<a href="http://www.greenlifestylemag.com.au/blogs/leon#">The Business of Green</a>

The Business of Green

Money matters in the green world, by Leon Gettler.

Carbon price: a game changer


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As of Sunday, we now have a price on pollution and carbon. The significant of this development should not be under-estimated. A carbon price is the most important and transformative changes to the economy since the floating of the dollar and the GST.

And it’s here to stay. For sure, Opposition leader Tony Abbott has sworn a “blood oath” to repeal the carbon tax if, or as is expected when, he wins the election due late next year. Don’t believe it. As the Financial Review points out, it’s not going to happen because business has invested heavily in electricity contracts, forward hedging contracts, mining products, energy management and carbon audit and reporting services. Substantial compensation packages have been paid out to households and businesses. Also, it’s likely to create a legal quagmire.

What doesn’t help the Coalition here is that business is all over the place on the issue. Yes, the carbon price is putting inefficient coal power stations like Munmorrah out of business, but for every loser, there’s a winner. The Business Council of Australia and the Australian Council of Commerce and Industry have campaigned against the carbon price but companies like Westpac, AGL and General Electric have endorsed it.

That is why a survey of experts who work for the heaviest-polluting companies found that most expect a carbon price will still be operating in the future, regardless of what happens at the next election. As reported here, the latest study of expectations about the climate change laws, by the Australian National University's Crawford School of Public Policy, found that some 79 per cent expected a price on carbon to be in force by 2020.

It’s worth noting that no major tax reform that was opposed by a party when it was in opposition has been repealed once that party got into government.

Of course, it’s early days yet and the government is not ruling out dumping the carbon price floor of $15 per tonne minimum price which is due to come into effect once the carbon tax transitions to a fluctuating market-based scheme in 2015. The carbon price floor is crucial because it’s a tool that manipulates a market into behaving a certain way. With a floor in place, the idea is that carbon dioxide permits never become too cheap to justify not undertaking carbon abatement works in a business. The floor plan has come under fire from the energy industry. The government could be shifting because of political pressure over the carbon tax but the Greens don’t want it to fall because it would reduce incentives for businesses to cut greenhouse gas emissions. The commitment to a floor price was made to win support from Green senators. It’s something to watch but in any case, not that reassuring for a tax that’s only been in place for a few days. It’s a worry.

Still, the eyes of the world are now on Australia’s bold experiment with carbon pricing. According to a
report from the non-partisan Brookings Institution in the US, experts are saying America should be going down the same direction. Australia and the United States rank No. 1 and 2, respectively, in greenhouse gas emissions per capita. Australia is about the same size as America in terms of land mass, and the two nations have similar transportation, business and government infrastructure characteristics.

Writing in the New York Times, economist Yoram Baumann and Shi-Ling Hsu, a law professor at Florida State University, says the US should also adopt a carbon tax.

One thing is for certain: the carbon price is a game changer.