Exporters faces carbon profit squeeze

Australian exporters could be big losers under a carbon trading system, unable to lift prices in overseas markets and with little offered by the Federal Government to compensate for increased costs.

Australian exporters could be big losers under a carbon trading system, unable to lift prices in overseas markets and with little offered by the Federal Government to compensate for increased costs.

The business community broadly welcomed the carbon trading scheme plan outlined in the Green Paper launched by Climate Change Minister Penny Wong yesterday.

“The Green Paper on the proposed carbon pollution reduction scheme ticks the right boxes and shows the Government has heard many of the central concerns raised by business,” Australian Industry Group chief executive Heather Ridout says.

It proposes that compensation in the form of financial assistance and free emissions permits should be offered to trade-exposed, emission-intensive businesses such as aluminium producers.

The Government will also provide compensation to low and medium income consumers in the form of tax breaks and increased welfare payments.

For most small and medium sized businesses, that will mean they will be able to pass on increased energy costs to cashed-up consumers in the form of higher prices.

But the bulk of exporters could be left to fall through the cracks. All but the largest will miss out on compensation, and most will have little or no capacity to increase prices in overseas markets that fall outside the carbon trading scheme.

The only prospect for assistance is a mooted “climate change action fund”, but the eligibility criteria and support available to business from the fund is unclear.

In the absence of compensation, exporters will be forced to take a hit to their profit margins, Australian Institute of Export executive director Ian Murray says.

“It’s a big bad world out there, and most exporters are price takers, not price makers,” Murray says. “Prices are determined by people outside of Australia, so if they face increased costs here that will skinny their margins and force them to cut back on things like promotion overseas.”

Murray argues exporters should receive some compensation for increased energy costs – electricity prices are forecast to increase by up to 16% – that they will face under the scheme.

“Where there are additional costs, we need to be cognizant that they are competing in international markets where pricing is out of their control. If that makes Australian companies less competitive there has to be some compensation for that,” he says.

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