Australia Mulls Carbon Tax Options

by Mary Swire, Tax-News.com, Hong Kong

14 October 2010

During his keynote speech to the Carbon Expo Australasia 2010, Australia’s Minister for Climate Change, Greg Combet, clarified that the government’s climate change policy is not fixed on a carbon tax or an emissions trading scheme (ETS), and that the Climate Change Committee will consider all available options.

Combet started by stating the government’s view that establishing a carbon price is a “necessary and responsible economic reform, one that would create an incentive to reduce pollution and drive investment in renewable energy and low emission technologies.”

The Australian economy is, he said, “deeply dependent upon energy sources which generate carbon pollution”, and “the responsible path is to take measured, purposeful steps towards reduced dependence on carbon pollution”. He added that the government has three elements to its domestic climate change mitigation policy: strong support for clean energy; greater energy efficiency in industry and households; and the introduction of a carbon price.

The government’s view is that a carbon price is necessary to make low emissions choices more profitable than high emissions choices, and Combet pointed out that, in the parliamentary term before the recent elections, Kevin Rudd’s Labor government had tried to introduce an ETS which had been opposed and defeated by the Liberal-led opposition.

He stressed that “the repeated finding of independent analysis is that a carbon price mechanism is the cheapest way to reduce carbon pollution”, and that “decentralizing the signal to abate, through a carbon price, means that the government does not have to prescribe to individual firms or sectors how they are to reduce their emissions.”

However, he continued, while the government has formed the Climate Change Committee to explore options for introducing a carbon price, it will consider all available mechanisms for its introduction, including “a broad based ETS, a broad based carbon levy, a hybrid of both, and economy wide and sector based approaches.”

The Committee will also “consider issues such as coverage, international linking, implementation issues, assistance measures for households and businesses and review provisions.”

Later, Combet also reiterated that “there are several ways of creating a carbon price."

"The two broad options are a carbon tax or an ETS. There are also ‘hybrid’ options that combine features of both. Within the broad family of ETS, there are cap and trade schemes, baseline and credit schemes, and variants on these themes,” he said.

He pointed out the key differences between a carbon tax and an ETS: “A cap and trade ETS places a limit on emissions and allows the market to set the carbon price. In this way, an ETS provides certainty about the amount of emissions reduction, but less certainty about the carbon price. A carbon tax, by contrast, provides certainty about the price, but the amount of emissions reduction delivered by a tax at a particular price is uncertain.”

“While a potential carbon tax has received a lot of media and public commentary in recent times,” Combet concluded, “it would be incorrect for people to assume that this is the market mechanism that will be inevitably selected. In its search for a common view on the best carbon pricing arrangement for Australia, the Climate Change Committee will be examining a broad range of options, with no versions of a carbon price being ruled in or out at this stage.”

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