In Australia’s Misguided Carbon Tax, a Warning for the U.S.

Lachlan Markay /

On Sunday, the government of Australia announced that it will implement a US$24.74 per-metric-ton tax on carbon emissions. The damage the tax is expected to do to the energy sector there, and to the Australian economy generally, offers insight into what the effects of a carbon tax could look like in the United States.

The plan will tax 500 of the nation’s largest polluters, and will redistribute some of the revenue in an effort to offset increased costs to energy producers and consumers – though significant economic damage is expected to persist. After five years, the tax will convert into a cap-and-trade regime.

Estimates on the extent of the damage to the Australian economy vary. One estimate pegged that damage at US$31 billion to US$39 billion. The country is expected to lose between US$24.5 billion and US$48 billion in export revenue by 2022.

Employment in Australia will also take a hit. One study estimated that the economy will shed 14,100 jobs as a result of the tax. As expected, the coal industry will be hit hardest, and according to the study, will lose between 22,700 and 31,020 man-years. “Conservative estimates of employment losses from applying emissions pricing to potential new coalmining developments, “ that report stated, “would be elimination of 25-37 per cent of potential new jobs.” The result: 4,000 likely job losses in the coal industry in the first three years of the tax, and another 700 expected after that.

The tax is aimed at the heart of the industry – coal – that provides 80 percent of the country’s electricity. Eighteen of the country’s coal mines are expected to close within nine years of the enactment of the tax, resulting in an estimated US$23.5 billion of foregone revenue for the industry.

The first power plant to close will likely be the Hazelwood power station, which generates 1,600 megawatts of power. The government of the state of Victoria recently stated that the closure of the Hazelwood station would cut off a quarter of the state’s energy supplies. “This represents a threat to our capacity as a state to be able to generate sufficient supply for our needs,” said Peter Ryan, Victoria’s Acting Premier.

Hazelwood insisted that the federal government’s redistribution scheme would not be sufficient to keep the power plant operating. Its parent company, International Power Hazelwood, owns another two power plants nearby, and employs 1,200 workers directly and another 5,000 in a maintenance capacity at the three plants.

Other major coal mining companies sounded also sounded off against the law. Seamus French, the head of the metallurgic coal arm of mining giant Anglo American PLC, warned that the new tax “puts at risk current and future coal investments in Australia, the jobs of 40,000 direct employees and the jobs of 100,000 contractors, suppliers and other workers indirectly employed by the coal industry.”

Those “indirect” consequences of the tax are the inevitable result of increased energy costs, which affect far more sectors that just energy. The airline industry, for instance, is expected to take a hit.

“Qantas, Australia’s largest airline, said it can’t absorb the cost of the tax,” reported Bloomberg on Sunday, “while budget carrier Virgin Blue Holdings Ltd. [parent company of Virgin Airlines] said higher fares in Australia are ‘inevitable.’” The new tax will more than double excises on jet fuel in Australia, which Qantas estimates could cost the company in excess of US$122 million by 2013. Both companies’ stocks took a hit on Monday on the news of the impending tax. Qantas stock dropped 3.25 percent, while Virgin Blue share prices were down 2.86 percent after the market closed in Sydney.

All of this economic damage is being wrought in the hope of reducing Australia’s carbon footprint by a paltry five percent by 2020. As a measure to prevent global warming, then, the new tax fails utterly even assuming it accomplishes its stated goals. As Australian scientist Joanne Nova noted recently, the tax, if fully successful, would yield the following results:

Atmospheric physicist and MIT meteorology professor Richard Lindzen put it this way:

I think there’s no disagreement in the scientific community that [the Australian carbon tax] will have no impact on climate, so it’s purely a matter of government revenue. And, as I say, I mean if they can fool the people into thinking that they really want to pay taxes to save the earth, that’s a dream for politicians.

So Australia is poised to deal a body blow to its own economy in return for measures that will have a minuscule – imperceptible, even – impact on the global temperature. This is not model public policy.

That economic damage, both realized and expected, should serve as a warning for Americans who would advocate similar proposals: in order to make any significant dent in the global climate, economic self-immolation would be necessary. A proposal such as Australia’s is likely to do less – though significant – damage to the economy, but will do almost nothing to affect the planet’s climate.

While the federal government here in the United States is not, at present, considering a direct tax on carbon emissions or a cap and trade scheme, it is looking to implement regulations that will significantly increase the cost of doing business for heavy emitters – and will likely yield some of the same detriments expected under the new Australian tax.

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