The government can reduce emissions without reinstating a carbon tax – this is how | Alex Turnbull (2023)

The renewable energet target (RET) review has concluded with largely expected results. After hand picking a review panel led by a noted climate change skeptic, the review has recommended scrapping or substantially scaling back the RET. The panel’s findings are neither surprising nor consequential: without the support of the Labour party or the Palmer United party, major changes to the RET are likely to be very challenging to implement.

Stepping back from the RET, it is remarkable that Australian climate and energy policy has made no forward progress. After repealing a carbon tax that appeared to perform exactly as price theory 101 would suggest – carbon emissions down, revenues up – the Liberal party has tied itself in knots devolving the previously dry field of environmental economics and externality pricing into a kind of internal cultural identity politics.

As someone who considers himself green, Liberal and fond of science and policy making that are evidence-based, it is utterly maddening – but it is where we are now and from whence we have to move forward.

Between the RET and the carbon tax, Australia’s efforts to cut emissions in the electricity sector have been impressive. Data from Pitt Sherry indicates that electricity emissions are down 14-15% from June 2006 on the back of a decline in power demand. Part of this can be attributed to the carbon tax and RET, but a far greater portion is due to other factors. A ~6% decline in demand has been caused by a storm of more energy efficient appliances, lighting, and a collapse in the price of solar panels (from ~$3.50 per Watt for modules in 2008 to approximately $0.65 per Watt today).

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Try as policymakers might to load the dice, technology has and always will be a far greater force over the long run. As far as can be determined, cheaper solar is here to stay and will only get cheaper. You can deplete a resource but not technology or knowledge; if policymakers and power generators wish to swim against the rip tide broad based technological progress they can, but it is unlikely to have any lasting effects. For investors such as myself, the coal fired generation sector of Australia has a finite life. It is a matter of when, not if.

For example, the current dynamics in the eastern Australia power market are dire. The market is egregiously oversupplied with baseload power, according to data from AGL. AGL would know – they own the largest baseload generator in the country, Loy Yang A.

Peaking power is in relatively short supply and expensive due to the fact that the only thing more politically radioactive in NSW and Queensland politics than putting a nuclear plant on Fort Denison is regulating fracking and coal seam gas. There are issues with fracking, but similarly there are issues with acute gas shortages.

This is unlikely to be resolved as long as this political deadlock continues. Similarly, the oversupply of baseload power is not likely to be resolved without a carbon tax, since the generators with the cheapest cost of power in the LaTrobe Valley are also the most carbon intensive.

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It is an endless source of wonder to me that with power generators unwilling to draw straws as to which units should exit the market, that the Energy Suppliers Association of Australia has not split with less carbon intensive generators pushing for a carbon tax or some means by which to force more carbon intensives generators to exit. Until that happens and the government buys into such a strategy, Australia cannot expect any sudden change to electricity sector emissions – just the gradual water torture of having demand eaten away by distributed solar.

The government can reduce emissions without reinstating a carbon tax – this is how | Alex Turnbull (2)

With the stationary energy sector at deadlock barring some rift emerging between cleaner generators and the most carbon intensive ones, is there anything that the Abbott government can do to reduce emissions without reinstating a carbon tax?

There is, and it is completely consistent with the government’s foreign policy and desire to end the “age of entitlement”. The answer is in the Cedex data below. The only sector that has shown a substantial increase in carbon emissions is petroleum or transport fuels.

The government can reduce emissions without reinstating a carbon tax – this is how | Alex Turnbull (3)
The government can reduce emissions without reinstating a carbon tax – this is how | Alex Turnbull (4)

As can be seen above, most of that has been in bulk diesel used in the mining industry though aviation and passenger vehicles have also notched substantial increases in demand. While the budget has been poorly received, there is an essential truth in much of what has been said by the government in that the deficit is high and a lot of public funds were wasted by the previous government.

The problem has largely been that the belt tightening on the household sector in the budget is acute, whereas corporates and particularly the mining sector has been non-existent. Indeed, members of the minerals council have had a mining tax removed and the carbon tax repealed and can now expect a drop in the corporate tax rate. It is not hard to see how Australian voters’ sense of fairness has been offended by this.

