Carbon Tax Essay

Topics: Greenhouse gas, Computable general equilibrium, Carbon dioxide Pages: 7 (2193 words) Published: May 7, 2013
The introduction of the carbon tax in Australia.

Recently, the carbon tax issue has been gaining increasing attention in Australia due to its function of reducing greenhouse gas as well as its extensive economic impacts on a range of industries, such as tourism and hospitality. The conceptual meaning of the carbon tax is “a levy applied to various operations that generate carbon dioxide” (Covey, 2009, p.329). Such a tax is introduced to achieve a desired national emission target (Covey, 2009).

The introduction of the carbon tax in Australia is derived from the serious environmental issue of climate change. According to The Economist (2011), Australia's emissions measured on a per capita basis are the largest of any developed country, mostly because Australia produces approximately 80% of its electricity from coal which is one of the sources of energy directly measured by greenhouse gas emissions. Therefore, considering the adverse consequence of climate change, an effective long-term solution is required to achieve fundamental shifts in consumer and business behaviours (Hoque et al., 2010). The increasing concerns about the carbon tax can also be attributed to its profound impacts on the market in which individuals and businesses are involved. Clarke (2011) claimed that the carbon tax will have significant effects on markets for goods involving carbon intensive inputs as well as on the actual markets for these inputs and for their substitutes and complements. Also, it cannot be neglected that the introduction of the carbon tax as a climate change policy is a reflection of the Australian Government’s objective to cut greenhouse gas emissions. Specifically, the Australian Government has raised its progressive target to cut its carbon emissions by 80% of their 2000 levels by 2050 (The Economist, 2011). This report investigates the above mentioned introduction of the carbon tax in Australia as closely interconnected to with the dominant environmental issue, the dynamic market and the governmental objective to limit emissions. The predicted impacts of the carbon tax will be examined in this report in relation to economic theories and assessment models. This report will further address the implications of the carbon tax for the tourism industry and its consumers in the short and long term.

2.0. Predicted economic impacts of the carbon tax and methods for impacts assessment. 2.1. Future economic impacts.
The carbon tax as a climate change policy will exert extensive economic impacts on the market. The simplest manifestation is that the consumption of carbon-intensive products will decline and their price will rise. This phenomenon reflects one of the key functions of the tax which is “to raise price to discourage consumption of demerit goods or goods with harmful environmental impact” (Tribe, 2011, p.424). From this perspective, the carbon tax can be viewed as a form of market intervention to address the climate change issue by discouraging consumption of carbon-intensive goods through high price. On the other hand, the future economic impact of consumption decline and price rise can also be predicted based on the interrelationships of the supply and demand of goods and their relative market price. Businesses will reduce their output when the carbon tax payment and their abatement expenditure increase the marginal cost (Amin, 2009). This effect shifts the supply curve to the left and equilibrium price rises (Tribe, 2011). Consequently, as in their market price increases, the consumption of carbon-intensive products will decline (Tribe, 2011). For example, with the imposition of the carbon tax, tourism businesses dependent on aircraft will face fuel excise costs going up by more than 150 per cent, which will escalate the price for consumers (Felicia, 2011). Another future impact of the carbon tax is that the price of the substitutes for carbon-based resources will rise and the price of the complements of...
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