What is carbon tax At the centre of the governments policy on climate change is pricing carbon.

Many
commentators and politicians have referred to this as a carbon tax. The idea is that polluters
will pay per tonne of carbon they release into the atmosphere. This cost will initially be set at
$23, and increase gradually until 2015, when we will shift to a trading scheme that will let the
market set the cost. This is widely thought of as the most effective and least costly
mechanism to reduce carbon output and reduce the level of climate change that is occurring.
Right now, when you purchase a product that relies on carbon-intensive materials or
manufacturing processes, the price you pay does not represent the cost incurred by the
environment. The iron ore used to create the product could be sourced from the highest
polluting mine in the world, the electricity used to power the manufacturing plant could be
provided by the dirtiest coal mine in the world, and the trucks used to transport the product to
its final destination in a supermarket could run on the dirtiest fuels in the world, and it would
make no difference to the price. With a price on carbon, this equation would change. The
amount of carbon pollution involved in producing a product would start to be factored into its
final price. Products produced through dirty processes will become more expensive, thereby
making it possible for other products produced through cleaner processes to compete on
price.
Yes, thats right. The price of certain goods that are reliant on carbon pollution for their
production will go up. However, the majority of Australians will be compensated for this
cost, and this cost will be relatively small for most items. Visit the household compensation
calculator if you wish to find out where you stand once the price on carbon is introduced.
How will this drive a move towards a cleaner future you might wonder. Well, its not hard to
see that if pollution-intensive processes make goods more expensive, companies will look to
reduce their pollution footprint in order to lower their costs. Thats what businesses do
improve efficiency year on year. Its one of the key drivers of growth. For this reason, it is
actually not necessary for the consuming public to change their practices, although that would
help drive you own costs down.
Carbon Tax in Australia
Australia accounts for 1.5% of the worlds carbon emissions, and on a per capita basis is the
worlds number 1 carbon pollutant (Carbon Tax 2012). Mining, airlines and steel are the three
industries which are the most guilty of carbon emissions, and it is imperative to safeguard the
future of our country and this planet, something must be done now. While other countries like

India and South Africa implemented carbon tax in 2010, Australia made little or no progress
towards its environmental responsibilities and faces the prospect of global penalties. A case in
point is Australias national airline Qantas, on whom the European Union has imposed a 15%
carbon emission tax (AAP 2011).
Armed with an environmental background, it is now important to get an overview of the political
climate in Australia at present. The Labour Party under the stewardship of Prime Minister Julia
Gillard came to power in the 2010 general elections which resulted in a hung parliament. With 72
seats in the House of Representatives, the Labour Party in conjunction with three independents
and 1 Greens MP formed a minority government by a slender margin of 76-74 against the
opposing coalition led by Tony Abbott of the Liberal Party.
Gillards predecessor as Prime Minister, Kevin Rudd, had in 2007 inked the Kyoto Protocol, the
United Nations backed international environmental treaty created to fight the growing problem of
global warming. In April 2010, Ruud had proposed an energy trading scheme called Carbon
Pollution Reduction Scheme (CPRS), but failed to gather enough support to have the bill passed.
It is widely believed that the CPRS greatly affected his popularity, and cost him the party
leadership (Kelly 2010).
In the days running up to the General Elections in 2010, Gillard, who had by then wrestled the
party leadership away from Rudd and taken over as Prime Minister, outright denied that her
government had any desire to introduce a carbon tax. Since then, Gillard modified her stance,
declaring that not only had circumstances changed, but it was her intention all along to
introduce an Emission Trading Scheme and not really a carbon tax (Gillard 2010).
In November 2011, The Clean Energy Act was passed by the Senate enforcing the
aforementioned tax on companies from 1st July 2012. The House of Representatives saw the
Labour party squeeze out a narrow 74-72 vote win, while the Senate passed the act 36-32. The
numbers are crucial because they highlight how strong opinion is both for and against the idea of
a carbon tax with Opposition Leader Abbott declaring that should his party come to power in the
2013 General Elections, he will repeal the order without hesitation.

Carbon Tax Pros and Cons

The production of carbon dioxide is widely held to contribute to social / environmental
problems such as global warming. This carbon pollution is a negative externality. It is a cost
imposed on the whole of society and not just the individual who consumes a certain product.
e.g. if you drive a car, the external costs are felt by everyone else.
Because certain carbon intensive industries create negative externalities, the social cost of
production is greater than the private cost.
In a free market, these negative externalities are not included in the price leading to
overconsumption and social inefficiency. We can say there is a missing market, because the
external cost of carbon emission is ignored.
Diagram to show Welfare loss of Negative Externality

SMC = Social Marginal Cost (total cost to society) | PMC = Private Marginal Cost (cost to
individual) | PMB = Private Marginal Benefit (benefit to individual)
This diagram shows that in a free market, we get overconsumption of carbon, leading to a
welfare loss to society.
The Purpose of A Carbon tax

The purpose of a carbon tax is to internalise the externality. What this means is that the final
price of the good should include the external cost and not just the private cost. It is similar to
the polluter pays principle. This was incorporated into international law at the 1992 Rio
Summit. It simply means those who cause environmental costs should be made to pay the full
social cost of their actions.
In theory, the tax should equal the external cost. Therefore, the price consumers pay will be
the

social

cost.

