Australia's carbon tax – sustainable sense or economic deadweight?

The passing of Australia's controversial tax law has been hailed as a green victory, but how will big business respond? Frances Cook reports on how this bold strategy has gone down during this time of global financial crisis and asks just how big an impact the bill is likely to play in Australia's quest to rid itself of fossil fuel dependence.


On 10 July 2011 Australia's Labour Government released a policy document, called Securing a Clean Energy Future, which proposed the introduction of carbon tax from 1 July 2012. Industry giants lead an anti-tax campaign but on 8 November the bill was passed, with Prime Minister Julia Gillard relying on the Green Party to get the vote through.

The Carbon Production Reduction Scheme (CPRS) has fixed the price per ton of carbon and it has been generally accepted that some hard lessons will be learnt by the mining firms (coal in particular), airlines, steel makers and energy companies predicted to be the most affected by its introduction.

A future free from fossil fuels

""The carbon tax will put at risk more than 21,000 jobs within ten years in coal mining and related businesses.""

The government introduced the bill in the hope that innovation of renewable energy supplies would result and that Australia could be freed from its dependence on fossil fuels and slow down the effects of climate change. While the country accounts for 1.5% of global emissions (compared with China at 23%, the US at 18%, the EU at 14% and India at 5%) it is the highest emitter per capita as it relies on coal for the generation of electricity.

Gillard told reporters at a Canberra press conference that the "vote means we will begin to address the devastating impacts of climate change including more severe droughts, more severe floods, more extreme weather events and coastal erosion".

She added the government had made the "most effective step it can to cut carbon pollution".

It has been reported that the introduction of the tax has been applauded by the Europe and that Obama praised the country's "bold strategy". However, many of Australia's industry leaders feel the introduction of the tax is far from the most effective step with ill timing, job cuts, competitive edge and ineffectiveness against the reduction of global carbon emissions cited as some of the biggest problems.

Bad timing and job losses

For a world in the middle of a global economic crisis many industry commentators believe the introduction of the carbon tax is ill timed. "Now is not the time to introduce a carbon tax," said John Pegler, the chairman of the Australian Coal Association (ACA). Coal is Australia's second largest export earner, valued at A$36.4 billion in 2009-10, and employs around 140,000 Australians says the ACA.

The ACA's chairman said it could cause premature closure of 17% of current black coal mines in Australia. "The carbon tax will put at risk more than 21,000 jobs within ten years in coal mining and related businesses," he said.

"We estimate that 15 black coal mines in NSW could close prematurely and six in Queensland."

Brendan Pearson, Deputy Chief Executive of the Minerals Council of Australia described Australia as "walking the plank", explaining that treasury modelling found that a tax scheme, such as the one introduced, would in fact produce "up to ten years of temporary unemployment" and 100,000 fewer jobs.

With action on carbon emissions in the US 'stalled', Canada 'waiting on the US', Japan 'postponed' and the EU 'still gaining 98% free permits', he labelled the CPRS "out of step with all current and proposed schemes with its design driven by revenue raising not carbon reduction".

Losing global competitive edge

With other emissions-producing countries not taxed in the same way, industry leaders fear the country will lose its competitive edge. "Only 16% of Australian exporters will receive assistance compared to 73% under the EU scheme," said Pearson.

""Only 16% of Australian exporters will receive assistance compared to 73% under the EU scheme.""

At a tax conference in Perth, David Peever, managing director of industry giant Rio Tinto, said there was a "better way" for Australia to make its contribution, regarding the tax on production as more like a tax on the trade sector.

"In the five years to 2008, Australia's gross annual carbon exports have grown from 99 million tons a year to 144 million and carbon exports are likely to continue to grow as export volumes grow," said Peever. He added that overheads would increase and what would result is "a competitive disadvantage for Australia's iron ore, aluminium and coal producers relative to competitors in China, Brazil, Indonesia, Columbia and so on".

BHP Billiton's CEO Marius Kloppers called it a "tax on coal exports from Australia" and stated Australia was at risk of losing its competitive advantage. "It's an economic deadweight cost because it's basically just an export tax, and those costs get discounted into investment decisions," he told The Australian.

Futile attempt to cut emissions

Bjorn Lomborg, often labelled a 'sceptical environmentalist', wrote in The Australian that to achieve the goal of keeping temperature increases under 2°C, a global tax on carbon emissions of $100 per ton would be needed (increasing to more than $3,700 by the end of the century).

"This would cost the world $40 trillion a year by 2100, according to calculations by noted climate economist Richard Tol," he wrote.

"But all in all, this spending would be 50 times more expensive than the climate damage it seeks to prevent, according to mainstream calculations of expected damage." He believes this to be the current situation as non-carbon-based alternative energy sources are not ready to take over from fossil fuels. "What is required instead is a transformation in our energy infrastructure to make low-carbon energy sources cheaper than fossil fuels," he said.

A futile attempt at emissions reduction is also the opinion of CEO Mick Davis or Xstrata - the world's biggest exporter of coal for power stations - and who branded the plans as "stupid". Davis told Bloomberg: "The businesses will curtail activities so they don't pay increased cost and in that situation the coal will be produced by somebody else."

He added: "Ironically, the coal they get will emit more gas than the coal coming out of Australia and the impact on the global emissions will be zero."

The Australian Trade and Industry Alliance is a coalition of six industry associations that seeks to provide the Australian general public with the key facts about the Government's proposed carbon tax.

It "supports action on climate change" but not the carbon tax "because it disadvantages Australian businesses, raises the cost of living for consumers and ultimately, won't make any difference to global carbon emissions". This is echoed clearly in its campaign message: "Carbon tax pain, no climate change gain".

A phased approach

"The government introduced the bill in the hope that innovation of renewable energy supplies would result."

For many industry experts a phased and more cohesive approach is considered to be a more effective way of addressing the problem. "If implementation were phased over, say, a decade, miners could develop carbon capture technology," wrote Lex, in the commentary section of the Financial Times.

When Cynthia Carroll, CEO of Anglo American, one of the world's largest mining companies, gave a speech at the Commonwealth Business Forum Perth in Western Australia, she stated the company had invested "millions of dollars in recent years to abate carbon emissions" and said what is required is "collective action, where governments, industry and stakeholders come together to find a better way to reducing carbon emissions".

She accused the tax as penalising the mining industry, especially coal, for issues that it cannot currently solve with technology.

She said: "My friend Andrew Liveris, the Australian-born Chief Executive of Dow Chemical and co-chairman of US President Barack Obama's Advanced Manufacturing Partnership put it this way recently: the proposed carbon tax is a 'short-term fix', 'unwise' and 'ill-timed'."