Decoding the carbon tax

G Magazine

What would a carbon tax mean, and how would it work?


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Yesterday, the Federal Government’s Clean Energy Bill was passed through the lower house after months of discussion and heated debate. If the to-and-fro of the pollies has left you no clearer on what it is and how it is actually supposed to work in the real world, here’s the clarification you need.

So, what is a carbon tax?!

Well firstly, the carbon tax (or carbon price) is actually a price on all greenhouse gas emissions, not just carbon dioxide. These emissions also include gases such as methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons and sulphur hexafluoride, all listed in the Kyoto protocol. Typical sources of emissions are fuels such as petrol, diesel, natural gas, wood, LPG coal, and biofuels. They are also created by refrigerants used in fridges, air conditioners, and car air conditioning systems. Or they can be released through organic waste such as food, paper, green waste, wood, rubber, nappies, and natural textiles.

The Gillard government wants to charge the nation’s biggest polluters from July 2012 with a carbon tax. It will be a fixed price for the first three to five years before full trading under an emissions trading scheme (ETS) begins to curb pollution. (Click through to the next page for information on the ETS).

The Gillard government proposes to put an initial price on carbon, estimated to be somewhere between $20 and $30 a tonne on carbon dioxide equivalents; at this stage the price is intended to be $23 per tonne. Carbon dioxide will be the reference gas for all the other gases. These gases, for example methane from landfill and nitrous oxide produced by farming biofuels or burning fossil fuels, will be converted into their carbon dioxide equivalents and then taxed.

Will it actually reduce emissions?

The Government’s climate change advisor Ross Garnaut says there are only two ways to reduce emissions: putting a price on them or bringing in laws to control them. In his report, Garnaut says: “The former, market-based approach imposes on individuals and firms a price that reflects the external costs of carbon emissions, so that they take them into account in their private decisions on what to consume and to produce. It causes consumption of every item to be discouraged if its production embodies a relatively high degree of carbon emissions and to be encouraged if it embodies emissions in relatively low degree. It causes production of every item to be discouraged if it is relatively emissions-intensive and encouraged if it embodies relatively low amounts of emissions for the value of the product.”

In other words, a carbon price will increase the cost of certain high-impact things, such as petrol and electricity. As a result, people will be forced to think twice before popping into the city in their car instead of taking public transport. They will be more likely to switch off their lights when not using them. It will encourage businesses to do things such as analyse their energy and water usage, transportation, waste and garbage. They would also look at whether they use recycling services. They would probably establish baselines for the amount of water, energy and waste generated and they are more likely to start monitoring and measuring progress against designated targets to help assess the effectiveness of sustainability programs and identify areas that need improvement. In short, it will give businesses a financial incentive to produce fewer greenhouse gas emissions.

What will it mean for Australian industry?

Prime Minister Julia Gillard has announced it is intended to affect Australia’s top 500 biggest polluters. By 2020, this is expected to cut carbon pollution by 160 million tonnes a year, the equivalent of taking 45 million cars off the road.

Industries that will be most affected by the carbon price include coal, iron ore, steel and aluminium. It will hit their earnings because it will increase costs.

Certainly, a large section of the business community has come out against any sort of carbon tax. Australia’s largest and most representative business group, the Australian Chamber of Commerce and Industry, representing 350,000 businesses from small to large, even opposes a price of $10 a tonne.

That said, a number of large businesses, such as BHP Billiton and Westpac, have come out in favour of a carbon price and trading scheme.

The Productivity Commission produced a report saying that a carbon price is the most effective way of reducing emissions.

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