NZ Business Assesses Impact Of Australian Carbon Tax

by Mary Swire, Tax-News.com, Hong Kong

16 August 2011

The dangers of making hasty comparisons between the carbon schemes of Australia and New Zealand based on carbon price alone are highlighted in an independent report carried out for BusinessNZ entitled ‘Australia’s carbon pricing policy – what does it mean for New Zealand business?’

The report, written by Frazer Lindstrom and Alex Sundakov, considers what Australia’s new scheme means for New Zealand businesses, and concludes that investment certainty in Australia is undermined by the political risks and design of the scheme. It says that whether the Australian scheme will be legislated is unclear, and its longer-term durability is moot.

“Even if durable, the structure of the scheme is more heavily reliant on carbon revenue being raised, which increases the on-going risk of government intervention through price controls, changes to shadow carbon pricing in the transport sector, and other mechanisms,” say the authors of the report.

Lindstrom and Sundakov say that simplistic comparisons between the two country's carbon schemes based on carbon price alone are inappropriate. However, they posit that due to its narrow coverage and high compensation, the Australian scheme is likely to have a lower impact on business competitiveness and business practices compared to its New Zealand counterpart.

The New Zealand and Australian schemes require different corporate risk management approaches according to the report, which goes on to suggest that the differences in the schemes present a challenge for New Zealand businesses with Trans-Tasman operations or those who are looking to invest in Australia.

“For the Australian businesses, access to the New Zealand ETS is likely to create opportunities for a greater range of permits to be imported, and hence, lower the cost of compliance. By contrast, for New Zealand businesses, integration with the Australian market could lead to higher prices (because of increased demand) without any offsetting benefits of the kind enjoyed by the Australian firms, or environmental benefits,” the report states.

“Given that the Australian policy is continuing to evolve on an almost daily basis, including demands from various State Premiers for more compensation, it is hard to draw firm conclusions about the effects on New Zealand businesses. However, on current design, it appears that the announced Australian scheme makes integration with the New Zealand ETS less likely,” the report concludes.

The commencement of New Zealand’s emissions trading scheme on July 1 has already caused price rises for consumers, and drawn substantial criticism of its method of operation.

The ETS, which was finally passed in parliament in November last year, had been subject to amendments. Entry dates were then delayed to July 1 this year for the transport, energy and industrial sectors and January 1, 2015 for agriculture, while a transitional phase was also established from July 1, 2010 until January 1, 2013 in which emitters will only have to meet 50% of their obligations.

Under the New Zealand scheme, those who emit carbon dioxide into the atmosphere from a vehicle, power station or factory will pay NZD12.50 (USD8.60) per tonne. However, those who plant trees and absorb carbon dioxide receive NZD25 per tonne.

Australia has set its carbon price at AUD23 (USD24) per tonne, but the levy has initially been restricted to just 500 large industrial businesses, and several compensation measures have been put in place by the government to limit the impact on smaller businesses and individuals.

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