Carbon-tax pain played down

Australian Prime Minister Julia Gillard's carbon tax will come into effect July next year. Photo / Greg Bowker

Australian steel and cement makers' profits may be squeezed if the Government's proposed carbon tax is introduced, but most industries will stay profitable, experts say.

Treasury Secretary Martin Parkinson last week signalled the carbon tax, to begin on July 1 next year, was likely to start at about A$26 ($35.50) a tonne.

That's A$4 higher than the price charged in the EU, which will enter phase two of its cap-and-trade scheme next year, says Professor John Foster of the University of Queensland.

Citi analyst Elaine Prior says a tax of A$26 a tonne won't threaten the survival of most industries. "The likely sort of carbon scheme [we'll] see won't be enough to make industries unprofitable unless they were pretty marginal to start with," she told ABC TV.

About 92 per cent of Australia's economy uses or produces so little carbon or electricity that even a price of A$35 a tonne would increase its cost base by less than 1 per cent, according to Professor John Daley, chief executive of the Grattan Institute.

"A 1 per cent change in your costs isn't very much relative to the impact of labour wage rates, exchange rates, interest rates," he told ABC TV.

But across industries, steel and cement makers could see their profit margins squeezed. A carbon tax of A$35 a tonne for steel makers using blast furnaces would lift their costs by about A$85 a tonne, Daley said.

Citi thinks heavy industries' profits would be squeezed by between 0.5 per cent to as high as 6 per cent, Prior said.

Free permits would buffer the impact for cement makers and sustain the industry for years, Daley added.

Prior said major listed utilities with exposure to gas and renewable energy assets would be key beneficiaries.

- AAP