By Francesca Davis
While the Coalition and ALP are debating a GST, the Australian Greens and Australian Conservation Foundation president Peter Garrett are calling for "ecological taxes" instead. Last raised in 1995, proposals for a carbon tax in particular have gained support since the 1997 Kyoto Climate Convention.
The idea behind a carbon tax is to increase the price of energy so that industries will move to renewable energy sources, thereby reducing greenhouse gases. This sort of "eco-tax" is central to the Greens' argument that taxation can be a "principal tool for achieving sustainable economic development".
A study from the Worldwatch Institute titled "Getting the Signals Right: Tax Reform to Protect the Environment and the Economy" cites several countries where eco-taxes have had some success.
In the Netherlands, taxes on industrial emissions of heavy metals have led to a reduction in the leakage of cadmium, copper, lead, mercury and zinc into canals and lakes by 86-97% since 1976. Germany cut the production of toxic wastes by 15% in three years by using taxes. Adjustment of motor fuel taxes allowed unleaded fuel to take more than 60% of the market in Malaysia.
However, a report titled "Experience with Environmental Taxation in OECD Countries", looking at the results of eco-taxes as a whole, shows that while they have been successful revenue collectors, their overall environmental impact is negligible. One reason is that rates of tax have not been set high enough to force business to change its practices.
Politics
In theory, it should be easy to work out how much non-polluting technology would cost and a time line for when it should be installed, and to design a tax to bring that about.
In reality, as the Worldwatch Institute acknowledges, "Environmental tax reform faces many political obstacles. Businesses on the losing side of environmental tax shifts are often the best financed and organised, and have successfully opposed increases in energy taxes in the United States and other countries in recent years."
Powerful industrial conglomerates driven by intense competitive pressures fight any threat to their profit margins.
In this context, setting tax rates depends on the "competition". That's why those economies that have gone furthest in adopting energy and other "green taxes" — Denmark, Sweden and Norway — grant exemptions for exports and why energy taxes planned for the Netherlands and Austria will fall most heavily on consumers, not polluters.
If, like the US automobile industrial complex, the industry concerned accounts for 20% of GNP, then it carries the political clout to demand significant concessions, if not block the tax altogether.
Ford in 1990 induced the governor of California to veto a fuel economy incentive system passed by the state legislature. An alliance of major US manufacturers and energy producers squelched Clinton's 1993 mild energy tax proposal.
The situation in Australia would not be different. In the early '90s, the Australian Bureau for Agricultural and Resource Economics provoked outrage from industry when it published a paper that set out the rate of a carbon tax needed to stabilise Australia's carbon dioxide emissions.
A more recent model by Hamilton, Hundle and Quiggin in a paper called "Ecological Tax Reform in Australia" proposes $23 per tonne of carbon dioxide (1992-93 prices) as a way of achieving a short-term reduction of 11.7%. This would add to the cost of petrol by 7%, gas by 17% and electricity 21%. The real question is one of political feasibility, because the cost to business would be more than $6 billion.
Since the Coalition's new tax package cuts the cost of diesel fuel, the government is unlikely to bring in a tax that could shift industry to alternative energies.
US economist William D. Nordhaus in 1995 estimated that as of 1990, a carbon tax of US$131 a tonne would have been necessary to reduce global CO2 emissions by 50%.
Actual carbon taxes in the Netherlands, Denmark, Finland, Norway and Sweden range from US$16 to $55 per tonne. The ACF this year proposed an $8 per tonne carbon levy. The Australian Greens' 1996 policy proposed $18 per tonne.
If the charge is not high enough to induce industry to change its practices, some proponents of a carbon tax argue that the money raised can go toward "abatement measures" — perhaps the massive turn to public transport that is the only real solution to CO2 pollution. But the money would go only a very small way towards the cost of shifting to public transport and developing alternative energies.
Moreover, the Greens' discussion paper "Taxing Pollution and Waste" acknowledges that the trend in the past 20 years has been for eco-taxes to move from being earmarked for abatement measures, to purely revenue measures.
In an environment of intensified global competition, the pressure on governments to avoid tax increases is enormous. So an eco-tax may simply, as the Greens in fact propose, replace payroll or some other tax.
Equity
Eco-taxes such as carbon taxes are also inequitable. A carbon tax here would be regressive, because poorer households spend around 15% of their income on energy, while those with incomes over $50,000 spend less than 3%.
While alternatives to car transport are unavailable or not feasible for most people, a carbon tax penalises people who really don't have much control over energy use.
There are other problems. Even where carbon taxes have brought about increased fuel efficiency, they haven't reduced overall car usage. Consequently, despite carbon taxes in several Scandinavian countries, nitrogen oxide has not been reduced.
In the US, the benefit from increased fuel efficiency was lost in increased production of cars and more kilometres driven.
Finally, unless energy taxes are universal, polluting industries could simply relocate.
Given the difficulties associated with eco-taxes, one has to ask: why go to such trouble for so little return? We are, after all, facing a crisis of huge proportions.
The consensus of the 2500 scientists who make up the Intergovernmental Panel on Climate Change (IPCC) is that greenhouse gas emissions have to be stabilised rapidly at one-sixth of current levels.
The conclusion of the Kyoto 1997 summit on global warming was for a gradual average global cut of 5.2%. Australia's target involves an increase.
'Free' polluting
Free use and pollution of the environment have been key to business profits since capitalism emerged. If polluting companies were forced to pay the full environmental and social costs, they would go out of business.
For example, the annual cost for the US chemical industry to destroy all the toxic chemicals it now discharges would be $20 billion (in 1986 figures), dwarfing its yearly after-tax profit of $2.6 billion.
As international competition becomes more intense, environmental destruction is getting worse, not better. In 1995, industrial companies covered by the latest US EPA report on toxic waste generated 15.8 billion kilograms of toxic waste, 7% more than in 1991. The World Energy Council projects increased energy demand of up to 98% between 1990 and 2020.
Trying to get business to pay for environmental destruction contradicts the dynamic of an economy run on profit making. That dynamic guarantees that resources will continue to be wasted and the environment destroyed.
The expansionary nature of capitalism means that taxes which attempt to cut back resource depletion and pollution can never catch up with ever expanding production.
In the short run, only a huge increase in government expenditure can reverse environmental destruction; taxes cannot substitute for this. Australia, for example, will not be able to shift from coal dependency without huge investment in solar and wind power.
A much more viable and obvious solution than an eco-tax would be to nationalise dirty industries with no compensation and use the profits to pay for the move to clean production. Why should we allow a minority to keep polluting the environment? Why waste time fighting with industries over tax rates when we need change now?