Major distributor Australian Paper’s 21% reduction of carbon emissions intensity since 2007 hasn’t been enough to keep it off the list of 500 companies taxed for carbon use from June 1.

The company exceeds the threshold of emitting 25,000 CO2 a year and it is inevitable there will be a direct impact on the company, as well indirect impacts on smaller paper businesses.

NIPPON is the primary owner of Australian Paper, and recognised the need to further re-evaluate its electricity and fuel use to create a foundation for more resourceful and sustainable sources of energy. According to the Australian Paper Sustainability Report:

“Our Maryvale mill is Victoria’s largest industrial generator of base load renewable energy with our black liquor production level now exceeding 500,000 tonnes per year. Carbon emissions intensity has reduced by 21% since 2007 as a result of the Maryvale mill upgrade in 2008, as our reliance on natural gas and electricity gas reduced through improved efficiency and the use of biofuels.”

There has been a notable improvement through sustainable energy use, but the carbon tax still puts pressure on the paper industry, especially for smaller companies which will be effected on both an environmental and financial level. Smaller businesses are likely to be indirectly taxed for production through the price of fuel and energy.

The Australian Forest Products Association, in its submission on the carbon pricing mechanism in May 2011, said:

“The wood processing industry in Australia is a price taker, with an ongoing trade deficit in forest products of around $2 billion annually. Energy and fuel are major inputs to the production process; the pass on costs of a carbon price would be felt across the forestry, wood and paper products industry. For example, approximately 600 sawmills across the country would be impacted with rising costs, many of which comprise small to medium size family owned enterprises in rural and regional Australia.”

A 2011 University of New England report by Mahinda Siriwardana, Sam Meng and Judith McNeill — Impact of a Carbon Tax on the Australian Economy — shows the expected consequences from the carbon tax, presenting notable comparisons. The upcoming carbon tax will place pressure on the pulp and paper industry, with a $23 tax to reduce sectoral output 0.76%. However, when compared to the brown coal industry, whose output could reduce by 26.42%, the impact is minor.

While the paper industry won’t be the hardest hit trade, there will still be an economic impact. Environmental economist Dr Judith Ajani told Crikey the pulp and paper industry is highly self-sufficient, but the trading climate is extremely competitive.

“From what we produce and sell on the market, imports are not terribly significant,” she said. “Visy supply largely in the domestic market and also have a lot of export products; they are very trade exposed. On the packaging side, Visy is most dominant, they produce packaging paper from recycled and softwood pulp.”

Dr Ajani says the tax should be considered in the context of the health of the industry in Australia, with news print production and sales not growing.

“With other media and communications, tissue consumption, packaging paper, it largely depends on how manufacturing is going; printing and writing paper has been fastest growing in terms of consumption,” she said. “Although, there has been a slow down in growth and consumption in Australia and globally.

“My feeling is that this is a combination of slower growth in GDP, but we are also starting to see the effects of electronic communication. It’s moving very quickly, and there’s some levelling off in paper and writing consumption. This is not just an Australian phenomenon, but also a global thing.”

The AFPA submission also raises concern about the risks to international trade competitiveness:

“A major acknowledged issue with a production-based carbon pricing mechanism is its potential impact on the competitiveness of export- and import- competing domestic industries. The international competitiveness of trade-exposed industries is materially impacted if a carbon price if paid by some but not all (or a majority of) competitors.

“It’s possible carbon leakage will result; accordingly, the gradual relocation of businesses to countries without a carbon price, no environmental gain (and possibly a negative outcome) and adverse domestic economic impacts.”

This is recognised as a genuine concern, and the allocation of permits to offset the loss of competitiveness is crucial. The AFPA submission said that:

“An offsetting measure would be essential under any production-based Australian carbon pricing mechanism; however, as the development of the Carbon Priced Reduction Scheme (CPRS) demonstrated, the detail of such a measure is critical in determining its success in preventing carbon and job leakage.”

Exports are likely to be under threat due to concerns of finding cheaper paper commodities internationally; therefore, there is a likelihood of an indirect impact on small businesses.

While there are negative aspects to trade competitiveness and the impact of carbon tax, the pulp and paper industry is still moving forward in sourcing sustainable energy. The paper trade may have a public reputation as a evironmentally-unfriendly industry, but Dr Ajani says there needs to be acknowledgement of its positive impact.

“Visy demonstrates a high level of recycling, they sometimes feel as though they are not being appreciated for their production in landfill and avoiding methane emission,” she said. “Look at the pulp and paper industry in Australia, around 80% is from plantation and paper recycling.”

A potential advantage to the industry is the increased use and purchase of renewable energy certificates, or RECs, which could greatly benefit the paper industry, economically as well as environmental sustainability. RECs represent the environmental and other non-power attributes of renewable electricity generation and are a component of all renewable electricity products. They assist companies in meeting specific electricity demands, by selecting renewable resources as a better option; consequently serving as a currency for “renewable energy markets”.

Dr Ajani says the government has created RECs to enable companies to tap into green power markets, and issues the certificate to those who are certified producers of renewable energy. Increasingly, RECs are being used as a credible means to meet environmental goals for renewable energy generation.

It is likely that large companies such as Australian Paper and Visy will benefit under this scheme.