Carbon Tax in an Industry in Australia - Coursework Example

? Carbon Tax in an Industry in Australia Draft report General overview The accommodation industry continues to be negatively impacted by the carbon pricing. This has caused the industry to lay off workers and suffer losses. The sector is a leading growth and export-earning industry in the country. The carbon taxes have been imposed across national sectors in the economy. The competitiveness of the industry has been reducing as the government imposes the tax legislations (Ahammad et al, 2004). The sector has been struggling in financing the major expansion plans. Overdependence on manufacturing and construction industry has caused the sector to become untenable. The profit margin has been halved as the cost of carbon tax continues to rise (Australian Bureau of Statistics, 2004). The massive sector depends on the support of hydro carbon producers who have been targeted by the same tax imposition. The management of the tourism and accommodation industry has caused increased uncertainty. Many investors are leaving for better markets. General draft issues The rising cost of energy means that the sector is likely to continue struggling (Adams, 2007). The main challenges include the source of energy for the industry. The industry is intertwined between other sectors that play an important role in the growth of the economy. This means that the ripple effect of the carbon taxes in the industry is greater than that of the manufacturing or mining sector. The products that sustain the industry have been rising (Devarajan & Robinson, 2009). The cost of the products must be passed to the consumers. The tourism and accommodation sector acts as an interface between multiple players and the consumers (Adams, 2007). Therefore, unreasonable prices and carbon taxes have a direct impact of the sector. The other pressing issue is the historical rise of construction (Devarajan et al, 2011). This means the industry cannot expand because the carbon taxes have made construction projects untenable. The challenge of lack of facelift has aggravated the situation. The competitiveness of the sector has fallen below the set standards. However, the government of Australian is reluctant to offer any sensible directs on the matter. This means that the future of the industry is uncertain as more devastation is expected. The carbon tax is expected to be reviewed upwards (Devarajan & Robinson, 2009). The carbon tax per room is set to increase. The rising inflation means that further collapse of the sector is expected. However, other competitors have no carbon tax. New Zealand, a major competitor, has a lower carbon price. The European Union which is a strong competitor has lesser carbon taxes compared to Australia (Devarajan et al, 2011). The inefficient tax needs to be repealed if the country is to fuel growth in all the sectors. Some of the recommendations include developing an action plan. Draft Recommendations The action plan must incorporate the views and perceptions of major stakeholders in the accommodation industry, the government and the affected sectors (Wissema &Dellink, 2007). The government can repeal the taxes or give subsidies to industries that use biogas or renewable energy sources. The government can facilitate a smooth transition of dependence of hydro carbons to solar or geothermal energy. The government must ensure the carbon taxes meet the international standards without hurting the local industry. Table of Contents Draft report 2 General overview 2 General draft issues 2 Draft Recommendations 2 Table of Contents 3 Executive summary 4 1.0 Introduction 4 1.1 Background of the tourism and accommodation industry 4 2.0 Impact of carbon taxes in the service sector in Australia 4 3.0 Critical analysis 4 3.1 Accommodation, Construction and other Services 5 4.0 Recommendations 5 5.0 Implementation plan 6 The strategy to invest in renewable energy 6 Gradual energy change transition: involving stakeholders 6 References 8 Executive summary The carbon tax has been imposed in the greatest 300 hundred emitters in Australia. This tax plan has affected the tourism accommodation industry both directly and indirectly. However, the move has been caused significant price rises for major items in the industry like laundry, repairs and electricity. The carbon taxes have reduced the profits and other valuations. Some of the recommendations include repeal of the tax legislation to facilitate laws that are favorable to the industry. The solution must bring all the stakeholders together and develop a joint action plan which includes government subsidies. 