One smart thing the government might consider is a scrapping or paring of the diesel excise exemption. It would save in the order of $6bn per annum according to budget estimates, and would ensure that the load is shared between households and a sector that has done very well indeed out of the change in government.

A change in the diesel price would lead to more frugal use of the fuel, likely through mine sites using solar or solar and diesel in place of diesel for power generation. While mining companies may not like it, there is not much they can do about it: manufacturers and service businesses can relocate but unless you move the minerals abroad it is hard for miners to do the same.

For passenger vehicles, the treasurer has already found little sympathy for the policy of re-indexing fuel excise and not without cause – this is a regressive change to the tax. A compensatory move may be to turn the small and ineffectual luxury car tax into something more meaningful – a fuel efficiency tax.

By encouraging higher fuel efficiency in the vehicle fleet and a transition to electric vehicles, the government could offer rebates to buyers of smaller, more fuel efficient vehicles and heavily tax Ferraris, stretch Humvees and their like.

This would have four key benefits. Firstly, it would cut emissions from transport even after accounting for Australia’s high carbon power grid. Any decarbonisation of the power grid in the future would have more “punch” in the future. Secondly, it would increase power demand and slow the “death spiral” of higher power prices leading to lower demand leading to higher power prices which has led to reduced profitability at generators and higher prices for consumers. Thirdly, it would reduce Australia’s exposure to imported commodity price volatility and cut the trade deficit while also reducing the country’s exposure and dependence upon oil exporting nations like Russia, with which Australia’s relationship is charitably described as complicated.

There are no political impediments to such a move now. Australia no longer has any car industry to speak of that churns out fuel inefficient, overpowered sedans and the power sector has everything to gain from such a change. The increase in power demand would make the RET’s 20% renewable target by 2020 more of an achievable possibility by offsetting declining demand.

It is long overdue that environmentalists and the media move past the Punch and Judy of the carbon tax and RET to other more politically workable environmental legislation.

The carbon tax will likely come back if only because it is harder to “double Irish” away a ton of emissions than a million dollars in profits. Nonetheless, there is plenty we can do now and which the current government is in no way impeded from doing both ideologically and practically.

FAQs

WHO removed the carbon tax in Australia? ›

The incoming Liberal Government placed removing the carbon pricing scheme at the head of its legislative program. The carbon tax repeal legislation received Royal Assent on 17 July 2014 and the bills which were part of the package became law, with effect from 1 July 2014.

How does the carbon tax work? ›

Under a carbon tax, the government sets a price that emitters must pay for each ton of greenhouse gas emissions they emit. Businesses and consumers will take steps, such as switching fuels or adopting new technologies, to reduce their emissions to avoid paying the tax.

What is carbon tax Who will pay it? ›

The tax levied on the basis of carbon emission from industry, number of employee hour and turnover of the factory is called carbon tax. This tax is paid by industries. This will encourage the industries to use the energy efficient techniques.

How much does the carbon tax cost? ›

The rates reflect a carbon pollution price of $20 per tonne of carbon dioxide equivalent (CO2e) in 2019, rising by $10 per tonne annually to $50 per tonne in 2022.

Which country has carbon tax? ›

The 27 countries with significant carbon tax include

Argentina, Canada, Chile, China, Colombia, Denmark, The European Union, Japan, Kazakhstan, South Korea, Mexico, New Zealand, Norway, Singapore, South Africa, Sweden, the UK, and Ukraine.

Why is the carbon tax good? ›

By placing higher taxes on carbon-based fuels, households and industries can reduce the level of pollution and look to alternatives like solar power and hydrogen engines, which have lower impacts on the environment.

Is the carbon tax effective? ›

Research shows that carbon taxes effectively reduce emissions. Many economists argue that carbon taxes are the most efficient (lowest cost) way to tackle climate change. Seventy-seven countries and over 100 cities have committed to achieving net zero emissions by 2050.

