The impact of carbon Tax on Australian Airline Business

Running head: Impacts of carbon tax on aviation industry
Impacts of carbon tax on aviation industry
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Abstract
The current carbon tax facing the Australian Airline/Aviation sector has posed a great threat not only to the economical status of this industry but to all sectors such as tourism and entirely the economical stability of the country. It is therefore appropriate to conduct a report on evaluation of the carbon tax while intense understanding on the effect of such Tax on the aviation fuel and the general aviation industry. Therefore, in the aviation sector there are likely two categories of effects namely the short-haul flight effects as well as the long-haul flight. However, short and medium distance flights would be much affected as compared to the long distance flights. Eventually, airlines relying on tourists as the main source of customers would realize a sudden decline in the number of flights compared to the number before the implementation of the Tax law. I therefore intend to conduct engage into a report that would cover the impact of carbon Tax on Australian Airline Business in particular. Engaging practical examples from different case studies related to the topic under study, I therefore intend to major on the impact of carbon tax on aviation industry as well as its affiliates in Australia. Equally enough, there is the intense need for stakeholders and entrepreneurs in the airline industry to consider purchasing jet fuel that contains minimal amounts of carbon toxins, despite the hiked price, so as to act in accordance with the policy
Contents TOC \o "1-3" \h \z \u Abstract PAGEREF _Toc355707213 \h 2Definition and introduction to carbon tax PAGEREF _Toc355707214 \h 4Background PAGEREF _Toc355707215 \h 4Aspects or Issues & Problems (impacts of the current Carbon tax PAGEREF _Toc355707216 \h 4Discussion PAGEREF _Toc355707217 \h 5Aviation sector PAGEREF _Toc355707218 \h 5Employment in Airline sector PAGEREF _Toc355707219 \h 6Hotel and Tourism sectors PAGEREF _Toc355707220 \h 6Conclusion PAGEREF _Toc355707221 \h 7Recommendations and implementation PAGEREF _Toc355707222 \h 7Reference list PAGEREF _Toc355707223 \h 9
Introduction to carbon tax
According to Gillard (2010), it is worthy argument that the Australian government had announced that it would impose carbon tax on all the transport sectors and all other industries emitting Carbon during the operational procedure. By then, the law was to be fully engaged by the 1st of July in 2012, with the aim of transforming this policy to marked-based trading scheme of such emissions. With the Australian government having declared introduction of carbon tax which became functional as of July 2012, this action saw an initial tax price of $23 per Tonne of emitted carbon (CO2-e). This is in action with the Australia`s government to attain at least 5 percent carbon emission reduction by the year 2020 Gillard (2010), since the international carbon reduction policy seemed not coherent to the Australian government as possible.
This policy however does not only affect the airline industry, but rather all sectors emitting carbon while in operation. Initially, Australia had employed low-energy emission subsidies as well as use of current technology, close to one decade ago. Such a program comprised on opting to other sources of energy such as solar and wind energies, biomass and biogas energy, cloud-seedling hydropower as well as geothermal energy courtesy of hot dry rocks (Humphreys, 2007). However, this approach and policy failed due to high cost involvement while implementing such technologies as well as bias in decision making, particularly political aspect. In one way or the other, the carbon-intensive inputs will loose clients which mean some sectors relying on such products such as airlines among other transportation modes will suffer this policy. Eventually, such behavioral effects will have diverse impacts on various fields such as industry structure, resource allocation of the economy, income distribution among economic growth. This paper therefore intends to major on the airline sector and all other sectors that are influenced by the aviation industry such as tourism, hotel and catering among others. By covering much on the aviation sector and tourism as well as catering industries, which are solely linked and highly dependent on the aviation industry, this report intends to show how various sectors are compromised by this carbon tax and equally give recommendation and implementation plan as well.
Background
As early as 1993, various models have been undertaken by various researchers and institutions (for instance Monash University) with respect to carbon emissions with the respective impacts. McDougall (1993a) did simulate the effects of carbon tax by use of an intensified ORANI model which incorporated a classified and elaborated explanation of the energy sector of Australia. A survey by McDougall (1993b) highlighted short-run outcomes with respect to a $25 per CO2 tonne tax initially designed to see into it that Toronto attained a 20 percent target in reduction of emitted CO2 by 20005. In accordance to another model by Adams and Dixon (1992), his model incorporated seven fossil fuels namely brown coal, black coals (lignite and briquette), natural gas, coal and petroleum products, liquefied petroleum gas as well as gas. The model was characterized with extreme rigidity in the sense that it never allowed any flexibility of energy use as well as fuel mix during the production process.
Aspects or Issues & Problems (impacts of the current Carbon tax)
There is expected hike in the aviation industry, both internally and externally, with domestic flights being affected much as compared to the international flights. It is worthy assertion that employment in aviation industry would become the major concern since majority of employees would either have their wages being decreased or even some loosing their jobs. This means that Australia`s domestic airline transportation particularly when it comes to tourists would be affected equally. A number of sectors attributed and linked to the aviation industry in one way or the other are likely to be directly affected by this carbon tax. This means that the tourism sector is worth discussion as a sector to expect much pressure due to carbon tax. Consequently, the hotel and catering sector is as well to be greatly influenced hence worth of discussion too. I also intend to conduct a thorough comparison between the air transport, rail transport and road transport in order to identify how airline is doing with respect to the other modes of transport. The section below therefore addresses such issues.
Discussion
Aviation sector
Why is the airline sector subjected to losses due to carbon tax, and what should investors opt to avoid huge losses? With reference to Williams and Noland (2006), it is worthy argument that the Australia`s airline sector is prone to increasing air tickets prices particularly the domestic flights. The two researchers based on practicality and case studies estimate domestic flights incurring a value between 1.1 percent to 2.4 percent tax increments in the aviation fuel. However, international flights-fuel is not expected to cause significant changes and issues which mean that the level of impact from carbon tax will be minimal as compared to the domestic flights. To counter such huge losses, it would advisable for airline investors and owners to consider purchasing jet fuel that contains minimal amounts of carbon toxins, despite the hiked price, so as to act in accordance with the policy. Minimizing the airline earnings by at least 10-15% would also enhance the smooth running of this business effectively (Pridmore et al. 2003). Consequently, sharing this effect with the customers but one should consider employing very convincing techniques with dealing with the clients, so as to avoid loosing potential customers.
According to a projected model by Mahinda et al (2011), the following projections can be realized with respect to the effects of carbon tax on the Australian economy:
Table 1: Projections on Environmental Variables
Variable

$23 Tax

$30 Tax