Let's stick to the facts on the Carbon Tax

23 March 2011

The facts about a carbon price need to be clarified, according to Professor Michael Dirkis and Celeste Black, in a letter published in today's Australian Financial Review:

Given the claim and counter claim ("Compensation confusion", March 23) the facts about a carbon price need to be clarified. The facts are:

  1. Both a carbon tax and a permit scheme put a price on carbon emissionsin order to change consumer and business behaviour by altering price signals, ie increasing prices on goods.
  2. A carbon tax fixes the price of carbon but not the emissions level.A lowprice maynot reduce emissions.
  3. A permit scheme fixes a cap on emissions but does not fix the price.
  4. A permit scheme with a fixed permit price can mimic a carbon tax.
  5. Carbon taxes are less costly to establish and administer than permit schemes, which involve costs associated with both primary and secondary markets.
  6. Despite some commentators advocating for border adjustments or other subsidies to compensate emissions-intensive trade-exposed industries from a carbon tax, such non-tax barriers to free trade offend WTO rules.
  7. Permit schemes are at risk from fraud as has occurred in the EU.
  8. State and territories will reap a GST windfall from the higher prices under either approach.
  9. Compensation under both approaches is necessary for low income households, in particular as demand for stationary energy (electricity) is inelastic (The Political Economy of Environmentally Related Taxes, OECD, 2006).
  10. The future of state based emission reduction permit schemes must be considered.

The debate will continue, but politicians and advocacy groups need to stick to the facts and stop the misinformation.

Contact: Greg Sherington

Phone: +61 2 9351 0202

Email: 3e1d223d570a2d5741101f173a1c260539380d2c52000126013b5f0533