carbon tax: wealth dedistribution by stealth?, page-7

The article is a hodge podge. The introduction is a reference to Labor wanting to win the next election but doesn't say anything that relates to the headline, except that 'it wants to be seen to be doing something'. So I assume the writer is of the view that the carbon price, morphing into the ETS, is a popular measure that voters want.

Next he spends a few paragraphs musing on whether Cate Blanchett should or should not have appeared in a one week run of a short advert for the carbon tax. (This must be the first he's heard of the carbon pricing initiative because it's as if he's decided that this little advert will make or break public opinion on the matter.)

Finally, three quarters into the article, he comes to a question that bears some relation to the headline. He's decided that the only reason for a carbon price is to discourage people from using electricity.

He misses the main point - which is to shift the source of power from carbon fuels to renewable sources. Encouraging more efficient use of power will be a good side effect but it's not the main aim. The modern world needs energy and needs to ensure a supply well into the future.

The other point where he is in error is where he implies that businesses will pass on all the additional cost onto consumers.

There might be a few monopolies that can do this, but very few. Competition will mean that businesses that have some price flexibility will raise prices only to the extent they can - and they'll be competing with businesses that are more efficient.

Offhand, I cannot think of one single business where the price of electricity is greater than any other input, outside of the electricity generating industry. For most it's a very small part, much less than the cost of labour or rent, for example. Many businesses (like agriculture) are price takers and can't pass on price rises at all. In any case, given that electricity is only one input of many, even for a business that can pass on the entire electricity price rise, it will only mean a small rise in the price of the end product. And that can happen with any rise in the cost of any input - labour, rent, materials etc.

Finally he starts arguing for a higher carbon price (higher than what, I wonder, given the price hasn't been set yet).

Unsurprisingly his conclusion is wrong. His argument in a nutshell is that the purpose of a carbon price is for households to reduce electricity consumption.

He's wrong!

The purpose of a carbon tax is to shift electricity generation from fossil fuel to renewables.

(BTW - check up on the author, Peter van Onselen - he doesn't have a very good reputation for reporting facts or logic.)