1.0 Introduction The introduction of carbon taxes has had a negative impact in the accommodation industry in Australia. The industry is directly dependent on several other sectors which include mining, manufacturing and construction. These sectors have been directly targeted by the new tax laws. This has caused the accommodation sector in Australian tourism industry to suffer the effects of the imposed carbon taxes from multiple dimensions. Australia has the highest carbon taxes in the world. This paper looks into the impacts of the carbon taxes and offers practical recommendations on how to rectify the deteriorating situation in the said industry. 1.1 Background of the tourism and accommodation industry The tourism sector of Australia is an export earning and growing industry. The sector is known to a leading services exporter. The industry contributes up to $6.2 billion in the gross domestic product in 2011. The industry is known to promote tourism through offering excellent services and experiences to global tourism. This has made has made the industry to be one of the best globally. Australia has globally recognized tourism sites and hotels. The atmosphere for investment has been conducive with consumer and investment friendly atmosphere. This has allowed the industry to expand steadily. The accommodation industry contributes to 1.3 percent of the gross domestic product. 2.0 Impact of carbon taxes in the service sector in Australia The accommodation industry has been crippled by the carbon taxes through its items department. The industry has been targeted for its need for energy supply, laundry, electricity and repairs. The carbon taxes have been imposed on the national sectors. The Australian tourism sector has been leading in terms of growth and export –earning (Wissema &Dellink, 2007). However, the competitiveness of the sector has been affected by the imposing of the taxes by the government of Australia. The industry forms part of the major service export in the nation (Devarajan et al, 2011). The tourism accommodation and industry contributed $6.2 billion in the gross domestic product in the last two years. The carbon tax has been imposed in the greatest 300 hundred emitters in Australia. This tax plan has not affected the tourism accommodation industry directly (Rutherford & Paltsev, 2000). However, the move has been caused significant price rises for major items in the industry like laundry, repairs and electricity. The carbon taxes have reduced the profits and other valuations (Wissema &Dellink, 2007). This has added uncertainties and continues to impede investment (Zhang, 1998). Most countries have no carbon taxes. Australia has among the highest carbon taxes in the world. Tourism and accommodation must be seen in terms of its appeal to consumers and the role of the service providers i.e. dependant sectors like manufacturing and construction. Attracting and justification of the new projects has increasingly become difficult (Centre of Policy Studies, 2008). This is because of the reduced profit margins. The cost of constructing new rooms has risen significantly because of the tax burden (Rutherford & Paltsev, 2000). This has made expansion of the industry to slow down (Adams, 2007). It has also halved the profit margin. The cost of the carbon tax set to rise to $ 114.9. The rise has affected the cost of energy and other sectors with are intertwined to the accommodation service sector. The rise of unexpected items has caused the industry to shed jobs and increased uncertainty in the industry. 3.0 Critical analysis The price increase caused by the carbon tax is impacting investment negatively (Devarajan et al, 2011). The tax is stifling the tourism industry and other service industries. The carbon taxes are expected to reduce the operator profitability by up to 12 percent (Ahammad et al, 2004). The increased costs mean that the future of the investments in the sector remains uncertain. The level of uncertainty is expected to continue to undermine the credibility of the future forecast and investment risk (Rutherford & Paltsev, 2000). Pressure is increasingly being piled on capitalization rates (Ahammad et al, 2004). However, the accommodation sector of the tourism industry is intertwined with other critical sectors. Therefore, in discussing the effect of carbon taxes in the tourism and accommodation sector, other sectors like construction, manufacturing and transport must be mentioned (Labandeira et al, 2004). The carbon tax is adding to the high cost of construction which is at historical levels (Ahammad et al, 2004). The builders are set to pass the full impact of the tax to the Australian accommodation and tourism industry. The Australian accommodation industry is trade exposed (Kemfert, 1998). The industry is not treated