Carbon taxing equities

As a value investor and climate change agnostic, I have to admit I’ve been watching the carbon tax/ETS debate with a sort of detached interest.  Given the Federal government’s unparalleled skill at botching both policy PR and implementation, I had assumed that the ETS would go the way of FuelWatch, Pinkbats and Kevin Rudd’s stiff upper lip.  FX movements, commodity prices and legislative risks make the life of a value investor tough enough – calculating carbon pricing and emission intensities just seemed like a hassle I could do without.

However after the federal election, Labor rolled over to find themselves in bed with Bob Brown.  And to the surprise of many, this minority-government inspired coupling has turned out to be more than a one night stand.

What’s the deal with the Carbon Tax/ETS?

Carbon E. Coyote has done an awesome job of distilling the carbon tax/ETS facts in his series of articles on MB, so I apologise if the following summary doesn’t do them justice (for those who want the good oil, check out his list of blogs here).

Essentially, the ETS is embodied by the government selling permits that give the owners of the permits the right to emit a tonne of carbon.  For the first 3-5 years, there will be an unlimited amount of carbon permits sold at a fixed price (price yet to be released).  This effectively acts as a tax, hence the outrage about Julia’s “carbon tax” broken promise.

After 3-5 years, the government will move from unlimited release of permits to auctioning a limited number of permits.  The permits are sold to the highest bidders, who can then use them to emit carbon or on-sell them to other parties.  The price of carbon will vary depending on demand for emissions and how many permits the government auctions each year.

Simple stuff really – they’re just creating a market that turns carbon emissions into a tradeable commodity.  The only two big catches (that I can see) are:

  • Agriculture is not included (correct me if I am wrong here people).  This means stinky-poo cows aren’t penalised for their methane flatulence nor can forestry plantations claim carbon credits to on-sell to emitters;
  • Energy intensive export industries (e.g. steel makers) will be given compensation for competing at a disadvantage when exporting to markets without an ETS

What’s that mean on the shop floor?

According to Coyote, Australia emits about 580Mt of CO2 each year.  Some 450Mt of these emissions will be covered by the carbon tax/ETS (about 1/6 of our carbon emissions come from livestock and agriculture, which are not covered).  The following approximations give you some idea of the emissions intensity of some common products/services:

  • 1 tonne of steel – 2.4t CO2e
  • 1 tonne of concrete – 0.83t CO2 e
  • 1 tonne of aluminium – 1.0t CO2 e
  • 1 kWh from Hazelwood power station – 1.6kg CO2 e
  • Boeing 737 per hour – 0.09t (90kg) CO2 e
  • 1 litre of milk – 0.001t (1kg) CO2 e
  • 1 can of coke – 0.00017t (170g) CO2 e

What sectors will be most affected?

Under an Australian ETS, those sectors that use a lot of energy, supply products with elastic demand (i.e. can’t pass on price rises), compete globally (i.e. sell outside of the home market or compete with imports) and operate on thin margins will be the most affected.  Fitting this bill will be steel makers, alumina/aluminium processors, concrete users (i.e. builders), airlines and possibly the transport/trucking industry.  At this stage, many of of these industries will be compensated for the costs of an ETS, especially those exposed to international competition.

Obviously energy suppliers will be hit hard, but given the rather inelastic demand for electricity they should be able to pass on the most immediate price rises.  In the long term, high-emission energy generators will go out of business as the carbon price increases and better technologies are developed – hence the calls for compensation for lost asset value in many coal-fired power stations.

Those businesses that are middle or end users of basic materials will obviously pay higher prices for those materials.  This will impact balance sheets as costs go up – whether margins drop will depend on their ability to pass on costs as well energy efficiency efforts.  I’d wager Woolies will be fine given its strong return on equity (ROE), pricing power and our basic need to eat.

However, marginal businesses that can’t cope with  input-cost increases will be in trouble – especially once the carbon price escalates after the ETS phase starts.  Consumer discretionary businesses may also feel the pinch as energy and materials prices increase and consumers see more moolah disappear into their quarter electricity bill.  A company like ARB Corporation may find their steel bull bars are both expensive (steel is CO2 intensive) and unwanted (very discretionary item).

