Is the carbon tax simply a cost to business to reduce risk?

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The case has been put forward that Australia’s carbon tax is just another form of insurance – paying a premium to protect against a risk. So should the business community be supporting the controversial measure?

Originally published in The Conversation, academics Philip Adams, Janine Dixon and Peter Dixon combined to pen the article: Insurance against climate change. They state:

“Cutting greenhouse gas emissions is like buying an insurance policy: we incur a cost to reduce a risk. Every year Australians spend millions on insuring homes, cars and their health, not because they know that something will happen to them, but because of the risk that it might. Households make the decision that insurance premiums are worth paying. As a nation, what premium do we pay for insurance against catastrophic climate change?”

The article goes on to justify that the price on carbon is a reasonable outlay that is “bearable” to the Australian public.

“The elasticities of demand for electricity and motor fuels are typically low, suggesting that to a large extent Australians will cover the price increase by reducing other consumption instead. So it is not the reduction in electricity usage so much as the substitution to alternative forms of electricity generation that will be the real achievement of the carbon tax. Lifting the price of cheap and dirty brown coal electricity generation opens the door for the more expensive, greener options: carbon capture, wind, geothermal and solar.

“Many questions remain. Have we chosen a reasonable target? The interim 5% cut by 2020 target has been derided as unambitious. But as householders nervously await their next electricity bills, many will be satisfied that enough is being done. What is the cost of unabated climate change? Should Australia even bother, when our efforts are so small on a global scale?

“The message from the economic modelling is that the current target is achievable at modest cost, and that distributional impacts need not be significant if a well-managed program of compensation is implemented,” the article concluded.

The article leaves the lingering question that considering the ethos behind the price on carbon, should the insurance industry be supporting its implementation?

Click here to read the article in full.

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