What are the pros and cons of carbon tax? ›

A carbon tax aims to make individuals and firms pay the full social cost of carbon pollution. In theory, the tax will reduce pollution and encourage more environmentally friendly alternatives. However, critics argue a tax on carbon will increase costs for business and reduce levels of investment and economic growth.

Why is a carbon tax bad? ›

Another issue with carbon taxes is that they target carbon dioxide emitted from fossil fuels. They do not directly target other carbon compounds, such as methane, which has a short atmospheric lifetime but a large warming potential.

Where does the money from carbon tax go? ›

It was also announced back in February that some of the revenue garnered from the carbon pricing levied on the industrial sector — $161 million — will be reinvested directly into “initiatives that reduce greenhouse gas (GHG) emissions and deploy clean technology and green energy.”

Why is it called carbon tax? ›

A carbon tax is a fee imposed on the burning of carbon-based fuels (coal, oil, gas). More to the point: a carbon tax is the core policy for reducing and eventually eliminating the use of fossil fuels whose combustion is destabilizing and destroying our climate.

How much would a carbon tax reduce emissions? ›

In particular, the tax is associated with an estimated long-run 19% decrease in transportation-related emissions including personal vehicle traffic (when using difference-in-differences), and an average reduction of 5% when using synthetic control.

How much does the carbon tax add to gas? ›

The federal carbon tax currently costs 11.1 cents per litre of gasoline. The federal carbon tax will further increase from the current $50 per tonne to $65 in 2023, and then by a further $15 every year until it reaches $170 per tonne in 2030.

Will carbon tax affect fuel prices? ›

In fact, if you look at the average cost of gasoline in 2019, when the carbon tax was first enacted, it would have taken numerous increases in the price per tonne to get us to the price we are at today simply through carbon tax increases.

Is the carbon tax going up in 2022? ›

On April 1, 2022, B.C.'s carbon tax rate rose from $45 to $50 per tCO2e. To align with the change in carbon tax, the Climate Action Tax Credit will increase from $174 to $193.50 per adult and from $51 to $56.50 per child effective July 1, 2022.

What countries have no carbon tax? ›

In a Nutshell: Many countries, including most of our large trading partners, have instituted some form of national carbon pricing. Of all the world's developed economies, only Australia and the U.S. have no nationwide carbon pricing in place. Related: Canada's Carbon Tax, China and India, Paris Agreement.

Who has the highest carbon tax in the world? ›

As of April 1, 2022, Uruguay had the highest carbon tax rate worldwide at 137 U.S. dollars per metric ton of CO2 equivalent (USD / tCO2e). Uruguay's carbon tax was first established in January 2022.

Which country first introduced carbon tax? ›

UPSC Mains. Q. Which one of the following countries is the first country in the world to propose a carbon tax for its people to address global warming? Notes: New Zealand is first to levy carbon tax.

How does carbon tax affect the economy? ›

In order for labour supply and demand to balance after introducing the carbon tax it is necessary that real wages decline. We find that real household incomes in the model decline by 2.5% nationally, but the carbon tax rebates offset much of that loss so real household consumption only declines by 1.0%.

How does carbon tax affect climate change? ›

Emissions of carbon dioxide and other greenhouse gases are changing the climate. A carbon tax puts a price on those emissions, encouraging people, businesses, and governments to produce less of them. A carbon tax's burden would fall most heavily on energy-intensive industries and lower-income households.

What is carbon tax easy definition? ›

A carbon tax is a charge placed on greenhouse gas pollution mainly from burning fossil fuels. This can be done by placing a surcharge on carbon-based fuels and other sources of pollution such as industrial processes.

What is the cheapest way to reduce carbon emissions? ›

Simply saving energy is the most cost-effective way to reduce demand and carbon pollution from power plants. The cheapest, cleanest and most reliable electricity, after all, is the electricity we don't use. The benefits of energy efficiency are vast.

