Carbon tax an error of emission

Mercedes-Benz submitted its plan to the Senate Economics Committee last week. As we predicted when the Carsales Network reported the radical strategy (more here), the plan to ditch the Luxury Car Tax (LCT) in favour of a carbon tax for all new-car sales has not found favour with other member companies of the FCAI (Federal Chamber of Automotive Industries). That's if the reaction from Ford's President, Bill Osborne is any indication.

"That surprises me," said Osborne, "because Mercedes, as a member of the Federal Chamber have supported the [FCAI's] position -- that we support the emissions trading scheme.

"I'm not sure why they [MB] would break from that position.

"For us, we think that a market-based cap-and-trade system is perhaps more efficient. That's why we're supporting it."

In response to the Benz plan as a concession to uphold government revenue in exchange for dropping the LCT, Osborne believes the formula is "a little bit too complex".

"We don't support the Luxury Car Tax either -- but I don't see the two issues as being linked. Whether we have luxury cars or not, we still have a CO2 problem."

Simply put, in Osborne's view, the Benz plan is effectively trying to resolve a fiscal problem for the government by pressing into service a CO2 abatement solution doing double duty.

Osborne feels that going against global trading policy will create "market distortions".

"In much the same way as the price of oil rises and makes oil in the ground more attractive and spurs more drilling, as the price of carbon emission rises, it makes the R&D investment in carbon-abatement technologies that much more attractive.

"So that's why I think we'd all prefer a market solution -- as opposed to a tax solution -- because with taxes, you don't get efficient redistribution of the income back into R&D.

"Taxes will send the proper consumer signal... But where does that revenue go and how is it reinvested in carbon abatement?"

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