as an industry exposed to carbon taxes (The Treasury, 2011). Studies show that carbon is adding $500 per room annually to the cost of offering accommodation. The current subsides and exclusions and the carbon price of $23 per ton have caused the accommodation to rise steadily. The cost of carbon is likely to increase to $ 352 per ton (Kemfert, 1998). This means that the cost per room shall go to $ 3465 annually. This shall increase the cost of operating a room by 249 percent. Carbon tax per room shall increase to 220 percent with increasing inflation. The tax situation has to be seen in three perspectives. A package of legislation is being used to implement the carbon taxes (Devarajan & Robinson, 2009). The suppliers are unwilling to discuss the potential impact of carbon prices. This is because of fear of litigation. Therefore, businesses cannot estimate the real impact of the carbon taxes in future (Devarajan et al, 2011). An increasing number of investors have to look for favorable investment markets. 3.1 Accommodation, Construction and other Services The input prices have been rising because of the rising cost of energy (Cornwell & Creedy, 1997). The carbon tax has increased the cost of services by up to 14 percent. A case study in New Zealand indicates that the country has a carbon price which is 6 percent that of Australia. Research shows that only 1 percent of the construction businesses reported not to have been negatively impacted by the carbon taxes. This means that the energy bills and construction costs rose across the country. The rise is estimated to be 14 percent (Centre of Policy Studies, 2008). The tourism and accommodation industry is incurring extra costs when undergoing expansions and refurbishments. The impact of rising energy prices has caused the impact of the economic crunch to be exaggerated. The tourism industry in Australia has been investing in reducing carbon emissions (Australian Bureau of Statistics, 2004). Carbon tax is a cost to producers in the industry depending on the carbon content in the output and inputs (Burniaux at al, 1992). The introduction of carbon tax and carbon pricing has caused the industry to look into ways of investing the renewable energy (Devarajan et al, 2011). The government believes that by pressing the companies to a fix, the tourism accommodation industry is going to attract consumers who are interested in healthy environments and unpolluted atmosphere in the long term (Beausejour et al, 1992). The most pressing issue is the interdependence of the sectors and the ripple effect of the imposed carbon taxes. The government needs to appreciate that tourism and accommodation are dependent on construction and manufacturing sectors (Allen, 2000). Therefore, the overall impact of the taxes must be addressed in a widespread strategy. Implementation plan 4.0 Recommendations The government of Australia is expected to review and reverse the carbon taxes. This should lead to a repeal of the punitive legislations. The move must be cognizant of the fact that carbon taxes have an extremely negative impact of the accommodation in industry in Australia (Wissema & Dellink, 2007). The government needs to subsidize the tourism and accommodation industry by enhancing renewable energy installations and encouraging the consumers to support the initiative. By international standards, the accommodation sector in Australian tourism is expensive. Businesses in the sector are being forced to absorb the cost (Hamilton &Cameron, 1994). The carbon taxes in Australia are both uncertain and complex (Gillard, 2010). The government needs to promote the use of biodegradable products and encourage the management of the tourism sector to use less hydro carbons. The government must encourage the local companies to invest in reducing the carbon emissions. The move cannot happen when the profit margins are reducing. This shall also avert the looming investment draught and boost the mining and tourism sector. The carbon taxes have a profound effect on the cost of beverages and food (Ahammad et al, 2004). The industry is concerned that the rise of the prices in these products shall affect the competitiveness of the industry negatively. The tourism sector is forced to pass the costs to the consumers (Cornwell & Creedy, 1997). Tourism and accommodation industry must be perceived in light of its appeal to customers and the role of other service providers i.e. dependant sectors like mining, manufacturing and construction. Attracting and justification of the new projects has increasingly become difficult (Most of these companies have tried to absorb the cost of the carbon taxes. The ability of the industry has been weakened by the high cost and stagnant demand atmosphere. There is a need to boost the viability of the business to prevent further painful consolidation. Therefore, the government must roll out a short term initiative to prevent further collapse of the tourism, accommodation and other sectors. Subsequently the government should embark in long-term carbon reduction without hurting the mainstream industries. This shall require reasonable taxes and investing in clean energy. This shall involve environment conservation initiatives like afforestation. 