Economy of Australia is highly emission intensive economy compared to other developed economy. It has higher emission per capita. Emission of Australia continues to increase swiftly due to booming of contemporary resources. Reducing the emission per capita is more costly for Australia as compared to other developed countries in the world. The issue of high emission intensity of production in Australia would not be regarded as particular issue if there would have been international trade entitlement that would led to comparable prices of carbon over much of the global economy. In the absence of strong international trade agreement, it would become difficult for Australia to comply with the international expectations on meeting the emission reduction standard metrics. The contribution of global mitigation is required to be based on consumption basis rather than production basis. This particular basis for comparing the international effort of Australia regarding the carbon emission would have been less problematic. In the developed world, Australia is the largest emitter per person. Reduction of carbon emission in Australia is based on two approaches that is by way of legislation and placing the price. Price placement on carbon emission reflects the cost imposed on society and regulation would require the firms to refrain the emission intense activities (Baranzini et al., 2015).
The carbon price economic impact of economy can be seen in term of petrol price, exchange rates and interest rates. For driving the economy of Australia with lower carbon emission for guiding the carbon, price effectively and efficiently. Pricing of greenhouse emission is based on several models and some of the core features are common in all the models. The climate change policy of Australia has become a bipartisan emission-trading scheme. Emission caps are described as the safeguard mechanism by government of Australia (Burke et al., 2016). Since 2012, the Australian carbon tax has been in place and with the change of government; it is likely that such tax will be abolished.
The carbon tax of Australia is a fixed price emission of permit system and it is legislated to move to a cap and trade in July 2015. Effect of tax is to case a reduction in the domestic emission of carbon below the projected business level. Since the introduction of carbon tax, there have been overall rise in emission. It is expected by Australian government that until 2047, domestic emission are not expected to stop increasing with placing the carbon tax. With the introduction of changed climate policy of government, there have been the proposal of reduction of emission by 2020 and reduction by 50% till 2050 (Cramton et al., 2015).
(Source: Robson, 2014)
The above graph depicts that the level of Australia’s domestically produced carbon emission has not reduced by implication of taxation. This cannot be considered surprising, as domestic carbon emission of Australia cannot be reduced under the carbon tax rate not expected to fall below the current level until year 2045. The carbon tax is directly linked to job losses, number of business disclosures. Since the introduction of carbon tax, there was overall increase in level of unemployment.
When determining the implicit prices of carbon and comparing between them across industries and countries. There is ambiguity on part of polices in deciding the method that should be fed into calculation of carbon price. For some policies of Australian government, the implicit carbon prices cannot be precisely calculated. This comprise of research, development, and energy efficiency assistance. Understanding of global action can be enhanced by a transparent and independent assessment of developments internationally. Some authors advocate comparable pain that the suitable basis of measurement is the economic cost of measures of mitigation rather than the size of economy (Desmet & Rossi-Hansberg, 2015). This would indicate the standardize policy of Australia to achieve the similar outcomes in terms of cost of GNP. Another approach is to compare relative deductions in emission against a benchmark and this will involve declining the intensity of emission and percentage reduction from base year. The level of ambition of Australia and this particular measurement is considered difficult for the country in the absence of opportunities for large-scale trade in entitlement. When setting the carbon price, it is required to make several consideration and it should be high enough to meet the commitment of international community. It is required by country to make the explanation to Australian community there are some characteristics that limits the carbon reduction emission for large-scale trade in entitlement.
Present value of probable economic cost of Australia’s carbon tax to 2050
(Source: Ploeg & Withagen, 2014)
Considering the cost benefit analysis, the cost of policy can be computed as the discounted presented value of sum of the gross domestic product value that has been foregone. In the above figure, the discounted cost value relative to GDP of Australia on the discount range of 0.5% and 0.7% has been plotted on y-axis. The lower discount rate has been transformed into higher present value costs with the increase in carbon tax over time.
Projection of government on Australia’s domestic carbon emission under the carbon tax
(Source: Garnautreview.org.au, 2017)
It can be seen from the above graph that domestic emission of Australia under the carbon tax are not expected to stop until 2027. It is also projected that until 2043, emission are not expected to fall below the current level. The expected effect of carbon tax on domestic emission is to reduce them below the projected business as usual level rather than reducing the absolute level of emission.