There are a few sectors that should float on unscathed by an ETS, feeling only the impact of a slowing economy as the price of energy increases.  These include the financials (we still need to do the banking irrespective of a carbon price), agriculture (not part of the scheme), booze/gambling/addictive vices and health care.  Exporters of low-energy-intensity goods should also be sweet (think Cochlear) assuming they can survive the rise of our mighty Aussie dollar.

Emissions earnings impacts and compensation

In examining the earnings impacts of a carbon tax – and hence the impact on valuations – I’m going to rely on the good work done by John Abernethy in his article on an Australian carbon tax.  Mr Abernethy has estimated the NPAT impact on several ASX companies for FY13 (the starting year of the carbon tax), assuming a carbon tax at $20/tCO2e (but not accounting for any industry compensation).  In lieu of a massive research budget and oodles of time, I am going to rely on his calculations and use them to estimate the fundamental valuation impacts on a handful of ASX companies.

The table below shows the companies assumed FY13 ROE (no tax), their pre-carbon tax valuation, their ROE (with tax) and the resulting post-tax valuation.  I’ve assumed the NPAT impact starts in Fy13 and is constant there after.

Valuation Impact of Carbon Tax

Company ASX    Code ROE       FY13

Valuation

NPAT Impact

Adjusted ROE

Adjusted Valuation Valuation Change
Adelaide Brighton ABC 22% $      2.47 35.5% 14.2% $    1.74 -30%
BHP Billiton BHP 33% $    45.98 1.0% 32.7% $   45.98 0%
Bluescope Steel* BSL 9% $      2.27 2.2% 8.6% $    2.20* -3%
Commonwealth CBA 17% $    26.67 0.0% 17.0% $   26.67 0%
Cocal Cola Amatil CCL 37% $    11.86 0.5% 36.8% $   11.80 -1%
Origin ORG 10% $    10.85 3.7% 9.6% $   10.50 -3%
Qantas QAN 7% $      2.02 14.8% 6.0% $    1.75 -13%
Woolworths WOW 35% $    30.64 2.2% 34.2% $   29.92 -2%

* I have shown Bluescope’s valuation assuming that they are compensated for 95% of their emmissions costs.  Without this compensation, NPAT impact would have been 44.6% and the valuation would have been around $1.43 (some 37% below our current valuation).

So as you can see, the results are pretty much in line with my earlier summation.

Of course if the doom sayers are correct and the carbon tax/ETS kills the economy, then no share will be safe.  However, the relativity of the pain would be the same.

Hot off the Press: Compensation update from Carbon Coyote

There’s been a  couple of queries around compensation for certain companies/industries, which is not surprising given the impact a tax would have.  The following was emailed to me by the Coyote:

ABC: As a producer of cement they would have got EITE assistance for that activity, and as it is highly emission intensive, it was in the highest bracket of the CPRS compensation scheme, so 90% + Global Recession Buffer = 94.5%. This % is of scope 1 (CO2 produced onsite such as released in the manufacture of lime and the combustion of natural gas in the kiln) and scope 2 (indirect emissions such as use of power) emissions.

QANTAS: (domestic) airtravel not deemed either emission intensive or trade exposed, so no EITE assistance. Qantas will be able to pass on all of its carbon charge to its customers. It already does this; whenever the oil price gets too high, they add a “fuel surcharge” that customers pay. So the interesting thing to watch will be whether they just include the carbon component in the fuel surcharge or whether they introduce a “carbon surcharge” as well as their “fuel surcharge”. The only way they see the carbon price is when the liable entities (ie the oil refineries) pass it through to them as a higher wholesale price of jet fuel; they don’t specifically pay for carbon unless they choose to (for example under the OTN provisions in the CPRS Act). International airtravel coverage is a moving feast globally, but whenever they fill up their A380s in Australia they will be paying an extra 6-7c/l on fuel.

Now that’s based on the old Kevin-Rudd crafted CPRS, which is not necessarily how things will play out in the coming months but it’s a guide.  So my ABC valuation will be conservative if they get the full CPRS-level compensation.  Should they receive 95% compensation, the value will only drop to about $2.40

So anway, that’s my take on the coming carbon scheme.  Given the very dense fog of vagueness surrounding the  implementation of  the carbon scheme, much of what I assert is debateable – which is just the way I like it. I’m open to your ideas.

