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Carbon tax to raise costs, but Treasury says inaction is worse

Business costs tipped to rise under carbon tax, but Treasury says climate change inaction is worse

By Brad Gardner | July 13, 2011

Businesses and individuals will be hit with slight cost increases under a carbon tax, but Treasury says global inaction on climate change will be more expensive.

Modelling developed along with the Federal Government’s carbon tax package tips modest increases in the price of electricity ($3.30 per week) and CPI once the tax begins on July 1, 2012.

According to Treasury, changes in employment up or down will be less than 1 percent by 2020 and Australia’s average income will slow by around 0.1 percent per year under a carbon tax.

It predicts CPI to rise by 0.9 percent between the start date of the tax and when it transitions to an emissions trading scheme in the 2015-16 financial year. The department assumes most countries will implement a carbon pricing scheme by 2020, with all countries taking action by 2031.

“Delaying global action by 3 years adds around 20 per cent to the first year global mitigation cost. Delaying entry by a further 3 years adds a further 30 per cent to the first year mitigation cost,” Treasury’s analysis says.

“Delaying global action will increase climate change risks, lock in more emission-intensive investments and defer new investments in low-emission technology, industry and jobs.”

The department’s findings refute claims from the mining sector that the tax will negatively impact operations and job security.

“Regardless of carbon pricing, the mining and construction sectors are expected to experience strong growth and increase their share of the economy,” it says.

The Chamber of Commerce and Industry Queensland (CCIQ) raised concerns about electricity prices under the tax, but Treasury says costs will rise with or without the introduction of the scheme.

“Carbon pricing is expected to add around 10 per cent to electricity prices in 2012-13 and 9 per cent to gas prices,” it says.

While Opposition leader Tony Abbott claims the tax will eat into business profitability and household income, Treasury claims most people will not notice any change.

“The majority of the economy will be largely unaffected by carbon pricing. Industries employing more than 90 per cent of the workforce account for less than 10 per cent of emissions,” it says.

As ATN reported yesterday, Treasury expects higher oil prices to drive heavy vehicle investment in alternative fuels and cleaner technology.

“An effective carbon price (imposed through adjustments to excise rates and fuel tax credits) will provide an additional incentive for business to develop and adopt cleaner fuels and technologies,” it says.

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