Small business costs of emissions cuts unclear: Garnaut

A high-profile report on Australia’s response to climate change released yesterday has left open the prospect of compensation for small and medium sized businesses affected by any policy change.

The report, by economist Ross Garnaut, the head of a key review of climate change policy, argues that carbon emission cuts should go beyond the 60% by 2050 benchmark set by the Federal Government.

“Australia would be a big loser – possibly the biggest loser among developed nations – from unmitigated climate change,” Garnaut says.

But the report is less clear on how and to what extent small and medium sized businesses will be compensated for the increased costs many are likely to sustain in order to achieve massive cuts in emissions.

“The emissions trading scheme will need to be supported by measures to correct market failures or weaknesses related to innovation, research and development, to information, and to network infrastructure,” the report says.

Australian Industry Group head of environmental policy Peter Burn says while there has been a focus on larger business, which are the biggest emitters in sectors such as energy, metals, chemicals and plastics, big questions remain about how smaller businesses will fair in a low emission environment.

“A big issue is how to take into account the fact that costs will flow down the production chain,” Burn says. “A small metal fabrication plant that uses steel and aluminium has a reasonable energy bill of its own, and transport costs may well be energy intensive if you take indirectly their energy use, and the Garnaut report hasn’t dealt with that at this stage.”

Another key question for small and medium sized businesses is whether any compensation flows only to trade exposed industries – those that would lose business to other countries without emissions schemes – or also include those that for other reasons can’t pass on higher costs.

“There is an argument that if business should be compensated because they are trade exposed, others that will be similarly affected, because prices for their product are highly inelastic or face very intense domestic competition, should also be compensated,” Burn says.

But, he says, he is reassured by the fact that these issues are clearly on Garnaut’s agenda.

“This is just an interim report. We welcome this additional information, but these is a lot more work to be done and this won’t be the last word,” Burn says.