Greenhouse Gas Abatement Australia - A Taxing Issue?
Victoria, Australia,
March 2011
The Australian Government recently announced that it is proposing to implement a carbon tax in Australia within two years. The announcement was announced by the first female Prime Minister of Australia, Ms Julia Gillard. The proposed carbon tax is contrary to her campaign promise not to introduce a carbon tax or emissions trading scheme. The previous Prime Minister, Mr Kevin Rudd had proposed an emission trading scheme termed the Carbon Pollution Reduction Scheme (CPRS). He then dropped this proposal which led to a change of leadership prior to the election of Ms Julia Gillard.
The emission trading scheme or CPRS proposed by the Rudd Government, was to raise approximately $120 billion annually with only a few percent of this going to greenhouse abatement measures and renewable and the bulk of the funds raised going in subsidies to trade exposed industries and families. The carbon tax now proposed by the Gillard Government also has a very substantial compensation package to industry and to the majority of families.
Australia produces 1.4% of the total mass emission of greenhouse gases globally which makes Australia a very small emitter on a global stage; however, both the Government and the Federal Opposition are committed to abating greenhouse gases.
The vexed question remains what is the most cost effective approach to reducing emissions? The Opposition favours direct action with investment in clean technologies and renewables, whilst the Gillard Government is now committed to a carbon tax within two years then morphing into an emissions trading scheme.
The European Emissions Trading Scheme (ETS) commenced in 2005 and is a cap-and-trade system. Phase 1 of the ETS ran from 2005 until 2008 and was regarded as a trial period. The scheme now is in Phase 2 which corresponds to the Kyoto commitment period 2008 to 2012. Phase 3 will run from 2013 to 2020. The EU ETS targets approximately 11,000 emission intensive installations and only addresses carbon dioxide emissions.
A carbon tax and ETS can cause carbon leakage in countries that implement them putting their industries at a competitive disadvantage to those countries which do not implement a carbon tax or ETS. The counter argument is that they foster innovation and investment in clean technologies and renewables.
There are two fundamental questions that should be asked regarding a carbon tax or ETS. Firstly what will be the contribution to reducing global temperature and secondly what does the scheme cost. Costs associated with administrating a carbon tax and implementing a ETS are very substantial and should be balanced against the alternative of direct action on climate change.
A carbon tax is a much simpler and potentially a more effective way to ensure that cleaner technologies are developed and that there is growth in renewable energy. However, this is subject to the political process and by the time exemptions are taken into account and subsidised the desired outcome of a significant reduction in greenhouse gases may not be achieved.
Subsidising the majority of the population in a country, as is proposed in Australia, from the effect of a carbon tax is unlikely to send a signal that a change in behaviour in terms of energy usage is necessary for a low carbon economy.
For more information contact alison.mcrae@pjra.com.au