5.0 Implementation plan The strategy to invest in renewable energy This shall require a one year pioneer plan in which the government and other stakeholders from the tourism industry shall become actively involved (Rutherford & Paltsev, 2000). This shall entail using the first six months conducting civic education to the staff of the tourism and accommodation industry on the need for renewable energy and reducing the greenhouse gases (Ahammad et al, 2004). After the civic education, simulations shall be conducted for 60 days to indicate the role and installation process of renewable energy technologies in the industry. The final step shall be to roll out the actual installation plan for wind, solar and/or geothermal energy. Gradual energy change transition: involving stakeholders The government must facilitate a change from dependence on coal energy in a gradual way. The first year must involve subsidizing the transition (Australian Bureau of Statistics, 2004). This shall include shall launch a blue print for reversing the taxes to make them consistent with the standards of the world. This shall take 1 month. The state shall take use the next three months in establishing a joint strategy with the management of the industry to ensure that a comprehensive plan governs waste disposal. The plan shall ensure that the companies that support the tourism industry receive subsidies to ensure unnecessary costs are not passed to the industry. This shall include introducing cheaper technologies and facilitating expansion in the industry. The plan shall take be followed by two months of harmonizing the strategy with other stakeholders in construction, transport and manufacturing industry (Allen, 2000). The five months following that be used to role a pilot plan for the strategy to ensure that the tourism industry is cushioned while part of the profits of the industry form the subsidies in the manufacturing and construction industries on a rotational basis for two years. References Adams, P. (2007), Insurance Against Catastrophic Climate Change: How Much Will an Emissions Trading Scheme Cost Australia? Australian Economic Review, 40(4) 432-52. Ahammad, H., Curtotti, R., & Gurney, A. (2004), A Possible Japanese Carbon Tax Implications for the Australian energy Sector, ABARE eReport 04. 13, Prepared for the Australian Government Department of Industry, Tourism and Resources and the Minerals Council of Australia, Canberra. 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(1997), Measuring the Welfare Effects of Tax Changes Using the LES: An Application to a Carbon Tax, Empirical Economics, 2(2)589-613. Devarajan, S., Go, D., Robinson, S., &Thierfelder, K., (2009), Tax Policy to Reduce Carbon Emissions in South Africa, Policy Research Working Paper WPS4933, The World Bank, Africa Region. Devarajan, S., Go, D., Robinson, S., &Thierfelder, K. (2011),Tax Policy to Reduce Carbon emissions in a Distorted Economy: Illustrations from a South Africa CGE Model, The B.E. Journal of Economic Analysis and Policy, 11(1), 1-22 Gillard, J. (2010), 2011 will be a year of delivery- and decision, Speech to the Council of the Economic Development of Australia, Sydney, Transcript, Department of Prime Minister and Cabinet, Canberra (29 November 2010). Hamilton, K., & Cameron, G. (1994), Simulating the Distributional Effects of a Canadian Carbon Tax, Canadian Public Policy,20(4), 385-399. Kemfert, C. (1998), Estimated Substitution Elasticities of a Nested CES Production Function Approach for Germany,Energy Economics,20(1), 249-264. Labandeira, X., Labeaga, J., & Rodriguez, M. (2004), Green Tax Reforms in Spain, European Environment, 1(4) 290-299 Rutherford, T., & Paltsev,S. (2000), GTAP-Energy in GAMS: the Dataset and Static Model, University of Colorado, Boulder The Treasury (2011), Strong Growth, Low Pollution -Modelling a Carbon Price, Commonwealth of Australia, Canberra. Wissema, W., & Dellink, R. (2007), AGE Analysis of the Impact of a Carbon Energy Tax on the Irish Economy, Ecological Economics, 6(1), 671-683. Zhang, Z. (1998), Macro-Economic and Sectoral Effects of Carbon Taxes: A General Equilibrium Analysis for China, Economic Systems Research, 10(2), 135-159 Read More