Carbon Tax digestion process begins

As the country settles down with a cup of tea and an Iced VoVo to peruse through the Federal Labor Government’s new Carbon Tax it is interesting to take a look at some of the market reactions so far.

The Association of Mining and Exploration Companies came to the crease in an aggressive frame of mind swatting the first delivery to the boundary.

“There will be much pain for little environmental gain under the proposed carbon pricing regime,” The mining lobby group’s chief executive Simon Bennison said in an announcement.

According to AMEC the carbon price will combine with the fuel rebate reduction to result in a double taxation whammy to the mining and exploration sectors.

Bennison said the cumulative impact of the carbon tax and the proposed Minerals Resource Rent Tax will have a detrimental effect on the sectors’ international competitiveness.

“Whatever way you look at it, the Australian minerals exploration and mining sector will be faced with extra costs in doing business as a result of the carbon pricing mechanism,” he said.

“It is yet another financial cost on industry that has been the engine room of the Australian economy, and one that generates significant economic and social dividends for the nation.”

AMEC’s fears were echoed by clay and concrete product manufacturers Brickworks, which said it was disappointed with the Australian Government’s carbon tax proposal.

In an announcement to the Australian Securities Exchange Brickworks warned the market the new tax will negatively impact housing affordability by increasing building product prices in Australia.

“As a leading Australian producer of building products Brickworks has met or exceeded all pollution controls placed on it by the various State pollution control authorities,” the company said.

Brickworks said that over the last decade it has voluntarily reduced its carbon emissions by 40% through the closure of old, inefficient brick plants and investment in new plants such as Wollert West that is currently in the process of being commissioned.

The company said the primary impact of the Carbon Tax will be felt by its Austral Bricks division.

“The proposed $23 per tonne carbon tax would have an impact of $12.8 million on earnings before interest and tax ($9.0 million after tax) in its first year of operation, before any mitigation from further action to reduce emissions is undertaken by Brickworks,” the company said.

“It is Brickworks intention to increase prices to fully recover the cost of the tax with price rises of up to 6%.

“Under the proposed carbon tax, products that are classified as trade exposed such as steel and cement, will be heavily compensated, leading to price benefits when compared to clay bricks that will not receive any compensation.”

It has not been all bad news for the government as far as industry reaction goes with the Steel Transformation Plan to be introduced under the Carbon Tax umbrella being welcomed by the sectors affected.

Managing director and chief executive officer of OneSteel Geoff Plummer said the company held some reservations with originally announced carbon, due to the likely adverse implications it would have imposed on the industry’s competitive position.

“Steelmaking technology constraints mean there is little the industry can do to materially reduce emissions from its key manufacturing processes,” Plummer explained in OneSteel’s ASX announcement.

“This means that rather than act as a price signal to reduce emissions, the tax as originally announced would merely have been an additional cost burden not faced by our international competition.”

Plummer said the sector had been asking the Government to adopt a sectoral approach for the steel industry that realised the unique aspects of steel making technology and its markets in order to avoid damaging the competitiveness of the industry.

He said that the sectoral approach announced by Prime Minister Julia Gillard for the steel industry, including the introduction of the STP is both appropriate and sensible.

“We are pleased that the Government has responded by adopting this approach,” Plummer said.

“Through this sectoral approach, and in particular the announcement of the STP, our concerns about the adverse impacts of the proposed carbon tax on our competitive position have been recognised and substantially addressed, at least over the four year life of the STP.

“We also support the Government’s recognition of the need for appropriate review mechanisms to be available to address the merits of continued support at the conclusion of the four years, and also in the event we believe the impact of the carbon tax related to scope 3 emissions from coal are being passed through.”