Australian Carbon Tax Explained
Why do we need it?
The link between climate change and greenhouse gas emissions is well accepted and there is a world-wide impetus to reduce these emissions to reduce future global warming.
The Australian government has set a target of reducing greenhouse gas emissions by 5% by 2020 from 1990 levels. Australia has the highest per capita carbon footprint in the world, largely due to its reliance on coal-fired electricity stations, which are responsible for 40% of the country’s emissions. Australia is also being left behind in the global switch to renewable energy and carbon neutral practices.
What is the proposed carbon tax scheme?
- 500 of Australia’s most polluting companies pay a carbon tax of $23 per tonne of carbon dioxide produced, increasing at 2.5% above inflation from July 1st 2012.
- These companies increase the cost of their products to compensate for the increased tax.
- $15 billion of the carbon tax revenue over 3 years is returned to low and middle income earners (under 80K p.a.income), mostly through changes in tax thresholds and pensions.
- Fuel is not subject to carbon tax for 2 years.
- $9 billion of the 3-year revenue is used to compensate and support jobs in the affected industries.
- $14 billion of the carbon tax revenue to be invested in clean energy sources.
The carbon tax scheme will transition to a market-based Emissions Trading Scheme in 2015.
How will it reduce greenhouse gas emissions?
Firstly, it encourages investment in clean energy sources as these become cheaper relative to sources that are taxed. It also encourages the major polluters to clean up their act, reduce their carbon tax liability and hence reduce their prices compared to their competitors. The compensation paid to the polluters gradually decreases, giving further incentive to move to clean energy.
$14 billion of the carbon tax revenue is to be used directly to encourage clean energy initiatives. This includes $1 billion to improve energy efficiency, $10 billion towards clean energy technology and $3 billion towards renewable energy. A $10 billion finance fund is also earmarked to provide loans for renewable energy. The government has set a target of 20% of power from renewable energy by 2020.
As prices of polluting products such as electricity and gas rise, consumers are expected to reduce their consumption of these polluting products through lifestyle changes. As renewable energy sources become more widely available and relatively inexpensive, consumer demand for these products will also increase. The government also plans to close the most polluting coal-powered electricity plants and replace them with cleaner gas.
It is estimated that 159 million tonnes of carbon pollution will be removed by these measures. Australia’s total emissions for 2010 were 577 million tonnes, giving an expected result of 418 million tonnes in 2020. Their original commitment of a reduction of 5% from the 1990 level of 457 million tonnes gives a target of 434, so they have managed to exceed their rather unambituous promise.
What’s in it for you?
The government estimates that 4 million households will be better off, 6 million no worse and 8 million will be partially compensated for price rises. The average household will pay an extra of $9.90 per week but benefits are set at an average of $10.10.
The tax-free threshold rises from $6,000 to $18,000 per year giving an extra $300 in the pocket, pension payments increase by $338 for single pensioners and $510 for couples, benefits for Family Tax, Income Support and Single Parents are all increased.
Fuel will be exempt from the carbon tax for 2 years, but will then kick in for heavy vehicle diesel and big businesses.
What are the pros?
A carbon tax scheme is relatively simple to administer compared to an emissions trading scheme, as favoured in the EU and New Zealand, amongst others. This also means that it is less susceptible to creative trading practices that do not produce real reductions in emissions.
It provides a strong and permanent incentive to reduce emissions. The price rises in consumer goods will target those who consume the most, generally being the wealthier households. Tax benefits reduce the impact on lower income households, but there is no direct link to spending on carbon-taxed products.
Reducing greenhouse gas emissions leads to cleaner air and a consequent drop in illnesses related to air quality such as bronchitis, asthma, cardiac and respiratory conditions. Research has shown that a 30% drop in emissions in the EU would lead to health savings of 30 billion euros compared to implementation costs of 46 billion euros.
What are the cons?
If too much of the carbon tax is returned to the polluting industries, there will be a greatly decreased incentive for real change to occur. If the carbon tax is too high, it may encourage industries to relocate abroad to countries that have no pollution costs.
Rebates to consumers must be a completely neutral benefit that does not reward people for spending more on carbon-taxed products. Any increase in taxes is seen as a negative by many of the general public and the government may not be able to get the backing from the public that it desperately needs.
Agriculture is not included in the carbon tax even though livestock farming is responsible for at least 20% of global greenhouse gas emissions.
Does it work in practice?
In 1999, Germany implemented their Ecological Tax Reform, which increased the prices of fuel and energy. They then used 90% of this tax revenue to offset public pension costs, reducing non-wage labour costs with the aim of stimulating employment.
By 2003, carbon dioxide emissions had been cut by 20 million tonnes yearly with a projection of 24 million tonnes annually. Employment rose by 250,000 jobs by 2003, partly through the lowering of employer pension costs and partly through increased employment in the renewable energy sector.
Around 80% of the population agreed that the ecological tax had been a motivating factor in reducing their personal energy consumption. This was achieved through simple measures such as turning off lights and appliances when not in use, lowering heat settings, investing in insulation, using public transport and changing driving habits.
Finally, the development and marketing of energy efficient and environmentally friendly products, services and technologies benefited from the increased demand in these areas.
Reducing your carbon footprint
Don’t forget that 25% of your carbon footprint is produced by the food you eat. Find out how to make better food choices that help reduce your carbon footprint at Food’s Carbon Footprint.
Check out Zero Carbon Britain which offers a vision of how it is possible to reduce emissions to zero.
And read The World After Climate Change for the impact that climate change is likely to have on our planet.
Let me know what you think. Do you believe in a price on pollution? Have I got my facts right? Are you prepared to make lifestyle changes to help reduce global warming?