Warning: I know this topic can stir passions at the best of time.  But for civility’s sake please refrain from debating weather (pun) climate change is happening, whether it’s due to humans, whether we should do anything about it or whether climate scientists are tweed-loving watermelons.  That is NOT the point of this piece and I will delete any comment that becomes an off-topic rant.

From an investor’s point of view, it’s a moot point whether humans are messing with the clouds or not – if the guv’ment says you’ll pay for carbon, then we gotta factor it in.  When ideology meets reality, reality will kill your portfolio every time.

Disclosure: The author is a Director of a private investment company (Empire Investing Pty Ltd), which has interests in some of the businesses mentioned in this article.  The article is not to be taken as investment advice and the views expressed are opinions only.  Readers should seek advice from someone who claims to be qualified before considering allocating capital in any investment.

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Comments

  1. Nice post Q,

    Do we know if cement manufacturers like ABC will be compensated? Also, was Bluescope’s percentage of compensation taken from the earlier CPRS? I couldn’t find any reference to it on John Abernethy’s post.

    • Good questions Alex. I have updated my post with some comments from Coyote. Looks like ABC would have been generously compensated under the CPRS legislation, so my valuation will be conservative.
      As for Bluescope, the 95% is based on the CPRS deal, which I uderstand is the starting point for negotiations on Gillards scheme.

      • Cheers, Q and Coyote. It will also be interesting to see how long the EITE compensations last, whether they’ll extend in to the auction period, and how they’ll be reduced over time. IMO they form the crux of the backroom negotiations with emitters, and hence the lobbying and political landscape.

        If a tax is implemented and Labor win, the ball is well-and-truly rolling and trading (with a price btw $20-35?) will be impossible to stop.Who really cares if we start at $20 or $30/tonne? If I’m Johnny Steel-lobbyist I’m more concerned about that 95% compensation staying that high for as long as possible.

  2. Ahhh – a fellow agnostic. When I read your piece I was struck even more strongly as to the ludicrousness of the whole shebang.

    How long are high emission businesses going to be compensated for, 5, 10, 20 years? – it would seem that businesses involved in the manufacturing process in any way are potentially adversely affected in relation to the ‘preferred’ services sector. This is a basic attack on the competitiveness of what is left of the Australian manufacturing sector – and perhaps over time that sectors very viability at all. These businesses will not be able to compete on equal footing with those similar business in, say, China. Already, it is hard enough. I see you have Bluescope Steel at an assumption of 95% reimbursement of emission costs. For how long, and does that not largely defeat the revenue raising aspect of the tax, as discussed in Garnaut’s paper (the reduction in emissions being entirely negated by the simple math of world growth). Take with one hand, give back with the other, gradually reduce handback, company costs spiral, non-competitive, packs up shop and goes to Asia. But the carbon cabal probably don’t care – after all a business like Bluescope is the epitome of evil: Big Carbon.

    And in the various papers you have read, has there been an estimated cost to the Australian taxpayer for this new bureaucratic creation, for the no doubt thousands of individuals required to run the scheme, to supervise, implement, police, write papers on, the buildings occupied, the energy consumed…ffs…the whole concept is flawed.

    Penalise sectors that actually do productive work, sectors that should be the lifeblood of the economies. I don’t get it. Agriculture appears to have escaped at the moment…but for how long?

    When the carbon tax morphs to ETS – well what then?

    • 3d1k:

      The immediate impact of the carbon tax will be negligible on Australian manufacturers compared with 30% appreciation in the currency over the past 12 months.

      I know it. You know it. Stop pretending that the carbon tax will be the death knell of manufacturing. You can’t kill something that’s already dead.

      We’ve already destroyed the “lifeblood of our economy” thanks to your beloved resources boom. The carbon tax is merely the tiniest tinkering at the margin that’s absurdly over-compensated.

        • If the carbon tax is ever legislated, and if the carbon tax morphs into an ETS, you can be pretty damn sure the emissions-intensive trade-exposed sectors will be very nicely compensated thank you.

          Meanwhile no-one is being compensated for the 30% reduction in our competitiveness in just 12 months.

    • 3D – the devil will be in the details. I want to know what the compensation package is, as well as the answers to your questions about the future. We’ll just have to wait for Swanny to speak.

