As all economists know, there is no such thing as a free lunch.  And people around the world are beginning to find this out for themselves as their nations transform from coal and oil to alternative and greener energies.  They are also learning that governments are dipping into their pockets in two ways: first as citizens through their tax dollars to subsidize the introduction of new technology and to assist old ones; and second as consumers through the prices they will have to pay for the output of that technology.

Two countries, in particular, are learning this lesson very quickly but in very different ways: the UK and Australia.

In the UK residential consumers are being told this week that their electricity bills will be increasing 30% over the next 20 years as the country guarantees low carbon nuclear and wind companies fixed prices for their output.  Single pensioners are expected to be hit quite hard by these increases as electricity represents a higher proportion of their income than other groups.  This increase is on top of recently announced increases of 16% to 24% by UK energy companies.

Yet, as the London Telegraph notes, prices could go even higher:

…combined with further green taxes, such as the European emissions trading scheme, and upgrades to Britain’s national grid the measures could see Britain’s gas and electricity bills rise by 50 per cent – or £500 per average household bill – according to Ofgem, the energy regulator.

Having no funds to subsidize wind and nuclear power directly, the coalition government in the UK has determined that consumers will have to shoulder the entire burden.

The UK’s goal is to seek energy independence by relying less on Russian natural gas and Middle East oil and substituting it with home grown electricity from nuclear and wind and perhaps waves, tides and indigenous shale oil.

Down in Australia, today marks a major development in its transition from coal to a green economy.  The minority Labour party formally announced its plan to introduce a tax on carbon effective July 1, 2012.  The tax will start at $23 (Australian) a tonne and rise at 2.5% per year for three years to about $25.  A floating price comes into effect in 2015 when an emissions trading scheme kicks in.

The impact will be felt by some 400 businesses who will pay the tax through direct charges and import fees and most likely pass these costs onto consumers.  Aviation, shipping and railroad fuels will be taxed but gasoline and diesel for automobiles and light trucks is exempt.

 

 

As the threat of this tax has been a divisive issue throughout the country with threats of coal mine shutdowns and the loss of tens of thousands of jobs, the government has found it necessary to move very carefully through the opposition minefields to minimize the impact of the tax on affected states, industries and voters. Billions of dollars in assistance is being showered on the coal, steel and other affected industries to allow them to adjust to the new regime. Truckers are given a two year exemption. In addition billions are also going to pensioners and households to offset the expected steep rise in electricity prices. This includes direct payments to pensioners and families, price guarantees, exempt fuel taxes, and major tax changes that will benefit tax payers.

Under the plan, Australia will cut 159 million tonnes a year of  CO2 emissions from the atmosphere by 2020, or about a third of its target. The remainder is to be achieved by purchasing carbon offset permits overseas.

Electricity generation in Australia is dominated by coal.  Coal-fired plants supply almost 80% of the country’s requirements.  In addition, it employs directly or indirectly 130,000 and is a major input into the nation’s steel, aluminium and cement industries.  It is also the largest source of export revenue with most of the coal being shipped to China to fuel its economic boom.

Ironically, Australia has the largest uranium reserves in the world, accounting for almost  a quarter of the total.  As a producer, it ranks 3rd in the world behind Kazakhstan and Canada.  Yet despite having easy access to this carbon free resource, Australia has chosen to be nuclear free and exports its uranium to the US, Europe and Asia for electricity generation.

Now that the governments of the UK and Australia have laid out the road ahead, it will be interesting to see how quickly and easily they can make the transition to a green economy.

 

 

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2 Comments on The Cost of Going Green: The UK and Australia

  1. Elroy Jetson says:

    My basic problem with this is that the good citizens of Australia are being asked to accept token temporary relief from a permanent tax. What kind of deal is that? Apart from the usual ‘buying taxpayers with their own money’, this is an entirely artificial market contrived by politicians and scam artistes. There will be celebrating in the streets when it is repealed in 15 or 20 years, after years of haggling on how to kill it. But by then the damage to the Aussie economy will have been done.

    Such a shame, such a nice country and good people.