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In April 2011, prior to the Clean Energy Act 2011 being passed on 12 October 2011, Tony Shepherd wrote an article titled “Eight myths of a carbon tax”. I thought I’d share and discuss three of Shepherd’s ‘myths’ with you:

Shepherd open’s his discussion with the mythical concept that presumes if Australia leads the way with introducing a carbon price then other nations will also legislate carbon pricing but that it isn’t true considering “We produce 1.5 per cent of the world’s CO2; China and America account for 40 per cent. A 5 per cent reduction in Australia’s emissions would be cancelled out by as little as a 0.3 per cent increase in China’s emissions.” Which makes sense if we are experiencing an economic impact because of the introduction of Carbon Pricing then surely countries like America and China will have an even greater slowdown in their economies – considering the free-trade deals Australia has with America and our resources boom being attributed to China’s thirst for materials this would potentially mean an even greater detrimental impact on global economies.

In looking at the price within the Australian context Shepherd discusses the concept of the ‘big polluters’ (the 1000 companies and business that produced the most carbon dioxide) being hit with the tax and yet somehow consumers will be protected from economic impact. This goes against the fundamentals of economics because some products are inelastic and other are elastic, also if clean energy is forced on people the price will go up not down (basic demand-supply economic theory) so even if a tax is replaced by a scheme there is still going to be a substantial economic impact on everyday citizens. Shepherd argues: “In the end the consumer, whether local or overseas, will always pay. If the cost is not passed on, trade exposed industry in particular will either fail to survive (and jobs will be lost), or move elsewhere (loss of jobs again).” Thus there is going to be negative impact on the economy.

This is congruent to the myth “that the consumer should be protected”, which is wrong because as I mentioned above the consumers are what should set the price, not the government artificially, and in that scenario the price would probably go down. Shepherd argues, “If the government wishes to discourage the production of CO2 then the end consumer must be sent a price signal”.

“The concept of charging the big emitters and passing the proceeds back to the consumer is fatally flawed. The big emitters will reduce emissions or be forced out of the economy. Then there will be no money for compensation and the shock will be large.” Tony Shepherd is the chairman of Transfield Services and ConnectEast.

So what? You say, the government announced on 28th August (2012) that the floor price would be removed and the Emissions Trading Scheme will be based on a European/World price (some $18.00 per tonne lower than the 2012-2013 tax which will not push people into significantly lowering their output) and thus the consumer would be protected because “a carbon tax or ETS will force the same big polluters to invest in alternative technologies that will create jobs.” Wrong. As Shepherd points out investors who have seen their investment impaired by a carbon tax will not rush to put their money into high-risk and high-cost technologies, they won’t have the funds to do it, or the room to make such risky moves and “banks won’t lend to the impaired incumbents.”

So what does this say about a carbon tax? It’s economically unviable and causes instability? That’s for you to decided but I leave you with this fact:

“California legislated to introduce a cap and trade scheme in 2006, with effect from 2012. There has been no explosion in green jobs there and unemployment stands at 12.5 per cent. Jobs have simply.” (Tony Shepherd, 2011)