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Start a carbon tax? That’s so 1991. Clean innovation and partnerships is where it’s at

We price carbon. This is nothing new. The first time this explicitly happened, Vanilla Ice hit number one in Australia, and Bryan Adams was topping the global charts with “(Everything I do) I do it for…

Behind the times: Europe already had carbon taxes in 1992 back when Vanilla Ice topped the Australian charts. AAP/Musicbiz

We price carbon. This is nothing new. The first time this explicitly happened, Vanilla Ice hit number one in Australia, and Bryan Adams was topping the global charts with “(Everything I do) I do it for you”.

Carbon Taxes have existed in Europe since the early 1990s. This is because broad-scale ecological innovations in industry require political support. Market forces alone cannot innovate us to a low-carbon future because, up until now, we have taken global public goods like clean air for granted. The carbon tax places Australia amongst other global leaders - such as the UK, California, Scandinavia - by taking positive action on climate change. But the price, whilst important, is not the main game here. It is the prerequisite for change and there will be a price on carbon everywhere, sooner or later. It is, however, connectivity and new partnerships that will be central to governing a low carbon transformation.

Carbon Pricing, Roxette style

In 1991 Sweden implemented a carbon tax of US$44.37 per metric ton of CO2. This was not evenly distributed across society, with consumers paying more than industry, so, ultimately, industry ended up paying US$23.04/tCO2e from 2003-2006. This rings some bells given the price coming in Australia. According to the Swedish government, the tax reduced CO2 emissions by about 15% between 1990 and 1995, and overall emissions dropped almost 9% between 1990 and 2006, and by more than 40% since the 1970s. The Swedish revenues also flowed into general government coffers, not specific funds for low-carbon technology and innovation development.

Denmark, on the other hand, implemented a carbon tax in 1992, this time with revenues being focused on environmental subsidies (taxing “bads” such as fossil fuel use to support “goods” such as renewable energy), leading to 15% reductions on a per person basis from 1990 to 2005, and industrial emissions dropping by 23% during the 1990s after market-induced industrial restructuring. Denmark’s carbon tax actually slightly decreased from US$16.91 in 1992 to US$16.41 in 2008.

More recently, British Columbia (BC) in Canada implemented a carbon tax in 2008. It reaches C$30 (A$28.80) per ton of carbon dioxide equivalent this weekend, its 4th anniversary. Did the sky fall in in BC? Nope. Emissions dropped, especially in petroleum fuel use – 15.1% since 2008, as reported by Canadian think tank, Sustainable Prosperity – and gross domestic product (GDP – an imperfect but standard measure of wealth) grew compared to the rest of Canada, even with the oil sands in Alberta factored in. Importantly, studies have shown that in seven countries with carbon taxes, GDP has slightly grown or remained neutral. Over the last 20 years, the sky in these countries has not fallen in and the economies have not gone to hell in the proverbial hand-basket.

Complementarity

So, the carbon price in Australia is not way out ahead of everyone else, but places the country amongst others leading the way globally. There are two things that are important to note here: firstly, that it takes time for the environmental effect of the tax to kick in. Those who often criticise carbon taxes for not having immediate effect overlook that it takes time to restructure economies, but that this can happen without reducing GDP. Important here is that industry has certainty in policy decisions, and a clear carbon price extending into the future so that clean investments can be made. Assistance to overcome initial financial and technological hurdles, including competitiveness issues, are also important in this transition time.

Secondly, tax alone is not enough: broader policies need to be in place to spur new innovation that generates wealth out of new green economies. Although taxing can create innovation, complementary policies are also needed to help drive lower emissions. For example, Sweden is part of the EU Emissions Trading Scheme, has policies to target waste disposal, and invests money in research and development and local programmes. Funding measures may also help, for example, tenants buy low carbon energy when they don’t have incentives to invest in physical infrastructure through things like Property-Assessed Clean Energy (PACE) schemes.

These examples don’t account for every nuance in these countries, but it shows that pricing carbon, really, isn’t a big deal. The carbon price is prerequisite for internalising externalities – it helps nudge decision making on the margins – but it is not the be-all-and-end-all of climate policy. In fact, it’s even smaller than that: pricing it is a necessary but insufficient step in reducing emissions and creating healthy ecological economies. It is the other mechanisms that create new partnerships, invest in new technological and business model innovations that will facilitate a profitable transformation to a low carbon economy.

Partnerships

Creating a culture of innovation through partnership and multi-stakeholder processes is really what is essential in creating the right atmosphere for benefiting from a low carbon future. The carbon tax is one tool in a broader systemic approach to foster new clean industries. New innovation also isn’t just about technology; it is about business models and connectivity between business, government and communities to show support for a positive vision of the future. For example Solar City in California innovated around its business model of providing a service for solar power, rather than just selling a product. Investment mechanisms, such as government funds or venture capitalists, also need to help bridge gaps, providing support that links innovators from policy requirements to profitable markets.

