So now it’s a coal tax?

Transport emissions by use

What is the point of the “emis­sions” tax now? By exclud­ing petrol from their pro­posed tax, the Labor/Green alliance have moved the goal posts to make the tax look less like an “own-goal” to the con­sumer. In doing so they have made coal pro­duc­tion and use an explic­it tar­get, although that is where our com­par­a­tive advan­tage and some of our strongest trade prospects lie.

Any tax changes rel­a­tive prices and, there­fore, the choic­es a con­sumer or investor makes. An econ­o­my-wide, go-it-alone pro­duc­tion tax such as a uni­form tax on car­bon emis­sions changes the expect­ed return on invest­ment in almost all pro­duc­tion (any­thing that cur­rent­ly depends on car­bon-inten­sive ener­gy) in Aus­tralia rel­a­tive to every­where else. Even if you think that such a tax can be jus­ti­fied by oth­er social ben­e­fits (such as a near-zero cut in glob­al tem­per­a­tures), it’s a big ham­mer that has to be aimed very, very carefully. 

But a non-uni­form pro­duc­tion tax implic­it­ly sub­sidis­es exempt­ed ener­gy sources by mov­ing pro­duc­tion and invest­ment away from the tax-bur­dened ener­gy activ­i­ties to the tax-free activ­i­ties. Although the two prod­ucts do not look like close substitutes—coal and diesel, for exam­ple, have not been close sub­sti­tutes since the 1950s when diesel-elec­tric loco­mo­tives took over the rails—the implic­it sub­sidy will dis­tort the struc­ture of pro­duc­tion and future invest­ments. For exam­ple, we can expect coal investors will look for oppor­tu­ni­ties out­side Aus­tralia; petrol refin­ers will breathe a sigh of relief but they won’t fill the invest­ment gap left by dis­cour­aged coal min­ers because there is no under­ly­ing resource to jus­ti­fy more assets in this market.

Australian emissions Growth By Sector

The tax penal­ty for our export-ori­ent­ed coal sec­tor is made all the more acute by the sig­nif­i­cance of the sec­tor giv­en the free-kick. Trans­port emis­sions are the sec­ond biggest after emis­sions from the coal/­gas-fired sta­tion­ary ener­gy sec­tor and have grown almost as fast as the emis­sions from pow­er gen­er­a­tion (see the sec­ond chart). It account­ed for 14% of our 2009 emis­sions. Yet, biz­zarrely, the emis­sions inten­si­ty of this sec­tor is high­ly price sen­si­tive; unlike the sta­tionery ener­gy sec­tor, trans­port ener­gy emis­sions are high­ly like­ly to fall with a rise in the petrol price! 

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