Taxing our way to greener pastures
With the world's continued focus on carbon trading, the powerful and yet simple concept of carbon tax has taken a bit of a back seat.
But this may be changing with new moves in China and Australia, along with renewed debate elsewhere, to use direct taxes and charges to drive social and environmental objectives.
With trading schemes struggling to get up in democracies like Australia and the US, and governments everywhere facing huge mountains of debt, the idea of carbon taxes may start to make a comeback.
China is reported to be considering a carbon tax from 2012 and is also directly targeting high-energy users, like aluminium manfacturers, by dramatically increasing their electricity charges.
In Australia, where the Rudd government has shelved plans for carbon trading until 2013 after it failed to get the legislation through the Senate and decided the issue was politically unappealing, political debate has moved on to a proposal for a mining “super profits tax”.
The government argues this is about sharing the huge profits mining giants have reaped over the course of the resources boom, and says the money raised will used to build infrastructure, lower the standard company tax rate and boost investment in pensions for the public as whole.
There has, of course, been a huge uproar against this, with a well-funded protest campaign headed up by mining companies that have become accustomed to the boom, not to mention the huge executive bonuses. They are crying lost jobs, investment driven off shore and Australia becoming uncompetitive. Some are threatening an investment strike with the shelving of planned projects.
Putting aside the irony of the Australian government embracing a new resource tax as it runs full-speed away from comprehensive climate action, this is still good economic and environmental policy.
Resource extraction is very different to other economic activity. If a country misses a trend like solar power, high-speed broadband or competitive manufacturing, it’s really hard and expensive to catch up. The train of economic opportunity has often left the station.
Resources are different. When a major global company threatens to take their wind turbine manufacturing offshore they can do just that and it’s gone. However when BHP goes and invests in a mine in Kazakhstan instead of Australia, the minerals stay put.
Is there potential loss? Yes, clearly investment leads to jobs, taxes and other benefits so in the short term there may be downsides. But what about the economic impacts in the medium to long term?
To answer that we need to consider the other way mining resources are different. Unlike innovation, knowledge and technology, which we create, mineral resources are limited and we can’t make any more of them. We have now arrived at a point where the global economy is stretching our capacity to feed it with these finite natural resources. That’s why, when we grow the global economy up against those physical limits, as we did in 2007 and 2008, the prices of things that come directly from the earth, like food and oil, rise so rapidly.
Where will this approach to growth lead us? The economic implications are clear – these resources are absolutely of limited supply and their value will keep going up. And up and up. This means resource-rich countries have plenty of time to extract their resources and the longer they leave them, the more they will be worth.
The finite nature of those resources also means it is good policy to invest the resulting income to build long term economic security, not to grab the quick bucks or short term jobs on offer.
More broadly, it also means we will have to accept that an economy built on “stuff” is inherently risky when the supply of the original “stuff” is limited, as argued by proponents of peak oil. So we are all going to need to use our resources much more efficiently, and the higher the prices we pay for them the more efficiently we will use them.
This means we need to steadily shift our tax base away from employment, which we want more of, and towards stuff and pollution instead, which we want less of. So the logic of higher taxes at the start of the “stuff” value chain, by taxing mining companies more, and lower taxes for activities further down the chain by taxing other companies less, is good environmental as well as economic policy.
So, for Australian readers in particular, as you watch the debate on the RSPT rage over the coming months, consider both your economy and your kids’ economy. Think about where we are all heading and what kind of economy we need to build. And when a mining CEO earning $6 million a year talks about his heartfelt concern for Australian miners’ jobs and Australia’s economy, just bear in mind that hell hath no fury like a vested interest disguised as a moral principle. And remember that this is just the beginning of a long and inevitable economic transformation.
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Even simpler ... add 1% to all GST Collections .. 11%
Result will be about $5 billion per year that you put directly into actual renewable energy projects. Large scale and distributed larger projects. Geo, off shore wind, large scale solar, etc.
Between now and 2020 this would generate about $50 billion that could be put into renewble projects. Not derivatives. Not emissions trading but 100% direct spend on real live projects.
No collection costs. No complex compensation and exemption projects. Everyone pays. People on big incomes spend more and pay more GST. Only shift necessary is to up the tax free threshold to $9K or $10K.
Petrol is in the net.
The return on this investment can be measured in terms of classic triple bottom line. Great return on invested funds, great impact on the environment and greatest good for the whole community. Catch is that this is direct action on renewables.
Here's my calculation
Suppose a surcharge was added to the GST on fossil carbon; I'd suggest a rate of $16 per tonne of contained carbon. For comparison, fuel excise at 38.1 c/L equates to $630 per tonne carbon contained in petrol.
A GST surcharge of $16 per tonne contained carbon would have bugger-all collection costs because all the administrative structure for collection of GST is in place; so what would we do with all the revenue?
1. Raise the taxfree threshold from $6000 to $9000. This will more than compensate low income earners who have no discretion in how they source their electricity from coal-fired power price rises.
2. Get rid of payroll taxes; the Commonwealth will be collecting ample revenue to finally get these taxes off State books.
3. Decrease fuel excise from 38.1 c/l to 34.5 c/L. While the price of unleaded will remain unchanged for said low income earners who have no discretion, the excise rebate paid to large corporations will decrease, and they'll start to modify their fuel consumption.
In future years, carbon surcharge receipts will start to decline as fossil fuel use starts to decline. The solution to this is to raise the rate of GST surcharge per tonne fossil carbon, with other tax rates further adjusted as required.
Eventually, ongoing GST carbon surcharge increases will price fossil fuel use out of the economy, yet the transition to zero emissions will have been completed in an orderly, economic manner. Other taxes can be brought back in as required.
It really is as simple as that.
Careful what you wish for
Minerals/energy don't exist until found. If the profit incentive is insufficient, exploration investment won't happen. The consequent loss of national wealth is greater than outlined in this article.
The other impact is on cost of capital goods (eg wind turbines, power infrastructure) all depend on mineral resources/energy to build. Bump up the cost of raw materials through taxes and this bumps up the cost of carbon efficient capital goods.
Hell Hath No Fury
Follow the Money is always a good comment in Politics. Who will make the money in carbon energy trading. Merchant banks mainly. How do they react to this - they invest heavily in the politics of Carbon Trading, which is basically a tax on the air we breath. Who pays - all other industry including the miners, and the tax payers of course. Who invented the concept, interestingly enough it appears it was thought up by Enron and BP executives. Enron is gone now. Finally, follow the money again. Which US president set up the Chicargo Carbon Exchange, why the same one who worked with Al Gores carbon trading investors, and who sponsored the carbon trading legislation in the USA. They deny any conflict of interest of course.
Taxing our way to greener pastures
In the normal course of history, when resources diminish or become more expensive to extract, the market determines that their value goes up. What we have today is a governmentally inspired artificial levy on energy resources to drive social, political and financial objectives, dressed up as environmentalism.
your website
Interesting that you leave out the Banks who plunder ordinary people. I think the mining companies have put more back into our economy than banks ever will. Of course we should all get rewards for our natural resourses. Isn't simply raising royalties by 100% or more if need be a far simpler way of doing this than taxing companies that dare to make a profit. What stupid thinking that is, dreamed up by a union organisation no doubt. If we did that with every industry we would wipe out all companies overnight. You people really shoudl get out and about and see how the small people are hurting. When we have people owned companies like energy suppliers turning off power to those that can least afford it by the tens of thousands we ought to be looking inwards at ways to help not harm by raising costs.