Moving To A Revenue Neutral Carbon Tax Accounting Essay

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The Australian Conservation Foundation (ACF) is a non-profit national environmental organization established in 1960s for a lofty objective concerning on environment conservation. For over 40 years, ACF has been consistently working with communities, businesses and the government to protect restore and sustain the vulnerable environment through conducting researches, offering consultation and education programs. The subjects ACF covers feature a wide range, including climate change and energy, sustainable agriculture and land management, nuclear issues, sustainable consumption, corporate environmental responsibility, environmental law reform, etc.

Carbon Taxes or Carbon Trading for Emission Reduction

This submission addresses the discussion whether a carbon tax is needed to enhance carbon emission reduction as the new round emission trading scheme (ETS) is withdrawn recently. Both are the two main instruments for greenhouse emission reduction. The ETS is a "cap and trade" system which works as: the government sets a goal of the total emission volume in advance, and issues permits to firms which gives off greenhouse gases. This cap decreases year after year to achieve a reduction (Climate Action Newcastle 2007). By contrast, a carbon tax is to directly impose a tax on greenhouse gases release according to the volumes discharged and the greenhouse potential. So far, increasing researches indicates the inefficiency of ETS in emission reduction. The simple taxation approach is advocated by many prominent professors and scholars as an effective alternative. For sake of all human beings, it is urgent for the government to resort to the latter yet more effective measure to cut down emission.

The Timetable for Carbon Emission Reduction Issue

Scientific studies on greenhouse effects resulted from the massive emission of water vapor, carbon dioxide, etc. actually dated back a century ago when Fourier (1824) published his Remarques Générales Sur Les Températures Du Globe Terrestre Et Des Espaces Planétaires. However, the issue has not received sufficient attention until the rising temperature globally forces human society to review its behaviors during the past hundreds of years. In 1997, Kyoto Protocol was endorsed as a milestone in human's effort to address the greenhouse gas emission issue. For the first time, statutory approach was deployed to control and reduce GHG. In this document, the right to discharge carbon is seen as a "virtual goods" for trade in hope of using market mechanism to solve the reduction issues. Based on this agreement, Emission Trade Scheme (in Australia, it turns up as Carbon Pollution Reduction Scheme) comes out. Meanwhile, some European countries such as Sweden, Finland, Norway became forerunners to levy carbon taxes in 1990s to add a "price" to release GHG.

The Severe Greenhouse Gases Problems

The world is apparently warming up, leading to a rapid climate changes around the globe. Australia who is driest inhabited continent and is sensitive to weathers bears the full brunt of the impact. Apart from being a victim suffering the adverse effects, Australia is also a major culprit in this "crime". At present, Australia is the world's biggest coal exporter and a world leading greenhouse gas (GHG) polluter. The domestic and exported "annual per capita GHG pollution" by Australia is 54 tons CO2-equivalent per person per year! The figure is twice that of the US, 10 times that of China, 25 times that of India and 60 times that of Bangladesh (Lighter Footprints 2009). If things continue like this, fewer than 1 billion people are estimated to be able to survive global warming by the end of this century (Murray 2009).

The Current Measures and the Proposed CPRS

The rising awareness on GHG issues urges the government to act responsively. Main measures in effect include mandatory regulations and subsidies to encourage green endeavors. However, government intervene is never permanent solution which stimulus initiatives to cut down carbon release. Besides, financial stimulus generates additional public expenses to carry out the programs.

For more effective approaches, CPRS, the Australian version ETS, is put on the agenda, though it seems to be temporarily put off at present. This is one of two major options for reduce carbon emission. Nevertheless, increasing evidences prove its ineffectiveness and infeasibility. The carbon trading mechanism is essentially a policy instrument. Similar to the regulation and subsidy approach, it also undermines the effectiveness of voluntary efforts and entails extra spending to commence the scheme (the rejected plan supposedly cost A$ 12 billion). The emission up limit is usually received as an ultimate goal that asks emitters not to exceed the cap, instead of urging them constantly to cut down the volume with new techniques (Brook & Kelly 2009). What is more, this trading mechanism allows companies to buy additional pollution credits from those who will not use up their credits (Lohmann 2006). As a result, largest emitters in Australia will be able to continue discharge huge amount of GHG through buying permits from underdeveloped countries, yielding little contribution to wean these emitters off fossil fuels (Pearse 2009).

