BACKGROUND BRIEFING THE CARBON TAX WHAT IT MEANS FOR AGRICULTURE AND COTTON

Transcription

1 BACKGROUND BRIEFING THE CARBON TAX WHAT IT MEANS FOR AGRICULTURE AND COTTON

2 TERMINOLOGY Abatement: The actual reduction of greenhouse gas emissions. Offsetting: Locking carbon in soils or trees, to balance emissions released elsewhere. Greenhouse gas (GHG) emissions: Release of gases into the atmosphere that absorb and re-emit infrared radiation, contributing to trapping heat in the earth s atmosphere. The major greenhouse gases are carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons and sulphur hexafluoride. Mitigation: A human intervention to reduce the sources of, or enhance the sinks for, greenhouse gas emissions (e.g. biochar and tree planting). Carbon equivalents (CO2-e): A measurement developed to be able to compare the six greenhouse gases. It expresses the effect of greenhouse gases relative to the heating capacity of carbon dioxide. The Kyoto Protocol: A legally binding agreement under which industrialised countries reduce their collective greenhouse gas emissions by 5.2% compared to 1990 levels. INTRODUCTION The Gillard Government, on Sunday 10 July 2011, announced the full details of its Clean Energy Package for delivering reductions in greenhouse gas emissions through: A price on carbon Promotion of innovation and investment in renewable energy Encouraging energy efficiency and Creating opportunities in the agriculture sector to cut pollution, improve productivity, sustainability and resilience An economy-wide price on carbon emissions is expected to incentivise businesses and families to lower emissions and invest in clean energy (i.e. a market-based approach). Complementary targeted investments will also support this, create opportunities for agriculture and fund compensation for the impacts of price rises and threats to jobs and competitiveness. The Opposition continues to maintain a direct action (regulatory) policy that would be funded through cost savings to the budget, using measures designed to deliver long term carbon abatement or mitigation through behavioural change in consumers and business. The purpose of this document is to provide growers with a basic background on the carbon price and Clean Energy Package and its implications for agriculture and the cotton industry. It will also highlight what Cotton Australia is doing to understand, shape and respond. INTERNATIONAL CONTEXT Given that two thirds of the total Australian farm produce and 98% of our cotton is exported, the international context is important to Australian agriculture. International agreements (i.e. the Kyoto Protocol) and laws have been established to set targets for reducing greenhouse gas emissions. Countries around the world have implemented a large number of different policies for this based on a range of mechanisms. Many have adopted sector-specific policies that primarily target electricity generation and road transport. The recent review by the Productivity Commission (PC) found that some countries apply cross-sectoral policies similar to that proposed by the current Australian Government. Whilst at this stage economy-wide carbon taxes don t appear to be implemented elsewhere, they are being considered and the value of this mechanism as a lower-cost option for achieving abatement has been highlighted in the PC inquiry. There also appears to be few emissions-reduction policies in other countries that apply to the agriculture sector, at this stage. This reflects a global awareness of the special needs around agriculture and the sensitivities about creating adverse impacts on food and fibre production.

3 AUSTRALIAN SITUATION The agriculture sector in Australia contributes 15% of our nation s total emissions, which in 2009 was million tonnes CO2-e. 60% Australian Emissions Produced (2009)** 50% % share of total 40% 30% 20% 10% 0% Stationary energy Agriculture Transport Fugitive emissions Industrial processes Landuse, land use change, forestry Waste AUSTRALIA = Mt CO2-e/yr *, ** Agriculture = 84.7 (15% of total) ** Residential = 54.7 (10%) * Cotton industry = 0.87 (0.15%) *** Average household emits 14t CO2-e/yr^ A typical cotton farm emits t CO2-e/yr *** The Australian Government has committed to reducing carbon pollution, setting targets # to reduce carbon emissions by: At least 5% below 2000 levels by 2020 (requiring reduction of emissions of 152 Mt) 80% below 2000 levels by 2050 (requiring reduction of emissions of 897 Mt) In the absence of action (i.e. in a business as usual scenario), Australia s annual emissions would rise to 690 Mt CO2-e/yr by Sources: *Department of Climate Change and Energy Efficiency (2011), National Inventory by Economic Sector 2009 **Department of Climate Change and Energy Efficiency (2011), National Greenhouse Gas Inventory Accounting for the Kyoto Target December Quarter 2010 ***AFI report for cotton and national area irrigated cotton for 2010/2011 # Australian Government, The Treasury (2011), Strong Growth, Low Pollution Modelling a carbon price. Licensed from the Commonwealth of Australia under a Creative Commons Attribution 3.0 Australia Licence. The Commonwealth of Australia does not necessarily endorse the content of this publication. ^Australian Bureau of Statistics (2009) Australian Social Trends, March 2009