The commitment of Australia toward the reduction in national emission is related to emission from sectors included in the emission trading schemes. In non-covered sectors, reduction in emission would be encouraged by recognition of reduction in the form of demand-offset credits. Parties can meet the obligations under the scheme by using the offset credit (Fankhauser, 2013).
The contribution of Australia toward the global goal is domestic credibility existing commitment, mitigation policies and implicit carbon prices. The starting price of carbon tax in Australia is in the range of AUD 20 to AUD 30 per ton carbon dioxide that is equivalent in year 2012. In advancement of the movement the floating permit price, it is necessary to establish target for reduction of emission overtime. The initial determinant of carbon price path in Australia is negotiation in setting the unconditional target for 2020 (Hansen et al., 2020). The carbon price application can be as broad as possible and the total cost of Australia in meeting the mitigation targets are reduced by broad coverage. This is so because the greatest access to low cost diminution is attained by providing incentive for reduction of emission. For the mitigation in land sector, the government has proposed an offset program named carbon farming initiative that is considered as good step toward the mitigation (Gollier & Tirole, 2015). It is considered desirable and necessary for integrating the offset credit with the emission-trading scheme. Following step depicts how the offset credit of land sector will interact with the emission-trading scheme.
Regulatory authority can make the purchase of non-Kyoto offset credits to certain value or revenue and some of the value can be used from mission permits sales.
Kyoto offset credits can be purchased directly by the liability entities for enabling them to meet a part of their liability.
Cumulative fiscal impact of associated policies and carbon tax:
(Source: Instituteforenergyresearch.org, 2017)
Accompanying policies and carbon tax structure has led to the existence of sizeable gap between the increase in government spending and revenues generated by tax that is accompanies in the scheme. Revenue generated from tax is lower than what it has been originally anticipated and considerable proportion of payment for compensation is locked in. The introduction of carbon tax is likely to have adverse impact of Australian budget (Nordhaus, 2014). This will result in higher public debt resulting from public deficits.
In order to acquit the responsibilities of the liable entities using Kyoto offset, it is suggested to have a limit of 4% in year 2012 and this would be rising by .75 every year to 10% in year 2020. Purchasing of non-Kyoto credits by regulatory authorities, a limit of 2% is imposed in year 2012 and this can increased by percentage of 4% every year as suggested by limits imposition (Höhne et al., 2014). Such credits will only be provided for permanent and genuine abatement. Emission trading scheme is regarded as the market is the central element of set of policies. This will help in securing substantial reduction in carbon emission to the Australian economy at the lowest cost. Compared to regulatory measures, some of the additional benefits provided by market mechanism is that the revenue collection is efficient in promoting equality and raising productivity. When the similar amount of emission are reduced through the application of regulatory measures, this will led to increased cost. However, there would not be increase in any revenue for offsetting increased cost. Regressive effect of income distribution and the distorting taxes cannot be removed using regulatory measures (Pindyck, 2013). The innovation in low emission technologies will not be supported by reduced revenue. The increased cost will not be able to support trade-exposed industries with reduced costs. Such adjustment might affect the household and business as it would be considered appropriate revenues from the carbon price. The potential cost to economy cab be considerably reduced by ensuring carbon revenues from prices by applying them to the most productive uses (Stram, 2014). However, they might not be directly related in raising revenue through carbon prices.
Objectives of efficiency and equity can be served in a better way by placing revenues in such as way that it will help in reducing the distortion taxes on household and firms. Social security withdrawal and large amount of personal income tax can be reduced by large amount of revenue at the lower end of income distribution. The future tax system of Australia can envisage this kind of tax and reforms of social security (McGlade & Ekins, 2015). This would go a long way in correcting the tendencies of regression associated with low income spending on goods and services that are emission intensive apart from reduction in dead weight economic costs.
The carbon pricing of household having no income that would benefit from the reduced income tax will have residual regressive effect of carbon pricing. In case of returning some of the carbon revenue to business sector that supports the innovation in emission reducing technologies. Such aspect can be interpreted as raising the economic output and promoting efficiency for cutting the distorting taxes.
