The biggest barrier to the introduction of the carbon tax is the fear of the unknown. And it appears that for a majority of businesses the carbon tax is a great unknown, and consequently they believe the worst.
Yesterday, climate change minister Greg Combet in an interview with Ian Henschke of ABC Adelaide Mornings had to deal with a barrage of questions about how the carbon tax would impact households and businesses. After Combet had patiently explained that much of the electricity price rises that were occurring were due to rising network infrastructure charges, he got hit with the following:
Henschke: Well I can assure you Mr Combet that at the local deli that I go to, the shopkeeper has got a sign up there and his telling everyone the price of pies will go up because of a carbon tax. So -
Combet: Gone up by how much?
Henschke: Well he's going to say they are going to go up by 8 per cent.
In looking at the lifecycle analysis data around the carbon emissions involved in food production I can’t for the life of me work out how a pie could be going up by 8 per cent, unless cow’s methane emissions were covered by the carbon price – which they’re not. Yet I suspect this deli example is not an isolated case. A range of small businesses think that they will be heavily punished by the carbon tax and feel a sense of injustice that they won’t be receiving any free permits to compensate them.
It appears it’s because the newspaper told them so rather than any in depth understanding of how the carbon price will flow through to their input costs.
A recent survey of 1,043 SMEs by accounting software firm, MYOB, asked the question: ‘how well do you understand what the impact will be on your business?’ In all, 42 per cent of those surveyed said ‘not very well’ or ‘not at all’. In addition, a further 4 per cent responded with ‘don’t know’. Only 17 per cent felt they understood the impact of the carbon price ‘very well’.
This aligns with a range of other surveys that have been conducted over the last few years which all illustrate that outside the very big emitters, most businesses have done very little analysis of how the carbon price will impact their business.
For example, the Australian Institute of Management undertook a survey in 2008 of CEOs and senior business executives which found that 8 per cent of all respondents indicated they had no knowledge of the upcoming carbon trading scheme and 80 per cent stated they had only some or little knowledge of it.
PriceWaterhouseCoopers undertook a survey in April 2009 of chief executives from 151 Australian businesses which found “only 23.8 per cent of businesses surveyed are comprehensively prepared for the introduction of the CPRS [the acronym for the carbon trading scheme at that time], while 22.5 per cent have done nothing at all to prepare.”
The reality is that for the vast majority of businesses, particularly SMEs, the carbon tax will represent almost a rounding error in their operating costs. That is because energy – which is where the carbon tax will have the greatest impact – represents less than 3 per cent of input costs for most of these businesses and the carbon tax will represent an increase in energy costs of about 10 to 20 per cent. So the end result is 0.3 to 0.6 per cent.
Come July a lot of businesses will be very pleasantly surprised by how uneventful the carbon tax really is.