[LINK] Carbon Tax

Birch, Jim Jim.Birch at dhhs.tas.gov.au
Fri Feb 25 10:28:28 AEDT 2011

stephen at melbpc.org.au wrote:

> But I'm wondering HOW tax money would be spent. No-one has explained
it in basic terms for your normal

Stephen, a carbon tax is a Pigovian tax.  It aims to provide a true cost
input of CO2 production, which currently is what economists call an


It's not an attempt to collect money to support any particular
expenditure category.  It works by driving on the cost side of economic
choices.  It aims to increase the cost of carbon production so that as
we adapt and reduce in CO2 production, down to sustainable levels.  The
details of the response to the tax can't be fully known.  It will
include development and use of new and improved technologies (eg, solar
cells, batteries), efficiencies (eg, building design, insulation) and
changes in usage (eg, heating levels, transport).  These require
inventing stuff, installing stuff and changing people's habits.  It's
not easy and it takes time but the tax pushes in the right direction.
Being able to cheaply scrape stuff up fossil carbon and burn it without
costing the CO2 goes the wrong way.  

It may or may not make sense to use the revenue for any particular
purpose.  The expenditure doesn't have to be green.  In fact, the tax
would still work if the government buried the money in a hole behind the
Treasury building or spent it on LHC II.  Politically, it is probably
expedient to run the tax as more-or-less revenue neutral and use at
least some of the money for "green" projects but that's not the point of
the tax at all.  In any case, the big ticket items in the sustainable
energy future - fossil-fuel-free electricity, heating and transport -
are relying on technology developments - solar cells, batteries, etc -
that probably won't happen in Australia (much).  They are international
requirements so won't be driven by the tax in Australia.  OTOH a lot of
smaller things that add up like building design, installation of
cogeneration, insulation and energy usage patterns will be strongly
influenced by the local tax.  Under a carbon tax, designing a building
or buying a house with a north-facing roof becomes a greater economic

Apologies if you already get this but you seem to be skipping a basic

- Jim


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