What IS a carbon tax? The 2min cheat sheet.

What actually IS a carbon tax? What does a price on carbon mean? Anyone? We asked MM’s newly appointed, News Editor, Rick Morton to break it down into easily digestible pieces. Gulp…..

The good thing about carbon is that it is everywhere. We’re made of it. It’s in the ground. We can measure how old things are by carbon dating them. Carbon is the Eddie Maguire of components on Earth. But when you burn it, it creates carbon dioxide. It’s a heat-trapping gas and when there is too much of it, well, it starts to affect our climate. The scientific consensus is that human-induced carbon dioxide increases in the atmosphere is a major contributing cause of global warming. Not the only cause, but a big one. There is debate around this, which is a good thing, but the majority of scientists do err on the side of caution here.

So, barring last-minute interludes from Captain Planet himself, how do we even attempt to save the world? One way Governments around the world are looking at is by putting a price on carbon. By taxing pollutants. What does this all mean?

You lost me with the science and the tax stuff, what are we doing?

Last week the Julia Gillard Government announced we would put a price on carbon this year, which is called a carbon tax. It taxes those who create carbon dioxide.  There is some debate about whether the PM lied before the election about bringing this in but right now we are just  dealing with the mechanism of a carbon tax and what it means.

Carbon would be priced per tonne released into the atmosphere as carbon dioxide. So right away you can tell that the more you pollute, the more you will pay. And, at least in theory, it creates a market driven mechanism (fancy talk for ‘money and profits talk’) whereby greener, cleaner and more environmentally sustainable business practices are built into the way we operate. When things get more expensive, we tend to look for alternatives that won’t cost as much. In a carbon tax environment, we would be looking for alternatives that didn’t release as much carbon into the atmosphere.

 

So, will it work and what are the good points?

The theory works fine. Worldwide, we release 27 billion tonnes of carbon into the atmosphere yearly so getting that number down is not a bad goal (even if you deny climate change exists or is dangerous to the planet). The Government has announced it will begin from July 1, 2012 and that all of the money raised will go back to homes and businesses in the form of rebates, credits and grants to help them switch to more renewable sources of energy such as solar, which is expensive to adopt.

Yeah, but this is going to be expensive isn’t it, for all of us?

 

It’s hard to tell, but probably. Nothing worth doing is ever easy, but then the costs of living are already sky high across a number of areas. And the truth is, Australia is one of the first countries to adopt a systematic method to try and control carbon emissions. We’re a polluter, for sure, but the effects our reductions will have on the worldwide total will be negligible. What’s the price of showing leadership on the issue? Good question. If the Government can configure the money coming in from the tax in the right way, it should cushion the blow to homes and businesses. They won’t tax you directly but they will tax the producers of electricity and fossil fuels (petrol, for instance) which homes and businesses then buy…so the cost will be passed to consumers in one way or another.

What ‘price’ have they set?

Well, there isn’t one yet. They’ve just told us that there will be. Best estimates, at this stage, indicate the price will be either $23 or $26 per tonne or carbon emissions. The Greens advocated previously for an interim price of $23 for two years but all other analysis points to $26 being the preferred cost.

What will and won’t be included under the scheme?

 

At this stage the PM has just announced that there will be one, but months of checking with homes, businesses and the community will apparently inform what industries are taxed. Will agriculture be exempt, for example? Or the transport industry? Who knows. Time will tell.

 

Who else has a carbon reduction scheme?

 

In one form or another, Finland, Sweden and Great Britain have a carbon tax or policy to reduce carbon. Boulder, in Colorado, was the first area in the United States to adopt a carbon tax. The reality is while talk around the world is all about how to reduce carbon, very few nations have committed to any scheme.

 

Where is the opposition in all of this?

John Howard announced in 2007 that his then Government would set up an emissions trading scheme, couching it in terms that made it clear he would do so with the economy in mind. Malcolm Turnbull, the Minister in charge of the scheme, took the same stance when he became leader of the Opposition. The Opposition’s now climate change spokesman Greg Hunt wrote his thesis on carbon pollution, titling it ‘A tax to make the polluter pay’ but there is no support from them as a party for the current Gillard scheme. They claim the tax will push up electricity bills by $300 per year to homes, though apparently calculated this figure on Australia’s total carbon output without factoring in the tiny fraction of this made up by residences themselves. Still, there’s no denying it will push prices up. The Greens are fighting for the tax to include the transport industry, which the Opposition claims will increase the cost of fuel at the bowser by 6.5 cents per litre. Mr Abbott, before the last election, advocated a climate change policy which sought to reduce carbon reduction through ‘direct action’ – a $3.2 billion fund which would reward businesses and the like for reducing carbon without a cost to consumers. The Rudd Government said it wouldn’t work.

SA Liberal Senator Mary Jo Fisher likened the Government’s change of policy on the Carbon Tax to the Hokey Pokey in Parliament yesterday:
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So that’s that?

 

Almost. The tax, as flagged by the PM, will stay for three to five years before morphing into a cap and trade scheme. There is a difference between the two. The tax, for one, is a lot simpler. A cap and trade scheme is hard to get right, hard to implement and takes time. A cap and trade scheme caps the amount of emissions with a set of targets which then allows companies and polluters to trade allowances at fluctuating prices up to that cap level. Those with money will be able to afford to pollute more, in theory. This system also has the potential to be tricked, or ‘loopholed’ which is hardly good for the environment. The tax, as discussed, keeps the price stable but allows emissions to vary. But of course, in our experience, businesses and homes will try and reduce their costs wherever possible so there is arguably less of a chance for a tax to be ‘cheated’.

Personally, I’m of the opinion that we need to rip the bandaid off and do it. It being something. Anything. Even if it’s just a little nudge to start us off. We don’t want making improvements to our environment to be the home renovation project that never gets off the ground, despite promises to the contrary. Best we get the hard stuff out of the way now.

Treasurer Wayne Swan, to my mind, said it best:

“There is no cost-free way of dealing with climate change and reducing carbon pollution. There’s a responsibility on anyone who aspires to lead our country to face up to that, because our future prosperity, jobs in our community, depends upon governments dealing with the long-term challenges.”

What are your thoughts on the carbon tax? What do you think we should be doing to combat climate change?