australia’s future carbon price will be set by the European market, which yesterday was trading at about $8 a tonne.

That’s almost three times less than Australia’s current three-year fixed price tax of $23/tonne for larger emitters, which is currently impacting all stakeholders across the beef industry either directly or indirectly.

The current fixed price carbon tax will convert to a floating price emissions trading scheme on July 1, 2015.

Only a week after claiming the floor price was a critical component of the government’s carbon pricing policy, Climate Change minister Greg Combet announced it would be dropped, following fierce lobbying by business and industry groups.

But in a move that will make it harder for a Coalition Government to scrap the entire scheme if it takes office after next year’s election, businesses will now be able to start buying low-priced European carbon credits to count towards their post-2015 liability.

Chairman of the Australian Meat Industry Council’s carbon tax working group, Tom Maguire, said the announcement meant nothing to the beef industry for the next two years.

“And after that, the answer is we don’t know,” he said.

“The issue for the beef industry remains that the Government is imposing a tax on us that is not being imposed on our key export market competitors in North and South America,” he said.

“This week’s announcement may at some future time affect the extent of that tax differential, but it does not remove the cost differential between Australian exporters and those in the US or Brazil.”

Mr Maguire said the US, particularly, showed absolutely no interest in addressing the global warming issue with a carbon trading platform, and the same applied in South America.

“There’s been plenty of political-speak, but the reality is in those countries, there is none.”

An interesting point would come when Europe started to recover from its current financial woes. A Federal Treasury forecasting model suggests a carbon price of $29 a tonne was likely to apply by 2015.

Mr Maguire said it was important for directly-exposed Australian processors to utilise the recently upgraded Federal Government grant funding (now dollar for dollar, instead of one-for two, or one for three) to put in place mitigation systems to either get plants below the tax limit of 25,000 tonnes in annual CO2 emissions, and secondly, utilising that energy to improve efficiency.

Carbon mitigation projects at risk?

Another processing source close to the carbon tax issue said this week’s decision was heavily driven by politics, rather than any global warming or carbon emissions ideal.

He said there were two main implications for Australian business.

The first was if the Government got rid of the floor price, and linked to the European emissions trading scheme, this obviously created risk of a processing plant’s mitigation projects being valued at the EU’s ETS – currently around A$7 to $9/t.

Effectively, for any processor costing their current mitigation project plans on the basis of the existing $23/t tax, their project could look a lot less attractive, financial investment wise, if under the ETS they were liable to pay much less.

The stakeholder said a move to a global price was ‘always going to happen.’

“You can’t run all these separate schemes independently, they are just going to fall over. There are arguments for and against linking with the EU’s ETS, but that aside, if the government removes the floor price of $15/t, it possibly takes the price to $7-$9, depending on the supply and demand of permits out of projects that qualify under the EU ETS.”

Asked whether the latest Government announcement meant that some processors would reconsider government-supported carbon abatement projects currently in the pipeline, Beef Central’s contact thought not.

“My take on the ETS issue is that these projects need to stack-up, financially, irrespective of the trading of permits.”

Nobody in the meat processing sector was going to bank on any of these projects delivering a voided expenditure under the EU ETS. That’s because meat processors are not currently considered by government as part of agriculture, meaning they cannot claim the credits. All processors can do is avoid expenditure, or liability on the tax.

“But linking with the EU ETS will certainly deliver less certainty over the future price of Australian carbon credit units, given the current ETS scheme price. European carbon brokers say it costs between $5 and $8/t just to go through the admin side of trading the certificates. That means the breakeven is somewhere around $5-$8 anyway.”

The long-term price of the EU ETS, because it is a market-based mechanism, would be dictated by supply and demand, he said. Currently, there is an over-supply of permits, coming from abatement projects in developing countries. For the ETS price to shift upwards, there either has to be a decline in supply of permits, or an increase in the demand.

Europe’s current financial state means it is unlikely to go full steam ahead any time soon, suggesting it is not going to be creating a lot of emissions, which will limit demand for permits. At the same time, there are more carbon abatement projects coming on-line in developing countries, under the Clean Development Mechanism, which will put more pressure on permit supply.

One way the Government was talking about controlling permit price was by restricting the ability of emitters in Australia to purchase particular types of permits – perhaps an Australian Carbon Credit Unit, or another form of unit that trades at a higher value.    

About four permit-liable Australian beef processing carbon mitigation projects look like being submitted to AusIndustry for the October round of Government funding assessments, with more to follow later in the year.   

      

          

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