A Charles Sturt University (CSU) academic says the carbon tax proposal announced yesterday by The Hon. Julia Gillard, MP, Prime Minister of Australia, is a compromise that will be slow to provide the economy with the price incentives needed to reduce the nation’s greenhouse gas emissions.

 

Professor Kevin Parton, a lecturer at the CSU School of Business, and a leading researcher with the CSU Institute for Land, Water and Society, said the Prime Minister’s Climate Change Framework lacks detail.

 

“The proposed policy of a fixed carbon price, which will probably be followed three to five years later by a cap-and-trade emissions trading scheme (ETS), is probably the only politically feasible way to get an ETS off the ground in Australia. Even so, the legislation will face a tough transition through Parliament,” Professor Parton said.

 

“For many economists the timeframe suggested for the introduction of the policy is too slow. They would prefer a move straight to an ETS based on grounds of economic efficiency. Moreover, introducing an ETS policy sooner rather than later will result in lower long-term costs.”

 

Professor Parton says the framework announced by the government has two significant components; an increase in price for many goods, and a reduction in income tax for many taxpayers.

 

“The impact of the fixed price carbon policy will be broadly felt across the economy because many goods contain inputs that have some carbon content, so many goods will have price increases.

 

“The effect of the fixed price carbon policy is to change the price relativities that face consumers.  This effect is rather like the introduction of a variable rate Goods and Services Tax (GST), with higher rates of tax on goods that have a larger carbon content. The objective is to have consumers shift their preferences away from these goods. So ‘green’ power, with zero carbon tax, should become relatively less expensive compared with electricity generated by coal.”

 

“The government has proposed to use the revenue collected by the carbon tax to:

“Petrol may or may not be included in the scheme. Under the original proposed ETS, back in 2008, petrol was to be excluded for the first three years. It may similarly be exempt under the fixed price carbon tax.

 

“How does the fixed price carbon policy work? Firms that emit greenhouse gases as part of their production process must purchase from the government one permit for each tonne of CO₂ emitted. The government will sell these permits at a fixed price.

 

“As with many such policy announcements, the details are lacking. This leads to conjectures about the fixed price at the outset probably being much lower than the international carbon price. Again, if this was the case, it would be disappointing on grounds of economic efficiency.

 

“Finally, the use of international offsets is to be excluded. Again, this restriction would seem to reduce its efficiency.