QUESTION
The Proposed Legislation or Policy is:
The government is proposing to introduce penalty duties of 30% on all manufactured imports where the importer fails to prove that the producer is reducing its carbon emissions by at least 3% per year.
SOLUTION
Executive Summary
In the recent past, government has taken numerous measures to save the environment (Abboud, 2008). Precepts formulated to bring down carbon emission are one such significant measure to safeguard the environment. In the last two decades, carbon taxes have been implemented by almost every country. The purpose of this report was to look over the proposal of the government to introduce penalty duties of 30% on all manufactured imports where the importer fails to prove that the producer is reducing its carbon emissions by at least 3% per year. The report also examined the effects of the penalty duty on various industries, companies and consumers. In case this penalty duty is imposed it will bring a major setback to the industry and companies who are already facing a major pressure due to recent financial crisis, southward facing consumer confidence and rising interest rates. After the detailed study of the proposal, it has been analysed that the government should again look into the matter and should hold their decision of implementing this proposed penalty duty. There are many other tender manners through which the carbon emission can be controlled and government is requested to follow them prior to taking such harsh decisions.
Contents
The Intent of the Policy 3
Impact on Industry 4
Impact on Companies 4
Recommendations to Government 4
Press Release 5
References 6
The Intent of the Policy
In the last two decades, carbon taxes have emerged globally at a rapid pace. Finaland was the first nation to introduce carbon tax in 1990. Afterwards, Netherlands, Norway, Sweden and Denmark also introduced carbon tax. Fossil fuels such as coal, petroleum, aviation fuel, natural gas etc eliminate carbon dioxide which pollutes the environment. In order to reduce pollution created by these fuels and bring down global warming, various countries have introduced carbon tax (Abboud, 2008). It is a kind of pollution tax, which is levied on the sources of energy which eliminate carbon dioxide on burning in proportion to their carbon content (Nicholsona, Bieglerb & Brook, 2010). Moreover taxes are source of revenue for the government and can be used for the development of the nation.
The main objective of this report is to look over the proposal of the government to introduce penalty duties of 30% on all manufactured imports where the importer fails to prove that the producer is reducing its carbon emissions by at least 3% per year. The report also examines the effects of the penalty duty on various industries, companies and consumers. Though the key objective of the penalty duty is to bring down emission of carbon to safeguard the environment; but this penalty is quite invader in nature. These taxes can be implemented in a more decorous manner as well.
Impact on Industry
The manufacturing sector is the life line of an economy. Apart from providing regional employment it is a substantial source of bread and butter for majority of outworkers and home based workers (Dziedzic, 2011). Rising competition globally has already led to substantial structural changes in this sector.The manufacturing industry is in middle of a slowdown which was due to the global financial crisis (Hernandez, 2011). Northward facing interest rates and increasing fuel prices are already acting as big bottleneck in the path of growth of manufacturing sector. Further, the proposed penalty duty will add to their problems. The manufacturing units are largely dependent on the imported raw material. Any such kind of proposed penalty duty will lead to rise in raw material cost which will have a negative impact on their bottom line (Cunynghame, 1903). This penalty duty will lead to an extraordinary stress on the manufacturers. Those manufacturers who will not be able to face the situation will close down their manufacturing units which will lead to loss of job for its workers. This will hamper the growth of the industry. These kinds of decisions by the government bring down the level of investments in an industry (Hernandez, 2011). Thus this proposed penalty duty will lead to transfer of job, investment and benefits to the competitors offshore.
This penalty duty will work as a slow poison for Small and Medium Enterprises (SMEs) (Kerr, 2011). Major downfall in spending by consumers and global financial crisis has already resulted in the drop-off in their profitability to 18-years low levels. The proposed penalty will result in increase in energy cost and longer supply chains which will ultimately preclude their operations. Unlike the bigger players, these SMEs are price taker and have very diminutive power to control market (Belfield & Kaleb, 2012). Thus, ultimately they will be left with no other choice but to assimilate the increased cost themselves and will be forced to either reduce their work force or shut down their plants (Kerr, 2011).
Impact on Companies
Government policies play a major role in creation and destruction of market for companies (Dziedzic, 2011). Along with the manufacturing sector, companies are also facing the consequences of global financial crisis. They are also equally burdened with high interest rates. The proposed penalty duty will lead to high cost of final product. The companies in order to safeguard their margins will pass on this added burden on consumers (Wilson, 2011). Increase in prices will lead to decrease in sales thereby reducing profitability of companies. These increased prices will also lead to inflation in the economy. However, this penalty duty will have different impact on different companies. In case of an IT company, their electricity cost will go up as they are the major consumer of electricity (Stafford, 2011). Business which uses data centres, will also see substantial increase in their electricity bills. In case of mining companies, large investments at various levels are very crucial for their existence. This penalty will take away a large portion from their profits and hence investments in these companies will no longer be lucrative. Transport companies, particularly airlines have a major dependency on fossil fuels (Stafford, 2011). This penalty duty will result in increase in cost of fuels thereby increasing cost of transportation. As far as real estate companies are concerned, the residential building industry may get a major shock as the building materials and products which are bought from overseas will become costly in case this proposed penalty duty is implicated (Stafford, 2011). Increase in prices, reduction in consumer spending and contraction in margins will be some of the key impacts which this proposed penalty duty will have on retail companies.
