Drill & Blast

Carbon tax to hit fuel excise in quarries

The Federal Government?s carbon tax is not expected to tax small and medium size quarry operations for their emissions but may drive up fuel prices and lead to some customers reducing production and importing their building products (eg cement). 

The Federal Government?s carbon tax is not
expected to tax small and medium size quarry operations for their emissions but
may drive up fuel prices and lead to some customers reducing production and
importing their building products (eg cement). That is according to comments
and predictions from other members of the construction materials industry.

When the carbon tax commences on 1 July,
2012, facilities that emit more than 25,000 tonnes of carbon dioxide (CO2)
will pay a fixed carbon price of $23 a tonne for the first three years. The
carbon price will increase annually (to $25.40 by year three) before an
emissions trading scheme with a flexible carbon price is introduced on 1 July,

While the tax will apply to the nation?s
500 biggest polluters, the impact of the tax will be felt across industry. For
off-road use of fuel in the mining and quarrying sectors, there will be a 6.21
cent rise per litre in the diesel fuel tax (effectively negating the diesel fuel
rebates for the resources and extractive industries). By comparison, other
sectors, including agriculture, fisheries and forestry will still be able to
claim a 38 cent rebate on diesel purchases. The trucking and heavy vehicle
industry will initially be exempted from the fuel excise for the first two
years of the scheme but will also have its rebate reduced by six cents a litre
in the 2014-15 financial year.

To offset some of these price rises, the
Federal Government will provide a range of mechanisms to businesses for
assistance over the first three years of the carbon pricing scheme. This
includes a $9.2 billion Jobs for Competitiveness Program that is targeted at
emissions-intensive trade-exposed (EITE) industries that produce a lot of
pollution but are constrained in their capacity to pass through costs in global
markets. High EITE industries will receive assistance to cover 94.5 per cent of
industry average carbon costs in the first year while less EITE activities will
receive 66 per cent of industry average carbon costs. This assistance will be
reduced by 1.3 per cent each year to encourage industry to cut pollution.

The Government will also deliver a $1.2
billion Clean Technology Program, over and above the Jobs and Competitiveness
Program, to help directly improve energy efficiency in manufacturing industries
and support research and development in low pollution technologies.

The EITE industries to emerge the biggest
winners from the package have been oil, gas, steel, cement, aluminium and zinc
manufacturing. Steel will receive an additional $300 million in compensation
over and above the Jobs for Competitiveness Program, which effectively exempts
it from the scheme, while coal miners are set to receive $1.3 billion in
compensation. While cement manufacture is acknowledged as a high EITE industry
and will receive the 94.5 per cent credits under the Jobs & Competitiveness
Program, steel will nevertheless receive additional support over other sectors
that it competes with domestically that are facing identical pressures.




Ken Slattery, the CEO of Cement Concrete
and Aggregates Australia (CCAA), said the cement industry was entitled to question
the apparent favouritism given to steel. ?One of the lines of argument that was
put forward for giving the steel industry specific support was that it was
facing challenges from the high dollar, it was facing weak and inconsistent
construction markets and it was a high emitting product,? he explained. ?These
are exactly the same issues that are impacting on the cement industry as well.?

Mr Slattery said he expected that most of
the major cement companies would be required to pay the carbon tax, although it
would be ?a very narrow base in the industry?. He did not expect that quarries
or concrete companies would be included in the scheme but predicted that
because of the higher fuel costs, ?the cost pressures on the industry will
increase and that can certainly translate into a need for what is already a
very competitive industry to look at its returns and how it will effectively
manage that.

?One of the impacting issues is certainly
going to be the reduction in fuel tax excise. While the impacts of a six to
seven cents a litre reduction in the first three years of operation of the
scheme may seem relatively modest, the industry is a major user of fuel and the
industry will not be in a position to absorb that sort of cost.  There is also a level of uncertainty
about what happens after that. Will we have any excise arrangements in place at

Other members of the construction materials
industry have warned that the carbon tax may force them to scale back
production within Australia and consider importing some building materials. In
an interview with The Adelaide Advertiser, Adelaide Brighton?s managing
director Mark Chellew warned that the company will now consider manufacturing
less cement
 in Australia and importing more product from overseas. He said the
company would attempt to cut costs in other areas of its operation by altering
production measures but that there could be job losses as it reduces local
production and imports more.

?In light of the impost of the proposed
carbon tax and the strong Australian dollar, Adelaide Brighton will continue to
evaluate its domestic footprint compared to the potential enhancement of import
flexibility,? the company said in a statement.

Mark Selway, the chief executive of Boral
Ltd, said that while Boral was still assessing how it would be affected, he was
critical of the Government?s approach. ?As a matter of principle, we believe
that climate change is a global problem that requires global solutions,? he
said in a prepared statement.

?We believe that imposing a carbon price on
Australian manufacturing, while overseas producers are not taxed, will
inevitably result in local production being moved off-shore, which will mean a
loss of Australian jobs.?

Penrice Soda Holdings, the owner of South
Australia?s largest marble and limestone quarry and the only manufacturer in
Australia of soda ash, also said that the carbon tax would erode its estimated
net profit by $6 million in the first year of the scheme without Government
assistance. Talking to IndustrySearch, Penrice?s managing director Guy
Roberts contended the carbon price was an ?unfair tax on Australian manufacturers
and exporters?.

?We are concerned that the proposed carbon
tax fails to shield Australia?s export sector and would leave Penrice at a
disadvantage to international competitors,? Mr Roberts said in a statement. He
added it was essential that Australia?s contribution to the global effort was
proportionate to the actions of its international competitors so as not to
damage important trade-exposed businesses.

Ken Slattery said that while he had not talked
with Adelaide Brighton or the other parties cited above, he understood that
they were ?simply recognising that the economics of importation improve,
particularly with burdens that apply locally that do not apply internationally and
with the scenario of a high dollar.?. He warned that in the case of cement in
particular, ?unless south east Asia and north Asia have a similar carbon tax in
play, the industry can become progressively uncompetitive. One of the questions
that needs to be asked is: ?Is it good for Australia to maintain a domestic cement
industry?? I think most people should say the answer to that is ?Yes??.

Even with the Federal Government providing
funds for clean technology programmes and other initiatives, Mr Slattery stated
that the new carbon pricing scheme still did not recognise that the cement
industry had ?already done a lot to improve its environmental performance. The
scope for further reductions in CO2 in cement, while not
impossible, is limited. Most emissions arising out of cement production relate
to the chemical reaction that goes on ? you actually can?t change that. So the
limit to which the industry will be able to reduce its emissions is




Ken Slattery said that the Cement Industry
Federation (CIF) have been consulting extensively with Government and he
expected that CIF and CCAA will make submissions to the Federal Government,
although he conceded that the process that occurred in the Multi-Party Climate
Change Committee will limit the prospect for changes to the scheme.

?There is no doubt that this is a very
complex and comprehensive proposal and I don?t think there is any particular
way that people can avoid being subject to the impacts of it,? he commented. ?I
think there will be pass through of costs from upstream operations. We are
going to see some further significant increases in electricity costs, so
flipping between liquid fuels, gas or electricity is not a solution. They will
all be substantially impacted. We are still trying to understand exactly how
this is going to operate but we would expect this may be a difficult transition
for the industry to come to grips with and we will be providing as much advice
as we can as to what those impacts actually are.?


Sources: The Age, Adelaide
, Boral Limited, Cement Concrete Aggregates Australia, IndustrySearch

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