How Carbon Trading Can Lead to Cost of Living Increases

One of the biggest objections to carbon trading is the expectation that the cost of carbon permits will cause a trickle-down effect to consumers, raising the cost of living. This will be seen in price increases for common goods – from fuel to luxury items.

Why Will Prices Increase?

With manufacturing and transportation being two industries that will likely be hit hard by carbon trading costs, companies involved will try to pass off increased costs to the consumer. The same is true of energy markets.

Energy costs will be up. Fuel costs will be up. To compound the issue, as carbon credits are decreased over time, their prices are expected to continually climb, meaning higher prices will potentially be a trend and not a one-shot problem. This will affect the cost of pretty much everything manufactured – factory costs will increase (both in their own energy cost increases and the added cost of having to purchase carbon credits) and costs to transport merchandise will also increase. Consumers, in many cases, will ultimately pay more.

Will All Prices Increase?

No. It won’t be possible for some companies and industries to raise prices (or at least not by much), because of global competition not faced with the same carbon trading issues financially.

This is another concern of opponents to carbon trading – the fear that companies may move overseas to remain competitive.

Will the Increases be Big?

The government doesn’t expect the cost of living in Australia to increase dramatically solely because of carbon trading.

Is Anything Being Done to Help Consumers?

Even though the government doesn’t expect huge cost of living increases, lawmakers understand that any increase could be painful for the end consumer – especially lower-income residents.

In an effort to alleviate some of the burden, the government is doing a few things:

1. They have committed to decreasing the fuel tax on a cent-by-cent basis.
2. They will use all money raised from selling carbon credits to help consumers and businesses adjust to the changes, and invest in clean energy sources.

These initiatives are being planned to off-set the increased prices through the tax discounts, and then to invest in environmentally- and economically-sound options for Australia’s future.

Last updated 22 September 2008