Improve or pass on the cost.
This is a question asked by CEOs of the larger companies in Australia. The carbon tax regime will commence in July 2012 and initially target the largest emiters.
In addition to Australia, similar decisions and plans about implementing a carbon tax or carbon trading are happening around the Pacific Rim; in New Zealand, Thailand, Taiwan, South Korea, six major centres in China, California and some Canadian provinces.
The objective of carbon pricing is to change behaviour concerning energy use; but who will change behaviour in a supply chain – the buyers or sellers? This is dependent on which party has power in the business relationships at each link in the chain. To maintain current terms of the agreement, a business that can exercise power will require other parties in the relationship to change their way of operating and reduce carbon emissions. The cost base will therefore not change.
In Australia, the retail grocery market is dominated by two companies. The CEO of Westfarmers, owner of Coles supermarkets, did not deny the question from the Melbourne Age newspaper that suppliers could not pass on any of their additional carbon tax costs to the supermarket group.
Assume that major emiters are able to exercise power in their business relationships. They will pass on carbon tax costs to their customers; but the customers cannot pass on costs to powerful retailers. This puts pressure on mid-size companies to improve their overall sustainability. In the case of logistics services there is much work to be done. International surveys in developed countries have shown that to date, less than 10% of companies in transport and distribution services have invested in carbon reduction initiatives.
In addition to Australia, only New Zealand, Singapore and Hong Kong in the Asia Pacific region have a concentrated grocery retail market. In these countries, retailers can refuse to accept price increases induced by carbon costs. In other countries, the power of retailers and suppliers are more balanced; this will see agreements to either jointly work on reducing carbon input costs or pass the costs to consumers.