Recommendations to Government
The Manufacturing Association has full regards for the government’s initiative to reduce carbon emission and safeguard the environment. In fact, manufacturing sector is also dedicated towards a perpetual avenue which will lead to low carbon emission. Along with this they are focusing on the methods that will result in better working conditions for labour, will save environment from other hazardous chemicals and substances apart from carbon dioxide, preserve water and other sources of energy and proper waste management.
The key objective of the penalty duty is to bring down emission of carbon to safeguard the environment but this penalty is quite invader in nature. These taxes can be implemented in a more decorous manner as well. Thus, government is requested to look into the matter again. Follwing are some recommendations for the government:
• This proposed penalty duty will have a very adverse impact on the manufacturers and its contretemps may result in closing of manufacturing units which will bring damage to workers in the form of loss of jobs.
• The government should wait and watch how other countries are dealing with carbon emission and then accordingly the policies should be made. In case, other countries are not coming out with such penalty duty on manufacturing units, the manufacturing sector will be at big disadvantage in comparison to others. Thus, it is suggested that government should keep this proposal on hold till the time picture is not clear in other countries.
• Manufacturing sector is indeed very indebted to the government for the assistances which government has provided in the past; but these aids will not be adequate enough in front of the fallout that manufacturing sector will face with the introduction of this proposed penalty duty.
Press Release
The manufacturing sector is the life line of an economy. Apart from providing regional employment it is a substantial source of bread and butter for majority of outworkers and home based workers. Rising competition globally has already led to substantial structural changes in this sector. Under the proposed penalty duty, there will be additional stress on the manufacturers. Already the rising cost of power and increasing raw material cost is making things difficult for manufacturers in the competitive global business environment. This additional penalty duty may result in huge losses of jobs in manufacturing. The Manufacturing Association has full regards for the government’s initiative to reduce carbon emission and safeguard the environment. The proposed penalty duty is quite invader in nature. These taxes can be implemented in a more decorous manner as well. Thus government is requested to hold the proposed penalty duties of 30% on all manufactured imports, government should wait and watch how other countries are dealing with carbon emission and then accordingly the policies can be framed for our country as well.
References
Hy. Cunynghame, H. (1903). The Effect of Export and Import Duties on Price and Production Examined by the Graphic Method. The Economic Journal, 13(51), 313-323
Vol. 13, No. 51 (Sep., 1903), pp. 313-323. Retrieved from http://www.jstor.org/stable/2221517
Nicholsona , M., Bieglerb, T., & Brook, w., Australia’s carbon tax – how much impact on global warming?. 2010 Energy paper. Retrieved from http://seekerblog.com/2011/04/15/australias-carbon-tax-how-much-impact-on-global-warming/
Hernandez, V. (2011). New manufacturing group attacks carbon tax. Retrieved from http://www.smh.com.au/environment/climate-change/new-manufacturing-group-attacks-carbon-tax-20111010-1lgn1.html
Dziedzic, S. (2011). Manufacturers form new group to oppose carbon tax. Retrieved from http://www.abc.net.au/am/content/2011/s3335624.htm
Kerr, C. (2011). 90pc of manufacturing sector faces full impact of carbon tax. Retrieved from
http://www.theaustralian.com.au/national-affairs/pc-of-manufacturing-sector-faces-full-impact-of-carbon-tax/story-fn59niix-1226140364099
Abboud, L. (2008). An exhausting war on emissions: Norway’s efforts to contain greenhouse gases move forward–and backfire. Wall Street Journal. Retrived from http://online.wsj. com/article/SB122272533893187737.html
Stafford, P. (2011). CARBON TAX: A sector by sector guide. Retrieved from http://www.smartcompany.com.au/climate-change/20110711-how-will-the-carbon-tax-affect-your-business-a-sector-by-sector-guide.html
Belfield, D., & Kaleb, J., (2012). How Will The Carbon Tax Impact Your Business?. Retrieved from http://au.smallbusiness.yahoo.com/finance/a/-/13330925/how-will-the-carbon-tax-impact-your-business-part-1-of-3/
Wilson, L. (2011). Carbon tax effect on key industries negligible says Treasurer. Retrieved from http://www.theaustralian.com.au/national-affairs/carbon-tax-effect-on-key-industries-negligible-says-treasurer/story-fn59niix-1226048004190
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