The Australian Carbon Tax Introduced by Julia Gillard. Pros and Cons and If It Will Succeed

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| 2011|
| Australian Business Academy
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[The carbon tax]|
Economics Assessment on the Carbon Tax. |

The Carbon Tax - Economics

The carbon tax will reduce emissions and have a positive effect on pollution minimisation.

Nearly every news day we hear about the carbon tax. Many support it and many oppose it. Julia Gillard says it will cut emission whilst others just think it will drive up prices. The analysis undertaken by simulating the impact of a carbon tax of $23 a tonne reveals some interesting outcomes. For example, in the short run, Australia’s real GDP may decline by 0.68 percent, consumer prices may rise by 0.75 percent, and the price of electricity may increase by about 26 percent as a result of the tax. Nevertheless it allows Australia to make a substantial cut in its CO2 emissions. The simulation results imply an emission reduction of about 12 percent in its first year of operation. The tax burden is unequally distributed among different household groups with low-income households carrying a relatively higher burden. Many think that the carbon tax will impact the large polluting industries such as mining and electricity with respect to reducing the pollution they produce but others think they will continue on with normal procedures and just pass on the tax onto consumers. Today I will be trying to prove or disprove the statement of: “The Carbon Tax will Reduce Emissions and have a Positive Effect on Pollution Minimisation” The Australian government has announced that it will price carbon by introducing a carbon tax from July 1st 2012 with a view to transforming the policy to a market-based emissions trading scheme in three to five years time from its introduction (Gillard, 2010). The tax will begin as a fixed price of $23 per tonne of CO2. The government also has its plan to reduce Australia’s emissions to 5 per cent below 2000 levels by 2020 as the voluntary target in the absence of a logical international agreement on the level of carbon emission reduction. Any policy for reducing carbon pollution, whether it is a carbon tax or tradable emission permits, will increase the price of energy. The tax is likely to have an economy-wide impact affecting Australia’s GDP, industrial structure and trade. The policy to cut emissions is regressive and the tax burden will be unequally distributed among different household groups with low-income households carrying a relatively higher burden.

This table shows the cost effect on households both weekly and annually with respect to the imposed carbon tax. The poor people have to pay an extra four and a half dollars a week in electricity whilst the richest only pay 6 and a half dollars. Annually the richest only pay an extra $117 than the poorest sector for electricity. This basically shows that the carbon tax will not impact the rich people as much as it will impact the poor people. However in noting this, the government have promised to help low income earners buy giving them stimulus packages to adapt to the rising cost of electricity and other products as petrol and groceries’ prices will be impacted by this tax.

This graph shows the cycle in which the government will support struggling households

This graph shows that the government will be taxing the top 1000 polluters and it acknowledges that the industry will pass on the costs so it will develop stimuli to assist households. So if the government recognises that the industry will pass on the cost and create the same amount of pollution, why did they create this legislation?

This graph illustrates the sensitivity of emission reductions to different levels of carbon tax. This curve can be interpreted as the marginal decrease cost curve. It is obvious that the carbon tax is effective at reducing emissions especially at lower tax rates. The horizontal line reflects the emission cut under $23 tax (12.4 per cent). The introduction of a carbon tax in...
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