SME manufacturers will be hurt by emissions trading scheme: report

A study commissioned by the Australian Chamber of Commerce and Industry has found that the introduction of the Rudd Government’s Carbon Pollution Reduction Scheme would hurt profitability by 4-7% and force companies to cut labour costs by 3-12%.

The study, completed by consulting group Castalia Strategic Advisors, provides a snapshot of 12 firms in a range of manufacturing sectors.

ACCI acting chief executive Greg Evans says the study focused on manufacturing firms because they are likely to be hit hardest by the introduction of the CPRS, due to their relatively high levels of energy use and the fact they are “trade exposed” – that is, they are either exporters or competing against importers.

“Our concern is that manufacturers are necessarily trade exposed, therefore the capacity to pass on cost increases such as the CPRS will be more limited, particularly if their competitors – our trading partners – don’t face the same requirements,” he says.

While these firms will obviously be hit by rising energy costs, the study has also tried to examine some of the indirect costs, such as higher freight costs.

It quantified the average labour costs pressures on four manufacturing sub-sectors as follows:

• Food processing SMEs would need to reduce labour costs by 4.4% (under a “low” CPRS scenario) and by 8.1% (under a “high” CPRS scenario).
• Plastics manufacturing SMEs would need to reduce labour costs by 7.4% (low CPRS) and by 12.9% (high CPRS).
• Chemicals manufacturing SMEs would need to reduce labour costs by 1.8% (low CPRS) and by 3.2% (high CPRS)
• Machinery and equipment manufacturing SMEs would need to reduce labour costs by 1.8% (low CPRS) and by 3.0% (high CPRS)

Evans emphasises that the study is only a snapshot, but argues that is does provide an insight into how SMEs will be hurt on a firm-by-firm basis.

The consultant’s report suggests a number of solutions by which the Government could compensate affected SMEs, including tax credit arrangements and allocating free emissions permits to SMEs during the transition period, following the introduction of the CPRS.

Evans says the ACCI does not have a fixed view on these options, but is keen to use the report to engage in further dialogue with the Government.

“SMEs are the engine room of the Australian economy, employing approximately 64% of Australia’s private sector labour force and producing nearly 50% of Australia’s domestic output. However, public policy debate on the CPRS since last year has been concentrated almost exclusively on emission-intensive, trade-exposed industries, coal-fired electricity generators and on consumers.”