Carbon Tax FAQ for Residential Building

What is the Carbon Tax?
The Carbon Tax is the Federal Government’s platform for reducing carbon emissions. It essentially puts a ‘fixed’ price on the amount of pollution emitted.

When was it announced?
Prime Minister Gillard first announced the Government’s intentions to implement a carbon tax in February this year.  A detailed package outlining the carbon tax arrangements was subsequently released by the Prime Minister on 10 July 2011, confirming the carbon tax would be implemented from 1 July 2012.

Who pays the Carbon Tax?
The carbon tax will payed by around 500 facilities that emit more than 25,000 tonnes of carbon dioxide (CO₂-e) per year, or equivalent. But whilst the majority of Australia’s 7.6 million registered businesses will not directly pay a carbon tax to the Government, the effects will flow through to hit all consumers.

What is the Price for the Carbon Tax?
The carbon tax will start at a price of $23 per tonne CO₂-e from July 2012. It will increase to $24.15 in 2013/14 and $25.40 in 2014/15.

When does the Carbon Tax begin?
The Government requires legislative approval before the carbon tax can commence. It envisages that legislation will be passed within the next few months.  The proposed commencement date for the carbon tax is 1 July 2012.

Will the Carbon Tax be in place indefinitely?
No, it is envisaged that the fixed price carbon tax will transition to an Emissions Trading Scheme from 1 July 2015.

What is the difference between a Carbon Tax and Emissions Trading Scheme?
Under the carbon tax arrangements, around 500 facilities will pay the fixed price on their CO₂-e. However there is no limit on the amount of emissions.  Under an Emissions Trading Scheme the Government would set a cap on the total amount of emissions that can be released.  Emission trading certificates may be purchased by the heavy emitters to trade-off emissions above set limits.

What are the central features of the Carbon Tax?
The Government’s official carbon reduction target is for a 5% reduction in emissions below 2000 levels by 2020.

The Government estimates that the tax will increase the cost of living by 0.7 per cent in 2012/13, dominated by a predicted less than 0.5% increase in food prices.  Meanwhile electricity and gas prices are estimated to rise by 10% and 9% respectively.

How will it be implemented – for companies and individuals?
In terms of administration, the carbon tax will directly impact on around 500 companies, generally the largest emitters. Much of the impact will then flow through the manufacturing and supply lines to consumers in the form of higher prices. For example, coal fired electricity producers will pay a carbon tax directly to the Government for their carbon emissions. The additional production cost will in turn be recouped from consumers through higher electricity prices.

So the Carbon Tax will not be paid directly by consumers?
Not directly. But as the manufacturers and suppliers are charged higher electricity rates and face higher costs for their materials, the impact of the carbon tax will flow through in higher costs for consumers.

How will the Carbon Tax affect the cost of a house and land package?

Based on information released by the Government prior the 1 July 2011 announcements, HIA analysis indicated the increase in the cost of a house and land package due to the carbon tax would be $5000 - $6,000. The additional cost means a higher deposit for prospective homebuyers, a larger mortgage and consequently higher repayments over the life of a home loan. 

HIA is currently reviewing it’s modeling based on the details announced on 11 July 2012, and anticipates the final analysis will show an increase of between 1.2% and 1.4% across the cost of building material, products, assemblies and other inputs into a new home.

When will this be known for sure?
It is impossible to know for certain what the cost increase will be exactly. However, to provide the best possible estimate for members, HIA is analysing the flow-on cost increase for each building material, product and assembly used in a new house and land package, based on the details announced. The analysis follows each input though it’s various stages of production, manufacture and fabrication and the fuels used at each stage (electrical, gas, coal, oil). It models the energy consumption, embodied carbon and cost increase, based on the bill of quantities for HIA’s Standard House design, to determine a realistic estimate of the aggregate cost increase. HIA’s final cost estimates will be available shortly and will be posted online.

How will renovations be affected?
As the cost of materials rises so too will the cost of doing renovations and improvements to homes. Until more is known about the pricing, it is difficult to say at this stage by how much. HIA will provide more information as it becomes available.

Will industries be compensated?
In terms of businesses, the level of compensation varies significantly, with small and medium sized businesses receiving no compensation of substance.

Most building materials have high levels of carbon intensity – particularly bricks, tiles, concrete slabs, steel, timber and aluminium.  The manufacturers and suppliers of these and other building inputs will be hit hard by the carbon tax.  In some cases businesses will close and in other cases jobs will be lost.  There is compensation for some of these businesses – ranging from relatively generous (but not full) compensation for some producers to zero compensation for others.  The compensation element is highly complex, and unfortunately there will be some major losers, most notably the smaller and medium-sized building product manufacturing and fabricating businesses.

What is known about concessions and compensation at this stage for various industries?
High “emissions-intensive, trade-exposed” (EITE) entities (eg aluminium, steel, flat glass, zinc, and pulp/paper producers) will receive a 94.5% concession in the first year, reducing by 1.3% per year.

Lower EITE entities (eg plastics and chemicals) will receive a 66% concession.

For small businesses with an annual turnover less than $2m, the existing “instant asset write off” has been extended from $5000 to $6500.

Non-EITE manufacturing businesses will receive no benefit or concession.

A $9.2b “Jobs and Competitiveness Program” is to broadly support EITE manufacturing, (including a $300m steel transformation plan).  Non-EITE businesses will receive no benefit from these measures.

A “$10b Clean Energy Finance Corporation” will be set up to administer commercial funding products for clean energy projects over the next 5 years.

As the Carbon Tax will ensure it costs more for builders to construct a dwelling though increased manufacturing costs – will the builder pass on these costs?
Unlike the GST which applied a 10% tax immediately to every transaction on the same date, under the carbon tax the cost of building materials, products and assemblies will increase progressively as they pass through the various production phases – some faster than others. HIA is advising members they should therefore factor in increases in the cost of inputs on projects expected to continue over the transitional period - around the proposed 1 July 2012 implementation date – and beyond.

What about fuel costs?
The Carbon Tax will not affect fuel costs for households and trades, however many businesses that currently receive the fuel excise concession will lose an equivalent amount of that concession. For example, non-road transport such as earthmoving machinery will face an effective increase in the cost of diesel equivalent to 6.21 cents per litre.

Member Alert: How the Carbon Tax will apply to Residential Building (pdf 123kb)