Carbon tax

Carbon tax, like any other tax, is not something anyone wants to pay.

My goodness, don't we pay enough taxes already? Now a new one for just getting on with what humans have done for millenia. A new tax on the activities that provide global goods and services, food and a means to charge your iPad. Surely there are taxes enough.

Who would want to imagine life today if the industrial revolution had not happened fuelled as it was by coal and then oil? For most of us it would be a lot less luxurious and exciting. No, it makes no sense.

Yet taxes should be a good thing. They spread the cost of large-scale infrastructure (roads, railways, public buildings) and services (education, health, security) relatively evenly across the community. In principle they they are raised to support public good so long as we understanding public good.

A tax on carbon is a climate change legislation initiative. It is the most direct way to price carbon. And we do that to make activities that emit carbon to the atmosphere more expensive on the assumption that people will do things less if they are more expensive. So this tax is designed to reduce carbon emissions by changing behaviour of either emitters or consumers who purchase carbon intensive goods and services from heavy emitters.

And, as with all taxes, revenue is raised that can be used by governments for the public good. Perhaps to invest in climate change adaptation although more usually with carbon, to soften the blow for industries and consumers that are unfairly exposed to the new tax.  

Business don't want taxes but at least they understand them. Once set, there is some price certainty in a tax. Exposed businesses know what they are in for, and even if they don’t like it, they can plan ahead.

But it is also a blunt instrument. And just like hitting with a stick, it changes behaviour through avoidance not incentive. There is no benefit for those liable, only the prospect of reducing or avoiding the pain imposed by the liability.

Detractors would also point out that once revenue is raised there is no certainty it will go toward solving climate change issues. Government coffers are usually stretched and easily soak up any spare cash into budgetary black holes. 

Such is the story with any tax on a specific activity. Why is it necessary and will it achieve the desired policy outcome?

No carbon tax in Australia

Late in 2011, the Australian government passed into law [since repealed] a climate change policy that began with a fixed carbon price — essentially a carbon tax — as a transition to emissions trading. 

Entities due to emit more than 25,000 tCO2e per annum according to the system of national carbon reporting called NGERS [National Greenhouse and Energy Reporting] had to pay a fixed price of $24 on each tCO2e emitted.

Entities that emitted large volumes of greenhouse gases (power stations, industrial plants and landfills) purchased permits equivalent to their emissions in the previous tax year.

Even before it came into effect the carbon price was hugely unpopular. This is despite the fact that it is levied on businesses not consumers. Indeed consumers will benefit from a raising of the income tax threshold that the government decided was a good use of the revenues.

Then, just as industry and business was acclimating to a carbon tax, the incoming conservative government repealed the legislation.

Back to business as usual.

The conundrum

A price on carbon makes some hefty assumptions about what can and should be done about climate change. It emphasises emission reduction as the main objective and that market forces will be they way to achieve it.

There is still enough uncertainty about climate change and what should be done about it to make people uncomfortable with climate change legislation that imposes any kind of direct cost.

This may be because

• we don't believe we can fix the problem, or  

• we just don't believe there is a problem that needs fixing, or

• we just detest taxes.

Either way action on climate change remains a troublesome issue for many government and for international agreement.

Climate change wisdom would lean towards a price on emissions and using revenue to promote alternative fuels and climate change adaptation, so long as there was realistic options for biosequestration offsets... but only because this is a way to ease through a global transition away from a fossil fuel economy.