Yesterday, the Australian Senate passed a carbon tax - The Clean Energy Act will force the country’s 500 worst-polluting companies to pay a tax on their carbon emissions from 1 July next year. The government has set the initial price per tonne of carbon at A$23 ($23.80; £14.80), much higher than other similar schemes such as in the EU where the price is between $8.70 and $12.60 a tonne. - The country’s mining firms, airlines, steel makers and energy firms are among those expected to be hardest hit by the tax.
Domestic fuel bills are expected to rise as companies pass on the costs to consumers.
Opposition parties have argued that the tax would cause job losses and raise the cost of living.
But the government hopes that the legislation will force innovation in renewable energy supplies, and free Australia from its reliance on fossil fuels.
Read the article http://www.bbc.co.uk/news/world-asia-15632160
Answer the following Questions
What is meant by negative externalities? [2 marks]
With the help of a diagram, explain how Australian firms might create negative externality.[4 marks]
With the help of a diagram, show the impact of putting carbon tax on the polluting firms. [4 marks]
Using information from the text/data and your knowledge of economics, evaluate the decision of the Australian senate to impose carbon tax on the polluting firms.[8 marks]
A negative externality is any effect that occurs due to either the production or the consumption of a product. This effect negatively affects a third party that was neither the producer nor the consumer. In this particular case, Australian companies are shown as primarily producing negative externalities of production. Such externalities can make the cost curve of the product at a lower level than the marginal social cost curve. This occurs since the producer only takes into account private costs and not the total cost. This can hence result in production of goods at a level that is not socially optima, leading to market failure. This could also lead to a price that is lower than the socially beneficial price. If the government were to go ahead with its idea of implying a carbon tax, the private cost will increase. This will lead to a new equilibrium that is closer to the socially beneficial level, but which would still produce too much for the good of the society,and which would sell at a lower price than would be socially beneficial.
ReplyDeleteThis particular decision can have long term effects that will prove to be beneficial for the country. While it only produces 1.5% of the world's population, such an approach of taxation could prove to be beneficial ins several ways. Firstly, and most obviously, it would bring the production level to a point which is more socially profitable. Secondly, due to these taxes, companies could be motivated to research newer production techniques that would reduce negative externalities of production. the results of this could vary, but if there were knowledge within the industry, then consumers would be encouraged to buy this particular product due to its' lower price since they wouldnt have to pay as much as for other products. This would motivate other companies to find other eco-friendly methods. Lastly, the successful implementation of such laws could actually act as a beacon in other countries to support the passing of more such laws that handled negative externalities and pollution as a whole.
A negative externality occurs when a firm making a decision does not have to pay the full cost of the decision. In this case the cost of polluting the environment is greater than the cost the consumers pay for the product. In this case the Australian companies are shown as primarily producing negative externalities of production.
ReplyDeleteDue to this the cost curve of a product is lower than the marginal social cost curve as the producer only takes its personal benefit into account. Due to this it results in the firm not meeting the socially optimum level, thus leading to Market Failure.
If the government does take this decision about taxing the carbon emission, then the cost will increase. There will a new equilibrium forming that is closer to the socially beneficial level, but which produces too much for the good of the society, and which would sell at a lower price than would be socially beneficial.
This decision will be beneficial for the country. Due to this tax, it will bring production unit down.
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ReplyDeleteIn the case of both negative and positive externalities, prices in a competitive market do not reflect the full costs or benefits of producing or consuming a product or service. basically the prices of the negative and positive externality will go up.
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ReplyDeleteAustralia today unveiled its most sweeping economic reform in decades with a plan to tax carbon emissions, reviving hopes of stronger global climate action with the largest emissions trade scheme outside Europe. About 500 companies, including steel and aluminium manufacturers would have to pay 23 Australian dollars ($24.70) per tonne carbon tax from next year.
ReplyDeleteAccording to the Universal Declaration of Human Rights, Article 1 states that "Everyone has the right to life, liberty and security of person." The pollution mentioned in the above post is in direct violation with this article; with the amount of negative externalities that are produced as a result of pollution. Therefore, a pollution tax, is mandatory for the betterment of our society. Our world will end up perishing as a result of pollution, that is encompassing our global horizon, so companies that pollute the environment, such as, Airbus, or Boeing, huge manufacturers of aircraft material, will need to be sanctioned and made aware of what harm they are contributing to environment. Hence, the pollution tax is the only way to establish this awareness, and create a global harmony between monopolies, and various market structures around the world.
ReplyDeleteChina is to impose an environmental tax on heavy polluters under an ambitious cleanup strategy being finalised in Beijing, according to experts familiar with the programme.
