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. Outcome of this proposed legislation: Electoral slaughter of the government & its allies. This will happen at the first opportuity the population have to access a ballot box.

  2. Brave call Steve @ 2: the tax will be in place for 12 months come the next election, with compensation in punters’ pockets, and contrary to Abott’s prediction the sky will not have fallen in.

  3. ‘Electoral slaughter’? They said that about the GST!

    Less flippantly, Labor was heading for a rout anyway, so why not go down doing the right but unpopular thing? (I was always furious that nominal Christian Beasley was so craven in refusing to make a principled stand against much of the nation’s ugly bigotry that Howard positively revelled in – why the hell not at least try to take people with you? Not that the PM’s much better on that particular score, mind you!)

    The democracies’ greatest deficit is their inability to make the hard-but-necessary decisions, particularly where powerful and media-savvy interests are involved, so this really is a milestone. No-one can take that away from Gillard.

    And God knows, actually achieving something – particularly in comparison to the unimpressive Obama – might even begin to carry the electorate. What’s to lose?

    The word ‘smart’ is getting used a lot in reviews of the tax. That’s not a description that’s been heaped on much that Labor has done in the last few years!

    Would Abbott and his Flat-Earthers really go full-gonzo Tea Party and pull it apart? That’s the interesting question. Alan Jones and the talkback Dunning-Krugerites might love him for it in the short term, but even he must be dimly aware history might have the diametrically opposite view… and let’s remember that in a decade’s time the talkback lynch mobs, having conveniently forgotten their own active complicity, may well be looking to scalp the people who roasted the planet…

  4. Once the carbon tax is in, I doubt any government of any persuasion will remove it again. That would play very badly abroad. Plus no revenue govt will ever forgo a good new revenue source.

  5. Good point boconnor #3. We’ll see what happens. I’ll stick with my forecast. Though if circumstances change I’ll change the forecast.

    Bill @ 4, “they” may have said it, but I did not. The GST was taken to an election. The carbon tax was specifically ruled out, but implemented anyway. The public don’t take well to being lied to. On top of that we are subject to a contender for the most incompetent & blundering/bungling federal government in our history.

    The ALP may well be able to meet in minivan after the next federal election.
    My record of electoral predictions is not necessarily a happy one. We’ll see what happens.

  6. SATB,

    Your memory is very poor.

    in the 1998 election the Lib/Nats won the election with the lowest vote of any Government.

    The Senate voting was worse with the lowest vote since Victor Trumper had his pads on.

    Now I happen to agree with a GST even more with a FULL GST with more compensation alah Warren/Harding however it never had public support.

  7. I don’t think the Gillard government is generally very good but they have managed to put a price on carbon at a time when Obama can’t even get a decent stimulus package through Congress, let alone do something about pricing carbon. I feel surprisingly and unexpectedly proud to be in a country that does what has been announced today.

  8. Abbott’s lost the plot – it’s all just a sinister plot to install “socialism”.

    Good to see him taking his cue’s from the Potty Peer and the Tea Party.

  9. This tax is clever politics and takes the heat off the NBN, BER and other spot fires. Now Abbott will be in the position of arguing that it won’t be enough to stop AGW, fight the big end of town that wanted certainty and that if elected the Libs would scrap he tax and reverse the compensation to low income earners.

    On a separate front is the spectacle of the slowly imploding Murdoch Press.

  10. Michael – Abbott is a politician and on the politics he seems to be doing very well. However I don’t recall him personally using the word “socialism” a great deal.

  11. Huzzah! I shall be over compensated! I knew that living in the state with the most wind turbines and consuming only modest amounts of diesel oil would eventually pay off.

  12. One very important factor not in equations above – News ltd including Bolt Murdoch’s champion of misdirection on channel 10 as I type. Murdoch press clearly favor Abbott, and Abbotts backing from big business. Look at every pitch from the private sector crossing the political divide to oppose Govt regulation – socialism, massive job losses, rising costs of living, Govt waste. All proven to be lies afterwards. Eg recently PG&E, BP, Australian mining sector. Yes Abbott uses the word socialism a great deal.

    Abbott appears to be winning b/c he is backed by News ltd

  13. @Steve at the Pub
    Just for the record SATP, please list the incompetencies that angst you so. And be careful to make sure you can defend your opinions with facts.