      And watch it guys – we’re analysing the impact on shares if the scheme is implemented. Leave the debate on it’s effictiveness or morality to other blogs.

    • The demise of manufacturing started years ago – all part of the ridiculous “Clever Country” notion. All kids will be uni educated, we won’t have nasty factories on our doorstep, we’ll all be doing important work like finance and insurance and sales.

      Governments, educators, unions and (extraordinarily) business all complicit.

      Nothing to do with my beloved mining.

      • The demise of manufacturing started years ago – all part of the ridiculous “Clever Country” notion.

        Which is precisely my point. Its already dead so you can’t kill it with a timid carbon tax that’s over-compensated.

        What will kill whatever life there is left is a 30% appreciation in the currency over 12 months. It also kills all those low emission ‘clever country’ industries like services exports … you know, the one’s that Swannie and Parko say are our future in the Asian Century.

        All that’s left standing is mining, and frankly, I don’t want to live in a ‘dumb country’ where the only thing we do is dig up dirt. I would like to see Australia remain a mixed economy.

        • Alex Heyworth

          There’s nothing dumb about the way we dig up dirt. Australia’s miners are pioneers in mining efficiency. Eg Rio Tinto’s project running mining machinery in the Pilbara from a car park in Perth.

          • Yeah, Rio’s remote control dirt digging is right up there with the Apple, Google and Intel on the innovation scale.

          • It is still a highly technological innovative sphere and Australian mine developers and engineers are some of the best in the world.

            I’m not aware of an Australian Google, Intel or Apple – perhaps you can enlighten me. In any case the correlation is invalid.

          • Yes, I’m still waiting for an Australian Apple, Google or Intel, or even a company one-thousandth the size of those three. Cochlear would come closest, but they will be hurt badly by the currency.

            I mean why would we even aspire to being clever when we can just dig up more dirt?

            FWIW, my distaste for the resources sector is not about the miners themselves (although they are now far too powerful politically IMO) its about the devastating effect the resources boom has on the rest of the trade-exposed economy.

            The miners can carve up the country and get fabulously wealthy for all I care, but when it squeezes out innovative export-focused companies like Cochlear, I get angry.

        • For years I have been concerned at the gradual demise of Australian manufacturing, concerns that have long appeared to have had no audience. After all, we were all enjoying the spoils of beneficial side of globalisation – even you I take it.

          My great hope now is that it becomes apparent that globalisation has a negative side as well, and perhaps it is not too late to revive and reinvigorate the ugly duckling of the Australian economy.

          Hence my objection to any unnecessary further impost on a sector that needs help rather than hindrance.

        • Fair enough Lorax. But it is sad that the only company ever mentioned in tender terms is Cochlear. Part of the Australian problem – we have not developed enough specialised niche markets (although there can be problems there as Taleb tells) and we have taken the easy path, The Lucky Country, hey?

          I recall a documentary some years ago lamenting the Australian way – a number of innovations sold to the highest foreign bidder and never progressed in this country – why – we are an impatient lot. We want an almost immediate return on investment. It is not often an Australian enterprise takes the 20+ year return view. It’s three to five tops. No way to build a sustainable long term economic future. And because of the cost intensive set up of a manufacturing process they in they main get short shrift.

          Services are a piece of cake compared to the genuine economy-sustaining sectors and have been embraced and promoted by governments and educators alike. We’ve been sold a donkey.

          Mining infrastructure is horrendously expensive too, hence companies only commence major projects when confident of some long-term benefit (helps when commodity prices are high!). But if you think about, mining has largely plodded along with occasional peaks since Federation. Having a bit of a peak now but it is not the cause of decline in other sectors. It does not determine government, RBA or Treasury policy.

          In

  3. “After 3-5 years, the government will move from unlimited release of permits to auctioning a limited number of permits. The permits are sold to the highest bidders, who can then use them to emit carbon or on-sell them to other parties”

    In other words, after 3-5 years the value of these permits is still given by government inclination to enforce a carbon tax, or, that these carbon permits are as good as government bonds.

    Anyone who cannot see that this is just an attempt by financial speculators to further leverage the credit of the government is a fool.

    • That’s right JMD, although I believe the point of cap and trade is to nominate the maximum number of permits and then let the market sort out the price. However, I don’t know what mechanism would stop a future government doubling the number of permits due to political pressure.