Demand will fall and the new equilibrium will be socially efficient because at this output, the
marginal social cost equals the marginal social benefit.
Diagram to Show Carbon Tax

The tax shifts the supply curve from S1 to S2. With the tax, consumers now face the full
social cost (SMC)
Revenue Neutral
In theory a carbon tax should be revenue neutral. This means the tax raised from taxing
carbon emissions can be used to reduce other taxes. There should be no overall increase in the
tax burden. The aim is to increase social efficiency by making people aware of the full social
cost.
Benefits of Carbon Tax
1. Encourages alternatives. A higher price of carbon emissions will encourages firms and
consumers to develop more efficient engines or alternatives to consuming carbon emissions.

For example, with carbon taxes, it will be more efficient to develop hydrogen engines or solar
power.

Itmight encourage more people to cycle or walk to work. This would have health

benefits such as lower risk of heart attack.

This could make it more feasible to generate electricity from green sources (e.g. solar

power). If we develop more green sources it will also make us less reliant on oil.
It will help make the transition to a post oil economy easier.
2. Raises Revenue. The revenue raised from carbon tax could be used to subsidise
alternatives such as green electricity or the revenue raised could be used to repair the damage
caused by environmental pollution.
3. Leads to a socially efficient outcome. It makes people pay the social cost and overcomes

the excess consumption.

Problems of Carbon Tax
Production may shift to countries with no or lower carbon taxes. (so called pollution

havens)
The cost of administrating the tax may be quite expensive reducing its efficiency.
Difficult to know the level of external cost and how much the tax should be.
Possibility of tax evasion. Higher taxes may encourage firms to hide carbon

emissions.
If demand is price inelastic, the tax may have to be very high to reduce demand
significantly. In the short term, firms may not feel they have many alternatives. Though other

time, demand will become more elastic as more alternatives are generated.
Consumers dislike new taxes and often dont believe that they will be revenue
neutral. This is not an economic argument, but it is a political reality and explains why it is

often difficult to implement.

A global carbon tax may curtail economic activity in the poor developing world
because they cant afford the small increase in energy costs, but the developed world may
simply be able to pay. There may be need for a carbon tax to reflect different abilities to pay.

Conclusion
While the problem facing the Australian government due to their decision to introduce Carbon
Tax is no doubt a challenging one, it is a marketers dream. The problem statement defined gives
a marketer the opportunity to use not one or two tools in his arsenal, but the chance to develop
an integrated marketing plan which takes advantage of advertising, public relations, direct

communication, events, activation, etc. An integrated marketing plan needs an integrated

marketing communication, and that is where the true excitement for a marketer lies.
Additionally, it gives the marketer to involve the consumer, not just as a recipient of the
information that is being dissipated, but as a partner or a collaborator in the process (Lars &
Christiansen 2006), which makes the task all the more engaging.
An IMC, if well executed, gives the client (here the Australian government) the opportunity to
achieve all its campaign objectives under one consistent framework, which increases the
likelihood of success (Rossiter and Bellman 2005).
The choice of a national campaign, aided by audience specific communication appears to be a
win-win strategy for the government, and an excellent way to regain its lost credibility in the face
of severe opposition hostility.

References:

Carbon Tax, 2012, http://www.carbontax.net.au/, viewed 16 April 2012.

Kelly J, 2010, Kevin Rudd delays emissions trading scheme until Kyoto expires in 2012
The

Australian, http://www.theaustralian.com.au/national-affairs/climate/kevin-rudd-delays-

emissions-trading-scheme-until-kyoto-expires-in-2012/story-e6frg6xf-1225858894753, viewed 16
April 2012.
Julia Gillard, 2010, No Carbon Tax, http://www.youtube.com/watch?v=KMVc0IbtyAQ, viewed 16
April 2012.
AAP,
2011, Yes,

vowed

no

carbon

tax

Julia

Gillard,

News.com.auhttp://www.news.com.au/national/yes-i-vowed-no-carbon-tax-julia-gillard/storye6frfkvr-1226012683197, viewed 16 April 2012.

AAP, 2011, Qantas forced to lift Europe airfares, http://au.finance.yahoo.com/news/Qantasforced-lift-Europe-aap-882440399.html?x=0, viewed 16 April 2012.
AFP, 2012, Qantas makes first commercial biofuel flight,,

The

Korean

Herald,

http://www.koreaherald.com/national/Detail.jsp?newsMLId=20120415000178, viewed 16 April

2012.
Cate Blanchett, 2011, Carbon Tax Ad, http://www.youtube.com/watch?v=ZcLd9Eh8CyU, viewed
16 April 2012.