    Are you aggrieved with the stimulus response to the GFC? Perhaps the BER program with it’s staggering 1.3% complaint rate, or the home insulation scheme which the auditor reckoned prevented house fires which would otherwise have occurred.

    Perhaps the NBN arouses your ire? What would you do instead that could deliver the same immense benefits? Mindful of the fact that the NBN is the greatest challenge to existing media models in this country since the 1950s, so the coverage is, um, slanted.

    Rudd’s backdown on the CPRS was pathetic, but he paid for that, and the ALP took it too the people. Gillard did say no new carbon tax, but what is she to do when the Greens get such an endorsement and the balance of power in our representative democracy system. She is obliged to negotiate, which is clearly her most formidable skill.

    Nothings perfect, but given the Senate situation in the first term, and the egregious and near universal clamour in the media for a do-nothing, useless, profoundly anti-democratic alternative, I don’t see this mob as all together terrible.

  14. Without having looked at every detail regarding specific industries, the carbon tax proposal looks to me to be a measured policy proposal. In terms of ghg emission reductions, everybody benefits. In terms of monetary values, the policy proposal seems adequate to me to prevent hardship. The substantial increase in the tax free threshold is, IMHO, very sensible.

  15. I agree with Terje as to the sophistry and sophistication of the political manouverings that form the back drop to the carbon tax, which clears the decks for the next election with Gillard finally coming out from behind of Rudd’s shadow and declaring her own hand, giving her just enough political capital to run legitimately for re-election.
    Abbott, Gillard and co are politicians, like footy players the competitive instinct appears to be there and they’ll dish out a very hard hip and shoulder regardless of personal grief to their opponents, when it furthers their own cause. There is big pride and big money behind it all.
    The carbon tax appears well-crafted, although more to the politics, and seems to have been an event on the magnitude of budget night.
    Could Murdoch’s English exposure misfire the Tory counter attack, would be my next question.

  16. Once the carbon tax is in, the foot is in the door so to speak. We can proceed from there to a proper price for carbon. It will be exciting to see real action to stop climate change and move away from non-renewables… if it actually happens in a substantive way.

    I am now 50% optimistic that carbon will properly priced by 2020.

  17. @bill

    Indeed … I’ve said similar elsewhere, but thanks for saving me the trouble.

    FTR, I don’t agree with SATP’s claim. If the ALP can carry this off and get the NBN locked in place, whoever is leading the LNP in 2013 will have nothing but embarassment to run with, and the government will be able to call upon all those who like high speed broadband and action on climate change to get out and defend the policy against rescission. Even business, who will have had to make expensive adjustments will not be pleased to have new uncertainties introduced into the game.

    So on balance, failing some unforeseeable political disaster, I see the government as having measurably the better chances in 2013.

  18. @Fran Barlow
    Julia Gillard (and her team) have done an admirable job on the “Carbon Tax”, insofar as the politics of it goes. The Greens have done a good job in back-stepping only somewhat, and on the unified structure for renewable energy technology funding – that step alone will see to some renewables companies getting commercial loans because of government support (albeit indirect). The flexible nature of the reduction target is good too.

    I think that with the NBN and BER results bedded down (irrespective of what is claimed in the Aussie version of NOTW), and now with the “Carbon Tax” mapped out, chances are that the ALP with PM Julia Gillard will start to gain in the polls; the big question is whether those gains are at the expense of the Greens, or are at the expense of the Liberal/National coalition. Time will tell.

    It is just a shame this GHG pricing couldn’t have been put to bed 20 years ago! Or 10, or 5, or 3,…

    Finally, I wonder what dirty tricks Abbott and Co have planned (it seems an inevitability that Abbott and Co always have some abject negativity to inject)?

  19. Personally, I give this package about 130hz — a low “C” in musical terms or a five out of ten. It’s the least they could have done to qualify as a measurable start on the business of decarbonising the economy. This makes it a clear improvement on the ill-fated and shambolic CPRS (Carbon Polluters’ Reward Scheme).

    This scheme has mechanisms in place to monitor and reduce industry compensation packages with a bias against compensation. This could be done before 2014 with a three-year notice period.

    Offshore credits are limited to 50% (by contrast with the CPRS level of 80%) This high level of offshore credits was a major sticking point.

    This schem builds in a Productivity Commission review into the inclusion of fuel making it better than the CPRS in that respect.

    It also keeps Mar’n Ferguson or his successor at arms’ length from funding for renewables and sets up a significant fund for this, effectively sidelining CC&S.

