Australian Carbon Tax : Manufacturing Firms

Introduction

Carbon emission has been a worldwide concern due to its effect on climate change. The Australian government came up with a carbon tax in 2012 that enforced a fixed charge of AU$23/t. It was expected to increase to $24.15/t and $25.40/t for the following two years of carbon emitted (Australian income tax legislation 2014,).Of carbon emitted above 25000 tons threshold, and was set to increase gradually till 2015. However, the government was still yearning for a mechanism in which the market forces would set the price as well as reduce the cost and carbon emissions. In 2014 the new government introduced the direct action plan which advocated for compensation of entities that emitted less carbon and punishing those that did not.

Car manufacturing firms were not left out as consumers' preferred motor vehicles that emitted fewer greenhouse gasses. Manufacturers are now focusing on producing electric vehicles as well as hydrogen engines that produce far much less carbon compared to petrol engines. Not only do consumers prefer less carbon emitting vehicles but also consider the cost of gasoline that keeps on increasing as the carbon tax increases.

Climate change models show that the world temperatures are likely to increase to 6.4⁰C between before 2100 (Alex, 2016). The increase in temperature will depend on the amount of the future GHGs. Apart from the fact that research predicted

The climate change comes along with ecologic and economic impact. Though it is not possible to connect various environmental calamities to global warming, it is clear that rise in sea level, changes in rain patterns, floods and drought can be linked to global warming. Therefore it is wise to curb the amount of greenhouse gasses released to avoid extreme weather events such as hurricanes and other effects of global warming that include low agricultural yields, ice cap retreat, reduced summer river flows, extinctions of species and increases in disease (heat-related illness)(Cormann, 2011).

Carbon tax

The main agenda behind the carbon tax is to penalize the polluters by paying for each ton of carbon released into the atmosphere.

The carbon tax came into existence during the Gillard Labor Government in 2011. Dabbed as (the Clean Energy Act 2011). The carbon tax was implemented on 1^ST July 2012 and repealed 17^th July 2014. The carbon tax aimed to control firms that emitted more than 25,000 tons of carbon annually during (Humphreys, 2007).

Benefits of carbon tax policy

The policy is implemented to control the rate of carbon emission as well as reduce global warming.

It ensures that manufacturers come up with new and innovative ways to reduce the emissions. Like the car, makers may result in the production of hydrogen engines with fewer carbon emissions. Consumers, on the other hand, may lead to using public means or cycling (Metcalf, 2009).

The policy act as a source of revenue to the government as it collects tax on the superseded threshold. This revenue is used to subsidize environmental programs that aim to mitigate greenhouse gasses.

In the process of implementing the Carbon Tax policies, a lot of human capital is required to supervise the undertaking of the policies. The system creates jobs and reduces unemployment (Oshiro and Masui, 2015).

It also encourages the usage of renewable energy that is less harmful to the environment.

The shortcomings of the carbon tax act

As carbon tax rate increases there is a decrease in output. Manufacturers want to avoid the amount of tax paid on carbon emission since the less they produce, the lesser the carbon emitted.

The carbon tax also will increase the rate of unemployment. Due to fewer goods manufactured hence few employees needed to get the job done.

Product prices will increase as a result of the carbon tax. More tax lead to a production of less output and fail to enjoy the economies of scale which In turn, raises the production cost which is passed on to the consumer (Roos et al., 2012).

The carbon tax brings about shrinking of the economy. In cases where the manufacturer fails to recover the cost of production after a few years as a result of the imposition of the carbon tax policy, he might lead to the closure which renders citizens jobless as well as create a gap in tax collected.

Apart from cost implications n manufacturers the carbon tax also created a reputation threat in that the high emitters are viewed as worst polluters hence reduction on their sales.

Manufacturers may shift to countries that have less or no carbon taxes.

Administering the policy requires a lot of human capital, and this may carry along cost implications thus reducing its efficiency.

