Australian carbon tax set to pass

Lake Hume at 4% - 6531

Australia will soon pass a nation-wide carbon tax.

Under the legislation, about 500 of the biggest carbon-emitting companies in Australia will pay a price for each tonne of carbon. Most of the biggest emitters are electricity generating firms, mining companies and heavy industry manufacturers.

To compensate households, the government is cutting income taxes and boosting payments such as pensions and other benefits, as well as offering various lump sum payments.

The average household is expected to pay about $9.90 a week in extra living costs, including $3.30 on electricity.

However this will be offset by an estimated $10.10 in extra benefits and tax breaks. The Australian scheme will cover about 60 per cent of Australia’s emissions, making it the most broad-based in the world.

John Quiggin, via Matt Yglesias, has some analysis.

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 inCO2 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 (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.[3]

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[4]. 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.

This proposal seems, in basic terms, similar to the CLEAR act in the US.  No complex trading scheme, but a tax on polluters with a portion of the proceeds going back to the public to offset increased costs.  For a number of reasons, Australia is more vulnerable than other countries to the changing climate.  This Rolling Stone piece is an eye-opener.

With nine degrees of warming, computer models project that Australia will look like a disaster movie. Habitats for most vertebrates will vanish. Water supply to the Murray-Darling Basin will fall by half, severely curtailing food production. Rising sea levels will wipe out large parts of major cities and cause hundreds of billions of dollars worth of damage to coastal homes and roads. The Great Barrier Reef will be reduced to a pile of purple bacterial slime. Thousands of people will die from heat waves and other extreme weather events, as well as mosquito-borne infections like dengue fever. Depression and suicide will become even more common among displaced farmers and Aborigines. Dr. James Ross, medical director for Australia’s Remote Area Health Corps, calls climate change “the number-one challenge for human health in the 21st century.”

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