Australia's carbon tax and its impact on the tourism industry

Tourism Economics

Over the last several years, the issue of climate change has been continually brought to the forefront. This is because a variety of scientific evidence is highlighting the damage that CO2 emissions are causing to the environment. In the case of Australia's tourism industry these challenges are more severe. As they want to protect the various natural resources that are adversely being impacted by these transformations (i.e. The Great Barrier Reef, the Australian Alps and Outback). Yet, the introduction of a carbon tax will have an adverse impact on the sector with tourism operators expected to see a decrease in revenues from -.7% to -1.2% annually. This is challenging, as it is creating divisions about how this will affect the economy and job creation. To fully understand the short- and long-term implications requires focusing on a number of areas to include: examining why the government is implementing these measures, assessing the economic impacts as well as studying how these transformations will affect the tourism industry. Together, these elements will highlight the underlying benefits and drawbacks of the carbon tax on the sector. This is when everyone will see the short- and long-term implications of this program. ("Carbon Tax and Tourism," 2011)

Section 1: Why the government decided to introduce a carbon tax (e.g., the environmental issues prompting the introduction and the economic impacts this will have)?

To fully understand why the government is introducing a carbon tax requires examining various pieces of research on the subject in the form of a literature review. This will provide more specific insights as to what factors influenced the opinions of government officials. When this takes place, there will be a greater understanding as to the primary reasons behind these policy decisions.

In the article titled Australia Introduces Controversial Carbon Tax (2012), it discusses how the nation has an international obligation to reduce the total amounts of greenhouse gases (based on the Kyoto Protocol). Moreover, Australia accounts for 1.5% of the world's carbon emissions. Yet, given the size of the country, it is the largest polluter on a per capita basis. These factors forced the Gillard government to impose a tax on various polluters (to ensure that they are in compliance with the Kyoto Agreement). ("Australia Introduces Controversial Carbon Tax," 2012)

While Hoque (2005) determined that tourist related activities are some of the largest producers of CO2. The sector is accounting for a total of 21.6 million carbon tons every single year. At the same time, international aviation (associated with tourism) reported emitting 7.9 million tons of emissions into the atmosphere. This is beyond the provisions inside the Kyoto Protocol. These issues prompted the government to introduce the carbon tax as a way to curb the total amounts of pollution and to ensure that Australia is in compliance with the agreement. (Hoque, 2005)

In the short to medium term, the carbon tax will have a negative impact on the tourism industry by directly raising costs. According to Reid (2012), this will result in firms passing these expenses on their customers. When this happens, there will be a decrease in domestic and international demand. For example, under the new structure, airfare will rise by an average of $3.00 per person on all national and regional flights. While this does not seem like a lot of money, everyone will be imposing these additional costs on cliental. This will negatively affect tourism and the kinds of activities that they choose. Once this takes place, is the point that the industry will go through a period of contraction from the introduction of these taxes. (Reid, 2012)

Section 2: Assessing the Economic Impacts

The significance of the carbon tax is to create a long-term shift in the practices that are utilized by the sector. This will reduce Australia's dependency on fossil fuels and it will create a change in the mindset of tourism officials. Over the short to medium term, this will result in a contraction of: -.7% to -1.2% (for the industry). However, from a longer term perspective this will create shifts in the practices that are utilized by forcing firms to reduce their carbon footprint. When this happens, there will be an increase in productivity and a reduction in costs. ("Program Overview," 2012) ("Carbon Tax and Tourism," 2011)

In the short to medium term, the carbon tax will lead to an increase in unemployment, whole sale / retail costs (for delivering various products / services to customers) and a decrease in demand for tourist related services. However, over the long-term this will lead to more job creation from green related industries. At the same time, this will improve productivity for the sector and decrease their operating expenses. Furthermore, a larger number of tourists will become interested in the practices that are utilized and the benefits from having these provisions in place. This is when there will be a rise in demand for these services. (Abbott, 2012) ("Program Overview," 2012)

From a macroeconomic perspective, this will lead to a contraction in GDP growth and income levels (over the medium term). This is because the higher costs will result in a decrease in demand for these services and it will help to fuel a rise in inflation. This will lead to a reduction in economic activity. Yet, in the longer term this will refocus the industry on controlling their costs (through: limiting the total amount of CO2 they are emitting into the atmosphere). This is based upon utilizing an economic centric model that is focusing on consumer spending, taxes, costs, supply / demand and unemployment. (Abbott, 2012) (Hymans, 2011) ("Program Overview," 2012)

These predications are showing how there will be a period of adjustments for the entire industry. This will require seeing some kind of contraction and an increase in costs while this is taking place. Yet, once these transformations have been made is when there will be positive benefits for tourism operators. This is because these practices will change the mindset of everyone inside the industry and how they are controlling their utilization of natural resources. When this happens, there will be an increase in productivity and a reduction in expenses. ("Program Overview," 2012) ("Carbon Tax and Tourism," 2011)

Conclusion

Clearly, the Gillard government introduced the carbon tax as a way to ensure that Australia is in compliance with the Kyoto Protocol. To achieve these objectives means that greenhouse gas emissions must decline (by having a way of penalizing those firms that are the largest polluters). This will force them to make changes in their business practices and concentrate on how much CO2 they are emitting into the atmosphere.

The impact is that this will lead to a decrease in demand for tourist services and products. This is because costs are much higher, which will force many people to rethink their plans about visiting Australia (especially from an international perspective). However, over the long-term this will lead to a shift in the mindset of the industry (by making these firms to adapt environmentally friendly practices). This is the point that productivity will increase and costs will decline. At the same time, it will attract a larger number of environmental tourists. When this happens, there will be an increase in demand for their products and services.

As a result, these practices are sustainable after the period of transformation occurs in the short to medium term. This will lead to a change in the mindset of everyone within the sector and how they are working with cliental. Once this takes place, is the point that Australia will be in line with the provisions from the Kyoto Agreement and can redefine the kind of tourist products that are presented to stakeholders around the world.