The Carbon Tax Debate

13 Jul

On 10 July the Australian government announced it would introduce a carbon tax at $23 a tonne in July 2012, rising 2.5% annually plus inflation and moving to a market-based emissions trading scheme in 2015.

Judging by the reaction of Australian media and commentariat, you’d be forgiven for thinking Prime Minister Julia Gillard had announced the new date of the Rapture.

Inevitably, the he said/she said slinging match between Julia Gillard and Leader of the Opposition, Tony Abbott, started immediately.

While the science surrounding climate change should stand as irrefutable, it appears the economics is still disputable.

Here’s a taste of some of the better commentary:

Frank Jotzo writes in The Conversation:

Although the carbon pricing scheme has its warts, the negotiations between Labor, the Greens and the Independents have also produced some genuinely positive outcomes. The package will not bring big reductions in emissions in the short term, but it can be the first step on the long road to a lower-carbon economy.

However, as Bernard Kean writes in Crikey:

Regardless of how well Labor, the independents and the Greens argue the case for the carbon price package in coming days and weeks, Tony Abbott has already secured a major victory. The fall in consumer and business sentiment in recent months across a range of indicators is attributable to several things, including worsening conditions overseas, but many economists are attributing it to concerns about the carbon price scheme.

Concerns, of course, that have been ruthlessly fanned by Abbott, exploiting uncertainty and lack of detail to warn the sky would fall in, driving up household costs and endangering jobs.

The fact that it’s now clear few jobs will be endangered and those households that aren’t compensated face only trivial price rises, while inconveniencing Abbott as his makes his way around the country, is secondary to the fact that voters appear to have taken on his counsel of despair.

While the public may still be scratching their head about the carbon tax and how it impacts them, economic correspondent Peter Martin writes on his blog:

Gillard’s policy can be understood. It takes on board the two key lessons learned in economics over the past two centuries – that relative prices matter, and if you change them you change behaviour. Want more babies? Offer a baby bonus. Want more people to work? Raise the tax-free threshold, and so on.

…her plan eschews the creation of a massive new bureaucracy to hand out grants for worthy programs to cut emissions…And there’s something else. Gillard’s scheme offers certainty – not just for the next nine years as does Abbott’s scheme, which spells out a plan to achieve emissions reductions until 2020 and then stops – but to 2050 and beyond.

Whether firms like the prices imposed by the Gillard scheme or not, it lets them do the sort of planning they need to do when they are considering installing long-lived equipment such as new power plants or bidding for firms…

To see more of what the experts think, check out the great commentary on The Conversation.

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