What is carbon tax? Australian politics and environmental issues

Over the last 6 months or so Australia has been preoccupied with a cost benefit argument of the carbon tax. The Australian Labor Government (ALP) want to introduce it and the Liberal Party are vehemently against it. But what is carbon tax in Australia? And why is it important to know about it? This page will go through some background to the debate, some definitions and briefly look at the advantages and disadvantages of a carbon tax.

Environmental changes

Most people now agree that our climate is changing. In Australia the number of record hot days has doubled over the last 50 years. In 2011 Australia experienced bush fires and some of the worst floods in our country for centuries when Brisbane got devastated and other areas all throughout Queensland went under water. Scientists also now know that oceans have risen 20cm in the last 200 years. If they go another 20cm then this would wipe out island communities and cause flooding to some major centres.

We also know that carbon emissions, greenhouse gases and deforestation is contributing to these changes. With prominent spokespeople such as Al Gore and his best selling book An Inconvenient Truth telling us to reduce our carbon footprint, climate change has become one of the highest priorities on many government's agendas and at the same time research in this area has increased with now a proliferation of global warming articles and books available which tackle the question that has now been around for quite some time "What is global warming? And what can we do about it?"

Background in Australia

In 2007 the Rudd Labor Government commissioned Professor Ross Garnaut to do a report on how to address climate change. After some wrangling Prime Minister Rudd announced a carbon pollution reduction scheme which had emissions trading at its core. After some more politiking the now Gillard Labor Government announced in July 2011 that the 500 biggest polluters in Australia would pay $23 per tonne of carbon output. The carbon tax was voted and passed in the House of Representatives in October 2011 and is yet to go through the upper house of the Senate. If it gets passed the legislation will become effective in July 2012.

What is carbon tax

As above carbon tax in Australia will penalise (tax) big polluters for carbon emissions. After a 3-5 year period it is proposed that the pay per tonne system will change to a cap and trade system whereby emissions are capped at a certain level and big polluters will have to buy permits from lower carbon emitting businesses if they wish to increase their emissions. This is otherwise known as carbon credits trading. Carbon tax has taken various forms in different parts of the world based on unique economic circumstances and tax systems.

Economic theory

Carbon tax is essentially an indirect regressive tax (tends to hurt lower income earners). But simply put whilst the carbon tax will raise some $9 billion in government revenue which assist with the ongoing global financial crisis, the main aim is to change how we behave. It is designed to change how manufacturers go about their business, that is to reduce their emissions so they don't pay tax and it is designed for us, the consumer to change how we consume non renewable energy such as electricity.

5 steps of carbon tax in Australia

5. Indepedent targets

A group of independent experts not associated with political parties proposes targets for carbon pricing based on carbon dioxide emissions. These experts consider climate science and what is occurring around the world. The Australian Government has set a target of reducing carbon emissions by 5% from 2000 to 2020.

4. Pricing the polluters

As mentioned above the 500 biggest polluters will initially pay $23 per tonne of carbon emissions then after 3-5 years the market will set the price. Businesses are in the game of increasing revenue and decreasing costs. So carbon pricing is designed to get businesses to innovate to find a way to reduce their emissions. No doubt there will be some polluters who will pass on the cost of their extra tax to consumers. But with the majority of consumers now being more environmentally conscious products of the biggest polluters will be more competitive if they are cleaner and greener. There will also be tax incentives for farmers in the form of carbon credits that will offset tax payable. This depends on appropriate investment in capital to reduce emissions.

3. Household compensation

The Australian Government has pledged to compensate Australian households with nearly half the revenue generated by the carbon tax. Those who earn more will get less. 9 in 10 Australian households will be given cash bonuses to offset price increases and the pension will be increased.

2. Green energy investment

The Gillard Government of Australia says $13 billion dollars will be reinvested into developing green energy technology which is proposed to further reduce emissions. Businesses are encouraged therefore to invest in renewable energy such as solar as well as create a whole new industry of jobs.

1. Helping the environment

Some revenue will be used to protect Australia's fauna and flora for further protection of fragile and endangered ecosystems.

Is carbon tax a good thing or a bad thing?

Nobody likes paying a tax. But the carbon tax is somewhat different as you can directly see where tax revenue will be going as well as the majority of Australians being compensated for the increase in price. The nay sayers hate it mainly because of expected price increases for consumers and businesses. The supporters love it because it is a step forward for protecting the environment and reducing carbon footprints in massive amounts. Will carbon tax be successful in Australia? It may very well be as long as both sides of politics start telling what may be a very inconvenient but necessary truth.

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