Australia’s House of Representatives has just passed legislation for a carbon tax. Passage by the Senate is assured, so that, as long as the government can survive another year (it needs the support of three independents to muster a one-vote majority), the tax will come into effect in mid-2012. The political history of this proposal is too complicated to recount, but is symbolised by the current Prime Minister (who previously dumped the policy, but has now succeeded in bringing it into effect) receiving a congratulatory kiss from the previous Prime Minister (who supported the policy but was unable to get it passed into law, and was replaced as a result of this).
While the proposal is far from perfect, there’s a lot to like about it. The price of $A23/tonne is comparable to that in the EU, and should be enough to promote a wide range of reductions in CO2 emissions. Importantly in the Australian context, it should (with the support of some addition funds to allow the closure of existing power stations) end the use of brown coal (lignite) as a fuel. Brown coal produces about 50 per cent more emissions per unit of energy than
anthracite bituminous (thermal) black coal, and Australia has lots of it. There will also be an incentive to continue the shift away from black coal in electricity generation and towards a combination of gas and renewables. Equally important, in the long run, will be improvements in energy efficiency. This is where price-based measures really shine, as compared to purely regulatory interventions – there are all kinds of ways to save energy and it is hard to predict, in general, which will be best.
The other side of the proposal is what to do with the revenue, and in this respect the current measure is a big improvement on the emissions trading scheme that failed to get through in 2009. That scheme gave greatly excessive compensation to large emitters in a way that encouraged them to stay in operation. While the business compensation in the current scheme is still excessive in economic terms, it’s a sensible compromise politically. More important is the use of the bulk of the proceeds to raise the income tax threshold from (around) $6000 to $20000, thereby taking a million or so people out of the income tax system. That’s a measure that will be hard to reverse, given that the Opposition has pledged “in blood” to repeal the tax if it win the next election.
As long as the government can last out its full term, and as long as the global economy doesn’t collapse in the meantime, the implementation of the tax will show the claims of economic disaster arising from a carbon price up as the absurdities they are. That in turn might lead to a change in leadership on the other side of politics, which also changed leaders on this issue, and may be forced to reverse this change.
fn1. More precisely, an emissions permit scheme with a price fixed for three years.
fn2. They are of opposite genders. Australia is not yet European enough for men to exchange kisses, although hugs are socially acceptable in certain contexts.
fn3. There are some easy cases, such as low-energy lightbulbs – the previous conservative government introduced a phaseout of incandescent bulbs which is now taking effect.
fn4. It will be interesting to see if our rightwing commentariat takes up the WSJ “lucky duckies” line.