Many of these opportunities will come from better inter-connectivity between the new economy actors. Just as the fossil-fuel industry has worked with governments for decades to instill subsidies as a norm, new green industry should be fostered through co-evolution of new policy and capital through partnerships and organisation. An example is creating consortia of cleantech, venture capitalists and green collar employment organisations to push government and show support for low carbon policies. Information and knowledge for people to make decisions as consumer voters/citizens (e.g. carbon labels on products), and partnerships that allow low carbon activities to be scaled up (e.g. city level carbon management and innovation) are important for bridging policies to people’s everyday living. These initiatives give government and consumers the confidence and support they need to make low carbon decisions, both in parliament and the supermarket. By connecting, we can provide what I call “example and enable environments”, giving practical examples of tools that can then be scaled up over space and time. For example, online carbon calculators for people or companies to use voluntarily can be used to raise awareness and skills, which can then help understanding of incoming government regulation.

Our recent work in the international Carbon Governance Project illustrated the importance of connectivity and leadership in leading climate change jurisdictions including the UK, California, and British Columbia. Cleantech capital and industry is partnering with leading research institutes, community “living laboratories” and facilitating the co-evolution of low carbon economies. When we think of the carbon tax in Australia, all we are doing is placing a price to get rid of something we don’t want and enabling the economy to start making money from new industries. So we price the environment and place value in its societal outcomes.

Often people get hung up on the price: “too low to make a difference”; “too high making us uncompetitive”; “too clouded to figure out what it actually does”. The most important point is that carbon has a dollar value in the first place; the carbon tax gets us on that necessary path. Now we should focus on positive visions of the future with tangible examples that illustrate this. We need to use the market as a tool to drive low carbon transformation: using the price as a stick, and profitable partnerships as the carrot. Then we can conceptualise and realise the multiple discoveries that will both benefit society and the environment in a new low carbon future, bringing Australia firmly out of 90s hair dos and into the leading pack.

Comments welcome below.

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15 Comments sorted by

  1. Gerard Dean

    Managing Director

    Professor Bumpus

    I don't care what hairstyle I wear - actually I liked the long haired 70's the best - what I do care about is keeping my company pushing hard designing and making Australian products and keeping manufacturing in Australia.

    I own and manage a company in Melbourne. We design and manufacture high technology measurement systems,of which over 95% are exported to major companies in the USA, Europe, Asia and the Middle East.

    The carbon tax will adversly affect my business competitivity…

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    1. Mike Hansen

      Mr.

      In reply to Gerard Dean

      Gerard.

      You do not mention climate change at all!

      Why is that?

      In this interview, Professor Garnaut explains the action that countries in the world are taking to mitigate carbon pollution.

      He says "The costs of Australia’s mitigation effort will be around the middle of the pack of developed countries after Sunday, despite the fact that the European emissions trading price has fallen to low levels."

      https://theconversation.edu.au/australia-under-a-carbon-price-plan-q-a-with-ross-garnaut-8010

      So it appears you alarmism is over hyped.

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    2. Wil B

      B.Sc, GDipAppSci, MEnvSc, Environmental Planner

      In reply to Gerard Dean

      Mr Dean, it's unavoidably true that there will always be winners and losers from any economic transformation.

      Thankfully this particular problem has been reasonably well modelled and is pretty predictable. Don't fall for the fear factor, which you appear to be doing. Your electricity costs will be raised 10 percent. Can you really not do anything to cut electricity use at all? Have you really put your mind to this at all? Your air freight charges will be raised by much less than ten percent.

      I would have thought you would be far far more concerned by the high dollar and wages than anything to do with carbon pricing.

      Of course, fundamentally this is all about reducing pollution. Do you have a cheaper, better way of doing that? Or would you rather that we all rot in hell? "Direct action" would cost a lot more (ta increases on you and me) and be less effective.

      sincerely

      Wil B

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    3. Gerard Dean

      Managing Director

      In reply to Wil B

      Mr B

      Thank you for your comments, most of which I agree with.

      The high dollar is a very difficult issue, however that is beyond our control and that of the governments. Wages are not a concern as I realise we must pay well to keep our loyal staff from straying.

      We will absorb the increased electricity and freight costs due to the carbon tax. My point is that our opposition, especially the Chinese company who are 'knocking off' some of our products, will not face similar cost increases. It is another straw that loads our back.

      If the world adopted the carbon tax, I would not be writing this message because we would all be in the same boat.

      Thank you

      Gerard Dean
      Glen Iris

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    4. Gerard Dean

      Managing Director

      In reply to Mike Hansen

      Dear Mr Hansen

      Firstly, I am not an alarmist. Referring to my response to Mr B above, the increased costs affect us and not our opposition, especially the Chinese company who are copying our products. The extra costs will be absorbed, but they are another straw on our back.

      Secondly, I purposely did not mention climate change, preferring to point out our small, real world problem that will come about due to the carbon tax.

