A large carbon tax would have a damaging effect on Australian industry, according to a study released in January 1992 by the consultancy London Economics. The report was partly sponsored by BHP, CRA, Shell Australia, the Australian Mining Industries Council, the Australian Coal Association and the United Mineworkers Federation of Australia.
London Economics managing director Nick Morris argued that there would be a "wholesale shift out of aluminium and steel, and significant reductions in iron ore and coal production. Australia's balance of trade would suffer."
The study focusses on the effects of a specific excise tax on the carbon content of primary fuels (coal, oil and gas). The report points out that the Australian economy is "more dependent than most" on natural resources and their processing. The aluminium, iron-ore, coal, steel, oil and gas sectors account for about 6% of Australia's gross domestic product.
A "unilateral tax which delivered the interim target [20% emissions reduction by 2005] could reduce these sectors' combined output by
A$7 billion in 2005", the report estimates.
The study concludes that in order to achieve the interim target, there would have to be a tax on carbon in the region of $153 per tonne. The price of fuel would rise sharply: coal by 213%, oil by 74% and gas by 64%. The cost of electricity generation would rise by 108%, reducing the demand for electricity by 42%.
The report envisages the replacement of brown coal by gas if a carbon tax were introduced. With a carbon tax, there would be an economic case for phasing out brown coal by 2002. Gas's share of electricity generation would then rise from 7% in 2005 (if there were no tax) to 18%.
"Australia needs to be concerned about precisely which other countries plan to tax carbon, at what rate relative to Australia, and whether these taxes would actually be enforced. To ignore these factors would risk driving energy intensive industries, and their carbon dioxide emissions, to alternative locations", the executive summary concludes.