Obama Take Heed: Aussies Repeal ‘Economy Killer’ Carbon Tax

The Fiscal Times

What does Australia have that we don’t have? How about a leader committed to growth and jobs? That’s the message behind Prime Minister Tony Abbott’s conservative government’s repeal of a heavy carbon tax – a levy that was unpopular from the start because it inflated consumer electricity prices and weakened Australia’s competitiveness.

Those very outcomes were by anticipated by U.S. legislators from both sides of the aisle when they refused to endorse President Obama’s early push for a cap-and-trade program.. A fall-out he now risks in implementing new carbon regulations proposed by the EPA earlier this year. By demanding that power plants chop carbon emissions by 30 percent by 2030 (compared to 2005 levels), the Obama administration is all but eliminating coal from our energy diet, a move estimated to cost the economy $51 billion and 224,000 jobs every year through 2030.

Related: McConnell Plans Senate Effort to Preempt EPA Carbon Crackdown

Environmentalists Down Under are up in arms. The leader of Australia’s Greens party claimed it was the “first country in the world to reverse action on climate change,” but that is not true. It is the first time a government has rolled back a functioning carbon tax system, but numerous countries have concluded that the price of going green is just too high, especially in the aftermath of the financial crisis.

In 2012, for instance, Spain, touted repeatedly by President Obama as a model for the U.S., ceased its large-scale program to subsidize renewable energy. Spain’s government found that the cost of underwriting wind and solar installations, and creating “green” jobs was crushing the country’s already-strained budget.

Using the Spanish experience as a starting point, a team from the University Rey Juan Carlos led by Dr. Gabriel Alvarez concluded in a detailed study that should the U.S. follow a similar path, it would lose “at least 2.2 jobs” for every one “green” job created.

In choosing growth over green ambition, Australia is also following Canada and Japan, both of which have backpedaled on measures aimed at curbing emissions, citing economic hardship. In all these countries, the common concern is growth and employment; the U.S. is something of an outlier in dismissing such issues.

Related: Will Obama Regulations Kill the Coal Industry?

In Australia, a report just out from Melbourne Economic Forum, a recently-formed economic and policy think tank, warned of rising unemployment (to 6.6 percent in the next year versus 5.9 percent now) due to the dwindling of the mining boom and lofty currency value. They project declining incomes and an additional quarter-million people out of work by 2020 – a grim assessment that goes a long way to buoy support for Abbott’s carbon tax decision.

Australia’s abolition of the carbon tax also echoes the EU’s disenchantment with its cap-and-trade program. Europe’s Emissions Trading System (ETS)- the world’s largest carbon marketplace -- has been a massive flop. Partly that was because the emissions caps were originally designed so as not to disrupt the region’s economies; it has also failed because the participants gamed the system.

The original cap in 2007 was set 8.3 percent above actual 2005 emissions; a revamp didn’t make it much better. An assessment by Friends of the Earth Europe says, “In seventeen out of twenty-member states – including France, Poland and the UK, 2012 caps are still higher than measured emissions in 2005. Overall, twenty-one out of twenty seven member states sought 2012 emissions caps that were higher than 2005 emissions (with the richest EU member state, Luxembourg, pushing for a 52 percent increase).”

The European Parliament has struggled to enact reforms to the ETS; finally last summer they voted in measures aimed at boosting the price of carbon by removing some permits from the marketplace. The price had fallen to such a low level that it encouraged the use of coal over natural gas – ramping up emissions. In other words, the EU bureaucrats got it exactly wrong. At the time of the vote, European countries were apparently planning on constructing 69 new coal-fired plants.

Related: Employee Misconduct Runs Rampant at the EPA

The shortcomings of the ETS have not at all dissuaded those who, like former Vice President Al Gore, would like to see a global version of the same. Gore called Australia’s tax repeal a “disappointing step” but remains hopeful that we will eventually see a “global emissions scheme.” That ambition is shared by the EU’c climate action commissioner Connie Hedegaard, who said on the organization’s website, “The EU is convinced that pricing carbon is not only the most cost-effective way to reduce emissions, but also THE tool to make the economic paradigm shift the world needs…”

The jury is out. Over the next year, while advocates hope for movement towards a global CO2 commitment, huge obstacles remain. The largest of those is China, now far and away the biggest source of carbon emissions, which has yet to commit to a robust anti-pollution program. Countries like Australia have a hard time compromising their own peoples’ incomes for the sake of emissions cuts deemed almost insignificant.

In a 2011 speech, then Opposition Leader Abbott noted, “Over the five years to 2009, China's actual increase in carbon dioxide emissions was about 2,500 million tonnes per annum…. and over the 10 years to 2020, Professor Garnaut projects these emissions to rise by a further 6,000 million tonnes per annum. To put this in perspective, the proposed decrease in Australian emissions over the decade is about 50 millions tonnes per annum - so the increase in Chinese emissions alone is expected to be over 100 times as large as our reduction, on top of an increase 50 times as large that's already taken place.”   

His priorities -- Australian jobs and incomes -- won him an election and doomed the emissions levy. Democrats in the U.S. pushing for stronger anti-carbon regulations might take heed.

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