IB Economics Commentary †Australia MPs Pass Carbon Tax Essay

The Australian presidential term will bring in one of the worlds biggest atomic number 6 emissions trading schemes after MPs passed two bills by senators that ar judge to vote into law in November.A carbon value is an environmental tax levied on the carbon content of fuels. A negative awayity of production occurs when the production of a good or service creates external lives that are damaging to third parties. This is mainly related to the environmental problems. embodiment 1. Negative Externality of Production for Carbon EmissionFigure 1 shows if the regimen activity is not intervening and the market place is determined by only supply and demand, known as free market, the marginal privy costs of the stiff are below the marginal tender cost because there is an extra cost to society caused by pollution. Pollution includes extend in fossil fuel burning, which would release CO2 into the atmosphere and the redness of carbon sinks.Also, it is said that CO2 emissions det riment oceans ability to absorb carbon. The self-coloured will only be concerned with its private costs and will produce at Q1. It is not producing at the socially efficient output, where the marginal social cost is equal to the marginal social benefit. This means that at a footing of p* from figure 1 would create Q*. The community surplus is not maximized due to the effects of pollution, since it is causation a negative consequence.One way disposal policies may tax re relinquish the problem is to tax the firm in order to cast up the firms private costs. The carbon tax aims to cut Australias emissions by 5% from year 2000 levels by the year 2020, and bring emissions down 80% by 2050. The tax requires the countrys 500 biggest polluters to pay A$23 per tonne for their carbon emissions.Figure 2 Taxing a Negative Externality of Production for Carbon EmissionFigure 2 shows when the government decided to tax that will help the economy, there is comfort a welfare lose, but it is le ss than under the free market with no government intervention. The pink color shading shows the welfare damage before the tax and the red color shading shows the welfare handout after taxing, which clearly shows it would prune the deadweight burden, but not eliminate it completely.It is suggested that government should counter the externality to increase welfare. In this case, stakeholders include firms, labors, and households. Firms are the increase cost, labors refer to the shareation of losing job and households refer to the price level that is rising. If government chose not to tax, the economy would nigh likely to run in a short term, since there is too much welfare loss. However, government chose to tax the negative externality of production, which the economy could run in long-term. The higher the government tax, the less welfare loss will result. Also, households will be equilibrize for rising prices due to the carbon tax.The government concluded with the plan to turn the economy into a tradable emission permits schemes. However, this is certainly not the best resource since it doesnt lead to the reduction of pollution once allowable restrain has been set and government might not have the data of the core level of pollution and it is very difficult to measure a firms pollution output.To conclude my evaluation, apply taxation added to the economy is the most suitable choice government should make. It is suggested in the article, however, not their final decision. Firms are the increase cost, labors refer to the consideration of losing job and households might consider rearranging the price level and firms should consider about increasing cost, which not a isthmus of people could afford. The other choices take time to plan and have to consider a lot of consequences. However, taxing is not easy as well. It could be difficult to measure accurately the pollution created, but it does help reduce the welfare loss, which already is improving.Peter Ho eller and Markku Walli, Autumn 1991, Energy Prices, Taxes and Carbon Dioxide Emissions online OECD stinting Studies No. 17. Available at Tom Marshall, February 3 2009, CO2 Emissions harm Oceans ability to absorb carbon online Natural milieu Research Council. Available at