What is the carbon price?
You’ve probably heard talk about carbon tax, carbon price, emissions trading scheme with a fixed price, fully capped flexible emissions trading scheme and so on. The information is often confusing and sometimes misleading.
Here are the key points:
- The carbon price will make it more expensive for the businesses that are covered by the scheme to emit greenhouse gasses. Therefore, companies that reduce the amount of carbon dioxide they emit will save money and have an advantage over those that do not.
- For the same reason, products and services produced by companies that have high carbon emissions will be more expensive than products and services produced by companies that have low carbon emissions, or reduce their emissions.
- As a consumer, you will have a choice – keep buying the more expensive products and services (those heavily impacted by the carbon price), or choose to buy the cheaper products (from companies who have reduced emissions and hence have lower carbon bills). The government is assuming that many people and businesses will want to buy the cheaper products and services that are produced with less carbon emissions. This provides an incentive for all of those big emitters who are covered by the scheme to reduce their emissions by finding ways to produce the same goods or services with lower greenhouse gas emissions, so they remain competitive with their cleaner competitors.
What will the carbon price mean for me?
A lot of the debate has focused on the impact the carbon price will have on Australian households. Again, much of the information is confusing or misleading.
Key points:
- Initially, the carbon price will mean that products and services get more expensive according to the amount of carbon emissions involved in their production. Most things we use involve some level of carbon emissions, so prices will go up. Products and services that are carbon-intensive will go up more than those that do not.
- But there will be compensation! Importantly, the carbon price package includes compensation for low and middle income families for soem or all of this increase. So, for example, the Climate Institute has estimated that prices will rise by $2.68 per week for the average household. The government would give this household (provided it is on a low or middle income) an equivalent $2.68 or more in compensation.
- You might even save money. As described above, you will receive compensation if you have a low or middle income, but if you then choose the products and services that involve lower carbon emissions your household could even save money.
- Over time, the carbon price should make low carbon products and services cheaper, because there will be more investment and more research and development in cleaner production.
If people are compensated, what’s the point?
Many people are asking what is the point of putting a price on carbon if we’re just going to compensate people for the price rises. Good question!
Key points:
- As explained above, the price will make things more expensive according to how much carbon was emitted in their production. This gives everyone an incentive to buy things that involved less carbon emissions, because they’ll be relatively cheaper.
- But if the government compensates people for the price rises, they won’t have any incentive to change their behaviour, right?
- Wrong! Think about it… You go down to the supermarket after the carbon price is in place. You’re looking for a treat, some potato chips. Let’s say Brand A have just kept on producing their chips in the same old way, but Brand B have worked to make sure that all the products and activities involve as little carbon emissions as possible. They’ve made sure they buy local potatoes, and they’ve made their factory much more energy-efficient. They emit less carbon, so they pay less, and for this reason, the Brand B chips have become $1 cheaper than Brand A. If you’re eligible for compensation the government has given you that $1 extra, so you could just keep buying the Brand A without making a loss. OR you could buy the cheaper Brand B instead and pocket the compensation.
What is the Coalition’s ‘direct action’ plan?
The Coalition has agreed to the same emission reduction target as the Labor party (5% below 2000 levels by 2020), but has proposed an alternative plan to reduce emissions. This plan has been called ‘direct action’.
Key points:
- In short, the plan involves paying big businesses to reduce their emissions through the establishment of an Emissions Reduction Fund.
- The plan has been criticised because it relies heavily on paying farmers to capture and store carbon in the soil, which is still a new, experimental technology and may well not be as effective as claimed.
- It has also been criticised because, unlike a carbon price, it requires the government to decide on the best ways to reduce emissions where as a carbon price lets business and the market decide on the best ways to avoid emissions.
Who pays?
One thing everyone agrees on is that reducing emissions will involve some cost, at least in the short term. So who pays that cost?
Key points:
- No matter what the policy is, essentially the same people will bear the cost: taxpayers and/or consumers.
- Under a carbon price, big businesses pay the cost, but generally they will pass that cost through to consumers.
- Under the ‘direct action’ policy or any other policy paid for by the government directly, it is taxpayers who foot the bill. The money will have to come from either cuts to other government programs or increased taxes, or both.
- What's more, there will be no pool of money to provide compensation to households, or to provide revenue to help Australia move to a low pollution economy and take advantage of green economic opportunities.
Will jobs be lost?
In recent weeks, concerns have been raised by unions and others that the carbon price will lead to job losses in emissions intensive industries.
Key points:
- If we are to truly address climate change, we need to change our economy from one that emits lots of carbon emissions to one that does not.
- In some instances, this will mean that industries with high carbon emissions may have to change or, in the case of very high emission industries like coal fired power generation, stop altogether. Jobs in these industries may be lost, and it is the responsibility of the government to help provide new jobs for people who currently work in these industries.
- The good thing is, changing to cleaner industries will create lots of new jobs in energy efficiency, renewable energy and other low emissions activities. Germany, California and the Canadian state of Ontario are shining examples of how thousands of new green jobs can be created as a result of strong emissions reduction policies.
Why are we bothering? It doesn’t really matter what we do does it?
We’ve heard this one before. Australia only emits around 1% of the global total. China and America emit around half of the total. We’re just not big enough to matter.
Well, that’s not quite right. Why?
- Most of the countries in the world emit less than 2% of the global emissions, but if we add them all up it’s something like 1/3 of total emissions. If all of them refused to act, and only the big emitters acted, we’d still have a big problem.
- Also, why should we expect others to act if we don’t? The only fair way is for everyone to play their part, and fairness is the only way that we are going to achieve the global response that this problem demands.
- Finally, Australia emits the most carbon per person in the whole world. Again, it is not fair for us not to pay for the impact that pollution has on others.
Shouldn’t we wait until the rest of the world acts? Won’t it be bad for our economy?
Some people are asking why Australia is introducing a carbon price if other countries can keep emitting carbon dioxide for free.
This is simply incorrect. Key points:
- Most countries around the world are in fact doing more than Australia to reduce emissions, particularly other developed countries.
- Many countries have emissions trading schemes in place, including New Zealand and the European Union. Their economies have not collapsed, and they have created many new jobs that will last into the future.
- Many other countries have policies to reduce emissions and improve energy efficiency, including Sweden’s carbon tax, California’s 33% renewable energy target and China’s 16% energy intensity target.
- There are massive opportunities in transforming our economy into a low emissions economy. One of China’s richest men owns Suntech, a solar manufacturer. Ontario has stimulated new manufacturing industries through strong feed-in tariffs for renewable energy. We have fantastic renewable energy resources, and need to take advantage of these opportunities.
Will a carbon price disadvantage our industries compared to overseas competitors?
This is a very good question. We produce things that involve carbon emissions, like steel, that other countries also produce. Won’t our industries be disadvantaged?
The key points are:
- Our carbon intensive industries would be disadvantaged compared to other countries that do not have an effective price on carbon.
- The main thing to note is that the Government has said it will compensate businesses that are ‘trade exposed’ – so, businesses that produce products that are also produced by overseas competitors in countries where they do not pay for their emissions will be compensated. It looks like some big businesses and industries may receive more compensation than they need as a result of their strong public lobbying against the carbon price.
- Remember also that lots of other countries do already have a price on carbon, either through a tax, an emissions trading scheme or other policies.
