Business and consumers win as Australian carbon costs slashed

A study released today by carbon analytics firm RepuTex indicates that companies liable under the carbon price mechanism will pay up to 45% less than initially expected, with cost savings totalling over $10bn translating into significantly reduced carbon price impacts for Australian consumers and regional commodities buyers.

The RepuTex research analysed Australian carbon costs across the energy, metals and mining, power and materials industries, comparing the impact of a high carbon price initially modelled by Treasury, versus RepuTex’s more moderate carbon price estimates.

“Treasury has historically modelled a carbon price of upwards of $40, but this scenario is unrealistic in the face of low carbon offset prices in Asian markets. We anticipate the Australian market will hit a more moderate $8-15 level as we move towards 2020, well below Treasury estimates.”

According to RepuTex, this lower carbon price will lead to significantly reduced carbon costs for Australian businesses and significant savings for Australian consumers.

“Applying a more realistic carbon price we begin to see considerable savings for Australian businesses, with carbon costs to be on average 41% lower across the board.”

RepuTex Executive Director High Grossman commented, “This is good news for Australian business, particularly those in competitively constrained export industries such as coal and LNG; yet the real winners will be Australian consumers, as lower liabilities for companies mean that product prices will rise by far less than predicted.”

Once industry compensation and cost pass-through to consumers are taken into account, RepuTex forecasts the electricity sector will face a carbon bill 39% lower than Treasury forecasts. Other big winners include oil and gas producers, who face 45% lower costs, metals manufacturers and miners 40% lower, and materials manufacturers (including fertiliser and cement) 43% lower.

“This is a significant win for Australian consumers and for regional commodities buyers,” said Grossman.

RepuTex’s carbon price forecast considers downward pressure on European carbon prices beyond 2012, along with low offset prices from key Asian markets such as China.

“The international market for offset permits has dropped in recent years, with an oversupply of permits from developing countries coupled with low levels of demand, as economic activity in Europe has remained subdued,” Grossman continued.

“In Australia we forecast that the commencement of schemes in regional markets such as South Korea and China will bring increased demand for carbon offsets, so prices are unlikely to bottom out; however, it would take a dramatic policy intervention for the market to reach Treasury’s previously announced levels.”

While the news will be welcome to Australian business and regional consumers, RepuTex warns that prices won’t stay low forever.

“Ultimately, the future of the Australian carbon market rests in Asia, not Europe, and Asian policy is shooting ahead in major markets such as South Korea and China, so we do expect the Australian carbon price will eventually move north, but not for some time.”