A carbon tax may encourage tax e evasion as manufacturers emitting high levels of carbon may try to hide carbon emissions.

The policy fails to illustrate how it will measure the amount of carbon released into the air hence at time it might under charge.

Direct action plan

The direct action policy was drafted in 2010 with the aim of curbing the greenhouse emission by 5% on 2000 levels come 2020 (Schiermeier, 2014). Direct action plan involves a process whereby the government welcomes citizens to forward their detailed proposals or project explaining how the target of five percent on 2000 can be attained. The government then settles for the best project among the submitted and funds it till the project achieves its goal. The Australian government has thus set aside 3.2 billion to fund these projects for the next four years and a total of 11.5 billion till 2020. Besides the substantial funding that is required to see these projects through, the government has promised not to increase any tax.

Advantages of Direct action plan

A direct action plan will create job opportunities as proposals submitted will require being reviewed to select the best project.

Implementation of this policy also requires human capital which by so doing reduces the unemployment rate in the country.

This kind of policy formulation increases the public partnership spirit as it is democratic and aims to rely on the market forces of production as well as involving people to submit their proposal on how they think the 5% target on 2000 levels achieved.

Direct action plan implementation aims at working with the available funding of 10.5 billion and does not wish to increase the tax burden on its citizens.

Disadvantages of direct action plan

The policy takes far too long to achieve its objective than originally planned.

Direct action plan delivers much less than expected.

The direct action plan spends more than budgeted usually 40% more than the budgeted

The government fails to establish a baseline on how to measure the green gasses emitted.

Since the policy does not aim to increase taxes yet it clearly need more funding, the funds will be sliced from other sectors e.g. health and education to cater for the policy implementation.

Regardless of the measures undertaken by the government regarding the two systems, there is still opportunities as well as risks on manufacturing firms. Some of them include;

Below is a table showing the comparison of the two policies in the car remanufacturing industry.

Though the policies above have different points of view and operation, they still pose a risk on car manufacturing firms, some of them being;

Firms will have to incur a lot in research and development to come up with new ways of reducing the emission.

In the process of trying to reduce the emissions, production may also decline considering the old mechanism is still in operation before the adoption of the new machinery. In turn, this brings a reduction in revenue.

High cost may also be experienced for putting the new mechanism in place of which the cost will be incurred by the firm.

There is a possibility of the systems closing its doors in cases where all its revenue is consumed by paying penalties on carbon emission (Low carbon growth plan for Australia, 2011).

On the other hand, every calamity comes with an opportunity, below are some of the possibilities brought about by these policies.

Car remanufacturing firms are presented with an opportunity of growth as they will be able to design new ways which make the production cheap as well as conserve the environment for future benefits.

Competitive edge is another angle that firms will enjoy since once the new and innovative ways are in place, the goods will be produced cheaply and thus, their price will be lower than their competitors.

Another opportunity is that this firm will be able to enjoy a larger market share since the policies may force many companies to leave the market.

Finally, the policies present the business with a chance to browse on other countries that have less punitive measures on carbon emission and has a low cost of production.

For the car manufacturing firm to be able to blend and survive in a carbon-constrained the world, it will have to follow the following strategy.

The remanufacturing company will have to source for experts who are conversant with the environmental knowledge to provide expertise on how to reduce carbon emissions.

Firms should also train the top management so that they embrace the changes in the sector and hence realign the organization strategies to include carbon emission reduction in their plan.

The firm should also consider creating a department that will be responsible for the control and monitoring of carbon emission by assessing the output of carbon to be expected and implementing measures if the baseline is surpassed.

Conclusion

In conclusion, firms have to be conservative of the environment they operate in, otherwise, they will no longer be able to operate or even have clients as well as workers. However, all is not lost, and firms can be able to run smoothly in such a carbon constrained world. To ensure sustainable production of cars is maintained, firms will have to come up with new and innovative ways that aim to achieve the goal of going green such as the use of renewable energy.

References

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