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What price for the carbon tax now Australia has dumped it? Part One

What price for the carbon tax now Australia has dumped it? Part One Anthony Harrington

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One of the saddest things about democracies is that it is extremely difficult for politicians to do the right thing when the required course of action would create short term pain for large numbers of people. Arguing that we should take some pain now, to avoid much greater and more long lasting pain later, is extremely difficult. People may listen and some may even nod in agreement, but they generally end up voting for the other guy.  The carbon tax falls precisely into this category.

For a variety of historical reasons, Europe and the UK have been the most receptive to the idea and have gone a long way towards getting a working system off the ground. However, the costs associated with implementing a carbon tax hit electricity generating companies and big manufacturers, and they pass on the pain to the consumer, so the more meaningful (i.e. steeper) the carbon tax gets, the more push back there is from consumers - and, of course, from business. Which brings us on to the interesting question of how high the carbon tax should be. Set the price too low and all you have is a very expensive fig leaf. However if the price is high, and there are arguments that the "correct" price is somewhere north of $1,500 a ton instead of the $20 to $200 that we are currently seeing, then industry virtually grinds to a halt and consumers find themselves with energy and other bills that drive them to bankruptcy. Go down that road and the push back from the consumer will topple governments in short order - and kill the carbon tax in the process.

Interestingly, a US fact sheet on carbon pricing around the world, from the Environmental and Energy Study Institute, shows that the EU's Emissions Trading Scheme saw carbon prices fall to under €10 a ton ($12) in 2012. The US Regional Greenhouse Gas Initiative, which compels power plants with generating capacity above 25MW to participate in carbon allowances, prices a ton of carbon at somewhere between $2.06 and $3.51. Compare these prices with a study by the Stockholm Environment Institute, Climate risks and carbon prices: revising the social cost of carbon, where some plausible scenarios suggest that the real price should be somewhere north of $1,500 a ton, and the efforts to date the various carbon pricing initiatives seem somewhat farcical. Nevertheless, it seems that even the current low pricing being accorded to carbon is too much short term pain for some to bear.

It is no accident that perhaps the major plank in the winning party's platform in the recent Australian elections was a promise to dump Australia's embryonic carbon tax. The new Australian Prime Minister, Tony Abbott, is on record as calling climate science "absolute crap" and ran on a pledge to kill the carbon tax and other climate initiatives introduced by the Labor Party government. Australians gave the matter some thought and voted in droves for Abbott. His party and campaign were heavily supported by the Australian mining and oil and gas sectors and his government has vowed that scrapping the carbon tax will be their "first order of business".

Where does that leave global initiatives to implement a universal carbon tax? At the very least, even the most optimistic supporter of a carbon tax would have to admit that it is "unhelpful", and most would say that it is near disastrous. If you are not a climate change denier, and many are, then a carbon tax looks like one of the fairest, and least costly ways of rowing back the age old business practice of "externalizing costs". Of course, unless specifically prevented from doing so, businesses will try to take advantage of society's indifference in order to push a significant proportion of business costs off their books and onto society at large. If you can get away with dumping your industrial waste cost-free into a river, then it is the larger society who ultimately picks up the bill for the pollution - in increased medical claims, ruined landscapes and so on.

Similarly, if climate change and global warming lead to wilder weather events, we all pay the price.

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Further reading on climate change and industry:

Tags: Australia , Australian elections , carbon price , carbon tax , carbon trading , climate change , climate denier , emissions trading scheme , Environmental and Energy Study Institute , global warming , Labor Party , oil and gas , Regional Greenhouse Gas Initiative , Stockholm Environment Institute , Tony Abbott
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