How will the new Carbon Tax affect you?

Updated February 22, 2012, 2:38 pm

Will the carbon tax laws have any success at halting climate change? And what will be the financial implications of it all?

These are valid questions which individuals, families and businesses are left asking themselves after the Senate recently passed the Federal Government’s proposed carbon tax law.

According to the Federal Government, Australia needed to immediately address climate change or face greater risks of enduring even more extreme weather conditions such as bigger bushfires, harsher storms and devastating floods. So they responded by putting a price on carbon pollution in a bid to reduce emissions.

How will the carbon tax work?

The carbon tax is the government's new climate change policy that puts a price on carbon. This means that polluters will be charged for every tonne of carbon they release into the air – and this tax will come into effect as of July 2012.

Labor announced the Australian carbon price would be set at $23 per tonne, though it will gradually increase until 2015 when a shifted trading scheme allows for the marketplace to set a new price. Regardless of this price, Australians will be affected.

1. Expect the cost of living to potentially rise

Since big companies will end up paying for polluting the atmosphere with carbon, the extra costs will likely be offset by increasing the price of their products and services. The Treasury has estimated that the average Australian family will pay $9.90 more per week during the first year the carbon tax is introduced.

Consumers may be charged higher rates for electricity, airfares and any industry that will be required to pay for carbon; despite the fact that there will be tax cuts to compensate.

2. Only some Australian taxpayers will be compensated

In a bid to alleviate financial stress for Australian taxpayers, the government will implement reduced tax measures as compensation to fund the carbon tax. Eligibility and exact amounts can be determined on the Clean Energy Future site. However, this model has been heavily criticised.

For one, tax incentives are capped. Households that earn an annual income of $150,000 or more will miss out on tax cuts and should not expect to receive financial assistance from the government to help battle higher electricity bills and any additional costs that are coupled with a carbon tax.

Another criticism is that the Labor government will use the carbon tax to pay off its debt. This is not true; the total revenue produced by the carbon tax will go towards compensating Australian taxpayers and affected businesses. However, there's always the chance that the cost of funding the carbon tax could exceed the amount it collects; which would then put the government into greater debt.

The bigger picture

Currently, the US has not taken steps towards pricing carbon, while China has invested heavily in renewable energy technology. One of the pricier implications of carbon is the European Union charging Qantas (and other international airline carriers) a 15 per cent penalty to fly in and out of Europe if their country of origin does not price carbon.

It's clear that if a global effort to fight climate change is not made, the environment will face negative impacts and so will the Australian economy in terms of the cost of living, higher transport costs and soaring electricity. And while many citizens feel that something needs to be done to address climate change, a fraction of Australians aren't convinced that a carbon tax is the way to go about it and will end up having to make some dramatic changes to their household utilities.

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