Review of firms shows carbon-tax threat

When exporters are struggling with a very high dollar a new carbon tax on their energy inputs is the last thing they need, says Business New Zealand chief executive Phil O'Reilly.

He was commenting on the results of a study by PricewaterhouseCoopers of the impact of a carbon tax on the costs and profits of seven firms of small or medium size.

The firms were selected by Business NZ, the Seafood Industry Council and the Vegetable and Potato Growers Association, which commissioned the study. All are either exporters or have to compete with imports.

It is self-evident that a carbon tax would increase their costs, reduce their profit margins and erode their ability to compete with firms which face no similar imports, but the study quantifies those effects.

It looks at what difference a carbon tax would have made had it been in place in the past financial year or over the last three years.

The study assumes a tax of $25 a tonne of carbon dioxide equivalent, the level the Government has said the tax would be capped at until 2012, rather then the $15 a tonne level it has said would initially apply.

The businesses looked at are a greenhouse operation growing tomatoes, a brick and field tile manufacturer, a furniture maker, a foundry, a sawmill, a small fishing company and a large seafood producer.

It found their costs would rise in the range of 0.1 per cent, for the furniture maker, to 4.3 per cent in the case of the brick manufacturer. The average increase was 2.4 per cent.

The reduction in earnings before interest and tax (ebit) if the carbon tax had been in effect over the latest financial year ranged from 3 per cent for the furniture maker to more than 100 per cent for the brickmaker and the sawmill - that is, they would both have made a loss. Both of those companies burn lignite.

Over the last three years ebit would have been cut by anything from 2 per cent to 88 per cent. PricewaterhouseCoopers partner Julia Hoare acknowledges that generalisations cannot be drawn from the results, not only because of the small and select nature of the sample, but because they are a snapshot taken at a particular point in the business cycle when firms are already facing a high exchange rate and rising labour and energy costs.

"The difference is that the carbon tax is something the Government can do something about," she said.

The rationale of a carbon tax is to give a price signal to invest in cleaner technology.

Most of the firms were aware of technology that would increase their energy efficiency and reduce their emissions. But only one was considering such an investment - the furniture maker which said it was contemplating a co-generation plant fired by its wood waste.

Second thoughts

* The Government is having second thoughts about the policy package introduced three year ago to reduce emissions of the gases blamed for global warming.

* Its central plank is a tax on the carbon content of fossil fuels.

* The Government has promised United Future and New Zealand First a cost-benefit study before legislation to implement the tax is introduced.

* Business groups opposed to the tax commissioned a case study of the impact on the costs and profitability of seven firms.