ReplyDeleteThe tax will be included alongside the world's most ambitious renewable energy scheme and fresh efforts to fight smog when the government unveils the biggest, greenest five-year plan in China's modern history next month.
After three decades of filthy growth, the measures are designed to pull the country from the environmental mire and make it a leader in the low-carbon economy. But sceptics question whether the policy will have any more success than previous failed efforts to overcome the nexus of corrupt officials and rule-dodging factory bosses
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ReplyDeleteA negative externality occurs when the by-product is viewed as having a social cost. For instance, when a car is driven it creates air pollution. This air pollution can have very harmful effects on other people. Interestingly, you - as an individual - do not account for this in the costs of driving, however society pays the costs of dealing with air pollution. Therefore, car pollution is a negative externality.This implies that a negative externality occurs when the social cost is greater than the private cost. If the two values were the same, then there would not be a negative externality.
ReplyDeleteNegative externalities can be created through either the consumption or production of a good.
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ReplyDeletethere is a lot of problems these days and one of the main of them is that pollution rates are rising very rapidly and these rates have started to spoil the earth. The rates of the pollution taxes are rising and are harming our society. Therefore the amounts of external costs are rising and the economic growth is not growing as it used to.
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ReplyDeleteAs the diagram shows that the firm is polluting the air but toxic gases, so because the government is increasing the taxes on things which cause pollution like carbon ,fuel and many other thing will will affect many firms and people and also cause unemployment
ReplyDeleteA negative externality occurs when the producer is responsible for the cost incurred by the third parties and the society is negatively affected because of the producer's decision. I personally think that the Pollution Tax imposed by the Australian Senate is a good way of reducing huge amounts of pollution even though the mining, steel and energy firms would be worst affected because the reduction in pollution will benefit Australia in the years to come as many lives could be saved. Also, market failure can be prevented because externalities are a major cause of market failure.
ReplyDeleteTherefore, Australia will definitely benefit itself in the future.
The basic carbon tax imposed upon the companies would cause inflation and unemployment. The market would suffer losses as stated. Related firms are also equally affected. Improved cost of living would make survival harder for moderate income receivers. Though the tax might prove to be effective, following effects should be considered and legislative decisions should be precise enough not to cause drastic changes in the nation's economy.
ReplyDeletePollution being another major crisis suffered by the nation can be controlled with other measures enforced on firms such as waste treatment,etc. Firms should not economically suffer but be under govt. control for better negotiation and Eco-friendly supply of goods and services.
Increasing unemployment, blockage of transport (i.e, airline fuel,etc.) are other crisis's would be affect the country's market even drastically than what is caused by the tax enforced.
As the prices for pollution taxes rise the world economy looses its money spending it on the external costs of pollution. While people who pollute don't care about the people who have to pay the conscienceless, they enjoy life in doing what they want. the people who suffer might be poor or rich they still have to pay the money to fix the problem no matter what. the phrase "the rich get richer and the poor get poorer" is proof for this as the poor have to pay the money when they might not be earning money and the rich get richer by selling goods they make while they pollute the world.
ReplyDeleteBut on the contrary, imposing taxes would probably reduce the rate of pollution from these firms. They would put best eco-friendly efforts to avoid paying taxes benefiting the nation in future.
ReplyDeleteNegative externality is an effect of a product on consumers that imposes a negative side effect on a third party known as “social cost". Example air pollution from burning fossil fuels causes damages to the health of people and then they have to pay for the medicines required and the health check up.
ReplyDeleteIn the short term, the polluting companies will pass on the cost to the consumers in the form of higher prices. As some of the polluting firms(airlines and car companies) have quite elastic demands, they will still suffer losses. To make up for this in the long run, they will look towards alternate energy sources and cleaner, greener methods of production. Such innovations would reduce not just pollution, but make negative externalities. So, the country as a whole would benefit.
ReplyDeleteHowever, with larger firms (such as steel and mining), a different outcome is possible. Being inelastic in nature, they could pass on the bulk of costs onto consumers. As stated in the extract, this would result in higher costs of living and unemployment.
An extremely high rate of 23$ would result in almost 9 billion dollars of taxes. This huge sum would surely deter polluters, and so would have a positive effect on the negative externalities.
While some believe that the Clean Energy Act would help stop pollution, many think that it was just an election gimmick to help Prime Minister Julia Gillard rise to power. This could explain why the Senate vote was so tight; 36 in favour to 32 against; thanks to the support of the Environmentalists.
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ReplyDeleteSO pROUD!!!1