In a humiliating backdown, Climate Change Minister Greg Combet, though failing to acknowledge the damage of a carbon tax to the Australian economy, has recognised that the tax he introduced last month — at $23 a tonne of carbon dioxide — is excessive.
The carbon tax sets Australia alone with the European Union in imposing such a measure and, at an escalating price starting at $23, is twice the level that prevails in the EU. In now saying the tax will be linked to that of the European price by allowing Australian carbon dioxide emitters to buy emission indulgences from the EU, the government has conducted four somersaults and a belly-flop.
First, it has abandoned the intent of the carbon tax which, as the government appears to have forgotten, is an 80 per cent reduction in Australian emissions by 2050. Achieving such a level would be impossible at $23 a tonne (a tax that has raised the wholesale price of electricity by 40 per cent).
To achieve its 80 per cent emission reduction objective would require a tax of more than $150 a tonne. This would bring about a threefold increase in the electricity price and, as well as directly imposing colossal costs on households, would shred the present industry structure of Australia and bring about a considerable reduction in living standards.
In its eagerness to gain Green support and obtain a war chest to win supporters with tax cuts, the government eagerly grabbed Treasury forecasts that a carbon tax would have little economic effect.
Such forecasts assume far-reaching technological changes favouring low-carbon energy. This is despite no improvement being experienced in the economics of these sources compared with conventional electricity generation for the past 20 years.
Linking the price to the European floor means it falls to $10, a level that will mean hardly an iota of emission reduction but imposes price rises on consumers and industry that will still drive many firms offshore and shrink the number of the most productive jobs.
Second, the fact that the existing and future spending requires a carbon tax of $23 a tonne, escalating year by year, has been abandoned leaves a massive hole in the budget. This again demonstrates Labor's inability to maintain the necessary fiscal discipline. Dropping the price to $10 means tax collections halve from the $8 billion or so a year anticipated by the government. And if emitters fulfil all their requirements in emission credits from the EU then the government will gain no tax. Will it now reduce spending? If so where?
Third, opting for the highest carbon tax in the world at $23 a tonne, in the expectation that all other countries will follow suit, demonstrates the damage created by the government believing its own propaganda. In a raft of papers designed to shore up the government's decision, all it has proved is that no major country is following Australia's lead with a carbon tax, and all of our trading competitors are simply rejecting it.
In its decision to shelve the Roxby Downs expansion, BHP Billiton acknowledged to European stock exchanges (though not in its Australian press release) that the carbon tax had been a factor.
We will see other project downgrades due to increasing supplies from new mines across the globe and a tax-driven diminished Australian competitiveness.
Fourth, the government is allowing Australian emitters to buy credits from EU countries. If 100 million tonnes of carbon dioxide credits are bought in this way that means gifting the EU about $1 billion a year.
There is no possibility that this wasteful funding of the EU at Australian electricity consumers' expense will mean any reduction of emissions on a global level.
It is time to recognise that the carbon tax is a total failure of policy and to dismantle it before it does further damage to the economy in general and to consumers in their power bills.
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