The paper "Carbon Tax in Australia " is an outstanding example of a macro and microeconomics case study. Market equilibrium results in economically efficient levels of output in a competitive market. The marginal benefit thus equals the marginal cost. In economic terms, carbon dioxide is considered a negative externality which negatively affects this equilibrium. It imposes a cost on environment and others as the negative externalities are unaccounted for in market transactions, and are hardly ever reflected in the pricing structure of services and end-products. Carbon tax legislation is meant to account for such negative externalities that are associated with CO2.
This brings the market back to equilibrium, reduce consumption and mitigate the global warming effects (Baker & Shittu, 2006). This discussion integrates relevant economic theories to analyze carbon tax while at the same time showing how practical interventions have and will affect it. Fig. 1: Negative externalities of CO2 (Adopted from Environmental Economics) PMC = Private Marginal Cost (cost to individual) PMB = Private Marginal Benefit (benefit to the individual) SMC = Social Marginal Cost (total cost to society) There are various economic arguments for and against the carbon tax.
A carbon tax is taken to be of economic benefits to some extents. Firstly, consideration follows that it would stimulate economic growth as it will increase the government tax which betters the economy. As average incomes increase, CO2 producing energy will increase in use (Mankiw, 2007). With Australian projected income rise by 16% in 2020, this means that the current consumption would go up and thus increase the revenues from the carbon tax. In Australia, carbon tax revenues will also be directed to low-income households.
This will reduce the levels of rebates and therefore per capita. Secondly, a carbon tax would imply an increased level of employment by the year 2020 (Wroe, D, & Murphy, K 2011). Since the investors would not support carbon tax-related production, there will be a rise in carbon-neutral industries. Research would improve long-distance transmissions to make practical renewable energy. Some among them would include, clean energy providers; including solar, wind and others which assure the considered economic benefit. Tax benefits will be evidenced in boosting prices in the view of an enlarged household energy prices.
This directly stimulates the economy (Taylor, D 2012). An important aspect of consideration of carbon tax is the manner by which it would achieve reductions of emissions. A carbon tax could potentially lead to greater reductions when the fundamental economics involving energy change. An action which possibly will promote the reduction of carbon emission is the support that the money raised from this tax will support business in the transition to cleaner energy. Fig. 2: The below diagram describes the way money flows under the carbon tax strategy (Adopted from the Impact of the Carbon Tax on the Australian economy and markets). On the other hand, a carbon tax has is seen to have detrimental effects on the economy.
It is argued that it only focuses on a few emitters leaving transport and agricultural sectors which are also responsible for up to 15% of emissions each are not included. This diverts the pressure to be exerted on some included fraction of economy consequently creating an alteration in the economy. Secondly, an increased cost of production is in turn sent to consumers.
As a result, households and businesses use the price indicator as a scapegoat to reduced consumption for certain products. This means the consumption of cheaper imports lead to withdrawal by most industries and consequently economic downturn. Higher emission is also costly as the plan penalizes emissions and the taxpayer possibly will wear some of or all the cost (Oliver, 2011).
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Mankiw, N. G. 2007. One answer to global warming: A new tax. The New York Times, 16.
Oliver, S. 2011. Impact of the Carbon Tax on the Australian economy and markets. Retrieved 2012,fromwww.ampcapital.com.au:http://www.ampcapital.com.au/.
Taylor, D. 2012. Benefits of The Carbon Tax. Retrieved 2012, Jan 28., from www.finnewsnetwork.com.au:http://www.finnewsnetwork.com.au/.
Wroe, D. &. 2011, 10 20. Investors predict carbon tax benefits. Retrieved on 2013, Jan 28, from www.sydneymorningherald.com.au: from www.sydneymorningherald.com.au: http://www.smh.com.au/.