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Fit For the Long Run

04/22/2011 04:31 AM

How a Carbon Tax Will Help Australia Compete

In recent weeks, opponents of a proposed carbon tax have succeeded in fanning fear that the tax could hurt national competitiveness by denting demand for Australia’s coal and mining sectors. Yet such fears are decidedly misplaced. The Gillard government’s plan to put a levy on the worst contributors to carbon pollution reflects a move toward pricing that is rooted firmly in the ecological realities of the 21st century. It is pricing that promotes forward-looking investment and innovation, rather than subsidizing an outmoded status quo. And it is pricing that will ultimately mean more jobs and better lives for Australian residents, and more stability for the Australian economy.

Coal and mining executives protest that jobs could be lost if importing countries such as China and Japan have a reason to seek out other markets. Such concerns, however, beg a question: If jobs are lost today because of an uptick in the cost of doing business, what will be the impact on the sector as the global marketplace moves to cleaner, greener solutions? In a world facing climate change and growing constraints on resources, the good money is on those industries that lead the way in energy efficiency and clean technology. Australia’s mining sector—in particular its coal industry—is on the other end of that spectrum, topping the list in carbon pollution and environmental demand.

“We really need to stop thinking that this will mean acting out ahead of the world,” GE Capital’s regional chief executive Steve Sargent was quoted as saying in a recent article in Business Day. “We actually have a long way to catch up. Germany has broken the nexus between strong economic growth, strong trade growth, and increasing greenhouse gas emissions. With Australia, we have gotten worse.”

The booming profits of the coal and mining sector mask a growing cost to the health of another of Australia’s most important assets: its vast ecological wealth. Australia ranks seventh in the world in biocapacity, the amount of renewable natural resources its ecosystems can provide.
If well-managed, this self-replenishing source of wealth will offer Australia continued advantages, both in supplying the resources the rest of the world needs, and in providing for the needs of its own people. In a world in which the supply of renewable natural resources is shrinking while demand mushrooms, the potential value of this asset is inestimable. But there is a key problem: the principal is eroding.

Between 1961 and 2007, the most recent year for which data are available, Australia’s biocapacity per person fell by more than half, due largely to a similar amount of capacity being divided by a growing number of people. Total biocapacity has declined by about five percent. At the same time, Australia’s Ecological Footprint, the amount of productive land and sea required to produce the resources it consumes and absorb CO2 emissions, is the 12th largest in the world, and the country is one of the world’s highest per-capita emitters of carbon dioxide. This degree of resource-intensity implies significant changes not only to key sectors but to society as a whole if Australia is to keep step with the rest of world.

Analysis by investment firms such as Goldman Sachs, Citi, Deutsche Bank and JP Morgan have put the impact of the tax at less than two percent of earnings for all but a very few Australian companies. These are negligible impacts in a time of soaring profits, and they scarcely approach the true costs of emissions.

The Australian Academy of Technological Sciences and Engineering assessed that, for every megawatt hour produced by brown coal, a cost of $50 in greenhouse gas pollution and health impacts accrues to society. Such costs are paid for by citizens or borrowed against Australia’s future in ways such as depleted ecosystems and lost agricultural productivity. 

The Gillard government’s plan to institute a carbon tax recognizes a key reality: If we continue to build our success on using ever more resources, we are preparing for our demise. If instead, we invest in building environmental capital and reducing ecological demand, we can adjust more comfortably, and even profitably, to a changing world. Mechanisms that help us do so are anything but uncompetitive. They are a strategy for managing our economy with an eye to the future rather than the past.

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