Introduction of a Carbon Tax in Australia and Its Impacts on Tourism and Travel Industry - Example

Running head: Introduction of a carbon tax in Australia and its impacts on tourism and travel industry Student’s name Institution Course Professor Date Understanding of economic and environmental arguments for carbon tax There has been a growing concern on the impacts of global warming on the world economy. Rise in concentration of greenhouse gases have been linked to an increase in the earth’s average temperature. The correlation between greenhouse gas emissions and global warming prompted the Australian government to focus on means to reduce these effects by adopting carbon tax with a view to reduce carbon dioxide emissions by increasing the price of fossil fuels. A carbon tax levied on fossil fuels depending on the amount of carbon dioxide produced. it stimulate many firms/industries and households to limit the use of fossil fuels and shift the fuel mix towards less carbon intensive fuels (Australian Government, 2008). In order to cut emissions and boast renewable sources of energy, the Australian government had a plan to implement carbon tax policy in July, 2012. It will price one tonne of carbon at US$ 24.74 for biggest emitters of carbon. As a market based technique it tries to limit the negative cost of pollution by pricing carbon. The tax regime is part of the government efforts to decrease the national carbon emissions by 5 percent by 2020 from 2000 levels. Introduction of carbon tax will help to prevent climate change. The tax is designed to encourage top polluting companies in Australia to reduce the amount of carbon dioxide they are producing. The Gillard government regards a price on carbon as the most environmentally effective and economically efficient way to reduce pollution. Thus the economy will continuously prosper without any growth of pollution. The tax will supply the government with abundant revenues to pursue a supply side tax policy that will offset the tax induced supply shock. A properly designed carbon tax can improve economic efficiency with removal of existing distortion by imposing firms the true cost of fossil fuel consumption (Australian Government, 2008). This emission trading scheme will secure large reductions of emissions in Australia at the lowest cost of the economy. The government ensures that unintentional adverse impacts of the tax and transfer system on the environment are avoided at all costs. This can be done by promoting sustainable policy outcomes by limiting incentives that can contribute to environmental degradation. Indeed the carbon pricing strategy will provide the government with sufficient revenue to reduce the impacts of carbon price on consumers. Understand the methods for assessing economic impacts The households would benefit in terms of tax cuts and pension increase as compensation. Implementation of carbon tax increases the national employments and gross national income per capita. At least 50 per cent of the revenue accrued from the price of carbon is channeled to the households via household assistance package. Consequently, an increase in economic efficiency in the market will result in a significant reduction in deadweight loss. Hence corrections of regressive tendencies that are associated with people of low incomes spend highly their incomes on emissions intensive goods and services (Australian Government, 2008). Accrued revenue from the carbon pricing will provide the necessary resources that will encourage a socially accepted level of innovation in low emissions technologies. Therefore there will be a reduction in distorting taxes on business firms or households. Evaluation of the impacts of carbon tax should consider the resulting efficiency losses and the effects on equity in the distribution of welfare among the households. Consumers who devote huge share on their expenditure to energy would be adversely been affected due to increase in the price of energy. Moreover, it alters interest rates, savings, investment and relative prices. The decline in the growth of capital stock led to a drop in economic growth. The carbon tax forces firms that utilize fossil fuels to internalize the external costs imposed on the society by the emissions (Yillang, 2011). It affects the economic behaviour through; depressed real income hence reduction in the consumption of goods, consumers and producers are induced to substitute carbon intensive energy sources for energy intensive and also further stimulation of research, development and adoption of less expensive substitute technologies. Carbon tax have an impacts on jobs since as the costs rise up for the employers they may be less inclined to employ more people or maintain the current job levels thus resulting in shrinkage in gross domestic production. It will take place in coal, mining, steel and automotive industries (Andersen & Ekins, 2009). Moreover, the Australian businesses that produce goods for the Australian market and compete against imports from other countries without carbon tax will be severely disadvantaged. In addition, there is an existence of carbon pricing strategy and carbon tax structure which impacts the price of commodities hence a possibility that consumer price index will rise (Forsyth, Hoque & Pambdi,2008). Carbon emissions have become an emerging factor to be considered by various investors. Due to huge production costs the international competitiveness of Australian firms has been hampered as compared to foreign based industries competitors. Due to scaling back of the output in the firm, there is loss of job opportunities and wage reductions. Introduction of carbon tax policy will impose administrative costs to the Australian government and compliance costs on business firms (Yillang, 2011). Moreover it will reduce the emissions to a level where the costs of abatement of emissions and the costs of paying tax on emissions are at equilibrium. An increase in the marginal costs will influence on the profits of the firm as the level of production reduces due to increased costs of production and declined quantity that is being supplied. Indeed the level of output is lowered where the marginal revenues equals the marginal costs. Among the key model for the control of carbon dioxide emission include; producer behaviour, consumption, investment and capital formation. Capital formation is the outcome of intertemporal optimization by households and firms. Consumption model is fast looking as it incorporates expectations about future prices, wages and interest rates. Static general equilibrium models examine the state of economy at a specific moment before the carbon tax imposition and compare it after the introduction of the carbon tax. The dynamic