To Tax or Not to Tax?

On July 1 this year, the federal government’s National Energy Savings Initiative – known more colloquially as the carbon tax – came into effect. This is a tax levied on polluters who will pay for each tonne of carbon that’s released into the atmosphere. However, it won’t affect most Australian businesses, instead applying only to the country’s 500 largest emitters, known as liable entities. These emitters generate more than 25, 000 tonnes of greenhouse gases annually as well as supplying or using natural gas. They include not only companies, but also universities and councils.

The government considers encouraging Australia’s largest producers to reduce carbon output to be a key move in the fight against climate change. The tax will initially be set at $23 a tonne, increasing gradually until 2015 when a shift to a trading scheme will let the market determine the cost.

The cost of the tax will be passed onto consumers. Whilst the extent of which is unknown, as the tax is still in its very early stages, food, utilities and petrol are all set to increase in price. The government estimates that average weekly family expenses are set to increase by $9.90. In theory however, this should be completely mitigated by the $10.10 the average family will receive in weekly additional assistance through tax cuts and payments.

The introduction of a carbon tax to discourage polluters from emitting greenhouse gases is hardly unprecedented. Scandinavian countries have been leaders in this field, with Finland introducing the world’s first carbon tax in 1990, Norway in 1991 and Denmark in 2002.  Closer to home, our neighbour New Zealand has one too.

Over the next three years, the government is expected to raise $24.5 billion from the tax. Of this, the government says it will use $15.3 billion to assist households affected by it. It will also assist industries which may be particularly impacted, as well as invest in the research and development of cleaner and more efficient technologies.

The government has said that the Clean Energy Strategy (of which the carbon tax is the main pillar) will reduce net expected pollution by at least 23 percent in 2020. Or, to put it another way, the same as if we were to take 45 million cars off the road.

By motivating businesses and individuals to reduce their carbon footprint, as well as making our energy use more efficient, carbon pricing is an excellent policy initiative. However, its implementation has not been an easy one. It has had to endure a maelstrom of opposition, most prominently from the Liberal Party and Opposition leader Tony Abbott. Mr. Abbott has vowed that if elected, getting rid of the tax will be his first order of business. The Coalition’s detraction of the tax emanates from their belief that the proposed carbon tax will impose financial pain with no environmental gain. According to Liberal MP Craig Kelly, “every coalition member will sign a blood oath to get rid of this tax.” As we speak, an advertising and billboard campaign is going up around the country to achieve this very goal.

Some businesses share the Coalition’s “concerns.” The NSW Business Chamber has urged businesses in the state to go online and share stories about how the carbon tax was affecting them on a new online portal as part of a campaign against the tax. Manufacturing Australia released a statement saying the tax would make Australian business less competitive and would be detrimental to the economy.

That is not to say, however, that all Australian businesses are fiercely opposed. In fact, a consortium of almost 300 big businesses, including Westpac, AGL, Unilever and GE, have signed a joint statement backing the tax.

To say that action on climate change is important would be a severe understatement. To put it more accurately, it is imperative. If we continue to allow our biggest emitters to pollute for free, the economic effect, not to mention the environmental impact, will be much greater than it is already. At the risk of sounding alarmist, there’s no point discussing the economy if the effects of climate change, remaining unchecked, completely destroy our present way of life.

As any first-year economics student can tell you, if you aren’t forced to internalise the environmental impact of your activities, you have no incentive to consider strategies to reduce that environmental impact. A carbon tax will give us that incentive. And this is far too serious an issue to sacrifice on the altar of spurious sound bites and political point-scoring.