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1 Introductory concepts 2  Market mechanism  3 Elasticities  4 Market structures 5  Market failures  6  Macro economic activity/eco growth  7 Inflation 8  Employment & unemployment  9  External Stability  10  Income distribution 11.Factors affecting economy  12  Fiscal/Budgetary policy  13  Monetary Policy   14 Aggregate Supply Policies  15 The Policy Mix

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A carbon tax

Like an ETS, a tax on carbon emissions will add to the costs of production for polluting industries, raising prices and reducing the demand for the goods produced by these industries.  The higher costs and lower demand will provide incentives for these industries to seek more efficient production techniques that involve fewer carbon emissions.  Alternative technologies, including nuclear, and other renewable energy sources, would become relatively more price competitive, leading to more efficient energy use and reduced carbon emissions over the longer term.  This is illustrated in the diagram below.

Securing a Clean Energy Future - the carbon tax package 2012

'Approximately 500 of the biggest polluters in Australia will need to buy and surrender to the government a permit for every tonne of carbon pollution they produce. For the first three years, the carbon price will be fixed like a tax, before moving to an emissions trading scheme in 2015. In the fixed price stage, starting on 1 July 2012, the carbon price will start at $23 a tonne, rising at 2.5 per cent a year in real terms. From 1 July 2015, the carbon price will be set by the market.  The carbon price will be accompanied by assistance supporting households, jobs, businesses and communities, to help them adjust, lower their carbon pollution and to protect our international competitiveness.'  


The carbon tax package included significant compensation measures to protect those groups adversely affected by the tax.  In particular:

Note that  in August 2013, the government announced that it would bring forward the commencement of the ETS (i.e. floating price of carbon) to 1/7/2014 and it estimates that the price of carbon will be approximately $19 and not the $24.50 originally forecast. This lower price reflects a fall in the global price of carbon. However, since the election of the new Liberal Government, the existence of the carbon tax beyond 1 July 2014 is unlikely given its commitment to repeal the tax.  Due to political constraints, the earliest this can occur is mid-way through 2014.

To view the latest developments in relation to the current government’s climate change policy can be found at the Department of Environment’s website here.

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