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Carbon tax would weaken Australia

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Rick Rycroft / AP

(Read caption) Supporters of a controversial carbon tax gather at a rally in Sydney, Sunday, June 5, 2011. Australia's Prime Minister, Julia Gillard, faces her toughest political test to date as she tries to sell the nation on a carbon tax that would lead to higher power prices while reducing greenhouse gas emissions.

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Australian Prime Minister Julia Gillard faces a potential revolt in her party on the issue of a carbon tax.


This is very understandable, because Australia as a large exporter of coal has more than most other countries to lose from a carbon tax.

In countries that are net importers of carbon based energy, the efficiency loss from a carbon tax is at least in part cancelled out by an improvement in terms of trade, as the tax reduces the price excluding taxes. But in Australia and other net exporters, the terms of trade effect reinforces the efficency loss and thus aggravates the economic losses.

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