The Benefits of a Revenue-neutral Carbon Tax

A revenue-neutral carbon tax is just the other main instrument for GHG emission reduction. It works as directly levying tax on GHG emission and uses the revenue collected to cut down other taxes or establish a fund to award emitters who largely cut down their emission on a year-on-year base. Compared with trading mechanism, this is simpler, cheaper and more efficient, more transparent (Humphreys 2007).

The centerpiece of trading and tax is the pricing. Taxation is evidently simpler to increase the cost of releasing. There is no complex calculation on carbon prices which involves plenty of human and material resource to finish the task. No periods are needed to hand out numerous permits to polluters or allocate subsidies to legitimate organizations and individuals, which saves considerable time to speed up steps towards a more "green" economy. In fact, almost intermediate links can be eliminated if the taxation mechanism is deployed. All needed is to work out the tax rate and periodically renew the rate if needed to match the economic and social development. Meanwhile, simplicity always leads to improvement in transparency.

Unlike subsidies and ETS (EPRS), an additional tax tends to generate little or no economic cost. As is stated above, arduous work can be eliminated in the carbon tax system, so various spending rising in these efforts can be save, in terms of both tangible materials and intangible time. Beside, the tax approach also helps to avoid potential financial risk which may increase economic cost. Under the tax system, the price added to carbon release is fixed and thus equal to anyone who gives off the destructive gases. Consequently, concerns that volatile prices for the permits will give rise to speculation and new financial derivatives on financial markets disappear immediately. Given the sovereign debt crisis in Europe which may triggers another international financial crisis, the fixed price by simply levying tax, rather than introducing a new potentially risky flexible prices, is more conducive to maintain a stable financial market.

A carbon-based tax is collected against the volume and the greenhouse potentials. In other words, the more severe consequences it generates, the more charges emitters will pay. No limit, no cap. The largest polluters in the mining and power industries must resort to less-carbon-intensive fuels and technologies to prevent operation cost from rising tremendously under the carbon tax system. Subsequently, in order to strengthen the competitiveness in market contending, polluters are forced to continuously cut down emissions and circumvent the carbon tax to control overall cost. As a result, the taxation together with market competition constitutes an effective permanent mechanism to promote constant decrease. More significantly, the effectiveness and efficiency of tax instrument in promote emission are evidenced in message delivered - emitters must truly cut down their emission, instead of transferring the pollution elsewhere outside Australia through buying permits. The carbon tax prevents polluters from expanding coal export and increasing creating carbon leakage for more profit. In this way, the total global emission is able to decrease. The atmospheric layer is seamless integrity and the GHG emission is a global issue. Little result can be achieved with a reduction in total emission volume. Therefore, it is a ridiculous fraud to claim a reduction in emission while discharging this part elsewhere. The only meaningful tool is to increase cost directly and determinedly by levying a tax.

Some disputants commend that a carbon tax gives governments less control over emissions and denies Australian access to a lucrative global emissions trading market. This is a flimsy argument. For one thing, government control is merely a means, not the ultimate goal. As long as emission is cut down, it matters litter whether the government control involves is strong or weak; for the other, emission reduction is man's obligation to the entire human society as well as the whole planet. It is by no mean a new way of chasing profits!


The achievement gained by Sweden in emission reduction through tax so far serves as compelling evidence on the effectiveness of Carbon Tax (Fouché 2008). Plus the theoretical analysis on these benefits, the Tax mechanism deserves the acclaims and is highly recommended to be introduced in Australia nationwide soonest possible. Any delay in action will lead to severer consequences!