Rudd’s carbon plan – what’s in it for SMEs? A SmartCompany Q&A

Prime Minister Kevin Rudd’s decision to pursue a modest greenhouse gas reduction target of 5% to 15% has been met with howls of protest from business groups and the green lobby alike.

Rudd stormed to power in late 2007 on the back of a promise to take an aggressive stance on climate change, but the implosion of global financial markets has forced the Labor Government to take a more conservative approach.

Nevertheless, the Rudd climate change agenda will mean big changes for small business, including a raft of cost increases that will have to absorbed or passed on to customers.

So what’s in Rudd’s package for SMEs? Time for a SmartCompany Q&A.

These climate change announcements seem to have been going on forever. What was this one all about?

This was the Rudd Government’s announcement of the official position on climate change. Up until now we’ve had a series of reports and discussion papers setting the scene, but now we know exactly what Rudd wants to do.

Which is?

Cut greenhouse gas emissions by a minimum of 5% by 2020. Depending on who signs up to what international climate change agreements, that target could increase to a 15% reduction by 2020.

And what have the pundits made of that?

Green groups are furious. They had hoped for an emissions target of 25% to 40% and have called the target “weak”.

Business groups are guardedly pleased. The Australian Industry Group has called Rudd’s targets a “positive compromise” but chief executive Heather Ridout says meeting the targets will still be a “stretch” given the state of the economy.

So how does Kevin and co plan to cut carbon emissions?

The central plank of the plan is an emissions trading scheme whereby polluters will be required to purchase permits according to their level of emissions. This scheme will start on 1 January 2010 and will involve around 1000 companies.

The money raised through this process – $11.5 billion in 2010-11 and $12 billion in 2011-12 – will be spent on measures to reduce greenhouse gas emissions and compensation for business and households.

Compensation, eh? I like the sound of that. What’s on the table?

The bulk of the permit money – around $6 billion a year – will be returned to low and middle income earners in the form of higher family assistance payments and handouts.

Another big chunk will be given to heavily affected industries (the biggest polluters), such as the power sector, aluminum and big manufacturers. For example, there is $3.9 billion over five years to coal-fired power plants.

What about SMEs?

As the Australian Chamber of Commerce and Industry (ACCI) has been quick to point out, there is no specific compensation program for SMEs.

However, the Government’s Climate Change Action Fund does provide $2.15 billion to help business and communities adjust to life under the emission trading scheme. The biggest chunk of this is $1.4 billion over five years to help business and community organisations invest in low emission technologies, processes and products.

Part of this $1.4 billion investment program is the small business capital allowance program, which will provide small business with assistance to invest in energy efficient equipment such as hot water systems, improved insulation, efficient lighting and better heating and cooling equipment.

What’s the catch?

SMEs will be face higher costs, particularly from higher energy prices. The Government argues that these costs will be passed on to consumers, but Greg Evans, director of policy at the ACCI, argues that this might not be as simple as it sounds, particularly for small businesses that compete with international companies which don’t have to build emissions trading schemes in their cost base.

While the start of the emissions trading scheme is still some way away, SMEs need to start thinking about the issue now. Because when Australian business emerges from the downturn in mid to late 2009, this problem will be looming large.