    It has biodiversity provision and increased compensation for low to low middle income income households.

    There’s also provision for winding up the dirtiest coal fired power stations in favour of gas — Hazelwood may be early and that would be a good thing. It is said that no more coal fired power stations will be built here, and again, if so, this would be a good thing.

    In the current political climate which has been marked by industrial-scale lying to cover for the right to pollute at industrial scale, this baby-step forward is defencible and arguably, the best thing the ALP government has done so far, albeit that but for The Greens, it could not have happened.

    Politically, it plays to neutralise the main lines of attack and complicates the jon of the LNP. Bundling it with tax reform was a good move. The ALP will want to sell this part hard.

    It might have been a good deal better of course, but this is the ALP we are talking about.

    Despite its weakness, it will probably help underpin debate in Durban since the headline “Australia adopts carbon pricing” will be the key message. Given Australia’s salience as the leading emitter per capita amongst advanced economies, that’s an advantage probably larger than any scheme we might, under a hypothetical Green-led government, have come up with.

  20. @Donald Oats

    the big question is whether those gains are at the expense of the Greens, or are at the expense of the Liberal/National coalition.

    I believe it will be very much at the expense of the LNP. Don’t forget that the new senate means that the LNP is reliant on defections within the ALP to seem relevant. The possibility that the senate might block something and force ther government to negotiate from weakness made the LNP’s shrill “no” seem like a newsstory. They no longer have that. We are going to have two years in which the government can get on with delivering and where the LNP can please themselves. None of the Indies will want the government to go down since that would mean that the things they promised would be sawn off before delivery. The Greens have every reason to want their balance of power role to play out for as long as possible, and this is going to wedge the LNP seriously. Personally, I’ll be surprised if Abbott is still leading them in 2013. Turnbull will be wanting to put distance between himself and Abbott well before the election, and I see this as the next big thing. Once the legislation passes, Abbott will look damned stupid talking of people’s revolt.

  21. @Fran Barlow
    Good points Fran. But you can’t understate the vengeful metastasized cancer that the MSM has become, desperate to make news to sell news and the best news to make is to tear down government. And the NBN completely undermines traditional media -who would want to be a broadcast media company selling advertising in the age of 100Mb/s internet?

    Also, the LNP will play the culture war, especially when the ALP make an accommodation with the Greens on same-sex marriage (personally, I wish this would generate a debate on if/why there’s a legal meaning to declaring a partnership to the state, but that’s unlikely). More shrill craziness.

    The other big risk for the government is being fingered for the blame of static or declining prices in housing. If the economics profession can’t illuminate people on the effect of carbon pricing compensation specifically NOT being applied at the point of consumption, what chance showing why high house prices are a social and economic disaster?

  22. @Peter Evans

    You also make some good points Peter, and I’d not disagree with much. Of course the Murdochracy will go nuts and deploy the LNP as its catspaw — or try to anyway.

    That said, it’s worth keeping in mind that politics is a struggle not between two rock-solid and disciplined camps but between tow fairly loose coalitions neither of which has a vision that can soundly paper over the cracks in the ranks. The Murdochracy is the glue holding one side together, but it is doubtful once its chief cultural issue — today the carbon “tax” — proves a minor footnote and the NBN starts delivering benefits whether its coalition will hold. We are also seeing it discredited culturally across the world.

    Yet however this plays out, if there is one lesson to be learned from this it is that sacrificing principled public policy coherence for cheap popularity comes at an unacceptably high price. The ALP paid that in part during 2010 and now must either recover it during the next two years or risk being swept aside. That’s what happened in NSW. When your supporters know what to expect, and can consistently tell a rival and better story than the other side it’s far easier to govern. When you are all over the shop only the elite can speak and everyone else has to wate with bated breath for the latest encyclical. That never works.

    In the end, if the ALP can develop a coherent vision they can govern from the centre-left, and when not, stay in the game. Becoming as they have simply Another Liberal Party has simply handed the initiative to Murdoch. If they are to get it back they have to take a risk and accept that if they lose, it was a penalty paid for past malfeasance.

  23. 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.

  24. 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.

  25. 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?

  26. 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.

  27. 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.

  28. “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.

  29. @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”.

  30. 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.

  31. 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.

  32. 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.”

  33. 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.

  34. 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?

  35. 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.

  36. 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.

  37. 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.

  38. 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.

  39. 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.

  40. 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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