Carbon Tax – implications for the property industry


On the 12 October 2011 the Lower House passed (on a vote of 74:72) a package of bills to implement a carbon pricing mechanism in Australia.  Now that the major hurdle towards bringing in one of the world's biggest carbon emissions trading schemes has been overcome, the bills are expected to be voted into law by the Upper House in November.

In its current form, the proposed suite of Clean Energy Bills is set to apply to approximately 500 of Australia's biggest emitters, who account for approximately 60% Australia's total greenhouse gas emissions.  

The Carbon Tax is set to take effect from 1 July 2012 requiring emitters to initially pay $23 per tonne of carbon equivalent released into the environment per annum, which will increase by 2.5% annually until 2015 at which time the tax will transition into a market based Emissions Trading Scheme (ETS).  The proposed suite of measures aims to cut Australia's emissions by 5% from year 2000 levels by the year 2020, and bring emissions down 80% by 2050.

The criterion for determining liability under the proposed scheme is a facility’s direct greenhouse gas emissions, and more particularly facilities that emit more than 25 kilotonnes of carbon dioxide equivalent annually.

Whilst many areas of the economy will not be taxed directly including the property industry, the higher cost of energy and products that are energy intensive in their manufacture are likely to be passed down the supply chain and onto the consumers.  The purpose of this update is to look at the impact of the Carbon Tax on the property industry in particular.

The effect of the Carbon Tax on the property industry

The property industry is likely to be hit hard by the flow on costs as a result of the tax on carbon.  In particular:

  • The price of concrete, bricks, steel, aluminium, tiles and transport are all primed to increase as manufacturers look to pass on the costs of production.  This is likely to increase the total cost of subdivision, as well as renovating or building new homes and offices.

  • The increase in construction cost is likely to increase the demand for existing homes and offices over the short term as they will initially become relatively cheaper than their new equivalents.  The HIA estimates that the Carbon Tax could add between $5,000 - 9,000 to the price of a new home.

  • Over the medium to long term the value of existing homes and offices will rise to complement the rise in cost of new developments.  This impact will particularly affect Western Australia as there is already a severe shortage of commercial space and rentable dwellings in Perth.  Any delay in the construction of new developments is likely to exacerbate this problem.

  • There is the potential that a developer who has already sold buildings 'off the plan' using contracts with inflexible pricing arrangements may have to wear the increased supply costs.

There are however also many opportunities that arise as a result:

  • There will be, and to a certain extent already is, increased demand for energy efficient office space, particularly in developments with larger floor areas as businesses seek to reduce their overall emissions.  This increase in demand is likely to result in increased rents for energy efficient floor space.

  • The greater energy efficiency of new homes, may also result in increased demand for the product.  More particularly greater real value may be added to the new property and should not be lost sight of by valuers and builders.

Lavan Legal comment

The impact of the Carbon Tax and ETS will be vast and while it will increase costs in all sectors of the economy, it is likely that the development industry will be particularly hard hit as its major inputs, such as transport, concrete, bricks, steel, aluminium and glass are all carbon/energy intensive materials which are likely to increase in cost after the introduction of the Carbon Tax.

It is essential that businesses conduct a review of all of their existing and proposed contracts to determine the full implications of the Carbon Tax, paying particular attention to provisions for the passing on, or sharing of increased supply costs.

If you would like more information about the Carbon Tax or are interested in reviewing existing or proposed contracts to ensure adequate protection from additional costs associated with the proposed Carbon Tax then please contact Lavan Legal's Environment Team.

Disclaimer – the information contained in this publication does not constitute legal advice and should not be relied upon as such. You should seek legal advice in relation to any particular matter you may have before relying or acting on this information. The Lavan team are here to assist.