The recent change in Federal Government has ushered in a new period of complexity in Australian climate policy. The key platform of the coalition government’s Direct Action Plan is the repeal of the Clean Energy Act 2011 (and its associated regulatory framework), which has been seen as a significant barrier to the international competitiveness of Australian agribusiness. When and how will the change come about and what is the likely effect of this change to Australian agribusiness?
The Carbon Tax and its impact on Agribusiness
On 15 October the recently elected Federal Government published draft legislation to repeal the Clean Energy Act 2011 (and its associated regulatory framework) (the Act), which introduced the carbon pricing scheme, more commonly known as, the “Carbon Tax”, on 1 July 2012.
Whilst Australian agribusiness, of itself, is not required to purchase and surrender emission units under the existing Carbon Pricing Mechanism (as agricultural emissions are excluded from this scheme), it is arguable that the sector has been indirectly adversely affected by the Carbon Tax through increased costs of inputs; primarily electricity, domestically produced fertilisers and diesel.
The recently elected Abbott Government campaigned heavily on the basis that the introduction of the Carbon Tax led to a 10 per cent increase in the cost of electricity bills and a nine per cent increase in the cost of gas bills on average across Australia. On this basis, the Government argues that the repeal of the Act will mean that prices will return to their pre-existing levels.
Is the Carbon Tax dead?
The Government hopes to repeal the Carbon Tax by 1 July 2014. The Clean Energy Legislation (Carbon Tax Repeal) Bill 2013 and 10 associated bills have already been passed by the lower house setting up a potential clash between the Government and the Opposition (with the support of the Greens) in the Senate.
The Labor Party and the Greens have indicated that they will not support a repeal of the carbon pricing mechanism, unless it is replaced with a market-based emission trading scheme. Given the combined power of Labor and the Greens in the Senate, it is possible that the Government will not obtain Senate approval to repeal the Carbon Tax until after 1 July 2014 (when the new Senators will take up their position within the Senate).
If the Carbon Tax Repeal Bills are not passed until after 1 July 2014, it is unclear if the Government intends for the legislation to operate retrospectively to meet its election promise deadline (although the current form of the draft legislation does not contemplate its retrospective application). It is more likely that if the scheme could not be repealed before the proposed 1 July 2014 deadline, that either some abridged compliance period would ensue, or the scheme would continue for a further full compliance period until June 2015.
What is the cost of the repeal?
The repeal of the Carbon Tax, when it happens, will come at a cost to the budget bottom line. The mid-year economic and fiscal outlook released by the Treasurer, Joe Hockey put a $13.7 billion price tag on the repeal of the Carbon Tax and its related measures. Once other measures (such as business compensation, land initiatives and the dissolution of the Clean Energy Finance Corporation) are implemented the net cost to the budget will be $7.4 billion.
Is the Carbon Price actually to blame?
Various commentators have questioned the efficacy of the repeal legislation. These commentators have noted that there has been little evidence to demonstrate that the carbon price itself has had any direct impact on electricity prices.
This is because any change in price is also dependant on other economic and market factors such as operating costs, terms of trade, demand and the extent to which businesses choose to pass on the carbon price (which, in turn, is affected by a range of economic factors).
Where does this leave agribusiness?
It is hard to anticipate what, if any, effects the repeal of the Carbon Tax will have. If it does result in decreased costs of inputs, it is likely that these will take some time to trickle down to end-users. Either way, given the likely battle to be played out in the Senate, the industry is unlikely to feel any alleviation in competitive pressures any time soon.
Author: Stephen Natoli and Jarod Sack.
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