Australia’s Carbon Pricing Scheme

Australia’s Carbon Pricing Scheme

One step ahead for Green, Three steps back for Labor

By Christine Du

Australia introduced its new carbon pricing scheme on 1 July. Under this new law, Australian businesses that annually produce over 25,000 tons of carbon emissions will now need to pay for emission permits. This translates into an AUS$23 charge per every ton of greenhouse gas emitted for about 300 Australian businesses. The country’s mining firms, airline companies, steel makers and energy firms are expected to be hit the hardest by carbon taxes. The actual long-term effects of this new tax are yet to be seen, but judging from the contention and debate it has ignited, the Labor Party has taken a monumental risk at arguably the wrong time.

According to Prime Minister Julia Gillard, leader of the Labor Party, the carbon pricing scheme is the only realistic way to meet Australia’s climate-change obligations since it is the leading emitter of carbon gases per capita in the developed world, at 20.58 tons for each Australian (the average emissions per capita of the US as of 2009 was 17.67 tons). As part of the more extensive Clean Energy Plan, the government intends for these “carbon taxes” to force the nations largest carbon emitters to cut carbon emissions and invest in sustainable energy. This may not necessarily be the case, since affected companies can easily transpose these carbon taxes onto consumers, thereby raising prices and increasing the cost of living for the average household. Should this happen, the carbon tax will ostensibly have little effect in decreasing Australia’s carbon emission but instead become an economic burden on the Australian people. Labor’s main contenders have fiercely defended this point. Tony Abbott, leader of the Liberal Party has dubbed the carbon tax “toxic” tax. He says that it is an expensive and unnecessary policy, and promises to repeal the policy if his party were elected in the 2013 elections.

On the other hand, the policy was broadly embraced by environmentalists, who see it as a long-awaited firm step towards clean energy. Australia has always been heavily reliant on carbon fuels as a main energy source, and its largest industrial firms have been generally reluctant to invest in more expensive sustainable energy sources. The new tax policy is apparently targeted at the nation’s largest emission-producing businesses and firms. Yet this fulfills only one side of the equation. To fully foster development of green energy in the nation, Australia needs also to reform its policy on green energy development, which at the moment discourages foreign companies, typically leaders in sustainable energy, to establish operations in Australia. It seems that the economic impetus for Australian firms to invest in their own sustainable energy projects comes at too high a cost, and putting a price on carbon is likely not enough to stimulate increased development in green energy. Though a discussion on the specifics of the green industry will be a diversion to this article, it is still worth noting that carbon tax can only be effective in combating climate change if it is accompanied by reforms in other fields.

That being said, it is clear that the economic aspect of the carbon tax has garnered much more public attention than the environmental. Several large-scale protests against the carbon tax took place promptly after it came into effect, as Australians grew fearful of its impact on the nation’s economy. In reality, however, the economic impact of these taxes on the average household is surprisingly low. The government has allocated billions of dollars to compensation plans to minimize the impact of carbon pricing on households and businesses. These funds will be actualized in the form of tax cuts, welfare and increased pension. As a result, the increase in household costs due to the new tax is estimated at only 0.7%. Thus Abbott’s accusations are clearly over-exaggerated and lack solid support. If the economic reality of the carbon tax is not an ugly one, why is this policy so unpopular among the Australian population?

From a political standpoint, the new legislation seems to have come at a very bad time and has consequently proved a political disaster for the Labor Party. It came at a time when concern for the environment is grossly undermined by the fear for economic instability. With the economic collapse in American and Europe, Australians are unprepared for any policy that poses even a minute threat to their economy. Furthermore, Australia’s price on carbon is significantly higher than those in other developed countries (the European Union charges only about 8 Euros per ton, which is less than half of the Australian carbon price). It seems that Australia’s harsh carbon-pricing laws have come at a time of low global commitment to climate change, isolating the Labor Party from its cause. To the Australian, carbon taxes have become an economic issue instead of an environmental one, and the Labor Party has thus ostracized itself from the population. This can explain the dip in support for the carbon policies from roughly even two years ago, roughly 2/3s opposition when the policy actually came into effect.

The passing of the Clean Energy Plan is a pivotal moment for Australia’s commitment to environmental protection, but it came at a bad time. Not only has it endangered the Labor Party and probably squandered its chances of winning the 2013 Elections, it has jeopardized the impetus for action towards clean energy. If carbon pricing is seen to have tried and failed, the instigation of any radical clean energy plan in the future will become exponentially harder. Nevertheless, it is still too early to draw a decisive claim regarding the effectiveness of the carbon tax law. Hopefully it will survive long enough to make an observable impact on climate change and justify its own existence.

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