The Sun God of Australia's carbon tax

Moreover Garnaut does not mention the evidence that Australian consumers are not particularly concerned when energy-intensive products rise in price, witness the ever-growing vehicle mileage they indulge in, despite the rise in petrol prices over the last ten years (from $0.80 per litre in 2001 to $1.40 today) and their fondness for all things electrical (as evident overseas in the targeting of electronics shops by the looters in London recently). In regard to the latter, the rise in electricity prices that will occur if the coal-fired power generators simply pass on the tax is partially offset by the falling prices of most electrical and electronic appliances. Moreover, as apparently around 80 per cent of Australian households will be compensated for the "carbon" tax by income tax reductions and other measures, any substitution effect there might be from the rising relative cost to those households of using such appliances will very likely be swamped by the strongly positive income effect on demand for such goods, as consumers are always quick to upgrade their computers, TVs, and the like when they can afford to.

Not only that. At $23, the tax works out at just $0.02 per kWh, which is about 12 per cent of the existing ACTEW tariff in the ACT ($0.1418). Given that electricity cost is still a fairly small proportion (less than 10 per cent) of average household expenditure, the tax clearly needs to be much higher to have any impact on total household demand, even without the income compensation via tax reductions.

Thus it seems very debatable whether the "carbon" tax will have any appreciable effect on either investment decisions by power utilities or on the consumption patterns of virtually all Australians. However, the passing on of the tax to final consumers will have an impact on the general price level, and thereby will have knock-on effects to the CPI and the general wage-level. In a later paper I plan to show that the carbon tax is a solution in search of a problem that does not exist, as there is NO statistically significant relationship between the undoubted rising level of the atmospheric concentration of CO₂ and the very slight observed rises in global or regional temperatures, including those in Australia.

To conclude, this paper has shown there is no basis for the Labor-Green government's claim (in Securing a Clean Energy Future, July 2011) that its carbon tax will "cut pollution (sic) by at least 5 per cent compared with 2000 levels by 2020", dependent as that is on its unproven estimates of the substitution effects from coal to renewable sources of energy when the tax is only $23 per tonne of CO_2.