general equilibrium model is involved in intertemporal exploration of the changes on different economic variables due to carbon tax imposition. Macroeconomic models either aggregate or sectoral will focus on the examination of changes on aggregate determinant factors of the economy and examination of different economic variables. The micro economic impacts of carbon tax are influenced by the extent to which prices rises are flowed through the wage rates. For any given amount of output the level of the firm, the effects of carbon tax would depend on the existing production structure, carbon tax rate and quantity of fossils consumed. Introduction of carbon tax will increase the prices of energy products and reduces the energy products demand and total production of Australia. Moreover competitiveness of business firms would be adversely affected due to reduction in exports and imports. A top down model can be used to estimate any losses in economic welfare. The economic welfare of a customer is estimated by equivalent variation measure. The price has to be cut so that it equals the marginal costs of the last unit produced thus societal utility is maximized. The costs represent a dead weight loss on the economy as it adjusts itself to verifiable commitment to reduction of emissions (Zhang & Baranzini, 2004). Impacts of carbon tax on tourism and hospitality industry and its consumers. Tourism and travel industries are dependent on the natural environment. They are risk due to continued emissions of greenhouse gases to the environment. The business is among the first trade-exposed sector to be hit by the introduction of carbon tax. Australian tourism and travel sector are imposed additional cost due to introduction of carbon tax. For instance, a $ 25 per tonne carbon tax led to $600 million additional costs being imposed to the industry. The compensation to households due to carbon tax led to relative price changes that favoured overseas destinations for both Australians and foreign visitors (Tourism and Transport forum, 2011). As result the Australian tourism and travel sector are severely hurt in terms of revenue due to decline domestic tourism. This is because the industry receives one third of its revenue from domestic travel form higher income Australians. Outbound travel is more preferred among the Australians than domestic trips because of carbon tax-free. Due to increased costs to tourism and travel sector, it has caused passage of these costs to consumers. This contributed to a decline in supply being offered and laying off of staff in an attempt to reduce the costs. For instance, in the North Queensland the unemployment rate has increased to 11 percent. In addition, a decline in revenues resulted in unemployment since net profits have been lost by up to 10 per cent. Tourism accommodation and domestic aviation are severely impacted by the introduction of carbon tax. The rising costs will hamper domestic tourism growth and impacts the costs of holiday travel (Nieuwenhuysen, Lloyd, Committee for Economic Development of Australia, 2001). The industry expects to increase hotel and motel room rates so as to compensate for energy price hikes. In addition, the carbon tax has become disincentive for foreign visitors who are considering traveling and holidaying in Australia. Also it encourages domestic travelers to visit cheaper foreign destinations. Consumer confidence is hit with travel a lower priority for Australians with less disposable income. Consequently, the industry is battling with legacy effects of global financial crisis, high Australian dollar and fallout from natural disasters. Unlike other export oriented industries such as coal industry, tourism sector will not receive any compensation in the proposed package by the Gillard government (Tourism and Transport forum, 2011). Conclusion The Australian government has adopted carbon tax with a view to reduce carbon dioxide emissions by increasing the price of fossil fuels. A carbon tax levied on fossil fuels depending on the amount of carbon dioxide produced. This will stimulate many firms/industries and households to limit the use of fossil fuels and shift the fuel mix towards less carbon intensive fuels. A properly designed carbon tax can improve economic efficiency with removal of existing distortion by imposing firms the true cost of fossil fuel consumption. The households would benefit in terms of tax cuts and pension increase as compensation. An increase in economic efficiency in the market will result in a significant reduction in deadweight loss. Consumers who devote huge share on their expenditure to energy would be adversely been affected due to increase in the price of energy. Tourism and travel industries are dependent on the natural environment and are among the first trade-exposed sector to be hit by the introduction of carbon tax. The sector is severely hurt in terms of revenue due to decline domestic tourism. Due to increased costs to tourism and travel sector, it has caused passage of these costs to consumers. Tourism accommodation and domestic aviation are severely impacted by the introduction of carbon tax. References Australian Government, (2008). Carbon Pollution Reduction scheme: Australia’s Low Pollution Future, Volumes I and II, White Paper, Australian Government, Canberra. CEF (Clean Energy Future), (2001).Securing a clean energy future, The Australian Government’s climate change plan, Australian Government. Forsyth, P., Hoque, S., & Pambdi, D. (2008). The Carbon footprint of Australian tourism, Gold Coast: Sustainable Tourism CRC J. P. Nieuwenhuysen, Peter Lloyd, Committee for Economic Development of Australia,(2001).Reshaping Australia's Economy: Growth With Equity and Sustainability, Cambridge University Press. Mikael Skou Andersen, Paul Ekins, (2009).Carbon-Energy Taxation: Lessons from Europe, Oxford University Press. Organisation for Economic Co-Operation and Development, (2001).Environmentally Related Taxes in Oecd Countries: Issues and Strategies, OECD Publishing. Organisation for Economic Co-Operation and Development, (2010).OECD Economic Surveys: Australia 2010, OECD Publishing. Tourism and Transport forum (TTF). (2011). Carbon tax and tourism & travel- Trade and Global warming exposed. May 2011.Sydney: TFF Yillang, (2011). Australia’s carbon tax to have minor impact on GDP, Finance Australia Zhang, Z. X and Baranzini, A. (2004). What do we know about carbon taxes? An inquiry into their impacts on competitiveness and distribution of income, Energy policy, 32:507-518 “Summary overview of Australia’s Carbon Tax Policy” retrieved on 06th October 2012 from http://www.cleane nergycentre.com.a u/about-clean-energy-centre/news/287- summary-overview-of-australias-carbon-tax-policy Read More