Australia needs the Carbon Tax to be competitive

The Carbon Tax is a step in the right direction in order to make the Australian economy more competitive in a low-carbon future.

There is a lot of speculation going around that the newly released Carbon Tax will cause Australian industries, in particular the mining sector, to become uncompetitive in the global market and look undesirable to foreign investors.

Whether we hear it from the Opposition or from economists and financial reviews, we are constantly being inundated with apocalyptic predictions that the Australian economy will go downhill if the Gillard Government’s Carbon Tax stays put.

Of course, in the short term, they may have a point.

It’s not exactly implausible that foreign mining moguls and other investors would overlook the possibility of investing in our many, quality resources and businesses because of an added expenditure which at the moment in other countries – other investment opportunities – they won’t incur.

One of the greatest concerns is that Australia’s ability to avoid a serious economic downturn over the global financial crisis has largely been due to the strength of its mining and resources sector, and that making it less competitive by putting an added cost onto it would cause major problems for the economy in general.

However, in the long term, this same reliance on the mining and resource sector may lead to an even greater economic downfall in Australia.

The reason for this is twofold.

Firstly, we can safely project that an economy reliant on fossil fuels such as coal (non-renewable energy sources) will, by necessity, be an unsustainable, and thus uncompetitive, economy in the future.

Secondly, as global warming intensifies carbon-intensive economies – economies heavily reliant on carbon emissions – are going to become less competitive than others.

So, as our cost of living will go up due to dwindling resources (as it is most obviously already doing), meaning fossil-fuels become increasingly less desirable compared to other forms of energy production, and the world begins to take action at limiting greenhouse gases upon realising the real affects of global warming, Australia’s economy will be left behind.

And Australia is already falling behind the pack.

In the G20 low carbon competitiveness index prepared for The Climate Institute, measuring how competitive G20 nations would be in a low-carbon future, Australia was ranked 16th.

It was the only advanced economy to receive a lower score than it did in 1995, and it scored lower than the likes of Russia, Argentina, South Africa and Saudi Arabia (not to mention the US, which is notorious for wavering on issue of climate change mitigation).

The index examined three key indicators of “low-carbon competitiveness”: early preparedness (investment in renewable energy, projected growth in emissions); the composition of energy sectors (transport, trade emissions intensity); and future prosperity (investment in education and infrastructure).

Nations with high levels of GDP per capita which have acknowledged the need to orient their economies towards low carbon growth, such as France, Japan, the UK, South Korea and Germany, were ranked at the top of the index.

So, countries have already looked at moving towards low-carbon, or low-fossil-fuel, economies to combat any future economic challenges which could be caused by climate change and depleting resources, meaning Australia is lagging behind.

But how could the Carbon Tax help?

Well, it might provide enough of an annoyance to both our economy’s producers and consumers to provide a starting point in ultimately changing their production and consumption patterns in order to favour a competitive low-carbon economy in the future.

Australia has a carbon-intensive economy built on fairly significant energy businesses and relatively cheap energy through brown and black coal, so changing such patterns is not something that can happen overnight; it needs a transition period – perhaps even a long one.

The Carbon Tax should theoretically pave the way for companies to alter the way they conduct their business as it would encourage them to take actions to reduce, or offset, their carbon emissions.

And it seems to be working: The second annual ‘Australian Low-Carbon Readiness Barometer’ from the Economist Intelligence Unit, released in June and commissioned by GE, found that nearly three quarters of Australian firms expect the carbon price is here to stay and two thirds are putting a carbon reduction strategy in place.

Changing the behaviour of companies – in particular mining companies – is a huge step in promoting low-carbon competitiveness, as bringing change to our industries, our most direct polluters, would be a very efficient way of lowering our dependency on carbon-emitting.

It could also begin the transition of making energy companies look to further commercialising and selling alternative energy sources such as solar power, the production of which won’t incur the tax.

Already we can see the Carbon Tax offering an answer to two of Australia’s weaknesses in the G20 low carbon index – it may help contain the growth of our emission levels and in reorienting the composition of our dominant energy sector.

Moreover, it may change our consumption patterns by also contributing to making electricity more expensive, which could be a good thing in the long run.

Although the rise in electricity prices has as much to do with the growing depletion of fossil fuels, or the privatisation of electricity distribution, the carbon tax would compel electricity companies to increase their prices by as much as 10 per cent to compensate for higher levies.

In the short run, this may seem like difficult times, but in the long term it may mean that renewable, environmentally-friendly energy may look like a more desirable and cost-effective source of power.

Thus, the Carbon Tax may become the first push in the right direction to improving both the supply and demand of alternative energies, which may help our low carbon effectiveness in the long run.

It may just be hastening the inevitable; a major study conducted by the government’s Bureau of Resources and Energy Economics found that renewable sources, in particular solar and wind power, will become the lowest-costing electricity sources by the mid 2030s, as the diminished supply for non-renewable energy takes its toll on prices.

So the Carbon Tax could very well be the beginning of our transition from being a carbon-intensive economy to a low-carbon one.

However, it is still only a beginning and more needs to be done if Australia wants to become a low-carbon economy in the future.

Of course that is itself a big “if”, as there might very well be a lot of Australians who could care less about our low-carbon competitiveness.

2 responses to “Australia needs the Carbon Tax to be competitive

  1. What about nuclear power? It does not produce as much carbon dioxide, and therefore is greener, and overall better for the environment. It is far cheaper in relation to the actual lives lost and the economy. It would help Australia as we would use some of our uranium instead of selling it rock bottom price to countries that are more likely to use it for nuclear weapons.

    • Absolutely agree. Australia needs to look at all possible alternatives for the future and we are sitting on something around 31% of the world’s total of uranium. However, there are always people who are anti-nuclear and they always present strong arguments as well. We should try to move away from coal as our primary energy source in the future for both economic and environmental reasons so if nuclear power can offer a decent alternative then maybe that’s the answer.

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