4 THE CLEAN ENERGY PACKAGE AND A PRICE ON CARBON A key component of the Clean Energy Package is a price on carbon, to be applied as a tax from 1 July, This will initially be a fixed price specified by Government at $23/t, to continue for 3 years rising by 2.5% per year, before transitioning to a market-based emissions trading scheme, similar to the CPRS. It will mean around 500 of Australia s largest emitters will be required to pay for their carbon emissions. Liable businesses will need to buy and surrender to the Government a permit for every tonne of carbon dioxide they produce. Carbon Tax Details and Agriculture Key to understanding the implications of the new Clean Energy Package for agriculture are the following details: Direct emissions from agriculture are excluded from a carbon price Fuel used for agriculture will not face a carbon price or an equivalent carbon price through cuts to fuel tax credits as will be applied to some businesses Opportunities for agriculture to deliver carbon abatement and mitigation will be created through $1.7 billion of funding including over $400 million over 6 years in carbon mitigation R&D and extension. The Carbon Farming Initiative will also be used as an opportunity for farmers to undertake work that earns them carbon credits, tradeable for cash Food processors (e.g. for dairy and red meat) will be provided with some funding support to transition to low emissions technology. Tax Impacts for Agriculture Under a carbon price, as major companies (such as electricity generators) start having to pay for their emissions and some businesses incur a carbon price from fossil fuels, these costs will be passed on, increasing the price of energy and transport for consumers. Agriculture is highly dependent on energy and transport and farmers are limited in their ability to pass on cost increases, given that generally they are price-takers in an international marketplace. Therefore additional costs are likely to impact on farm profitability. The exclusions and opportunities for agriculture announced under the Clean Energy Package, however, will lessen the effects of this. Based on recent research by the Australian Farm Institute (AFI), the average Australian broadacre farmer will incur an additional $1,500 a year in costs under a carbon price of $23 per tonne (and with fuel excluded), reducing net farm income by 2.4%. Tax impacts for Cotton The Australian Farm Institute (AFI) has recently analysed the potential impacts of a carbon price mechanism on the profitability of farm businesses in Australia, under different commodities and scenarios. Cotton Australia funded the development of a report for cotton, The Impact of a Carbon Price on Australian Farm Businesses: Cotton Farming. The key points are outlined in this section, and a full copy is available on the Cotton Australia website at IMPORTANT DETAILS ON FUEL Under the Clean Energy Package, carbon arising from fuel will be treated in the following ways: Agriculture, fisheries and forestry will not pay a carbon price on fuel use Households and light commercial vehicles (4.5t) will not face a carbon price on fuel for transport Some businesses that currently pay excise on fuel used off-road will face an effective carbon price through changes to the current fuel tax regime (e.g. 6c/L off fuel tax credits). This will not apply to agriculture Heavy on-road vehicles are exempt from a carbon price but the Government intends to apply the effective price from However, this will not be included in legislation to be put to Parliament as agreement was not reached on this measure A review is to be conducted by the Productivity Commission into fuel excise arrangements