Emission trading scheme has introduced the carbon pricing that has raised the revenue for public. From the value of permits in year 2012-2013, the carbon price of AUD 26 per tonne would generate an increase in the potential revenue of AUD 11.5 billion. The amount of revenue increase with the decrease in emission and with rise in carbon price. As the additional sectors are covered and with the increase in price, it is expected that revenue generated from carbon price will rise in short to medium term. In long term, there will be steadily fall in emissions due to decline in revenue from carbon price. In the era of adopting the comparable constrains on emission of carbon, there will no longer requirement of traditional assistance to trade exposed industries. It is possible for the country to provide support for creating innovation in the emission reduction technology in general rather than relying on the policies and mechanism of climate policies (Kalkuhl et al., 2016).
There exist the urgency of mitigation challenge in Australia that requires the country to implement the carbon price. The original proposal of government presented in the Green paper of carbon pollution reduction scheme is approximate and appropriate. Assistance development for emission incentive are done by expending the private and public resources. Framework incorporates the principle that enables the maintaining of incentive in reducing the carbon emission. Assistance are allocated based on emission intensity of industry rather than for the single firm. As per the assistance arrangement, the average cost of carbon per tonne of steel would be around AUD 5. With the recent increase in cost of iron ore and coal, the cost of carbon is insignificant. It has been announced by scheme that there will be annual reduction in the rate of assistance by 1.3%. For high and moderate emission industries in Australia, the assistance level would be around 81% and 54% respectively in 2020 (Kriegler et al., 2013). The free permits proportion is expected to increase substantially over time and is directed toward trade exposed assistance and emission incentive.
The introduction of Australian emission trading scheme in the absence of international agreement will lead to some potential disruptions. This will result in carbon pricing and constraints among the major competitors in trade. There is possibility of emission intense activity to get relocated if trade sectors are subjected to higher emission price in Australia and this could result in carbon leakage. Production of Australian firms might be reduced if there is difference in carbon constraints among the trade competitors. The loss resulting from productive capacity cannot be reversed when the world price inclusive of carbon eventuates in the relevant commodities market (Marron & Toder, 2014).
In the absence of global arrangement, emission-trading scheme of Australia will have dreadful problems. This will lead to the creation of dilemma that the domestic scheme will be perverted to the point of non-viability. World would be left with little chances of avoiding dangerous climatic change (Winter, 2014). There would be unreliable capacity of the scheme in delivering reduction of emissions in relation to target if the cost of mitigation is limited when price of ceilings are placed with permits. Ceiling the permits would undermine the credibility and role of Australia in negotiation of international mitigation since the commitment of firms would not be allowed on level of emissions. Price limits for all the schemes related to Australian scheme would be at default, as it will lead to barrier in international linking because of the domestic price ceiling. Intertemporal use of permits will be limited because the number of permits would not have any limit (Goulder, 2013).
There can be issues related to accounting concerning the emission trading schemes. Some of the issues relates to avoiding the distortions between the options available for meeting the emission targets and purchasing of emission permits. Issues of tax neutrality and undertaking the capital expenditure for reducing the emission and research and development investment.
Conclusion:
From the above discussion, it can be concluded that emission of trading scheme of Australia is required to be established before comprehensive global arrangement before reducing emissions. It is required to implement some of the measures for driving the reduction of emission, as this will help in ensuring that the task of achieving the emission reduction target economy wide is not solely borne by sectors provided under the emission-trading scheme. Concerning the policy agenda, a diabolical problem is presented by climatic change. The movement of Australia toward the economic wide carbon pricing is for the fourth time. There is no end to climatic change mitigation policies by way of retreating economy wide carbon pricing. Regulatory interventions has largely affected the living standard in Australia rather than impact the emission. Two reasons are associated with the economy wide carbon pricing back on Australia agenda. Change in the climatic problem is large and solution should be contributed by using low costs and efficient use of policy. One of the thing in the national interest of Australia is the evolvement of massive project on international community. It is required by Australia to deliver of several objectives using the mitigation policy so that they are prepared for demanding and ambitious global agreement.
Reference:
Baranzini, A., Van den Bergh, J. C., Carattini, S., Howarth, R. B., Padilla, E., & Roca, J. (2015). Seven reasons to use carbon pricing in climate policy.
Burke, M., Craxton, M., Kolstad, C. D., Onda, C., Allcott, H., Baker, E., … & Greenstone, M. (2016). Opportunities for advances in climate change economics. Science, 352(6283), 292-293.
