For the past few years, Australia has been lauded by environmentalists as an example other countries should emulate. The adulation began in 2012, when the country enacted its “carbon tax” — a $21.50 charge (in U.S. dollars), increasing annually, on each ton of carbon dioxide emitted by the country’s power plants. Australia’s list of admirers extended all the way to the White House, where President Barack Obama described the country’s actions as “good for the world.”
Yet Australia is now the first country to eliminate its carbon tax. In so doing, it struck a blow in favor of sound public policy — and American legislators should pay attention.
Last September, the Institute for Energy Research released a comprehensive study on the effects of Australia’s carbon tax. The tax was a disaster. In its first year of existence, the tax increased household electricity prices by 15 percent — the highest quarterly increase in the country’s history. Businesses fared no better — their electricity prices jumped 14.5 percent in a single year
It doesn’t take an economist to see how this stifled the country’s economic growth. Rising electricity costs mean higher prices for almost all goods and services. They also mean fewer future job opportunities for businesses trying to stay in the black. Australia’s unemployment rolls rose by an astounding 10 percent over the course of a year — the equivalent of the United States adding 950,000 people to the unemployment line by next July.
Meanwhile, there was no environmental benefit to speak of. According to the Australian government’s own data, carbon emissions actually increased after the tax was enacted. Even if the carbon tax were still in operation, the country’s emissions levels weren’t expected to fall below current levels until 2045.
No wonder Australians turned against the tax. They’d have to endure three decades of fewer jobs and higher prices on every day goods just to achieve negligible environmental gains.
But this isn’t just a lesson for Australia. For years, American environmentalists have clamored for a similar carbon tax. They have been joined by a dozen U.S. senators, who several years ago sent a letter to Senate Majority Leader Harry Reid demanding Congress levy “a price on greenhouse gas emissions” — a carbon tax by another name.
Among the letter’s signatories are several Democratic senators facing re-election this year, including New Hampshire’s Jeanne Shaheen, Alaska’s Mark Begich and North Carolina’s Kay Hagan.
Yet the effects would be little different in America than they were in Australia. The Heritage Foundation, using data provided by the Energy Information Administration, recently estimated the effects that a slightly more aggressive carbon tax would have (the EIA data assumed a $25/ton tax, compared to Australia’s $21.50/ton rate).
Heritage found that America could be looking at an economic disaster.
In its first four years, the tax could cut a family of four’s income by nearly $2,000 a year. It could raise the same family’s electricity bills by more than $500 per year and increase gas prices by 50 cents per gallon. Finally, it could eliminate more than a million jobs in the first few years.
Yet Americans’ economic despair would ultimately be for naught. Using assumptions from the data from the United Nations Intergovernmental Panel on Climate Change’s assessment report, a recent analysis found America could eliminate all of its carbon emissions and still only lower global temperatures by 0.137 Celsius by 2100 — a statistically insignificant amount.
Put another way: A carbon tax is all economic pain and no environmental gain. Surely we can agree that sapping the economy and stifling innovation won’t make it any easier for us to promote a healthy environment.
Australians learned that the hard way.
It only took them two years of higher prices, fewer jobs, and no environmental benefits before they abandoned their carbon tax. America’s environmentalists and the legislators who listen to them should take note. There’s no need for history to repeat itself in a different hemisphere.
Daniel Simmons is the vice president of policy at the American Energy Alliance.