SHOPPERS face a jump in grocery prices of up to 7 per cent under Labor’s scheme to reduce carbon emissions, prompting calls for the Rudd government to come up with a compensation package to help low- and middle-income families.

Big retailers have warned the government that the proposed emissions trading scheme would add between 4 and 7 per cent to shopping bills in what would be a de facto tax on food.

Although the government has revealed plans to compensate households for increased energy prices when the ETS is expected to be introduced in 2011, it has yet to announce how it will cover the rise in grocery prices.

Reserve Bank assistant governor Philip Lowe last week told the House of Representatives economics committee that the ETS would add 0.4 percentage points to the Consumer Price Index measure of inflation in its first year of operation.

However, the Food and Grocery Council believes the increase in grocery prices would be much higher, about 5 per cent.

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As food and grocery shopping is estimated to take up to 20 per cent of the weekly household budget, the council’s chief executive, Kate Carnell, says the price rise will amount to a GST on food – the area the Howard government exempted from the tax after a prolonged campaign by Labor and the Australian Democrats.

Large retailers are understood to have also done modelling showing similar results, including a rise in food prices of as much as 7 per cent should Australia adopt the 25 per cent target on emissions reductions by 2020.

Large retailers, while privately concerned, are believed to be hesitant to voice their objections to the ETS for fear of tarnishing their reputation among environmentally conscious consumers.

Australian Retailers Association executive director Russell Zimmerman said the ETS would lead to a sharp increase in grocery shelf prices as costs increased at every stage of the production and distribution process.

“It’s going to be a high cost to the consumer – the food manufacturer gets an ETS charge, then there’s delivery, and the retailers use refrigeration and lighting, and the cost of that is all going to be handed on,” Mr Zimmerman said. “Retail is a very competitive business. There’s not a lot of margin in grocery retailing, so these costs can’t be absorbed.”

The ARA has set out its concerns in a submission to the government’s green paper on carbon reduction but Mr Zimmerman said he had little hope the government would shield consumers from higher costs.

“The government has said it will cost consumers $1 a day, but that fails to accurately calculate the retail price impact on consumers, and there’s no real handle on what it’s going to cost consumers in the end,” he said.

Retailers’ anxiety is matched in the US, amid growing fears about the impact of carbon trading plans. US agriculture companies including grain giant Cargill, meat processor Tyson Foods and food-maker General Mills, have expressed concern they will bear an unfair proportion of the costs resulting from carbon-reduction legislation and warned this would lead to higher food prices.

Nationals senator Barnaby Joyce has warned that the ETS, once in place, would raise the retail price of a leg of lamb to almost $100.

The revelations on food prices come as a split emerges in the business community over the ETS. The peak group, the Business Council of Australia, is divided over its position on the plan to reduce carbon emissions.

The BCA is torn, with finance sector elements backing the ETS and the mining industry vehemently opposed. The split has led to the circulation of an anti-ETS paper from within the BCA that concludes 67 of its 109 members will not have a carbon permit liability under the government’s proposed Carbon Pollution Reduction Scheme.

The overwhelming majority of the 67 are in the finance, legal or legal services sector, which the analysis says are expected to make huge profits out of the ETS.

The paper’s author, who does not wish to be named, concludes: “While the BCA is held up as the voice of industry on the carbon scheme, the vast bulk of its members have no skin in the game. That is, they won’t have to buy permits. In fact, the bankers and finance consultants like KPMG stand to make a fortune out of it.”

The paper’s author also names at least 12 senior Labor figures – seven of them frontbenchers, including three cabinet ministers – who they say have expressed doubts about the government’s ETS privately to either BCA member companies or their industry group representatives.