      As for Mr Garnaut. Mr Garnaut lives a very high energy lifestyle…

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    5. Mike Hansen

      Mr.

      In reply to Gerard Dean

      Gerard.

      You have used the "Al Gore is fat" or in your case the "Garnaut is fat" argument before. It really is a feeble argument. Mitigating climate change is not primarily about how you or I or Professor Garnaut live (although we will all have to make changes) but what we agree to do collectively to decarbonise our economy.

      We have the technology to decarbonise - with renewable energy, biofuels for air travel, mass transportation systems, electric vehicles, energy efficiency etc.

      Professor…

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    6. Gerard Dean

      Managing Director

      In reply to Mike Hansen

      Mr Hansen

      Firstly, please don't insult people. I never said Al Gore was fat, although Mr Gore does have a severe credibility problem bought about by his call for the US government to shut down all coal fired plants by 2012, then using coal fired electricity to heat and cool his multple, multi-bathroom homes.

      Gettting back to the facts, I am afraid that you picked the wrong person to talk about decarbonising our economy by using renewable energy.

      Let's start Round 1 with your line, 'biofuels…

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    7. Mike Hansen

      Mr.

      In reply to Gerard Dean

      So Gerard.

      Still refusing to address my question about climate science.

      Why is that I wonder? Perhaps you are embarassed.

      Let me see. Glen Iris - middle class suburb, lots of professionals many of whom would have scientific training. I guess admitting that you are a climate science denier would be like walking around with a dunce's cap on your head.

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    8. Gerard Dean

      Managing Director

      In reply to Mike Hansen

      Mr Hansen,

      "I guess admitting that you are a climate science denier would be like walking around with a dunce's cap on your head."

      Thank you for ridiculing me and resorting to name calling.

      I have never denied the climate is changing. What I do is discuss the issues using the facts to hand. Perhaps you can explain where I went wrong with regard to using biofuel to power our aircraft. Perhaps, you, like a lot of other commentators don't like it when their hypocrisy about their own air travel is discussed.

      From now on, stick to the cold, hard, facts and stop resorting to insult, ridicule and name calling.

      Gerard Dean
      Glen Iris

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    9. Mike Hansen

      Mr.

      In reply to Gerard Dean

      Good one Gerard. You are ducking and weaving like a real pro.

      "I have never denied the climate is changing"

      You make Slippery Pete look like an amateur. I guess readers here can draw their own conclusions.

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    10. Geoff Mason

      student

      In reply to Gerard Dean

      I enjoyed the article but wanted to belatedly wade in with Gerard

      'I am afraid that there is no sustainable aircraft fuel on the horizon, maybe by 2100, possibly later'

      This is misleading, as is your key assumption that there are '2 main forms of biofuels.'

      What about algae based biofuels? Have you checked out Algae Tec biofuels? They grow algae in modified shipping containers for biofuels. It's got a very small land footprint and doesn't displace food production.

      Algae Tec are developing…

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  2. David Arthur

    resistance gnome

    Thanks Adam. As usual, economists have taken careful aim at the problem, and politicians have pulled the trigger.

    Also as usual, they have managed to not quite the the mark.

    I'd be interested to read responses by economists to the following criticism of the Clean Energy Futures package. I also outline my preferences for carbon pricing, and would like comments on that also.

    The purpose of the Clean Energy Futures package is to start decreasing Australia's carbon dioxide emissions…

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  3. Arthur James Egleton Robey

    Industrial Electrician

    I am off to the 17th Cold Fusion conference in Daejeon Korea.
    http://iccf17.org/
    Most people are willing to talk innovation, but balk when real innovation arrives.
    There are three contenders for nuclear fusion. Cold Fusion, Dirrected Beam Fusion and Muon catalysed fusion.
    Never heard of them? You have now.

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  4. Adam Bumpus

    Senior Lecturer, Environment & Development at University of Melbourne

    Thank you for the comments. I shan't wade in on discussions here, but save to say yes, there are multiple technological and societal innovations (some examples given in the article) that will be needed to deal with the climate change problem; that we all have implications on the environment and there needs to be a critical reflection on what our own individual net benefit on the climate is (and yes this is tricky); and that ultimately the pricing of carbon and the opportunities that it can bring for reducing emissions are crucial steps to avoid increasingly expensive climate impacts (in financial, social and environmental terms) in the not so distant future. Thanks again for interest in this work!

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    1. Mick Bailey

      student (engineering)

      In reply to Adam Bumpus

      Professor Bumpus I enjoyed this reading article and your insight into what others around the world are doing to tackle climate change. I noticed that you commenced your discussion with Sweden's carbon tax. On a side issue, I was wondering if you have studied much on their NOx output based emissions trading scheme (OREP), and whether this style of mechanism which taxes the bad (the pollutant) and uses these collected funds to subsidise the good (energy production) would theoretically be a good alternative to a straight Pigouvian tax, (despite the lack of double dividend).

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