Is carbon tax effective in reducing carbon emissions? ›

Carbon taxes and emissions trading are cheapest ways of reducing CO2, OECD says. 04/11/2013 - Carbon taxes and emission trading systems are the most cost-effective means of reducing CO2 emissions, and should be at the centre of government efforts to tackle climate change, according to a new OECD study.

Does China have a carbon tax? ›

China did not have an explicit carbon tax. China priced about 19% of its carbon emissions from energy use and about 4% were priced at an ECR above EUR 60 per tonne of CO2 (see top figure). Emissions priced at this level originated primarily from the road transport sector.

What are the benefits to carbon taxes quizlet? ›

By having a carbon tax, the United States could benefit greatly, by not only reducing carbon dioxide emissions, but also by making a profit from the implemented tax.

What are the advantages of environmental taxes? ›

THE BENEFITS OF ENVIRONMENTAL TAXES

They internalize the negative externalities. They promote energy saving and the use of renewable sources. They discourage anti-ecological behaviour.

What is an advantage to placing taxes and fees on carbon and energy usage? ›

What is an advantage to placing taxes and fees on carbon and energy usage? The administration is simple and revenues are predictable.

Why do people hate the carbon tax? ›

Their main motivation is instead related to the tax being necessary for the climate or efficient. However, one of the main sources for opposition to carbon tax is the perception of the tax as unfair.

What are some of the potential impacts that can come from a carbon tax? ›

A carbon tax is one of the most efficient instruments available to achieve this objective. While such a tax could generate substantial revenue, it could also reduce the rate of economic growth, worsen the distribution of income, and erode the competitiveness of a country's exports.

Why should companies not be taxed on their carbon emissions? ›

Similarly, an extremely high carbon tax could negatively affect the economy by reducing company profits, which could lead to higher unemployment rates and negative effects for end consumers.

How often is carbon tax paid out? ›

The CAIP will now be paid as a quarterly benefit. If you are entitled, you will automatically receive your CAIP four times a year, starting in July 2022.

Does the US have a carbon tax? ›

Despite being one of the world's biggest CO2 emitters, the US currently doesn't have a carbon tax at a national level. But several states, including California, Oregon, Washington, Hawaii, Pennsylvania and Massachusetts, have introduced carbon pricing schemes that cover emissions within their territory.

When was the carbon tax introduced? ›

In May 2008, Conservative federal environment minister John Baird called carbon trading a “key part” of the government's emissions plan targeting oil and gas producers and coal-fired power plants. In July of that year, B.C. became the first province to implement a carbon tax—with proceeds going back to taxpayers.

Is carbon tax a negative externality? ›

A carbon tax works on the basis of the economic principle of externalities. When a firm generates pollution through carbon dioxide emissions, it is said to produce a negative externality—a cost to the society through the harm that it causes to the environment. A carbon tax is a way to internalize that cost.

How many countries have emissions trading systems? ›

So far, 46 countries are pricing emissions through carbon taxes or emissions trading schemes (ETS) and others are considering it. Globally, ETSs and carbon taxes cover 30 percent of emissions, with prices rising as high as $90 per ton (in the European Union).

Why is carbon a negative externality? ›

The “negative” part means that the externality is one that is harmful rather than beneficial to those affected. The carbon emissions and the resulting global warming are negative externalities because their costs to the environment are detrimental, but indirect and gradual.

What is a carbon tax quizlet? ›

Carbon tax. Tax on fossil fuels, especially motor vehicles, air planes, etc. Intended to reduce carbon emissions.

How much did the carbon tax go up? ›

For 2022-23, to meet the requirements of the federal government, the province's carbon tax will increase from $40 per tonne to $50 per tonne, effective April 1.

What is carbon dioxide emissions? ›

Carbon dioxide emissions or CO2 emissions are emissions stemming from the burning of fossil fuels and the manufacture of cement; they include carbon dioxide produced during consumption of solid, liquid, and gas fuels as well as gas flaring.

When did Australia repeal the carbon tax? ›

The Clean Energy Legislation (Carbon Tax Repeal) Act 2014 (the Act) which received Royal Assent on 17 July 2014, gave the ACCC powers under the Competition and Consumer Act 2010 (CCA) to monitor prices and ensure cost savings attributable to the carbon tax repeal were passed on in the regulated industries.

