What is Carbon Taxation? Sample Essay on The Clean Energy Legislative Package

Governments across the globe have been setting up directives that aim to reduce the negative impact of industrial and economic development on sustainability. One of the most common methods used is carbon tax. This tax is charged on fuels that contain carbon. Australia has been one of the latest countries to set carbon tax legislation. The legislation is formally known as the Clean Energy Legislative Package. This briefing is going to carry out an analysis that will seek to determine the aims of the Australian government in setting up the legislation and other policy options available to the policy makers.

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  • Background information

The Clean Energy Legislative Package is going to introduce a new levy that will be charged on carbon containing products. According to the policy, there will be a tax charge of $23 a ton on every carbon containing product. Considering the fact that the government has other means of raising revenues and starting institutions, this raises many questions on the reason why the government has set up the legislation. It is also important to analyze if the current environmental and economic conditions can be used to justify the government’s actions or the new tax charge is not suitable (The conversation 2012, P. 1).

  • The main aim of ‘carbon tax’

The Australian government has come up with mechanisms in recent years that will help it conserve the environment. Industrialization has become a major challenge to sustainability since they emit carbon dioxide gas that contributes to global warming. The main aim of the carbon tax protocol is to conserve the environment by reducing the amount of carbon dioxide emitted by industries. Statistics indicate that the major there are several industries that will be majorly affected by the directive. Due to this fact, the major polluting companies in Australia have strongly opposed the Clean Energy Legislative Package. All resources gathered from the carbon tax initiative will be dedicated towards environmental conservation measures.

According to the government, a renewable energy organization valued at $3.2 billion will be created. The funds used to construct the agency will come from the carbon tax kitty. The agency shall be responsible for coordinating renewable energy development activities in Australia. The government shall also obtain funding from other sources to ensure the project is a success. The main aim of constructing the industry shall be to ensure that a more sustainable energy alternative is available in the country. This will reduce the use of environmentally unfriendly energy sources hence reducing the amount of carbon dioxide emission (The conversation 2012, P. 1).

  • Why carbon taxation?

As stated above, Australia is experiencing many environmental challenges especially carbon dioxide emissions. The carbon tax policy is aimed at decreasing the level of carbon dioxide emissions. The level of carbon dioxide emissions has been on the rise over the years with the high number of industries setting up across the globe (Stern 2006, p. 18). The carbon tax policy will also affect companies in Australia that have huge amounts of carbon dioxide emissions. The high number of such industries in Australia and their contribution to environment depletion has contributed to the need to set up measures that will help correct the carbon dioxide emission problem.

  • Instances that allow government intervention

The government is expected to promote business and economic growth. It has many responsibilities in the market environment. One of them is ensuring that goods and products are satisfactory and consumers are not   exploited. Though the government is expected to allow business to conduct trade in a free and fair market, there are those instances that the government has to intervene and ensure sanity in the business environment (Tullock 2005, p. 71). One instance that the government is expected to intervene in the provision of goods is when a particular good has a negative impacts on consumers, the economy, social and political structures that the government has sworn to protect.

For example, there are those goods in the Australian market that increase the level of carbon dioxide emission. In order, to ensure that the government’s environmental goals are met, the government has to intervene and set up measures that will see to it that the impact of such products is reduced (Varian 1994, p. 5). This can be done through environmental taxation. Environmental taxation is expected to reduce the rate of production by increasing the production cost. Environmental taxation also decreases the demand for such products since it increases commodity prices hence decreasing consumers’ desire to access the products.

  • Ways of eliminating negative externalities

The first method that the government can use to eliminate or control negative externalities is Pigovian tax. This is a form of taxation that aims to raise resources, which shall be used as an incentive to the negative externalities (Varian 1994, p. 7). Economists view this mode of taxation as an effective way of controlling negative externalities since it is least intrusive. Pigovian taxation has been applied in China to control the amount of carbon dioxide emissions. Australia is also among the countries that are about to actively take part in this taxation scheme. It also aims to use this technique as a way of reducing carbon dioxide emissions.

Another way that the government uses to solve the menace of externalities is Civil and Tort law. These are regulations set up to ensure that negative effects of certain products are reduced. Such regulations force manufacturers to set products at certain standards or market their product in a manner that will help control the damage. For example, cigarette-manufacturing companies in Australia and UK are required to indicate that smoking of cigarettes affects consumer health in cigarette packaging. Another way that the government controls negative externalities is through criminalization. This is declaring the provision of certain goods illegal. Those who offer such goods are sued and are punished under criminal law. For example, in the United States and Australia, the distribution of certain drugs such as marijuana is illegal. Those who are found distributing marijuana products are arrested and charged (Tullock 2005, p. 73).

  • Conclusion

Solving the menace of external externalities is important to ensure the overall success of a society. One of the major problems faced by Australia now is increased carbon dioxide emissions increase by the day. In order to control this, the Australian government has decided to set up a carbon taxation scheme aimed at ensuring that the level of carbon dioxide emissions is reduced. The taxation scheme will affect 500 companies more than other parties in the country hence their strong battle against the policy. From the analysis, different governments have used Pigovian taxation methods to solve the menace of negative externalities. Such governments including the Australian government have also applied other techniques to eliminate negative externalities. Such techniques include criminalization and Civil Tort law.

  • References

Tullock, G. 2005. Public Goods, Redistribution and Rent Seeking. Edward Elgar Publishing, Inc


The conversation, 2012. The carbon tax: the experts respond, [Accessed 12th September 2012]



Stern, Nicholas 2006. “Introduction”. The Economics of Climate Change The Stern Review. Cambridge University Press.


Varian, Hal 1994. “A Solution to the Problem of Externalities When Agents Are Well Informed.” The American Economic Review. Vol. 84 No. 5.



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