Small businesses will incur increased electricity costs after 1 July next year when the carbon tax is slated to come into effect. While the debate on carbon tax has been a divisive issue of late, the passage of the tax in the Senate today will no doubt attract a slew of protesting voices from the business community. 

Large businesses- Australia's top 500 polluters- will be the hardest hit by the new tax scheme, with companies in the energy generation and coal mining sector most likely to pay $23 per tonne. The goal is to reduce carbon pollution by 160 million tonnes a year in 2020.

According to the government website Clean Energy Future, 85 operate solely in Victoria and 135 operate solely in New South Wales and the ACT. Critics argue that the introduction of the carbon tax will hurt not only the biggest polluters in these states and territories but also small businesses.

Despite emitting significantly lower carbon levels than large businesses, SMEs will be affected by the rising cost of electricity. Many large corporations will pass on the increased cost of producing energy to consumers and their customers, including the two million small businesses in Australia. 

This may not hurt the resource-rich states of Western Australia and Queensland but for states that rely on brown-coal deposits for affordable electricity such as Victoria, the operating costs for local businesses will be raised. This will inevitably be more expensive for businesses in energy-intensive industries such as the already-struggling manufacturing sector, construction and agricultural sectors.

Given that small businesses make up 88 percent of the manufacturing sector and 97.7 percent of the construction sector, the tax will make it more difficult for businesses to stay afloat if they absorb the higher energy costs.

However, small businesses can take heart in the fact that the Gillard government has promised $3 billion a year in assistance to all businesses.

For small businesses, this will be $240 million in 2014-15 in the form of $40 million in grants, an information service for SMEs and a $6500 small business asset write-off. More information can be found at the Clean Energy Future website.

Small businesses will also not be directly taxed on their carbon emissions nor be forced to report or monitor their electricity use, which may come as a relief to small businesses contemplating how to cope with the scheme come next year.