SmartCompany’s quick guide to the Garnaut report

According to most commentators, the release of the Ross Garnaut’s Climate Change Review on Friday is set to herald some of the biggest economic changes in a generation.

According to most commentators, the release of the Ross Garnaut’s Climate Change Review on Friday is set to herald some of the biggest economic changes in a generation.

It’s clear from Garnaut’s review that the Australian economy and society will be in big trouble if it fails to curb greenhouse gas emissions, but figuring out exactly what the report means for your business is not easy.

To help, we’ve compiled a quick guide that will give you some early answers to some of the big questions around the Garnaut report.

I don’t have time to read the 600-page Garnaut report. What did it say in a nutshell?

The report sets out to do two things. First, it warns how bad things could get by the end of the century if Australia does nothing on climate change – the Murray-Darling Basin would be almost barren, the Great Barrier Reef would be destroyed; skiing in Australia would be a thing of the past, Australia’s annual economic output would decline by 4.8% and real wages would be slashed by 7.8%.

Second – and most importantly for business – Garnaut recommends the establishment of an emissions trading scheme (ETS) by 2010. The scheme will involve organisations that produce greenhouse gasses being forced to buy carbon permits.

He recommends that half of the money collected from selling carbon permits should be used to compensate low-income households, about 30% of the proceeds should go to help energy-intensive, export-exposed industries and about 20% should be spent on research, development and commercialisation of low-emission technologies.

How will the emissions trading system work?

The proposed ETS will involve the creation of a total cap on the level of greenhouse gas emissions that Australia will allow. The Government will then set a limit on greenhouse gas emissions produced in individual organisations; any company that produces greenhouse gasses above that limit will have to buy carbon permits.

Garnaut proposes that the permits be sold at a fixed price in the first two transition years of the ETS and then via auctions after that.

Does that mean petrol prices are going to rise further?

It sure looks that way. Garnaut says that to be effective, the ETS needs to involve as broad a range of industries as possible, and petrol must be included.

Whether the politicians have more to say about this remains to be seen.

Sounds like there are still plenty of things to sort out.

Sure is. The size of the total emissions cap remains unknown, as does the limit under which businesses will be exempt from buying permits. The price of a carbon permit is still to be determined and the potential cost of the ETS still needs to be worked out. Clearly the implantation of the ETS will have huge impacts on inflation and economic conditions and the business community is desperate to see Treasury’s full modelling on the economic impacts.

Which industries will be most affected?

The energy, transport and materials sectors (big manufacturers) are likely to be hardest hit. Agriculture will also be affected, but Garnaut has recommended that sector be exempt from the ETS for the first two years.

It appears it will mainly be big companies in the gun, and ratings and research firm RepuTex has a warning for large emitting S&P/ASX200 stocks. It says the ASX200 accounts for approximately 23% of all Australian emissions. Out of this total, the top five emitting stocks (energy company AGL, miners Rio Tinto and BHP Billiton, steel maker Bluescope and airline Qantas) account for 49% of the S&P/ASX200 footprint.

So will it impact small businesses?

While most small businesses will be exempt from direct participation in the ETS, there is no doubt that a wide variety of costs – particularly electricity, gas and petrol – will rise substantially.

There will also be more pressure on all companies to demonstrate sustainable work practices. Already some big companies have asked suppliers to measure and report on their carbon footprint and you can expect these sort of demands to increase.

What should I do now?

There’s not too much you can do right now as there are still so many questions about the mechanics of the ETS to be answered.

If you’re keen to get something of a head-start, it is probably worth thinking about your carbon footprint and how you might measure and reduce it.

What happens now?

The economics team at ANZ helpfully set out this basic timetable for the establishment of the ETS:

SmartCompany will be following the establishment of the ETS and how it will impact on small business very closely, so stay tuned over the coming months for more updates.

Read more on greenhouse gas issues, emissions trading, the Garnaut review and carbon footprints