A Look at the Australian Carbon Tax

In 2014 then Australian Prime Minister Tony Abbott spearheaded the removal of the Australian carbon tax. While Australia was not the first country to institute a carbon tax, they were the first to repeal it. The Australian carbon tax became a major political flashpoint, and Tony Abbott had made repealing it a major campaign promise. Abbott claimed that the Australian carbon tax was destroying jobs and an overall threat to the economy. Only having been in place for two years, the question remains, what did it accomplish?

During the time the Australian carbon tax was in place, carbon emissions did decline. Carbon emissions had been declining since the 2008 financial crisis, but unlike other countries, Australia continued to decline through its economic recovery period. In the year following the repeal of the carbon tax, carbon emissions increased by a net 1.3 percent, the first time an increase had been seen since 2008.

Abbots claims regarding it threatening unemployment and the economy have at this time remain dubious at best. While initial projections indicated it would damage unemployment, there did not appear to be any direct correlations between the presence of the carbon tax and unemployment.  The electricity prices in Australia did dramatically increase following the implementation of the carbon tax, but by the time the tax had been repealed, it had nearly returned to pre-tax prices. It has been suggested by experts on the Australian economy that any perceived correlation that the carbon tax had with unemployment was spurious, with the alternative explanation being a slowdown in investment. Unemployment has continued to climb since the tax was repealed.

The question of what the Australian carbon tax accomplished remains a major topic area of discussion for American energy policy wonks. While the chance of a carbon tax passing an American Congress is low at this time, the question of how to implement broad national climate policy remains intensely debated. This debate is for good reason, the pressure to develop a game plan for the United States following Paris has only increased. California has implemented a state wide cap and trade program, and the carbon tax is now a part of the Democratic Parties national platform.

The Australian carbon tax successfully begun to decouple economic growth from carbon emissions for Australia. While unemployment is rising in Australia, GDP growth has continued. We see this looking elsewhere, in countries such as Sweden and Norway as well. This is an important lesson for policymakers, as it demonstrates that a carbon tax, and in turn progress on carbon emissions, does not have to be the type of economic apocalypse described by some opponents.


Image courtesy of Flickr. Originally published by S&S on December 20, 2016.


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