Isra-Mart srl : Effects of a carbon price - debunking four myths

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Carbon is shorthand for CO2 and other greenhouse gases. These are the culprits in our atmosphere that are heating up our planet. If we do not cut down carbon emissions soon, it will become uninhabitable. In spite of this, there is continuing humbug from opponents of a price on carbon. The public don't know what to believe as unsubstantiated false claims from unions and corporations with vested interests come thick and fast. Four myths are debunked here.

Myth 1: 'A carbon price is a 'great big new tax' to extract more money from us'

To move to a clean energy, low carbon economy regulations must be changed and money raised to pay the substantial cost. Governments are the only institutions that can do this. A carbon price of up to $70 per tonne of CO2 is the lowest cost means of reducing emissions. For example subsidies that pay a premium for renewable energy such as the current subsidies for rooftop solar systems cost over $300 per tonne of CO2.
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Like the GST, a carbon price is a long overdue economic reform. Whether it is by carbon trading or fixed price, polluters will pay Government for emitting carbon. At $25/tonne of CO2, a price suggested as a likely initial rate, typical households would pay about $300 more annually for electricity and $200 more for fuel. However it is not simply a 'great big new additional tax' for two reasons. Firstly, as with the GST, increased energy costs will be offset by income tax reductions and rebates. The Government assures us that for the majority of taxpayers (low and middle income earners) the increased energy costs will be at least neutralized. Secondly, the main intention of a carbon price is to be an incentive for energy efficient lifestyles. People who do this can have more money in their pockets than they had without a carbon price.

Myth 2: 'It will destroy our manufacturing and the prices will go through the roof.'

Firms that claim price increases of more than a quarter of one percent due to the carbon price are likely to be 'gouging'. Energy comprises less than 2% of the costs of most service, manufacturing and retail industries. Electricity costs them around 18.5c per unit and fuel, about $1.50 per litre. For a firm with 2% energy costs, a $25 carbon price would:

* Increase the price they pay for electricity by about 2 c per unit or 12%.
* Add about 6c per litre to the price of fuel, increasing fuel costs by about 5%.

This computes to an increase in total costs of less than 0.25%. As one who has professionally assessed energy and emissions of dozens of companies, I know that most small - medium businesses could easily use 20% less transport fuels and 10% less electricity by implementing low or no cost efficiencies (<12 month payback time). In other words, most companies could pay the carbon price, implement energy efficiencies and still spend less on energy, which is precisely what the carbon price is intended to encourage.

Myth 3 'It will kill the golden goose of our resources sector'.
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Mining and agriculture use more energy than other industries. For a typical mining operation, transport fuels may account for about 5% of its costs and electricity another 5% (total 10%). A 6c per litre increase in the current diesel price (it is excise-free and costs them less than $1.00/L) would add about 0.33% to costs. These industries pay close to wholesale price for electricity, 6 – 7 cents per unit. With a $25/ t CO2 carbon price, their electricity price would go up 30% to 9c per unit adding less than 2% to total costs. With profits margins 10-25% common in the mining industry, a 2.5% increase in their cost of production is not going to break them.

From my experience in assessing energy use in mines, I know that most can save at least 10% on fuel and 5% on electricity by implementing energy efficiencies with payback times of less than 2 years. By radical redesigning of mines, replacing trucks and bulldozers with conveyor belts, slurry pipelines and cable skips, energy savings of 30% can be achieved. Such savings would more than negate the cost impact of a carbon price, as is the intention.

To do so would be to negate the price incentive to adopt renewable energy and energy efficiency. If compensation is to be provided, it should be by reducing taxes that are not related to energy, such as payroll tax and company tax.