Carbon Tax Essay

2198 Words Jul 16th, 2013 9 Pages
The introduction of the carbon tax in Australia.

Recently, the carbon tax issue has been gaining increasing attention in Australia due to its
function of reducing greenhouse gas as well as its extensive economic impacts on a range
of industries, such as tourism and hospitality. The conceptual meaning of the carbon tax is “a
levy applied to various operations that generate carbon dioxide” (Covey, 2009, p.329). Such a
tax is introduced to achieve a desired national emission target (Covey, 2009).

The introduction of the carbon tax in Australia is derived from the serious environmental issue of climate change. According to The Economist (2011), Australia's emissions measured on a per capita basis are the largest of any developed
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It is important to focus on such inter-sectoral effects when examining the impacts of the carbon tax in an open-economy context. This is because “the higher price in the environment-intensive industry will induce spillovers to other markets and industries which produce substitutes or complements” (Amin, 2009, p.333). For example, the carbon tax will impact on the natural resource market through effects on the demand for substitute resources such as solar power and nuclear fuel. Similarly, the carbon tax will reduce demand for inputs which are complementary to the burning of carbon-intensive energy, such as fossil fuels (Clarke, 2011).
2.2. Assessment model.
In order to assess the future economic impacts of the carbon tax, the CGE model (Computable General Equilibrium models) can be introduced. This model is widely used as a standard tool for the quantitative analysis of environmental policies, such as the carbon tax, in terms of their costs and benefits (Löschel, 2006). This is because the CGE model can “provide answers on the economic effects of changes of the introduction of new taxes or subsidies in a coherent and consistent way” (Amin, 2009, p.334). Based on the general equilibrium theory, CGE model is a standard tool to assess the future impacts of the carbon tax since any…

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