5 WHAT WILL IT COST? The AFI modelling has shown that a model 400 ha irrigated cotton farm is expected to incur total annual cost increases of 0.6%, amounting to $9,243 in additional annual costs and resulting in a reduction in farm net income of 2.1%, in the first year under a $23/t price. This includes both additional on-farm (including transport of cotton from farm to gin) and post-farm gate (ginning and transport to port) costs, both contributing almost equally to the total cost increase. Post-farm gate costs have been assumed to be fully passed back to the farm business. Whilst these are not directly incurred by the grower, it is anticipated that they will be passed back in the form of higher processing costs and/or lower prices. Costs arise from an increase in the price of energy passed on by businesses directly impacted by the carbon price. This will increase the cost of energyreliant farm and processing inputs, e.g.: Electricity used on-farm and for ginning Gas for ginning (drying) Fertiliser and other farm chemicals If a carbon price is then imposed on heavy vehicles from , as the Government intends, costs could rise. Cotton businesses could, at year five, experience a total annual cost increase of 1.2%, amounting to $18,003 additional annual costs, and a reduction in farm net income of 3.2%. On-farm additional costs would comprise 60% of the total cost increase. The Agriculture Sector s Response to the Carbon Tax The National Farmers Federation (NFF) are opposed to the carbon tax on the basis that it will leave Australian farmers less competitive in both domestic and international markets. There is concern that even with agriculture s direct emissions excluded, and with concessions regarding fuel and R&D funding, the extent of cost increases are likely to be difficult to bear. This comes at a time when global food production is a vital concern, and in light of the fact that Australian farmers are price takers who have already worked hard to deliver productivity and environmental outcomes that benefit communities. In addition, whilst they broadly support the Carbon Farming Initiative as an opportunity for offsetting the sector s emissions, the NFF see that agriculture will still remain affected by a carbon tax. The NFF has welcomed the concessions for agriculture which reflect positions they have advocated for, but remain concerned about some aspects of the Government s announcement, particularly: The government s intention to apply the fuel tax credit arrangements to the heavy on-road vehicle industry from , and The announcement of a Productivity Commission review to look at fuel excise measures which may threaten current arrangements for agriculture. The NFF would be looking to maintain current excise system where farmers aren t required to pay excise on the off-road component of fuel. This is considered to be fair given that this vehicle use has no impact on public road infrastructure.

6 What is Cotton Australia doing about it? Cotton Australia has remained engaged in this topic with government, the NFF and industry researchers, to understand and convey implications for cotton businesses to growers and to inform policy discussions. Cotton Australia has used these opportunities to also highlight the positive work of the industry on GHG mitigation and abatement the subject of R&D and BMPs for energy and input efficiency. A key piece of work has been the development of the AFI report on the impacts for cotton businesses under a carbon price. Cotton Australia funded this independent research and provided industry data to inform the modelling (which included the Cotton Comparative Analysis for 2006 commonly known as the Boyce report) and recent research on energy use and emissions in cotton production and processing. As the Government sets out to implement its carbon price, Cotton Australia will continue to be involved in the issue to ensure industry is informed and policy decisions have minimal impacts. In line with the NFF, Cotton Australia will seek to maintain agriculture s exclusion, along with fuel for agriculture given the results of AFI analysis which has shown the additional costs this would place on growers. Whilst we are fully aware of the impact of a carbon price on farm profitability, we also recognise that the past has proved cotton growers are innovative in the face of challenges. Securing additional funding for R&D is a priority and will support the industry in moving closer to its goals around energy efficiency, through R&D and BMPs. Timeline The Government s intention is to introduce the legislation for the Package in the Spring sittings of Parliament this year (2011). Subject to the ability to negotiate agreement with a majority in both houses of Parliament and pass legislation later in 2011, a carbon price would then commence on 1 July There will be a number of opportunities to comment on the proposal before the legislation is introduced (e.g. inquiries or consultation on exposure drafts), through which Cotton Australia will be involved. Cotton Australia will also soon deliver a related Background Briefing covering the opportunities for agriculture under the Package, including the Carbon Farming Initiative and R&D. This will also address sources of GHG emissions in cotton and opportunities for mitigation and abatement. FOR MORE INFORMATION Phone: Fax: E: talktous@cottonaustralia.com.au