Australia Shows Climate Taxation Doesn’t Work

Jul 28, 2014 by AFP

By Mallory Carr

Australia’s recent carbon tax experiment has laid bare for the world to see the dirty truth behind climate taxation: it hurts individuals and families across the board, causing the economy to suffer without having any significant impact on the climate.

Taxing carbon is essentially a tax on production, since pretty much everything in the modern economy requires carbon-based fuels at some point in the process. Although many proponents of a carbon tax would like to see us go back to a time when carbon dioxide emissions from fossil fuels was zero, this is impossible to do without scorning such everyday luxuries as indoor plumbing and all transportation methods more advanced than horse drawn buggy. Because there are no affordable and reliable fuels besides carbon-emitting ones that can survive without a government subsidy, carbon tax only penalizes energy use without offering any better alternatives. It’s all stick and no carrot.

As Australia painfully witnessed firsthand, it can be quite the heavy stick. Enacted in 2012 by (now former) Prime Minister Julia Gillard, Australia’s carbon tax imposed a hefty fine per ton of carbon emitted by the country’s largest polluters. It did not take long for Australians to express their disapproval at the ballot box by electing Mr. Tony Abbott, who followed through on his pledge to “ax the tax” and promptly repealed it earlier this month.

Without any economical alternative fuels, taxing carbon made the country less productive and competitive. Once home to the lowest energy costs among rich nations, Australia saw electricity prices more than double in the past five years as they have sought to incorporate the alleged “social cost of carbon” into energy prices (through renewable energy targets and other harmful policies in addition to the carbon tax). Last year, the carbon tax cost the Australian economy $6.4 billion. These policies have eroded the trade advantage having cheap electricity afforded the country. After the carbon tax went into effect in 2012, a trade surplus immediately turned into a deficit and their economy experienced a massive growth slowdown.

Not only did it hurt the country as a whole, but it especially hurt every day Australians. Because carbon is a necessary component of modern life, a greater share of lower income household’s earnings go to pay for it. This means that carbon taxes are inevitably regressive and felt by the poor the most. The average energy bill rose 20 percent in just the first year of the tax. Those living in southern Australia –  where a larger proportion of their income goes to pay for electricity than elsewhere in the country – felt most of the effects. Last year, Southern Australians owed an estimated $30 million in unpaid energy bills and more than 10,000 households had their power cut off.

Worst, thanks in large part to the increased costs on business from the carbon tax, over 10,600 Australian businesses closed in 2012.

Australia showed us that consequences of taxing carbon are further-reaching than supporters would have you believe. Not only does it directly impact people’s ability to pay for their electricity, it also makes the country less productive and globally competitive – all while having little impact on the environment. For all the pain endured by Australians, emissions of carbon dioxide were reduced by less than 2 percent.

The lesson from Australia could not be clearer. Taxing carbon comes with a high price tag and causes the economy to take a beating without having any substantial impact on reducing emissions. We don’t have to make the same mistakes.  It didn’t work in Australia, and it won’t work here.