The Gillard Government’s proposed price on carbon raises five major questions for the property investment and development industries:
- How will the carbon price impact construction and building running costs?
- How will price increases flow through to property returns and affordability?
- How should the industry and individual companies manage the transition to a carbon price – particularly in relation to fixed contracts?
- What impact will the carbon price have on economy-wide spending and investment levels?
- How do we best prepare for a floating carbon price under the final cap and trade system to be launched in 2015?
(For a more detailed set of questions and a carbon price issues map, please go to www.propertyoz.com.au/carbon).
The Property Council has contracted the Allen Consulting Group (ACG) to model the impact of the carbon price on construction costs.
ACG is developing a tool to estimate cost impacts for different property types, including detached houses, apartments, offices and shopping centres.
There is no Treasury modelling of these critical building blocks of Australian communities. In fact, the only Treasury modelling is for the broad construction sector, which shows that a carbon price will shrink gross construction industry output faster (and for longer) than most other sectors.
That’s why the Property Council has called for a joint government-business working party to assess and manage the impacts of a carbon price on our industry and its customers.
The Federal Government will need to consider targeted assistance if the carbon price reduces housing affordability or increases business costs.
The ACG modelling will provide a solid basis for such discussions.
It will all boil down to the operation of the carbon price shielding mechanism.
‘Shielding’ is the technical name for compensation – that is, transitional assistance that shields emissions intensive, trade exposed industries from the full impacts of emissions pricing. In theory, if a sector or product is shielded from a carbon price, then the price should not rise much above business as usual.
Shielding rates for several key building components are quite high. For instance, 94.5 percent for aluminium, steel and glass; 66 percent for timber and plastics.
That’s the good news from a materials price inflation perspective. However, it’s not all plain sailing.
First, the shielding rates fall each year by 1.3 percent.
Second, there are building products that aren’t shielded.
Third, transport costs will still increase as only light transport is excluded from the carbon pricing regime.
Fourth, there is no guarantee that product suppliers will pass on the benefits of shielding.
Preliminary modelling by ACG shows that the extent of shielding flow-through makes a huge difference to construction costs.
This means the Property Council’s focus will be to persuade the Federal Government to develop mechanisms that guarantee shielding benefits flow to the Australian customers of major product suppliers.
A similar issue will arise with energy costs.
The ACG modelling tool will help owners and managers calculate the carbon price impact on
operational energy costs for buildings, portfolios and companies.
In Europe, after the introduction of its emissions trading scheme, energy providers took generous compensation and still gouged their customers.
We need a strong hand to avoid similar behaviour in Australia.
The ACCC, the new Clean Energy Regulator and state-based independent pricing authorities will all play a role in containing price rises.
There are many other operational issues that require urgent attention. Here are just a few:
- How will the Government deal with fixed-price contracts that are silent on a carbon price?
- Will the Government attempt to remove a carbon price-related inflation spike from the CPI?
- How will owners with CPI-related rent increases remove the risk of unwarranted attention from the ACCC or other regulators?
- How will the carbon price impact on electricity reselling contracts?
- Can we use the carbon price framework to rationalise increasingly onerous environmental reporting schemes, such as EEO, NGERS and mandatory disclosure?
The Property Council has established a working party to guide its advocacy on the carbon price framework.
There is a huge amount of work to be done in the lead-up to the July 1, 2012 implementation date.
For more on the Property Council’s action on carbon pricing, and some good news on opportunities, please check out www.propertyoz.com.au/carbon
Peter Verwer |
Monday, 1 August 2011 8:52 AM |
Add Comment
