Ostensibly, the opposition and the government have similar policy goals regarding Australia's 2020 emissions of carbon dioxide. Both have said that emissions should be reduced by 5 per cent from 1990 levels, which means a reduction of 24 per cent on business as usual levels.
There are different proposals on how this might be reached, but those most firmly on the table are a carbon tax favoured by the government and the more administrative approach of targeting the most promising areas outlined by opposition spokesman Greg Hunt.
Hunt has suggested that his administrative approach could achieve the objectives at a tenth of the cost of a carbon tax, but this is unlikely.
Issues concerning a carbon tax include its level and cost, how much is raised and what the effect would be in terms of emission reductions.
With a tax of $26 a tonne of carbon dioxide, the opposition estimates the annual additional cost of electricity at $300 a household. The government refuses to say what tax level it has in mind, though $26 is consistent with previously quoted numbers.
The cost to households estimated by the opposition appears to be based on an electricity bill of $1400 a year, in which generation comprises about 30 per cent of the overall cost. The opposition points out that there will be additional costs if, as is suggested, the tax also applies to petrol.
With or without an application to petrol, the estimated cost is very conservative. Importantly, it does not count the cost of the electricity incorporated into the costs of goods and services that are bought. This cost is likely to more than double the direct electricity bill costs of $300 a year.
In addition, we already have emission-reduction measures in place involving considerable costs. One of the more important elements of these is a requirement to incorporate 20 per cent renewable energy into the supply. Renewable energy is three times the cost of conventionally generated electricity. By 2020, the requirement adds a further $20 carbon tax equivalent, bringing the direct tax effect on households to $540.
The second issue is how much will the tax raise. If the tax were to be applied to all the 550 million tonnes a year of carbon dioxide emitted by Australia, at $25 it would raise a cool $13.8 billion, equivalent to a quarter of the sum raised by the GST. If it is levied only on the 200 tonnes emitted from electricity, it still means $5 billion -- a tidy sum with which to buy future elections.
Though the government might argue that these sums will be reduced because the tax will cause a migration from carbon-intensive generation, there will in fact be little such movement. Energy is a necessity for modern living standards. And there is no alternative to high carbon-emitting sources of electricity except for nuclear power, which for Australia is expensive and has been demonised.
This brings us to the effect of the tax in bringing a reduction in emissions by the required 24 per cent on business as usual. To achieve any meaningful migration from carbon-intensive plant would require first a certainty that the impost on the most efficient producers of electricity would remain in place. And the impost must be high enough to make it profitable to replace coal plant with gas plant, which has half the emissions per unit of energy of coal.
The fact that the government has opted for a tax rather than a tradeable right means the former condition is less certain. A tax can be more easily rescinded than a right to emit. Easier on the taxpayer though this may be, it adds a further complication for investors since a gas investment that might have been predicated on a wholesale price of $65 is left financially stranded if the $25 tax component of this is removed.
Moreover, the price itself, while severely harming the carbon-intensive, coal-based generators, would not force their premature departure from supply, which would be necessary to leave a gap for new gas generators. The tax would, however, leave huge gaps in generators' profitability -- $250 million a year for Loy Yang and $600 million for the New South Wales government's Macquarie Generation. Similar costs would be felt by domestic businesses seeking to compete at home and abroad with foreign suppliers not facing the impost.
It is doubtful if the Prime Minister is across these interwoven issues involved, issues that massively complicate statements like ''we must put a price on carbon''. It is certain that there is no simple means of introducing the price without causing considerable cost to consumers and businesses alike.
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