Julia Gillard’s Carbon Taxes– An ineffective policy

Jo Nova claims the Australian Prime Minister, Julia Gillard, lied to the Australian public by being circumspect about a carbon taxes, then when in office to introduce a carbon tax to be followed by cap and trade.

Betrayal of promises is to be expected and welcomed if to meet changed circumstances. For instance new taxes to close a deficit brought on by a recession. But in this case nothing has changed. However, there is a much better reason for Australian’s to oppose the policy – it will inflict economic pain and hardship for little or no returns.

The political argument for the introduction of the policy is that we should meet international obligations. OECD countries “need” to cut CO2 emissions by 80% by 2050 to constrain CO2 levels to around 550-600ppm. It is claimed by the IPCC & the Stern Review that this can be achieved by at a cost much less than the costly consequences of global warming. My example below suggests that a gasoline tax of 6.5 cents a litre would be almost totally ineffective. It would only serve to reduce living standards. Yet this is the start of CO2 reduction policies, when there should be some easy wins. It is as bigger inroads are made that reductions in CO2 should become more costly. Unless more effective policies can be devised, the CO2 reduction policies will leave us and future generations worse off than if nothing was done. Therefore, those who believe in the impending climate catastrophe, but are policy realists should join the climate sceptics in opposing the introduction in Australia of a carbon tax and carbon trading.

I try to explore demonstrate the case for climate change mitigation policies graphically here and which the policy will never link

A Carbon Tax on Gasoline

Consider a motorist in Australia who travels high distances in an old, inefficient truck. He travels 30000km a year and consumes a litre every 6km (6km/l or 17mpg in British terms). So the cost of 5000 litres used will increase the fuel bill by AU$325. If there are no gasoline taxes in Australia, fuel prices will be around $1.20 per litre, so the motorist will already be paying $6000 per year for fuel and (if he is lucky) $2000 for insurance, other taxes, maintenance and depreciation. So the tax will add 4% to his motoring costs.

At a more moderate level, consider a British example (in Australian dollars). Somebody has a medium sized car that is three years old, travelling 10,000 miles (16,000km) per year at 40mpg (14km/l). Fuel is $2 (£1.30) per litre , so costs $2280 for 1140 litres. With no serious maintenance issues, tax, depreciation, insurance and servicing cost around $4500 per annum. Total costs (rounded) are $7000 per year. A 6.5 cent carbon tax will add $71.25, or 1% to this bill.

For a newer car the percentage increase will be lower. Upgrade the specification and the percentage will be lower.

As real incomes rise people are able to afford more luxury. Compare the typical car in Australia with say Brazil, or Brazil with an African nation. In Brazil the best-selling cars have mostly one litre capacity and low specification. Many cars new cars still do not have air conditioning or electric windows. A carbon tax will take people in the reverse direction a long way before they will give up the utility of a private vehicle.

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