The Carbon Tax is working

Australia's small carbon tax has apparently having an effect. One group believe that Australia's carbon emissions fell by 7% last year, mainly due to the carbon tax.

Of course that is the point of the tax. It raises the price of goods and so fewer are bought. The idiot Abbot, for reasons that are hard to rationalise, wishes to remove the incentive to reduce carbon emissions and replace it with a series of grants he calls 'direct action'.

The bad news for Abbot is that no independent observer thinks his alternative will work. They don't believe that there is enough in the budget to reduce emissions sufficiently.

There is another problem looming for Abbot. The US wants the subject of climate change measures on the G20 agenda for the Brisbane meeting in November. This is probably going to be embarrassing for Australia, although it is unlikely that Abbot is bright enough to feel the shame.

The Guardian reports the story here

Impact of the Carbon Tax

The Age are running a poll asking people if they have felt the impact of the Carbon Tax, now 100 days old. 76%, so far, have answered no.

This is hardly surprising as it is a very small tax and applied to only 300 large firms and councils. It also has numerous offsetting elements, such as the higher tax threshold that means the lowest paid are much better off.

The result is disappointing however because the point of a tax like this is to change behaviour! The aim of the Carbon Tax is to reduce Australia's CO2 emissions.

Currently Australia lags the industrialised world in taking action on climate change. For example the UK aims to reduce CO2 emissions by 80% by 2050 and they do this by taxing petrol (a litre of petrol currently costs $2.10), a carbon tax applied to large firms and an emissions trading scheme (the ETS) which is EU wide. In addition renewable energy receives large subsidies.

The aim of any indirect tax is to raise the costs of the firm involved. This raises the market price and reduces demand for the product.

 So will the Carbon Tax be effective? 

It will if consumers see the price of 'high carbon' goods and services rising and switch to 'low carbon' goods and services which are now relatively cheaper.

It will be more effective if the high carbon goods and services have high price elasticity of demand (PED)  and so consumers switch to other goods.

It will be effective if the rise in the price of high carbon goods is high enough. 

It won't be effective if consumers do not switch, because the PED is inelastic or the price rises are too low.

It won't  be effective if the 'compensation' provided by the government is so generous that households and firms are able to continue to buy the high carbon goods.

If you are asked about policies to promote environmental sustainability the Carbon Tax is the obvious candidate from the last four years. Alternatives are seen in my example from the UK. Just don't take sides on the political arguments.

The Age report that one firm is reinstating a project it previously shelved because of fears over the Carbon Tax. 

Read it here.