05 Sep 2013

Australia’s Carbon Tax: Lessons for the United States

Climate Change, Economics, Shameless Self-Promotion 9 Comments

That’s the title of my blog post summarizing the key points from Dr. Alex Robson’s new study (commissioned by IER) on Australia’s experience with a carbon tax. I don’t want to reduce your incentive to follow the link, so I won’t give any quotes here. There are some purdy graphs and everything, so it’s easy on the eyes.

9 Responses to “Australia’s Carbon Tax: Lessons for the United States”

  1. Blackadder says:

    The emissions spike is interesting. What’s your theory as to why that happened?

    • Bob Murphy says:

      U.S. sequester?

      • Blackadder says:

        Uh, that’s an… interesting theory.

    • Matt Tanous says:

      The carbon tax caused energy prices to rise. And this will precipitate a shift towards cheaper energy sources. Which are dirtier.

      My suspicion is that the growing size of energy budgets caused people to shift more towards coal and gas by putting renewables just a bit further out of reach via indirect costs (energy used to transport and develop those renewable sources are not likely renewable themselves).

      • Blackadder says:

        The carbon tax caused energy prices to rise. And this will precipitate a shift towards cheaper energy sources. Which are dirtier.

        So the idea is that fossil fuels are a Giffen good?

        • Matt Tanous says:

          No. My understanding is that a Giffen good is subjectively valued higher because it is more expensive, in addition to the normal utility. What I am saying is something more like this:

          Assume that solar energy costs $0.50 per KWh to produce, while coal costs $0.30 per KWh (note: numbers are fictional, obviously). Then the carbon tax hits. Coal, being a producer of carbon is now, let’s say, $0.40 per KWh. However, solar power, requiring fossil fuels to produce panels and ship them to appropriate locations, trucks to drive out to do maintenance, etc. will also have a (more modest) price increase – say, to $0.55 per KWh. Now, in an effort to keep prices lower, a utility company that was developing both solutions and charging somewhere in the middle might shift more towards coal. Anyone that has a choice between solutions would choose the cheaper more readily in an effort to keep costs down.

          Essentially, it is very possible that one might even manage to get the same amount of energy for the same price by shifting to a higher percentage of the cheaper, but dirtier, energy sources.

          0.3 X + 0.5 Y = Z
          0.4 A + 0.55 B = Z
          A + B = X + Y = C

          The solution to that set of equations will require A > X and B < Y (should it exist at all for given Z and C).

    • Tel says:

      Speaking for myself, it has now become significantly cheaper to cook on the BBQ out the back than to use the electric stove, because electricity is so expensive. Also with jobs under pressure people are travelling longer distances.

      Looking at that graph, it fluctuates quite a bit, I doubt the real economy fluctuates that much.

  2. Bob Roddis says:

    The carbon tax is so popular in Australia that they overwhelming re-elected the Labor government that passed it. Oh wait. I read that wrong.


    • Tel says:

      Yeah, I’ve just been watching the concession speech, and the victory speech. The Green party lost nearly 5% of their Senate vote (early counting at this stage) lots of anti-Green kickback on the whole climate schtick

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