Economics: Price on Intangibles: Carbon Tax.

Will a carbon tax really work in Australia?

Well, firstly what is a carbon tax?
Wikipedia sums it up pretty well.

The major ideologies behind a carbon tax is for consumers and firms to reduce the usage of carbon
which is apparently affecting the global climate.
Let us assume that climate change is in fact real and occurring.

So can a tax in such a context really have a major impact on consumers behaviour?

1. Essentially it may shore of jobs as firms.
Firms will retain wages and may have to retrench or  outsource overseas.
2. A carbon Tax will hurt consumers (Graph)
The graph illustrates reduced consumer surplus.
The only way to counter this is if the Carbon Tax revenue is pumped back into consumer benefits.
Obviously, households expenditure will diminish and consumer confidence will fall.
3. Non-carbon based industry exporters will become less competitive.
Hurting domestic firms and making Australia less competitive.

However, these are just some of the issues of why a carbon tax will not work. Certain factors like accountability of a non-tangible good will be difficult or near impossible.

“A levy of $10 a tonne would be pointless because it would have no impact on behaviour,” –MACARTHUR Coal chairman Keith De Lacy

This basically sums up the position of a carbon tax. Firms will pass costs on to consumers and they will either lose out or have to readjust household consumption.

Now, so what is there is a tax on carbon?

What will the impact be on global climate?
What about other gases such as methane?
Will there also be a methane tax?
What about farm animals that actually produce more climate changing gases than human created emissions?

Stay tuned for one policy implementation that may help in the long run.


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9 responses

  1. Is your argument that every additional cost incurred will be past in to consumers thus in reality there will be no reduction of carbon at all? 
    What if firms are unable to pass down the price as it will reduce their profit margin hence engage in R&D to find alternative means of production? Honestly carbon permits are better, but a carbon tax can still have a tangible effect. 

  2. Yeah, that is somewhat of what i am trying to say; let’s face it, carbon based products (which is everything..lolx) is pretty inelastic, so a major price flutuation will not help much.

    For ure 2nd point, let’s look at it objectively; from a firm’s perspective:
    1. Firm’s interests are shareholders and itself as the firm, so
    2. They will do whatever it takes to maintain wages and also maintain profits.
    3. So what will happen? outsource jobs to overseas and also re-diversify factors of production to maintain profits.

    But the final point which im trying to get across is that, the goal for the carbon tax is to reduce emissions, however, it is basically a tax on carbon..

    emprically, i do not think it will make a huge difference.

    Climate change starts from the consumer.
    Focus on renewable energy and help people adapt a climate friendly way of living.. such as SA has, garbage limits, $$ incentives for recycling and even the cost to buy plastic bags.

  3. Okay then why is the government pushing for it. If we go with the theory that a politician’s primary objective is to get re elected, this policy is clearly not a populist view. They would loose support from most firms.

    • Whether the govt is pushing for it or not, it is still an ill informed policy. Adevertising and lobbying campaigns led by the govt or companies will change the public opinion.

      The public will argue that its is not cost effective for the consumers.

      The govt will argue that we cannot put a cost on climate change and that ‘a govt that cares for the world, is a good govt’

      so as a voter, the fundamental decision, is, will u vote for a govt that cares for your garden and ‘the future of your children’ or vote for a govt that doesn’t?

      • The main push for this policy is the collection of tax revenue. The implementation of this policy is going to generate a lot of income for the government. Thats the driving impetus.

        Then there is a matter of the distribution of the revenue. If the government invests the revenue into building better infrastructure etc then the consumer and firms would benefit in the long run. Or even subsidize these carbon firms. So is this policy really hurting the consumers?

        On the other hand, the government may spend the additional revenue on defense and that has no viable trickle down effect.

        Either way, I agree that this policy actually does not improve the environment significantly. However long term benefits should be considered.

        I still think that carbon permits is a better alternative.

      • An increase tax revenue will lead to higher govt expenditure. Which will lead to increase in AE..and we know in the long run, that will only lead to inflation of prices.
        The multiplier effect will occur. However, my main concern is actually consumer confidence.

        If its 1 thing that will drive higher gdp in the long and short run is consumer confidence. we want people to be confident to go out and buy stuff they don’t need.

        The premit system is good, but that’ll probably just lead to the big firms buying off all the permits. The permits will make marginal abatement costs for smaller firms unaffordable and hence they will just end up selling it to big firms.. and what do we get? monopolies. Monopolies are not bad, as long as their goals are not to make profits, but increase consumer surplus.

  4. At the end of the day here is an interesting youtube video to prob both your minds, enjoy!

    Viva

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