Carbon hot spots - Australia's emissions intensive industries

10 Jul 2011Archived News Climate Change Matters

Treasury modelling has indicated a modest overall impact of a one off 0.7% for ordinary households. Yet the emissions intensity and degree of compensation will determine the actual carbon impact. As a first step, Energetics has analysed a snapshot of ASX listed companies on a revenue basis. This analysis examines emissions intensity of Australian operations without considering compensation. This directs focus to sectors that will be impacted.

The main sectors that will be impacted by the introduction of a carbon price are:

  • Steel: BlueScope and OneSteel
  • Oil and Gas: Woodside, Santos, Origin
  • Mining: Iluka, Newcrest, Rio Tinto, BHP Billiton
  • Construction (e.g. Cement): Boral, James Hardie
  • Transport: QR National, Asciano
  • Commercial and Retail: Dexus Property Group, GPT Group

Each of these sectors are discussed in more detail below.


  • Steel competes with international markets and is trade exposed to imports, thereby has limited ability to pass through increased costs (e.g. from carbon); the industry also has limited technological opportunity to reduce the carbon intensity of steel production.
  • BlueScope is more exposed to a price on carbon due to their blast furnace technology – older steel manufacturing processes compared to the electric arc furnaces operated by OneSteel (refer to emission intensity/revenue graph).
  • The carbon price will have a significant impact on the steel industry; however, the competitiveness of the industry, as a minimum in the short to medium term is supported by compensation at high levels of assistance through the Jobs and Competitiveness program (starting at 94.5%). This as well as an additional $300M Steel Transformation Plan to assist with increasing efficiency and economic sustainability.

Oil and Gas

All onshore and offshore facilities will have a direct permit liability under the scheme.

  • Emissions from a LNG facility will be eligible under the EITE compensation for 66% assistance
  • LNG projects (including emissions upstream from the LNG facility) will also receive a supplementary allocation (or floor compensation) to ensure an effective assistance rate of 50% in relation to project emissions from their LNG production each year.
  • Where a facility is operated by an Unincorporated Joint Venture and no one person has operational control over the facility, the emissions liability for that facility will instead be allocated between the joint venture participants in proportion to their interest in the facility.
  • Companies will have indirect liabilities through the reduction in fuel rebates ~6c/l (or ~$22-$23 equivalent) for shipping from July 2012.
  • Adjustments to fuel tax credits and excise will be annual during the fixed price phase and then every 6 months during the flexible price phase, which may have implications for accounting for rebates for vessels with large fuel holdings
  • The strong emphasis on shifting domestic base load electricity from coal to gas through the shutting of 2000MW of coal fired electricity is likely to increase demand for domestic gas as it is the most likely base load replacement investment. The accelerated investment in renewable energy and requirement to increase the resilience of the grid to renewable energy should further improve the prospects for gas generation projects.
  • Domestic gas sellers will need to review contracts of sale for carbon pass through as they will be required to purchase permits upstream and incorporate it into their sale price. They may also be forced to sell to large users with no permits through the use of an obligation transfer number. As a transitional arrangement, retailers will be required to accept an OTN quotation where natural gas is supplied under a contract entered into before the Royal Assent to the legislation and where the natural gas is to be used as a feedstock or where more than 25,000 tonnes of CO2-e per year are attributable to the natural gas supplied under those contracts.

Mining and resources

  • Cost of fuel used on-site will increase by 5-6% as a result of the carbon price. This represents a significant proportion of most mining operations’ emissions profiles.
  • Miners have the opportunity to shift towards bio-fuels (ethanol, biodiesel and renewable diesel) which are exempt from a price on carbon.
  • Transportation by rail will be subjected to a carbon price from the commencement of the scheme on 1 July, 2012, irrespective of whether the trains are powered by electricity or diesel.
  • Heavy on-road transport costs will also increase when details are finalised from 1 July 2014.
  • A carbon price will not apply to transport fuels when used as lubricants and solvents.
  • Opportunities for alternative energy generation, particularly onsite generation such as wind-bio-diesel hybrid systems, are increasingly cost competitive and should be considered in mine planning.
  • It should be noted that within the mining and resources sector (and within individual companies), there are various emissions intensive activities that will receive either 94.5% or 66% assistance at the beginning of the scheme in order shield them from the full price of the carbon they emit.


  • The cement industry is highly emissions intensive and therefore very exposed to a carbon price.
  • This industry is a significant emitter, particularly from the calcination reaction in the cement kiln. Emissions intensity is driven by chemistry which makes it extremely difficult to address and deliver the same product.On average, each tonne of clinker results in the emissions of 0.96 tCO2-e and so the direct impact on the costs of production will be ~$1.21 per tonne.
  • For these reasons, over the longer term the industry will be significantly impacted by the introduction of a carbon price. In the short term, the impact on the industry will be moderated by significant Jobs and Competitiveness assistance (94.5%).


  • In a Clean Energy Future, transport is accounted for by an equivalent carbon price through the changes in fuel tax credits, or excise. A carbon price will be applied to domestic aviation, domestic shipping, rail transport, and non-transport use of fuels.
  • The government will seek to establish an effective carbon price for heavy on-road liquid fuel use from 1 July 2014.
  • Transport fuels will be excluded from the carbon pricing mechanism for the first two years of the scheme.

On-road and off-road fuel tax

  • A carbon price will not apply to on-road fuel use for the first two years of the scheme.
  • From 1 July 2014 a carbon price will apply to heavy on-road vehicles, although agriculture, forestry and fishery industries will still be exempt.
  • Off-road business fuel usage will incur an effective carbon price; this will be incurred through a reduction in fuel credit entitlements an amount equivalent to the carbon price. As with on-road usage, agriculture, forestry and fishery industries will be exempt.

The following table shows the respective fuel tax credit reductions over the first three years of the scheme.

Commercial and retail

  • Increased indirect liability through increased energy costs for property owners. Owners and managers need to ensure appropriate pass-through clauses are present in lease arrangements (dependent on legislation).
  • Opportunities for additional revenue generation through the National Energy Savings Initiative (NESI), with the detail yet to be released.
  • Existing buildings that improve energy efficiency will be eligible for the $1B Tax Breaks for Green Buildings Program.
  • Small business instant asset write-off increasing to $6,500 (contingent on Minerals Resource Rent Tax) creating opportunities for Energy Performance Contractors.
  • Energy efficiency information grants of $40 million to assist businesses.
  • BCA has been updated to include minimum energy standards for all commercial buildings.
  • Refrigerants will be excluded from the scheme, but will be subject to an equivalent carbon price using existing import and manufacture levies, adjusted annually to reflect the prevailing carbon price.
  • Access to funding through the Clean Technology Program.

*The data used for this analysis may at times overstate the emissions intensity for a specific company as the rules for financial and carbon reporting are not the same. ASX 100 firms are frequently deemed to have operational control over Australian operations, whilst they may not have a majority financial stake in underlying assets. For example, Woodside only get the revenue from their share of the NW shelf (+20%), but they report all emissions from that project as they are deemed to have operational control over it. This is also the case in the event of franchised operations in the retail sector.

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