      • But the ‘market’ will only sort out a price knowing that the government is there to backstop the whole deal.

        It is alchemy, attempting to turn lead into gold. Only the dollar itself is a bigger ponzi scheme & maybe MBS.

        • I imagine governments in the future will be under immense pressure to clearly set out the permit level, otherwise buisnesses won’t be able to build accurate models for capital investment. But the same can be said for setting tax rates. Of cousre, we should never underestimate the inability of politicians.

          The permits won’t need to be “backstopped” as you say, nor would they be like a bond in my understanding. If the economy tanks, then the permit price will no doubt drop. However the government has no liability with regards to the permit (as opposed to a bond coupon), they’ll just get less revenue from the auctions, which means less to distribute in compensation.

          • Considering one side of politics and the electorate are against the carbon tax, How will the political uncertainty affect the ability to price equities based on a tax that is likely to appear and disappear in a relatively short time frame?
            Did you hear that Japan, Russia, France and Canada are not resigning to kyoto?

          • Good point Rob. The oppositions reaction (once the shceme is implemented and cannot be un-done) will have a big impact on the regulatory risks assumed by investors.

      • Already in Europe carbon trading schemes have been manipulated,…

        The Q Speaks:
        Sorry 3D, we’re discussing the investment impact of a scheme on Australian equities. Not the effectiveness of it.

        See my last paragraph – if the guv’ment says we’re paying for carbon, then we’ll be paying.

        • Yes, look at the solar rebate scheme in NSW. The new government attempts to scrap the rebate, since government is dead broke but a few complaints from the ‘hard done by’ solar ‘industry’ & the government backs down, despite still being dead broke.

          The RBA will have to continue to buy State government debt to backstop the State debt market, thus throwing even more good money after bad.

          If this carbon tax gets up & running, the Federal government will not be able to stop throwing good money after bad.

          • My point Q is that the solar scheme is just a little brother of the carbon tax. Once the carbon tax is running the government will have no choice but to support it or it will fail spectacularly, thus throwing good money after bad.

            You are also incorrect about the carbon credit/permit being unlike government bonds. The whole idea behind the scam is to make these carbon credit/permits as ‘money good’ as ‘govvies’.

        • Q – surely the effectiveness impacts investment potential. The points I made in relation to JMD’s post seemed fair enough.

          • No 3D – the effectiveness is irrelevant. A scheme could warm our planet by 10 degrees, but Qantas will stay pay for it;s carbon and investors need to account for it.

        • Not quite as you put it … the spot trading market has been suspended. However it seems to me that most of the problems the Euro trading scheame has are fundamental to the EU itself – country vs eu.

          http://www.ft.com/cms/s/0/368f8482-387d-11e0-959c-00144feabdc0.html#axzz1Oe28TX5v

          as for the big emitters carrying on as usual – well yes, the reason being that the lobbyists for the big industries managed to get the too many free permits.

          As so often in modern politics, start with a good idea and water it down until it loses its power.

  4. Characterising agriculture as “exempt” from the carbon dioxide tax is misleading. Belching cows are exempt, but like all other businesses agricukture’s energy costs are subject to this onerous tax. In many sectors, energy is a major cost – think green houses, intensive animal sheds (chickens, pigs..) And we’re still not sure about tax on petrol/diesel!! All processing of primary production is also subject to the tax – another manufacturing industry that is shuddering at the thought!!

  5. Considering china and the rest of the world are increasing their emission, what benefit will there actually be to introducing an carbon tax on the economy?
    Why make everything more expensive for zero benefit?

      • If there are no benefits then there will be broad scale damage to the domestic economy and all equities with exposure will suffer.
        It’s hard to pick winners when everyone is loosing.

  6. I’ll put my speculating hat (the one filled with tea leaves) on and suggest that the formalisation/certainty of a carbon price will cause a bounce in carbon intensive industries.

    It will also likely result in higher than average interest in alternative energy companies: e.g. PTR, CNX, GDY which are struggling price wise due to a lack of demand, because why would you invest in alternative energy when there is no certainty in the end cashflow?

    I would not be surprised to see strong upticks in the most effected industries – as they have already been WAY oversold (Bluescope and Onesteel head the list there).

    And I second Q’s comments – lets keep the comments to the impacts on equities, not your ideology or thoughts on the carbon price.

