Tax Law

How the carbon tax has come back to haunt the Australian government

July 26, 2021

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It was a spontaneous comment after a few drinks, delivered with a belly laugh by a then Prime Minister a few years ago.

“The difference between Labor policies and ours is that Julia Gillard put in place a system where big polluters pay Australian taxpayers. Tony changed it so that Australian taxpayers pay big polluters, ”the minister said.

That policy was of course the carbon tax.

10 years of inertia in terms of climate policy

A decade ago, one man’s plan irrevocably disrupted Australia’s two major parties as they neared consensus on climate change, the most divisive issue of the Australian political century.

It was introduced by the Gillard government in 2012, dumped by the Abbott government as soon as it came to power, and replaced with a tax subsidy of more than $ 3 billion paid to claimants who pledged the CO2 -Reduce emissions.

It would be fun if it wasn’t so tragic.

But the joke is on us now and the tragedy is that it costs us dearly.

Australian companies are on the verge of a carbon tax.

Not Canberra, but Brussels and Washington with the increasing possibility that Ottawa, Tokyo and even London will follow suit, apart from free trade agreements.

On the third turn of the wheel, Australian polluters pay foreign taxpayers only for the privilege of exporting their goods.

It is a development that damages profits, costs jobs and affects our export volumes and ultimately the tax burden of our own government.

Much of the developed world has started thinking about the idea of pricing CO2 emissions.

They also sparked the idea that there is no point in putting a carbon price at home if renegades like Australia don’t follow suit.

To balance the field, goods from any country without a carbon price, such as Australia, are charged a carbon tax.

Where did it come from?

It all happened within a few weeks.

One minute the European Union announced its carbon limit adjustment mechanism, and the next the United States began making similar noises.

Trade Minister Dan Tehan was appalled.

It is “time to rethink our dreams of changing lakes and trees”

Scattered dwellings in “endangered” areas need to be replaced by sustainable, resilient community models, according to researchers.

“Australia is very concerned that the EU’s carbon adjustment mechanism is just a new form of protectionism that will undermine free trade around the world and affect Australian exporters and jobs,” he said.

The only problem with this argument is that Australia was already exploring the exact same option back in 2012 during the short term of the carbon tax.

At that time it was recognized that corporations can simply relocate production abroad to avoid impost.

Oddly enough, despite the rapid deterioration in Canberra-Beijing relations, our greatest trading partner could become one of our greatest allies in this gathering storm.

Because even though Beijing only launched the world’s largest carbon market last Friday, many believe that it will be ineffective at best and a farce at worst.

Its national carbon market has way too many credits, so its carbon price is way too low – around a tenth the price of carbon in the EU.

In addition, large energy consumers such as steel are excluded.

Unless prices rise dramatically, there is little likelihood of behavior change or an impact on emissions, and it is feared that the entire strategy is little more than a contrivance.

Why price carbon at all?

Many decisions in our life depend on the price.

Even when it’s not about money, we often calculate whether the benefits of a particular course of action outweigh the potential costs.

What is a carbon tariff and why is Australia being devastated by it?

There is growing pressure on Australia to develop serious climate protection policies or to pay millions for our emissions.

When it comes to public order, we learned long ago that one of the easiest ways to change behavior, such as limiting the health effects of smoking, is to tax goods and services – in the case of smoking Tobacco.

The higher the tax, the fewer people will smoke and the less likely they are to start smoking at all.

This has a double impact on public finances.

The government brings in more revenue, at least until people give up.

More importantly, the health system costs less to run as a harmful health factor is eliminated.

In the early 1980s, when scientists first thought carbon emissions were harmful to the environment, a group of American economists at Harvard argued that climate change was an unrecognized cost.

Not only was it barely visible, the real damage was likely to be seen in the coming generations, well beyond the normal investment horizon.

The fossil fuel industry railed against the proposal for a CO2 tax in the United States.

AP: Ben Margot / file

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At the time, they argued that a tax on carbon emissions from all sources was the most efficient way to deal with the problem, and Washington agreed for a while.

However, it didn’t take long for the fossil fuel industry to crack down on the proposal.

It was then that Republicans changed their stance.

Instead of a tax, they preferred a complex market-based trading system that sets a price for CO2.

The bottom line is that the US never put in place a national system, even though different US states have carbon prices.

That should change.

Here at home, both sides of the house agreed that a CO2 price was necessary.

In 1997, then Prime Minister John Howard struggled with ways to deal with carbon emissions, but it took nearly a decade before he finally announced an emissions trading scheme in 2006.

Kevin Rudd was elected on a 2007 climate change platform, but his emissions trading system initiative crumbled under the weight of the political battle between his government, the coalition and the Greens.

From then on, climate change became toxic when then-opposition leader Tony Abbott made the switch from science to ideology.

Does a CO2 tax work?

There is a simple answer to that.

The unfortunate Australian carbon tax only lasted two years.

But as the graph below shows, it had an immediate impact.

Annual CO2 emissions in Australia between 1900 and 2019. (

Delivered: Global Carbon Project; Carbon dioxide information analysis center

)

Emissions fell almost immediately after their inception as companies switched to technologies that emit less.

This price signal had an effect.

When it was disposed of in 2014, CO2 emissions started rising again almost immediately.

Emissions have leveled off since then, possibly due to the shutdown of some large coal-fired power plants over the past two years.

While economists believe carbon taxes are the preferred way to price emissions, politically they have been difficult to sell.

Nobody likes to pay more taxes.

According to the World Bank, around 45 countries are subject to a carbon price, but only a few use a carbon tax.

Even the Gillard government’s CO2 tax should return to a market-driven trading system similar to that in Europe.

However, there is no such reluctance to impose a tax on foreigners, as we are about to discover.

Which industries will be affected by marginal taxes?

Mark Carney, the former head of the Bank of Canada and more recently the Bank of England, gave a blunt assessment of our prospects at a conference organized by the Australian Council of Superannuation Investors last week.

The United Nations special envoy on climate change and finance, Carney said the world tends to enforce climate policy through trade measures and Australia needs to step up its response.

EU legislation is still in rough form but includes aluminum, iron, steel, cement, natural gas, oil and coal.

The immediate effects of CO2 border taxes are unlikely to cause any major harm to Australia.

Japan plans to reduce its coal imports and the EU will tax coal higher. (Flickr: Eyeweed)

Europe only absorbs 3 percent of our total exports, and while our sales to the US are much higher, they are not carbon intensive.

The biggest problem will arise when the US imposes border carbon taxes on Chinese goods.

As our largest export destination, especially for iron ore, any action against the Middle Kingdom will have an immediate impact on us.

Given the rapidly escalating tensions between the superpowers, that is very likely.

Then there is our second largest trading partner.

Japan announced late last week that it would radically revise its emissions targets and announced an accelerated plan to cut imports of coal and LNG, two of our largest exports.

The federal government has long rejected any form of CO2 pricing and has not even committed itself to achieving net zero emissions by 2050.

But the events of the past few weeks could force his hand.

Otherwise, she runs the risk of being trapped on the wrong side of history at a high cost to the economy.