There's no cost-free way of reducing man-made carbon dioxide but the Government's stance on carbon pricing could prejudice industry, the livelihoods and standard of living of many Aussies and have little impact on solving what is a global problem.

The Government's plan to introduce a carbon tax has polarised the nation. On the one hand it has been widely applauded by environmentalists, scientists and those who welcome initiatives that penalise polluters and help protect the planet. Conversely, many believe that global warming is a natural phenomenon and mother earth will repair itself as it has always done since the beginning of time.
The big argument against the tax is the belief that it is nothing more than a revenue raising exercise that will do little to help the environment but will instead place additional financial pressures on those already struggling under the ever increasing costs of living. And who can forget the Government's disastrous solar power and home insulation initiatives. These had an environmental as well as an economic focus but ended up costing billions in taxpayer money, jobs and even lives. So it's not surprising there's been a backlash against this tax, even though the reasons for it are admirable and commendable.

How carbon tax works

The carbon tax is supposed to work like this. We tax high polluters and penalise them for releasing carbon dioxide into the atmosphere. As a result of the tax, these businesses will have to increase their prices to cover the extra costs making them less competitive. Consumers will then switch to cheaper products or alternatives forcing high polluters to adopt more environmentally friendly practices or go out of business. The environment is saved, consumers are (eventually) no worse off and Australia leads the way in developing sustainable green industries thereby creating new jobs, strengthening the economy and of course significantly reducing our carbon footprint.

Sounds great in practice but I fear the reality will be much different for three key reasons. Firstly, it is naive to think industry will be able to change the way it operates without a substantial increase to its cost base or that it will be able to retain its existing cost base by adopting green practices. This means the average Australian will pay for it in the end. This payment, according to some, will take the form of job losses and be felt in the hip pocket. For instance, the planned tax of between $20 and $30 dollars of carbon emissions per tonne is expected to translate into an extra $11 and $17 respectively of cost increases for essential services like electricity, gas, petrol and food.

Time for a reality check

Secondly, I'd like to know where these alternatives products and services will come from. We might be a big country in terms of land mass, but we are small by comparison when it comes to population. Because of this we already have problems with oligopolies and monopolies (because of our relatively small demand base) in key areas like banking, utilities, food and natural resources to name but a few. We simply can't flick a switch and start buying from other suppliers simply because they don't exist and probably won't want to set up shop here when the tax is introduced. We could of course buy from overseas but that could decimate our local industry and economy. Basically we're stuck with our existing suppliers meaning we'll have to pay the inevitable price increases they will pass on to us.

Thirdly, the idea that industry can adapt in the short term is totally unrealistic. It will take years to plan for and implement new technologies and will require considerable investment in time, people and money. This is not something that can happen overnight and is certainly not something achievable within the next twelve months - the time frame the Government has set for the introduction of the new tax. Furthermore, there is a question about whether industry is able and willing to undertake this investment or whether it will simply move elsewhere or shut up shop altogether.

How will a carbon tax affect you?
It might appear that I'm not supporting initiatives that protect and save the environment but this is not the case. I am and I do. For instance, at home we've installed solar power, put in a grey water system, planted drought tolerant native plants and buy organic fruit and vegetables and buy recycled products wherever possible - for instance, recycled paper and wood products. And in the office we're careful about our carbon footprint and are mindful of unnecessary waste. I'm confidant many other Australians and Australian businesses are doing their bit for the environment

What worries me is that global warming is a global issue and there is no guarantee that the rest of the world will follow Australia's lead when it comes to carbon pricing. As Tony Shepherd recently wrote in The Australian we are a carbon-based economy and this is one of our main competitive advantages. The introduction of the carbon tax will seriously impact our competitive position which could put industry and jobs at risk.

The bottom line

Furthermore, we produce only 1.5% of the world's CO2 with China and America accounting for over 40%. The question becomes how we can really make a difference to global warming when only a small increase in output from the largest CO2 producing nations could wipe out any reductions Australia can realistically expect to make from the introduction of the carbon tax.
The reality is there's no cost-free or pain-free way of reducing man-made carbon dioxide but the Australian Government's stance on carbon pricing could seriously prejudice industry, the livelihoods and standard of living of many Australians and have very little impact on solving what is a global problem.

With more than 30 years experience in banking and financial services Peter has an extensive knowledge and understanding of personal finance and the needs of residential property buyers. His experience working with and helping existing and aspiring home owners and property investors in and across Australia and the UK has provided with him with valuable insights into the challenges facing today's property owners.

He is the author of The great Australian dream: A guide to buying your first home.