Carbon tax – instant reax

The proposed carbon tax is a substantial improvement on the heavily compromised emissions trading scheme agreed between the Rudd government and the Opposition under Malcolm Turnbull. Although there is substantial compensation for emissions-intensive industry it is temporary and based on historic emissions level, so that the incentive to reduce emissions is not compromised. The design of the compensation package for households is also welcome.

The government has avoided the temptation to pretend that everyone will be better off, and has taken the reasonable position that high income households do not need to be compensated for the introduction of necessary reforms. This has permitted the very welcome measure of raising the income tax threshold and thereby taking more than a million low-income workers out of the income tax system.

While the primary focus of the package is, correctly, on the imposition of a price on carbon emissions, there are a range of supporting measures designed to encourage energy efficiency and innovation. On the whole, these seem more carefully designed than the measures introduced under previous governments.

48 thoughts on “Carbon tax – instant reax

  1. As our kind host has mentioned in the past, there is good reason to think that the world needs a carbon price of around $50 per tonne of CO2 to avoid the worst effects of global warming. Personally, I am perhaps insanely optimistic and think that a $35 per tonne of CO2 carbon price might do. I would have liked Australia’s carbon price to automatically increase to at least $35 a tonne of CO2 over time, but the $23 per tonne of CO2 carbon price is infinitely better than no carbon price and overall I am very pleased about it.

    I don’t think I know anyone who will definitely be worse off economically as a result of the carbon tax, and that’s without even taking into account the economic value of not damaging the environment, so I imagine it will be quite popular once people realise how high the tax free threshold will be.

  2. Does anyone know what the price escalator is going to be? In Garnaut (2008) a recommendation for 4% real (i.e. above inflation) was made. The only figure I’ve seen is 2.5% but it wasn’t clear if this was real or regardless of inflation.

    At 4% real a starting price of $(2011AUD) becomes $(2011AUD)31.47 by 2020. At an escalator of 2.5% unadjusted and with inflation in the middle of the target range — 3%, by 2020 the CO2 price is $(2011AUD)19.02 — a cut of more than 1/3 on the Garnaut approach.

  3. The Editorial in The Australian today was surprising . It was basically supportive of the carbon price package. One could hope that this was a sign that Chris Mitchell had seen the light, but
    I suspect the editorial is a cover for his interferences elsewhere in the paper to try and sink the package. But still, we do live in interesting times when he considers that it is necessary for him to be mostly positive about the package in the editorial.
    I also wonder if the News of the World debacle is having an impact on what they say in editorials?

  4. Carbon tax comes at at a time when all fossil fuels are increasing in price. Crude oil has probably already peaked and the Chinese are scouring the world for new coal supplies. Gas has a range of issues; too far offshore for pipelines, water table contamination or looming transport demand. There may be no easy fuel options for large new power plants. In the case of proposed new baseload stations for the Hunter Valley the preferred option until recently was supercritical coal since combined cycle gas was thought too expensive. If indeed new coal can now be ruled out the generators are reluctantly forced into the less preferred gas option. If you think wind and solar can fulfill this role good luck with that.

    Thus carbon tax only provides partial certainty for a few years. Raw fuel prices will escalate by unknown amounts. After 2015 the ETS spot price could actually decline though I believe Sen. Milne mentioned a $15 price floor. We may never get to $50.

  5. From here:

    “Household assistance
    The standout feature here is a threefold increase in the tax-free threshold for income tax, to over $18,000.”

    Agree completely. Finally a government who actually properly tackles the appalling EMRT barrier to workforce participation for the poor. One of the greatest pieces of public policy ever delivered in the history of this country, IMHO. For this alone they should go down in history as one the best governments we ever had.

    This minority government thing is working out fine from my perspective. They are actually tackling some of the hardest policy questions on the table. Maybe Gillard & Co figured they had nothing left to lose, so might as well go for broke while they had their one chance. More of it, I say, if that is what it takes. Hopefully they will take on the concentration of media ownership issue now.

  6. “The Editorial in The Australian today was surprising .”
    Not really, it has been saying this in editorials for (I think) several years. It was one of the reasons they endorsed Rudd in 2007.

  7. @John Goss

    The line taken in “The Hun” was more in keeping, where, according to them and the online poll, 70% of people are against the carbon “tax”.

  8. I thought the Australian editorial today showed a distinct change. Sure they have been going on about the need for a market based mechanism for a while, but they have also spent a lot of time criticising many aspects of the government’s proposed approaches to climate change.

  9. This has permitted the very welcome measure of raising the income tax threshold and thereby taking more than a million low-income workers out of the income tax system.

    The government has done well. Perhaps it will raise Professor Q’s opinion of Julia Gillard relative to Kevin Rudd if the government gets it implemented. I just hope they don’t waste too much money on Tony Abbott-style “direct action” schemes.

