Summary:
1. International agreements to reduce greenhouse gas emissions mean carbon will be costed into the Australian economy and the fishing industry is part of this.
2. The SESSF/Commonwealth Trawl sector uses approximately 12.5m litres of diesel per annum emitting approximately 31,000 tonnes of carbon. Assuming a carbon cost of $30/tonne this equates to an increase in costs across the sector of $930,000 pa.
3. Fishing vessel operators will not need to be involved directly in the carbon trading market. The fuel company will be liable and will pass on the cost in the fuel bill.
4. In addition to the fuel tax credit the fishing industry is eligible for a full rebate of the costs of the scheme for the first three years. Fishing vessel operators will need to complete an annual return possibly as part of your tax return.
5. To calculate the APPROXIMATE direct cost of the scheme on your vessel multiply the litres of diesel consumed per annum by 0.0026 then multiply this by $30. There will be additional secondary costs because the costs of all good (fishing gear, freight, other energies) will increase.
Detail:
The purpose of this article is not to debate the merits of climate change and whether it is caused by man-made emissions. Instead it will briefly summarise the history, describe the proposed scheme (bill) and then explain the affect on the fishing industry.
In 1997 many countries made commitments to the United Nations to reduce greenhouse gas (GHG) emissions. There are several GHG gases, the most common being carbon dioxide. Current science is that GHG’s absorb and re-emit infrared radiation, warming the earth’s surface and contributing the global warming. The agreement was signed in Kyoto Japan and is now know as the Kyoto Protocol.
GHG gases are measured in “equivalent units of carbon dioxide” or CO2e. Thus CO2e measures the contribution to global warming of a variety of gases in a common unit. Often emissions are simply referred to as carbon dioxide or simple carbon emissions. When fossil fuels are burnt they produce greenhouse gases. Much like the conversion between live weight and product weight in fish, a factor is used to calculate how much CO2e is produced when specific fossil fuels are burned.
Australia’s Prime Minister, Kevin Rudd signed this agreement in December 2007 immediately after taking office. Under the agreement countries agreed to reduce their GHG emissions by 5.2% from the level in 1990. Australia’s commitment is an 8% increase (from 1990 levels). In comparison to other developed countries (USA -7%, Japan -6%) this is a favorable deal. In 2007 Australia’s 2004 emissions were calculated at 126% of the 1990 level – already 18% more than the target and climbing. More recently the Australian government has made two additional commitments: a 60% reduction in greenhouse gas emissions from 2000 levels by 2050 and between 5 per cent and 15 per cent below 2000 levels by the end 2020. Putting these various targets aside it is clear that the government aims to reduce emissions.
The Kyoto agreement does not stipulate how countries will make the reductions these mechanisms are decided by each country. Australia’s current proposal is the carbon pollution reduction scheme. The scheme is a “cap and trade” and you may hear it described as such. A cap will be set on Australia’s emissions in line with the 108% target. The aim is to stop carbon emissions growing.
Emissions will be costed at the highest possible level in the supply chain. Those affected (called “liable” firms) include power generators and fuel wholesalers. Less than 1% of Australian firms will be liable. This means that fishing vessel operators will not receive a direct bill for carbon emissions but will instead bear the cost indirectly as the costs are passed on from suppliers particularly in fuel bills. Liable firms will need to purchase a “pollution permit” (or permit) for each tonne of CO2e emitted. They will need to submit an annual return much like a tax return. Permit sales will occur through a Government auction.
The theory is that in an effort to reduce costs firms will reduce emissions through efficiencies and consumers will choose lower emitting goods and services. There will be competition between liable firms for (carbon) permits given there are a limited amount available. Thus it is not possible to say what a permit (for a tonne of emissions) will cost. Australian Treasury estimates $25 and there is a $40 maximum limit for the first five years. Many commentators estimate tonne of CO2e will cost $30 and this seems reasonable. The Australian scheme will link with international (Kyoto) schemes to ensure the cost of carbon in Australia does not surpass international levels. However, Australian carbon permits will be not exportable in the short term in an effort to control the permit cost.
Australia’s emissions are roughly as follows:
Energy (including fishing, fuel and electricity) 70%
Agriculture (non energy) 16%
Land change (deforestation post 1990) 7%
Industrial processed 5%
Waste 2%
There has been significant comment by affected industries. Industries often state that they accept that action must be taken to address global warming but then state that they are a special case and require special treatment under the scheme. It seems agriculture will not be immediately subject to the scheme but its eventual inclusion is described as “desirable”. The government will provide assistance to low wage earners, households and some affected sectors to assist with the transition into the scheme. The current proposal is for assistance to sectors that pass two tests.
1. They must be trade exposed – exporting into markets that compete with goods from economies in which carbon is not costed. Most Australian seafood is not exported and Australia is a net importer but there are notable exceptions to this.
2. The second test is that they must be energy intensive. The energy intensive test is that a sector must produce >1,000 tonnes of CO2e per $1m revenue. My very rough calculations show that the SESSF Commonwealth Trawl (CT) sector uses about 12.5m litres of diesel per annum. These figures do not include freight and only consider fuel used on vessels. At a conversion of 0.0026 (the New Zealand conversion) this equates to 31,000 tonnes of CO2e. The 2008 ABARE fisheries statistic report tells us that CT sector revenue is $54m. Based on these figures the CT sector does not pass this second test because CO2e emissions are 574 tonnes per $1m turnover.
However, the good news is the Government will introduce a “'CPRS fuel credit” for fishing and agriculture for the first three years of the scheme. This scheme will be similar to the current ATO fuel tax credit. In a parallel action the Government will reduce taxes on all transport fuels to all sectors by an amount roughly equivalent to the cost of carbon in transport fuels. The fishing industry does not pay these taxes (due to the existing tax credit) so the fishing industry will be able to apply for a second rebate as part of the tax return process. In this way the fishing industry is exempt for the initial three years of the scheme.
In year four of the scheme (2014?) the full cost of carbon emitted will be borne by the fishing industry. The total cost to the CT sector at (assuming) $30/tonne and 31,000 tonnes CO2e is $930,000.
Under the current proposal there is little scope for “offsets” (aka carbon credits) because any company covered by the scheme (liable) is ineligible and there is widespread coverage.
Please contact SETFIA if you have any further questions. I will continue to add updates to the website and the scheme details become clearer and I further understand the affect on the fishing industry.