    • It is crazy to invest in alternative energy companies that can’t produce an economically viable product without government help.
      As for bluescope ect, how much will they bounce if the Carbon gets chucked out at the next election? Assuming they survive of course.

    • The market seems to be attaching more value to clean coal technology companies (LNC is the best example) over flat out alternative energy plays.

      When you examine the GDY story it looks viable and attractive, they even have ORG on board and yet the market seems uniformly disinterested.

      A carbon trading scheme would most def boost these stocks imho. A geothermal play like GDY if it could hook up to the power grid is basically zero emission and could sell it’s credits at a handsome profit.

    • JC – good points. I think PTR has the edge of GDY (disclosure: I own a tiny amount in my super) in terms of technology, but they are getting caned by the market regardless.

      Also, underground coal gasification is as politically correct as Fukushima these days…as is CSG

      Rob – they can produce a viable product, its just that no one wants to provide capital to start the business, as Australian investors are the most conservative in the world – unless it involves a new coal, gas or iron ore mine (or billions in mortgage securities), the insitutitions and private/retail investors won’t touch it.

      • Indeed. Geothermal and other alternative energy sources are very capital intensive at the front end. You need to pour in alot of money before you can see cash flows. Geothermal (once large front end expenditures are accounted for) would provide cheap, and importantly base-load power which can be sold to the grid.

        Geothermal and hydro-electric seem more viable to me than solar (unless the tech gets alot better) and wind (which is actually not that green considering how land intensive it is), but solar and wind seem to get all the MSM attention.

        The market is hammering these companies (GDY, PTR) because they look into the future and they don’t see those future cash flows at the moment.

        • Does australia have any geo-active areas to exploit ? I thougth this big rock was pretty much dead and cold …

          • Sure does – check out geodynamics.com.au. Australia is pretty boring techtonically, but that’d be an advantage if your want a constant heat source that isn’t going to move around.

  7. And again, to put the carbon tax into perspective, with regard to the exogenous factors when assessing/valuing a company, the rise in the AUD against major competiting currencies (JPY/EUD/USD etc) is a HUGELY more impacting event.

      • Temporary? That’s not what every boffin in Treasury, ABARE and the RBA are saying. We have step-change in our terms of trade. We’re going to see (at least) another 20 years of runaway Chinese demand for our resources. In what way is this ‘temporary’?

        • Maybe you dont buy what Treasury is selling, but the “temporary” nature of the rise in the AUD goes against the facts.

          The average effective FX rate for the AUD/USD has been at least 90c for over 3 years, a huge change from the effective/average rate between 75 and 80 cents in the decade before that.

          • I’m not buying the 15-20 years. Regardless, if Treasury prove correct, the process of industry adaption must occur. My preference is for adaption that in some way preserves manufacturing. Which brings us back to the topic – the effect of a carbon tax on business. Services are far better positioned to weather the change, which if exchange rate considerations are not enough already, places manufacturing in an unfair position.

  8. Thanks Q,
    Can you clarify the position of imported and exported goods?

    Is there going to be cross border tarifs or other normalising mechanisms where two countries have applied different $/ton values?

    • Aside from the fact our energy intensive exporters will be compensated, not really Steve. Unless someone else has any info, I don’t think we’ll know for sure until the compensation packages is announced at negotiations end.

  9. Nice to know all these details so thanks for the post.

    Something not discussed much on this topic is Sovereign Risk, and the carbon tax just adds to that. By the time the government wakes up it will be to late. Look at the Fraser Institute’s list for a clue.

    As I’ve said before we can have a sustainable future through investment in technology research, and own the IP that will fill the tax vaults, and even grow some local manufacturing. The trouble is Swan is calling Super Funds to finance that, and it does not fit the Aussie investment profile as it’s not housing, or mining. How about a carbon tax where all the tax goes to R&D with no handouts… I know we’re going to get the CT, but there are better ways. And for the invertible ETS, the IB’s are licking their lips.

    • Hi Adrian. No doubt this scheme will increase soveriegn risk as it’s another area of the market the government is affecting.
      I think you could kiss our steel and cement ndustries good bye without compensation though.

      • “…kiss our steel and cement industries good bye withour compensation though.”

