Processing

Processors consider closure as escape from looming carbon tax

Jon Condon, 25/06/2012

 

Teys Australia has signalled its intention to consider temporary plant closure as a means of escaping the Federal Government’s looming carbon tax, which is set to cost the Australian processing industry millions of dollars each year.

Beef Central first floated the prospect of deliberate, short-term plant closures to escape the impact of the carbon tax in articles appearing late last year. See earlier articles including “Carbon tax could cost millions each year to big three processors." 

The tactic has greatest appeal for companies close to, or just above the 25,000 tonne annual carbon emissions threshold, but it represents a significant impost on productivity and cost efficiency, with fixed-costs being accrued regardless of whether a plant is operating, contacts said.

Teys spokesman Tom Maguire told Brisbane’s Sunday Mail yesterday that the company could shut its flagship Beenleigh plant temporarily to sidestep the tax.

“Any closure would be a short period of time – weeks, not months,” he told Beef Central this morning.

 “It would obviously be a last resort measure, but I find it ridiculous that the Government would leave us contemplating such a move at this stage,” Mr Maguire said.

Because the accounting period did not start until July 1, the reality was that such decisions would not be made until later in the financial year, when progressive emissions rates were better known, he said.

Teys Australia is one of 295 companies on a preliminary Government list to be charged $23/t for carbon emissions from July 1, after its output was estimated as being above the 25,000t threshold. Based on these figures, the tax cost at Teys’ Beenleigh plant will be at least $600,000 each year, and possibly considerably more.

But an enforced closure for several weeks could theoretically have the effect of lowering emissions at Beenleigh below the critical 25,000t mark, Mr Maguire said.

There would be a number of other Australian meat plants positioned somewhere near the 25,000t emissions figure that would be likely to consider similar measures, he said.

Another avenue open to some plants could be switching between coal and less efficient gas-driven power generation. As the new financial year progresses, some sites with access to both may manage the way their boilers are driven for carbon tax outcomes.

According to the National Greenhouse Regulator’s website, just four processor companies – Teys Australia, JBS Australia, Bindaree and Kilcoy – are registered as major emitters. This list is at odds with comments made by Minister Combet earlier this year that based on 2010 – 2011 financial year figures there were 11-15 beef processing sites in Australia close to, or above the 25,000t threshold.

While some plants have been reporting to the National Greenhouse Energy Reporting Scheme for some years because of their corporate size, other single-site processors have obviously fallen under that, but are still likely to be above the 25,000t figure from July 1.  

One industry theory suggests that if the tax continues in its current form, it could ultimately distort the annual maintenance closure period normally experienced in Queensland processing around Christmas/New Year to earlier in the year – perhaps seeing regular mid-year closures, for maximum carbon emission reduction effect.

Among the bigger players, the nation’s largest abattoir –JBS Australia’s Dinmore plant – is estimated to produce around 80,000t of emissions each year, meaning any closure for tax shelter reasons is out of the question. At that emissions rate, Dinmore would be liable for a tax of close to $2 million each year.

While the Federal Government continues to highlight the existence of its $1 billion Clean Technology Program providing grants for new equipment, technology and projects to reduce emissions, the program and its funding incentives has proved to be less than attractive to meat processors.

Currently, Federal Government assistance offers $1 for every $3 spent by the company for projects requiring +$10 million plus of assistance; $1:$2 for projects $500,000 to $10m in value; and $1:$1 for projects less than $500,000.

For bigger companies needing to undertake really significant abatement projects in any attempt to finish the year below the 25,000t emissions figure, the investment in carbon mitigation capital projects would be difficult or impossible to justify based on typical two-to-three year payback periods required by companies for such capital projects, a leading processor contact said.

“Many of these mitigation projects will have a 7-10 year payback period, which nobody is prepared to take on,” he said. “Many will never be able to substantiate such capital investment, given the current level of government assistance, or the lack of it. The payback is uncommercial.”

Instead of proceeding with costly mitigation projects that in some cases would never pay for themselves, many of the large-emitting processors would instead wait for the next Federal election outcome, before committing to investment.

The Federal Opposition says if wins the next election it will repeal the Carbon Tax legislation. However, this will require a double dissolution to gain control both Houses to get the legislation through. The alternative would be to reduce the tax to the global price of carbon offsets, currently around $6-8/t.

One of the major grievances large processors have against the carbon tax is that it is effectively a tax on efficiency, as smaller, less productive abattoirs are not directly exposed.

The Australian red meat industry from the July 1 new financial year faces an avalanche of cost pressures brought on by Federal Government policy – at a time when Australian beef is becoming increasingly less competitive against international competitors. Principal among these are full cost recovery in AQIS meat inspection fees and charges; the new carbon tax, which will directly impact larger processors, but also smaller ones to a lesser extent; and large increases in road-user charges which will impact on livestock transport costs.  

During his recent Beef 2012 address to industry stakeholders, JBS Australia chief executive JBS Australia’s new chief executive officer, Andre Nogueira said rather than improving its global competitive position against countries like the US and Brazil, Australia had in fact slipped further behind major beef export competitors (see story “JBS head calls for industry-wide focus on competitiveness”).

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