The cost of not implementing a carbon tax

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Aside from a swathe of overwhelmingly negative effects to our way of life and the environment if we do not make a global effort to fight climate change, there are significant risks to the Australian economy if we do not take steps towards pricing carbon. In the Sydney Morning Herald, John Birmingham published an illuminating article detailing how we will end up paying whether or not a price on carbon is introduced. The difference is to whom that money will go: to Australian taxpayers in the form of compensation, or to overseas jurisdictions in the form of penalty payments.

To illustrate the risks facing us if we do not act, let’s consider the case of Qantas, who now faces an initial carbon tax penalty of 15% on its carbon emissions for any flights it makes into or out of Europe. This penalty will increase over time and is payed directly into the coffers of the European Union. The reason for its imposition is specifically because Australian does not have a carbon price in place.

Over the next few years, the European Union will expand its penalty regime to impose general sanctions on countries that do not meet its standards on carbon reduction mechanisms. Economic powerhouses like China and the US will likely be able to negotiate their way around them, by threatening retaliatory sanctions or similar. Australia, on the other hand, does not have that sort of negotiating power and will be forced to pay the price.

There is precedent for this. John Birmingham points to Howard’s capitulation on privacy legislation, where he was forced to introduce wide-ranging protections at the behest of our European trading partners or see Australian businesses face penalties when trading in Europe.

There are further economic reasons behind acting to implement a price on carbon, aside from the risk of foreign sanctions. The fact is that renewable energy technology will be the next huge growth industry. The Chinese have been quick to recognise this and have the highest level of investment in this sector, accounting for almost 25% of worldwide investment in renewables last year for a total of USD$50 billion. If we do not encourage investment in the sector, we will simply be left behind.

(This story was originally published in Carbon Tax Facts and has been republished with permission.)

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