        And coal? Resources generally? Small fabricating workshops all over? Agriculture if temporary exemption is removed?

        And yet serious individuals, some that pride their tertiary education, recommend and insist on this scheme…

        Q – do you have the compensation timeframes for these sectors – thanks.

        • No, sorry 3D. Coyote may have a little more info on the CPRS deal, but from what I understand all the details of the current compensation packages are being negotiated at the MPCCC. So it’ll depend on what the Browns, Oakeshots and Combets come up with.
          All I know is once the details are released, The Prince and I will have to slave away revaluing everything again. Grr.

          • “So it’ll depend on what the Browns, Oakeshots and Combets come up with.”

            Good grief. Policy by the pandered.

        • Hi 3d1k,

          I have a diary farmer friend down near Port Campbell, and speaking to him a few weeks ago he full on preparing to be carbon taxed. I didn’t get all the details, but it’s costly for him, and he has to buy a bunch more green items for the diary.

        • And coal? Resources generally?

          Interestingly some latte-sipping greenie do-gooders are challenging planning approval of a coal mine in the Hunter based on the basis of future carbon emissions.

          Climate change used in legal fight against mine

          As a confirmed ‘alarmist’, and a supporter of a mixed Australian economy, I support this move.

          Any discussion about Australia’s impact on global carbon emissions that doesn’t involve our coal exports is simply window-dressing.

          • I support a price on carbon. Coal exporters are doing fabulously well at the moment, and they can afford to pay a bit more. If it squeezes coal exports and eases the pressure on other sectors of the economy (via a SWF or whatever) then that’s a good thing.

            If the burning of coal is an existential threat to civilisation then one wonders why we are exporting coal at all. We limit uranium exports. We don’t export asbestos any more. Why should we export coal? As an ‘alarmist’ I have no answer to this.

            It seems to me the only way you can rationally support coal exports is to deny AGW.

          • You attempt to resolve your angst (you existentialist you) in regard to the coal industry by taking your alarmist views to their natural conclusion – perhaps demonstrating a little more integrity than our esteemed leaders who profess the urgency of acting on climate change but in reality don’t want to alter the status quo (but will happily take the revenue raised).

            I do support coal exports and am agnostic on climate change.

    • humans and their exhaust fumes are renewable ….
      however I am promosting methene sequestration under the duvet …

  10. Q,
    your analysis of stocks seems to only include those whose value will be diminished by the Carbon tax.

    Have you had a look at which stocks (wind, eng services, Solar ??) are in ready positions to improve value?

    As was mentined above, removing uncertainty could have a positive effect if the market hasn’t already priced it in.

    • Hi Steve – I was basically working off analysis of John Abernethy, who only examined the ASX50. We haven’t examined the small energy start ups mainly because we want to see 5 years worth of profitable operating before we consider a company investment-grade. The solars, winds and geo thermals are great concepts, but as value investors we need to see them stable and profitable before committing.

        • I’ve heard Tim Flannery is a noteworthy principal / investor in Geodynamics.

          And that it is another trough in receipt of government subsidies.

          And, that its first x test projects have drawn a big fat 0.

          Cannot comment on any of that, or the relevance vis-a-vis potential impacts on its share price though.

          Will leave that to the gamblers and rentseekers in our midst.

  11. In the car tonight, Warwick McKibbin, on carbon tax modelling and employment – may be of interest to some.

    http://www.abc.net.au/news/audio/2011/06/08/3239080.htm

    Models – well who is right? We all know the adage garbage in garbage out.

    Nonetheless, this are issues that need to be discussed – and in terms of Q’s post here, rising unemployment is of consequence, surely?

  12. I can’t see why agriculture is not admitted and compensated under the scheme. Methane is more than 20 times worse than CO2 in terms of GHG and our second biggest polluter behind the energy sector. If they are serious about emissions trading and pricing carbon then omitting agriculture is a fundamental flaw in the whole scheme. Have they given any reason for this exemption?

    • As I understand Billy, it’s pretty difficult to calculate emmissions from the ag sector. It may also be related to the fact it’s a politically sensitive industry 😉 However, Coyote tells me tree planting and soil carbon will be included via the “Carbon Farming Initiative”. I don’t have any details at hand, however when I get ahold of them I’ll be looking at any forestry-/plantation listed companies that may benefit from the initiative.