We have all been told that the carbon tax has been designed to help restructure the economy with the aim of using less energy and lowering the amount of carbon dioxide (CO²) generated. However, as the July 2012 deadline looms recent surveys show that less than 50% of Australian companies are actually prepared for its introduction and this percentage is even lower if we only look at small to medium enterprises. Without adequate preparation the adoption of the Carbon Tax will become incredibly costly for businesses.

How do we turn this around? Firstly it is important to understand what exactly the Carbon Tax is. Let’s explode a few myths:

 It’s not a tax.

 The carbon tax is not really a tax at all but a system that requires organisations to purchase permits to account for their emissions. Any business that generates greater than 25,000 tonnes of CO² or equivalent CO² greenhouse gases (e.g. methane or hydroflurocarbons) must “buy” permits from the government. The cost is $26 per tonne for the CO² each organisation generates. The CO² generated from burning petroleum fuels will be levied at the “refinery gate” and changes will be made to the Fuel Excise legislation to reflect this.

The government expects that the cost of these permits will be passed onto consumers and have consequently created compensation packages that will be delivered through the PAYG tax system. After two years, the permit system will be replaced by a market in which carbon credits (created through carbon reduction schemes like tree planting) can be bought and sold. In this discussion we will refer to this system the “carbon tax”.

While much political capital seems to be made of the approach, the intent is to encourage the major CO² producers to reduce the amount of carbon dioxide they generate – and like it not it is going to happen.

 How do we prepare for the impacts of Carbon Tax?

 You could do nothing and wait for the costs of your inputs to increase and hope your competition are in the same position. Or, you could choose to adopt approaches to reduce or eliminate your various CO² inputs and maintain or even increase your competitive advantage.

 Most companies will choose to focus on one of three key aims in their approach to preparing for the Carbon Tax;

1.  Reduce your business’ carbon footprint
2. Reduce your usage of carbon inputs
3. Reduce costs

 Assessment

Regardless of which of the above strategies your business chooses to focus on, your first step will need to be an assessment of your current carbon inputs. CO² or carbon inputs refer any materials or activities such as electricity or fuel, used in your business that will be impacted by the tax.

 You can examine the cost of your carbon inputs by simply identifying your business inputs and then classifying them as a CO² input or a non CO² input. There are a number of organisations that can assist you in completing an assessment.

 In the examination process you will also need to look into that input’s supply chain. For example, a finished product which requires a large amount of electricity to be produced will be classified as a high CO² input even if that input does not burn carbon itself.

Once you have identified the CO² inputs to your business you then must assess how much of an impact these inputs have to your business and then how much it will cost you to reduce the use of these inputs.

With the pending July 2012 deadline looming it is the time to think about the Carbon tax and ways to be prepared.  Understanding Carbon Tax and how it can affect your company is the first step to being able to adopt a plan to will be most cost effective for your business.