Emissions Trading: Towards the Biggest Economic Change in Australian History

Article excerpt

'Placing a limit and a price on emissions will change the things we produce, the way we produce them, and the things we buy, states the Federal Governments Carbon Pollution Reduction Scheme Green Paper, which compares the economic impact of the proposed emissions trading scheme with the breaking down of tariffs and liberalisation of the financial sector in the 1980s.

The introduction of a wide-ranging emissions trading scheme (ETS) is, as the Minister for Climate Change and Water, Penny Wong, acknowledges, a 'tough ... whole-of-economy' measure. It is an unsettling statement of politics in the 21st century that this dramatic change to the economic structure of the nation is being formulated without any clear appreciation of what it will cost, where the costs will fall and whether the costs will bring any benefits.

The ETS vs. the GST

Many commentators have pointed to the introduction of the GST in 1999 as an economic reform on the equivalent scale of the GST. In fact the ETS is a far more comprehensive policy measure than the GST. The GST saw the introduction of a flat and stable broad based consumption tax, to raise revenue. By contrast, the ETS seeks to penalise energy intensive forms of production, such as coal, and to a lesser degree, gas based electricity production. And it plans to do so in ever-increasing increments.

After its introduction in 2010, the government plans to steadily raise the price of emissions permits by restricting their supply, until, in 2050, the country is emitting 60 per cent less greenhouse gases than it was in the year 2000. The government's objective is for an ETS to bring snowballing price rises spreading across the economy for at least the next four decades. But the outcome will be far more injurious than this. It will meanat least if Australia's tax approach is not followed by all nations-the disappearance of staple industries like smelting, cement production, cattle and sheep rearing as well as the coal based electricity industry which supplies 90 per cent of our needs, and for which there is no alternative.

It will also mean a vast increase in the taxation of petrol. The price of petrol would need to rise to over $5 and perhaps $10 per litre to choke off the demand to the level proposed by the government.

As a consequence, the ETS will vastly devalue homes, factories, and commercial premises. It will require revolutionary and painful changes to the way we socialise, work and play.

The ETS differs from the GST in many other respects. Not least among these is the duration of its prior consideration. The GST was a policy initiative debated in political and business circles for nearly two decades and road tested in many nations around the world. Since it was promoted by then-Treasurer Paul Keating at the 1986 tax summit, the country fought three elections on the issue of a consumption tax. 1993 saw John Hewson's FightBack! package partly flounder on the GST issue, 1998 saw John Howard successfully take the GST to the ballot box, and in 2001 Kim Beazley asked voters to support a partial rollback of the now implemented tax.

By contrast, the federal government's approach to the ETS has been to emphasise urgency, and to produce a steady stream of draft and interim reports, green papers and government responses that add to the air of inevitability.

Moreover, we are not even going to see any modelling of the economic impact of the ETS until Treasury reports back in November this year.

An open-checkbook...

Less than 18 months away from the implementation of a 'wholeof-economy' reform, Australian businesses and consumers have almost no idea what is going to happen to prices. It is no surprise that investment is drying up in vital sectors like energy and energy intensive activities, while firms nervously wait to find out what impact the ETS will have on their business models-or what concessions they are able to squeeze out of the implementation process. …