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When it’s black, it’s probably Carbon.

The carbon pricing mechanism starts on 1 July 2012. The Government estimates that an average family will pay $9.90 more per week in the first year of the scheme’s introduction. There is a plan for households to not be disadvantaged and for rebates to be paid to households. It seems that we have seen a lot of publicity about it but not a lot of facts on how it is to work or what we need to do.

The plan is for clean energy to be encouraged with a cost for carbon emissions. Carbon emissions result from manufacturing and energy generation and fuel use. Carbon emissions are seen as a major factor in climate change and global warming and as the decade from 2001–2010 was the warmest on record there is considered belief in global warming. If we reduce our carbon emissions then it is believed that the worst effects of climate change can be avoided.

As a way to reduce carbon emissions there is to be a carbon pricing on the emissions. Carbon will be priced at $23 per tonne rising by 2.5% each year until 2015. Carbon emissions are being measured and the biggest polluters will therefore pay more for the greater carbon emissions from them. The idea is that if it costs more, then businesses will want to find a way to reduce the cost, and reduce their carbon emissions.

A number of industries already report their carbon pollution. Industries will work out their liability for payment on each tonne of carbon pollution emitted from the level of carbon emissions. The carbon pricing scheme will impose costs on big polluters, which will result in higher end prices for certain products.

So how do you measure carbon emissions? There are a number of calculators on the Internet, for various industries, the use of energy, the use of fuel and so on. The carbon emissions from your business are the sum of each of those individual components. There may, however, be offsets to the carbon emissions of your business. If you undertake an activity that reduces greenhouse gas emissions, such as forestry activities, energy efficient projects or renewable energy, then there will be credits to your business and will reduce the carbon emissions for which you are responsible. Internal changes and recycling may also reduce your carbon emissions.

In addition, carbon offsets may be traded from industries or businesses that reduce carbon emissions, including such businesses that involve projects in renewable energy, energy efficiency and reforestation.

The carbon pricing will result in a significant amount of money being raised and it is proposed that this be spent largely on assisting households and small business so that they are not worse off, and also to be spent on renewable energy projects. The proposal is for the carbon pricing not to be a tax on households or small business but to be on large polluters.

So how could this affect you? Businesses need to be aware that the carbon tax may affect them in two ways – both that they may be responsible for paying the tax as a result of their business activities, and that their suppliers may be paying the tax and want to factor it into their pricing, so supply contracts and prices may change.

While it may be tempting to simply increase your prices to cover the impact of the carbon tax, it is important to make sure that your contracts allow you to do so, and that you are complying with the ACCC’s requirement that any “carbon tax” based price increase is actually due to that reason not simply an increase for the sake of an increase.

Watkins Tapsell can assist you with reviewing and updating your contracts, or with any disputes you may have in regard to the carbon tax so that you are ready for this change.