  10. Fran #27:

    It’s all in here or thereabouts:

    See appendix A.

    “The carbon price will start at $23.00 per tonne in 2012-13 and will be $24.15 in 2013-14 and
    $25.40 in 2014-15.
    The prices in the second and third year reflect a 2.5 per cent rise in real terms allowing for
    2.5 per cent inflation per year (the midpoint of the Reserve Bank of Australia’s target range).”


    “The carbon pricing mechanism will transition to a flexible price cap-and-trade emissions trading
    scheme on 1 July 2015.”
    “The Government will announce the first five years of caps in the 2014 Budget and will be required
    to table regulations setting five years of pollution caps in the Parliament no later than 31 May 2014.”
    “The pollution cap will be extended by one year every year in regulations from 2015-16 to maintain five years of known caps at any given time.”


    “A price ceiling will apply for the first three years of the flexible price period.
    The price ceiling will be set in regulations by 31 May 2014 at $20 above the expected international
    price for 2015-16 and will rise by 5 per cent in real terms each year.”

    “A price floor will apply for the first three years of the flexible price period.
    The price floor will start at $15 and rise at 4 per cent in real terms each year.”

  11. I am talking about the editorial itself not the op eds, and we can assume on a matter like climate change that the editorial has been written by Chris Mitchell.

  12. JG – I don’t know that Mitchell writes many but certainly he approves the line. I have not seen a leader questioning AGW in the Oz for a long while. But then I don’t read them all. What have you seen?

  13. In recent times the Oz editorial has not questioned the existence of global warming due to humans, (though there have been plenty of snide remarks about scientists supporting action on climate change and lots about the uncertainty of the science). But the Oz editorial has been very sceptical about almost any action proposed by the government to deal with climate change. It has always opined about the potential downsides. But now the full package is out there the editorial is giving qualified approval. It is an interesting change.

  14. It is incredible how nieve our community Leaders are they also do not have a grasp of the Commercial imperatives that control Oligopolies and Monopolies who set the Market and can simply adjust their price.
    As for competition, the commercial reality is not who can sell whatever at the lowest price BUT the highest.
    The Tax may be based on Carbon Production and will be treated like any other input cost and assest on the basis of the best value for many spent on reducing costs or increasing production. If the return profit on a dollar spent on reducing the Carbon is greater than paying the Tax only then will there be an incentive to invest the required Capital (including the cost of that Capital).

    In whichever form the Tax will always be a TAX such as Carbon will always be produced, what is imperative is that the cost on exporters should be excempt otherwise Australia is imposing a penalty on Customers and we allknow what happens next.

    What we should be considering establishing a Carbon Level an achievable level of reductions and penalties for failure to comply. That way other deemed pollutants could be included and less of a penalty accross the board, which what is a Tax.

  15. A point worth making, the next time anyone gets into an argument with someone about whether global warming is real, is that the governments and capitalists of Russia, Denmark, Canada and other nations with a stake in the Arctic are in no doubt whatsoever that global warming is a reality. They are actively engaged in a “cold rush” to take advantage of Arctic warming and sea ice melting to open up shipping lanes, build seaports, explore for and make claims for previously inaccessible mineral and energy reserves, etc., and are embroiled in diplomatic manoeuvres and disputes over their competing claims to Arctic seaways and seabeds. They would not be doing this if the concept of AGW was a figment of the imagination of febrile greenies or the fruit of a conspiracy by tax-farming scientists and bureaucrats.

    Whether you follow the science or you follow the money, you end up with the same conclusion that global warming is very, very real.

  16. Carrie on the 7pm Project made a salient point tonight by following up an item on Artic Ice Melting by quizzing Tony Abbott on his views on Climate Change. She is about the only person in the media who has challenged him on his views – even if it was in a light hearted manner. The Murdoch Press should be looking to its own performance and its manipulation of people through the kind of focus on Polls seen in the last 2 days in its papers rather than Policy – and Polls which appear manipulated.

  17. If Australia stopped emitting ANY carbon dioxide tomorrow, by 2100, the temperature would be lower by, wait for it, 0.02 degrees. This is based on the IPCC worst case scenario. The fact that the real physics of the atmosphere shows, through many different scientific analyses, supported by measurements of temperature distributions in thee atmosphere and on earth, that carbon dioxide mis not the cause of glogal warming. The IPCC’s reliance on arbitrary, tweeked models, leads only to one preordained result which they have failed hopelessly to justify. A 5% reduction in CO2 will lead to a possible maximum reduction of 0.001 degrees in 2100. This tax on carbon dioxide will be the equivalent of “Fiddling while Rome burns”. There is no scientific evidence on which it is based.

  18. OK, John Nicol, now why don’t you fly over to Denmark, Russia, Canada, Norway, etc., and tell their governments and big businesses that they’re wasting all the money they’re currently investing in the expectation that the Arctic summer sea ice is about to vanish?

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