This year’s national Climate Summit voted to demand a carbon tax during the federal election campaign. Many viewed it as an alternative to Rudd’s useless CPRS carbon trading scheme.
But there are fundamental similarities between carbon trading and a carbon tax. As with carbon trading, the cost imposed by a carbon tax will be passed straight onto consumers. It’s essentially unfair—it would mean ordinary people, not polluters, pay.
It would also be ineffective. Like any carbon pricing scheme, it aims to encourage the private sector to invest in cleaner forms of power by making polluting technology more expensive.
A carbon tax beginning at $23, the level suggested by The Greens, would not be enough to make renewable energy competitive. At best it would lead to new power stations being gas-fired. This is wasted investment that delays the structural change we need to cut emissions—transitioning power generation away from coal.
Introducing a carbon tax at the level needed to make a difference would be politically impossible. Solar power stations would not be competitive until a carbon tax reached $100/tonne of CO2 or higher.
Denmark, Sweden, Norway, The Netherlands and Finland have all introduced low carbon taxes since 1990.
By 2008 Denmark had reduced its emissions by 15.5 per cent and Sweden by 11.7 per cent. But the other three countries all increased emissions—Norway 7.6 per cent, the Netherlands 9 per cent and Finland by 11 per cent. A study by sociologist Monica Prasad concluded it was actually government investment in wind power that was decisive in Denmark’s emissions reductions.
Progressive carbon taxes?
In theory, government could alleviate the unfairness of a carbon tax by returning revenue to consumers as compensation. But without a movement powerful enough to force this, it’s a dangerous approach.
As the CPRS debate showed, business has enormous power to extract concessions from government, such as the masses of cash handouts and free permits they got. The main reason governments are looking to market mechanisms is that they let business off the hook and can be used to make ordinary people pay.
Another problem with a carbon tax is the extreme uncertainty about how corporations would respond. Carbon emissions are contained in virtually every product in a modern economy. There is no way of calculating exactly how much prices would rise.
Recent price rises announced in NSW are far above those the federal government predicted (see opposite page). This raises immense difficulties in working out how much compensation people would need.
Miscalculations would be a political disaster. We could see people suffering severe cuts to living standards or power disconnections.
Working class people have endured three decades of neo-liberal policies where workers were told “reforms” would be good for them—but it turned out a lie. They are rightly suspicious of government plans that might result in cuts to living standards.
A carbon tax—which does threaten this—will not win broad support or help build a mass movement.
Instead of relying on private corporations to install renewable energy, the climate movement should call on government to build it. To pay for this, governments would need to raise taxes. There are fairer ways than a carbon tax.
The most regressive forms of tax are those that shift the burden of paying taxes onto workers and the poor. The GST is a classic example. Both rich and poor pay the same 10 per cent on products. But a wealthy person can much more easily afford to pay this than someone on a low income.
A carbon tax is even more inequitable. In particular it means higher costs for electricity, an essential service that every person needs. Low income earners such as pensioners spend a higher proportion of their income on power bills than others, so the proportion of their income swallowed by a carbon tax is higher.
Progressive taxation is much fairer, but has been wound back by neo-liberal governments. The level of corporate tax in Australia has been slashed from 49 per cent in 1987 to 30 per cent today. A tax on company profits cannot be passed on to consumers so easily as a carbon tax, since companies make different levels of profit relative to the prices of their products. Company shareholders will pay the higher tax in the first instance. Other progressive taxes such as more tax on high-income earners cannot be passed on at all.
Taxing the rich to fund renewable energy would be popular—and would improve living standards rather than attack them.
By James Supple