Cramton, P., Ockenfels, A., & Stoft, S. (2015). An international carbon-price commitment promotes cooperation. Economics of Energy & Environmental Policy, 4(2), 51-64.
Desmet, K., & Rossi-Hansberg, E. (2015). On the spatial economic impact of global warming. Journal of Urban Economics, 88, 16-37.
Fankhauser, S. (2013). Valuing climate change: the economics of the greenhouse. Routledge.
Garnautreview.org.au. (2017). Retrieved 5 June 2017, from https://www.garnautreview.org.au/pdf/Garnaut_Chapter14.pdf
Gollier, C., & Tirole, J. (2015). Negotiating effective institutions against climate change. Economics of Energy & Environmental Policy, 4(2), 5-28.
Goulder, L. H. (2013). Climate change policy’s interactions with the tax system. Energy Economics, 40, S3-S11.
Hansen, J., Kharecha, P., Sato, M., Masson-Delmotte, V., Ackerman, F., Beerling, D. J., … & Rockstrom, J. (2013). Assessing “dangerous climate change”: required reduction of carbon emissions to protect young people, future generations and nature. PloS one, 8(12), e81648.
Höhne, N., Warnecke, C., Day, T., & Röser, F. (2015). Carbon market mechanisms in future international cooperation on climate change. New Climate Institute, Cologne.
Instituteforenergyresearch.org. (2017). Retrieved 5 June 2017, from
https://instituteforenergyresearch.org/wp-content/uploads/2013/09/IER_AustraliaCarbonTaxStudy.pdf
Kalkuhl, M., Edenhofer, O., & Lessmann, K. (2015). The role of carbon capture and sequestration policies for climate change mitigation. Environmental and Resource Economics, 60(1), 55-80.
Kriegler, E., Edenhofer, O., Reuster, L., Luderer, G., & Klein, D. (2013). Is atmospheric carbon dioxide removal a game changer for climate change mitigation?. Climatic Change, 118(1), 45-57.
Marron, D. B., & Toder, E. T. (2014). Tax policy issues in designing a carbon tax. The American Economic Review, 104(5), 563-568.
McGlade, C., & Ekins, P. (2015). The geographical distribution of fossil fuels unused when limiting global warming to 2 [deg] C. Nature, 517(7533), 187-190.
Nordhaus, W. D. (2014). A question of balance: Weighing the options on global warming policies. Yale University Press.
Pindyck, R. S. (2013). Climate change policy: What do the models tell us?. Journal of Economic Literature, 51(3), 860-872.
Ploeg, F., & Withagen, C. (2014). Growth, renewables, and the optimal carbon tax. International Economic Review, 55(1), 283-311.
Robson, A. (2014). Australia’s carbon tax: An economic evaluation. Economic Affairs, 34(1), 35-45.
Schnoor, J. L. (2014). Responding to climate change with a carbon tax.
Stram, B. N. (2014). A new strategic plan for a carbon tax. Energy Policy, 73, 519-523.
van der Ploeg, F., & Withagen, C. (2015). Global warming and the Green Paradox: A review of adverse effects of climate policies. Review of Environmental Economics and Policy, rev008.
Winter, R. A. (2014). Innovation and the dynamics of global warming. Journal of Environmental Economics and management, 68(1), 124-140.
Essay Writing Service Features
Our Experience
No matter how complex your assignment is, we can find the right professional for your specific task. Contact Essay is an essay writing company that hires only the smartest minds to help you with your projects. Our expertise allows us to provide students with high-quality academic writing, editing & proofreading services.
Free Features
Free revision policy
$10Free bibliography & reference
$8Free title page
$8Free formatting
$8How Our Essay Writing Service Works
First, you will need to complete an order form. It's not difficult but, in case there is anything you find not to be clear, you may always call us so that we can guide you through it. On the order form, you will need to include some basic information concerning your order: subject, topic, number of pages, etc. We also encourage our clients to upload any relevant information or sources that will help.
Complete the order form
Once we have all the information and instructions that we need, we select the most suitable writer for your assignment. While everything seems to be clear, the writer, who has complete knowledge of the subject, may need clarification from you. It is at that point that you would receive a call or email from us.
Writer’s assignment
As soon as the writer has finished, it will be delivered both to the website and to your email address so that you will not miss it. If your deadline is close at hand, we will place a call to you to make sure that you receive the paper on time.
Completing the order and download