July 1, 20112 "C-Day" in Australia

Yesterday, July 1^st 2012, was “Carbon Day”, or, “C-Day” in Australia. 

The federal government’s carbon tax was introduced to Australia and nearly 300 major atmospheric polluters were slapped with huge taxes. Taxes, which of course, they will pass on to consumers.

Amongst the largest polluters are our coal burning electricity generators. They will, of course, pass on their taxes in the form of increased electricity charges to consumers.

Consumers, in turn, will switch to cheaper electricity providers (it’s an open market in Australia, electricity charges are not fixed by government statute), or, like our household, install solar electricity generators where possible.

Businesses will recoup their additional costs through passing them on to customers in the form of increased charges.

The government will use the taxes it collects from the major polluters to afford tax breaks and ‘family Assistance packages’ to low income families – every wage earner on less than $80,000 p.a. will receive pro-rata tax breaks.

The opposition has tried to block the carbon tax passage through both houses of parliament and they failed. They are now broadcasting a message of doom and gloom to all Australians as to how the economy of this thriving country will be ruined.

Some rhetorical questions:

1. Can anyone tell me why the country will come to a standstill?
2. Why will towns like Whyalla disappear from the landscape?
3. Why will the cost of living rise so dramatically that life will not be the same as we knew it yesterday?
4. Why will businesses close?
5. Why will prices rise so much that we cannot afford to buy bread and milk?

Please, no answers sprouting the BS along party lines, just tell me why this will happen?

Well, It won't.  But a lot of people have a vested interest in making the general populous believe that it will. The bottom line however is that the whole purpose of pricing pollution is to make it more expensive.

This has two objectives:

1. Provide incentives to switch to and develop alternative sources of energy, which are currently not viable due to the cheap cost of carbon derived energy (and one of the reasons for this is that the costs due to pollution are pushed on to third parties).  In the longer term, the costs of these alternatives are likely to fall; in the short term they will be more expensive.

2. Provide incentives to change behaviours to reduce the actual need for energy full stop.  Longer term this is likely to improve Australian competitiveness as we find ways to produce more with less energy.

If the premium applied to the cost of pollution was set to zero, nothing would change.  If was set to (say) $100,000 a tonne, then it would indeed devastate the economy.  It is of course neither.  Time will tell if it is high enough to influence behaviour, and low enough not to devastate the economy.