By Luis Gutiérrez
This is the first of a three-part article discussing two different perspectives of the recently announced Carbon Tax and the subsequent Emissions Trading Scheme that have been discussed over the internet. This first part portrays a favorable view about the Carbon Tax, represented by Ben Eltham who focuses on its potentially positive effects while recognising its drawbacks and areas that need improvement.
The ‘glass is hall-full’ view:
In his article at New Matilda, Eltham analysed the Carbon Tax and explained why he thinks the scheme could work. The pros he mentions are:
- The price of carbon ($23 per tonne), he reckons, will modify corporate and consumer behaviour in favour of cleaner and less polluting activities.
- Measures, like allocating money for renewables R&D and finance, address a flaw in market-based mechanisms. Markets tend to bias investment decisions towards technologies that currently work, undermining longer-term technologies.
- The 2050 emissions reduction target of 80 per cent represents a 20 point increase from the previously proposed CPRS and is more in accordance with the science of how far Australia needs to decarbonise.
- By tripling the tax-free threshold and adjusting the Low Income Tax Offset, low income citizens will not pay tax until they earn $21,000 per year. This and other measures like increasing family payments, pensions and tax cuts, are examples of using the proceeds of carbon taxation to support the disadvantaged.
- Eltham supports the Treasury’s opinion that the price rises resulting from the tax will be low in most essential costs of living. He mentions the case of electricity, in which price rises due to the carbon tax will be smaller than those already experienced in the last few years, related to the upgrading transmission infrastructure.
Nonetheless, Eltham points out two major drawbacks:
- The over-compensation of dirty industries, and potential for abuse of foreign carbon credits. He cites as example the government plans to give the steel industry extra money, probably because of maneuvers by ALP-affiliated steel unions and not because of the true impact of a carbon price on this industry.
- The potential for the abuse or financial manipulation of overseas carbon credits, which he reckons is the scheme’s more troubling flaw. Like other authors and researchers, Eltham finds the concept of carbon abatement credits “potentially dubious, relying on ‘saving’ carbon emissions from being emitted that none-the-less may still find their way into the atmosphere — for instance if a forest claimed as a credit today is later cut down in 2051”. He proposes extremely careful regulation to prevent the scheme from being distorted by financial innovators with expertise in trading and arbitraging carbon credits, which could flood the Australian market with cheap carbon credits by using lightly regulated abatement schemes in poor countries.
The main point Eltham makes in his analysis is that it is incorrect to expect that pricing carbon alone would do all the work. He thinks that this scheme’s chances to succeed rely on its regulations and policies, which reflect risks of market-based mechanisms, as well as Australia’s mixed economic system in which government investments and regulations interact with decision-making of profit-based corporations and investors.
Considering there are similar schemes already being implemented in other parts of the world, it seems reasonable to examine their effectiveness in decreasing carbon emissions. But this is one of the issues that will be discussed on Part 2 of this article, the ‘glass is half-empty’ view.
By Luis Gutiérrez