What happened to the Clean Energy Act? ›

The package was introduced by the Gillard Labor Government in February 2011 and was repealed by the Abbott Government on 17 July 2014, backdated to 1 July 2014.

When was the carbon tax introduced? ›

In May 2008, Conservative federal environment minister John Baird called carbon trading a “key part” of the government's emissions plan targeting oil and gas producers and coal-fired power plants. In July of that year, B.C. became the first province to implement a carbon tax—with proceeds going back to taxpayers.

Does China have carbon tax? ›

China did not have an explicit carbon tax. China priced about 19% of its carbon emissions from energy use and about 4% were priced at an ECR above EUR 60 per tonne of CO2 (see top figure). Emissions priced at this level originated primarily from the road transport sector.

What are the pros and cons of carbon tax? ›

A carbon tax aims to make individuals and firms pay the full social cost of carbon pollution. In theory, the tax will reduce pollution and encourage more environmentally friendly alternatives. However, critics argue a tax on carbon will increase costs for business and reduce levels of investment and economic growth.

Does a carbon tax reduce emissions? ›

In particular, the tax is associated with an estimated long-run 19% decrease in transportation-related emissions including personal vehicle traffic (when using difference-in-differences), and an average reduction of 5% when using synthetic control.

Is the carbon tax still in place in Australia? ›

Australia does not levy an explicit carbon price. Fuel excise taxes, an implicit form of carbon pricing, cover 22.4% of emissions in 2021, unchanged since 2018.

Who regulates renewable energy? ›

2.4 What is the legal and regulatory framework for the generation, transmission and distribution of renewable energy? At the federal level, the Federal Energy Regulatory Commission (FERC) regulates the transmission and distribution of energy.

When was the Clean Energy Act repealed? ›

On 17 July 2014, as promised by the Coalition prior to winning the last Federal election, the Senate passed carbon pricing repeal legislation with effect as from 1 July 2014. The legislation passed by the Senate is as follows: Clean Energy Legislation (Carbon Tax Repeal) Act 2014.

What is the purpose of the Clean Energy Act? ›

Purpose. The Clean Energy Bill 2011 and related Bills establish a framework to meet specified emissions‑reduction targets by creating incentives for the reduction of greenhouse gas emissions through the implementation of measures that impose the costs of emissions on selected sectors of the economy.

Who benefits from a carbon tax? ›

Carbon taxes provide an incentive for firms to use and develop more environmentally friendly production processes. If we tax carbon emissions, then it may change the balance and make solar power relatively more competitive than burning fossil fuels like carbon.

Which is the first country in the world to impose carbon tax? ›

Sweden was the first country to introduce a carbon tax in 1991, and currently charges the highest tax rate in the world, at around $177 Canadian dollars (1,190 Swedish krona) per tonne of carbon dioxide.

Where does the money from carbon tax go? ›

It was also announced back in February that some of the revenue garnered from the carbon pricing levied on the industrial sector — $161 million — will be reinvested directly into “initiatives that reduce greenhouse gas (GHG) emissions and deploy clean technology and green energy.”

Which countries do not have a carbon tax? ›

Of all the world's developed economies, only Australia and the U.S. have no nationwide carbon pricing in place.

Which country has the most carbon emissions? ›

  1. The United States. The U.S. is the largest emitter of CO2, with approximately 416,738 metric tons of total carbon dioxide emissions by 2020. ...
  2. China. China is the second-largest emitter of carbon dioxide gas in the world, with 235,527 metric tons by 2020. ...
  3. The Russian Federation. ...
  4. Germany. ...
  5. The United Kingdom.

Does any U.S. state have a carbon tax? ›

Despite being one of the world's biggest CO2 emitters, the US currently doesn't have a carbon tax at a national level. But several states, including California, Oregon, Washington, Hawaii, Pennsylvania and Massachusetts, have introduced carbon pricing schemes that cover emissions within their territory.

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