Carbon costs – review your contracts now!

21 April 2009 Topics: Compliance and corporate governance, Planning and environment

The Commonwealth Government has now released draft legislation for the Carbon Pollution Reduction Scheme (CPRS) which is proposed to commence operation in July 2010.

The CPRS will require “liable” entities to purchase and surrender one eligible emissions unit (including Australian Emissions Units) for every tonne of carbon dioxide equivalents emitted by that entity.

It is proposed that the first auction to acquire Australian Emissions Units will be held in the January 2010.

Therefore, those liable entities will need to consider the cash flow implications and their need to acquire eligible emissions units.

However, even if your company does not have a requirement to comply with the CPRS, you will need to consider your cash flow position and, in particular, your ability to pass through the increase in the cost of your products as a result of the flow through of the increased costs to acquire eligible emissions units in the supply chain.

It is therefore essential that you review your long term supply contracts, especially those contracts that extend beyond July 2010.  These contracts need to contain a clause that allows you to pass on any additional costs incurred in supplying the goods or services to that client.

If you do not have this ability, you may have to bear the increase in production costs with your profit margin suffering the inevitable consequences.

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