Combine carbon consensus with income tax cuts: study

Mar 15, 2011
Combine carbon consensus with income tax cuts
Credit: Timo Newton-Syms, flickr:

A carbon pricing proposal can find consensus and would allow income tax cuts, as long as industry handouts can be kept in check, according to a new report from The Australian National University.

Dr. Frank Jotzo, Director of the Center for Economics and Policy at ANU Crawford School, says that a fixed price on carbon shifting to emissions trading later is the best approach given international uncertainties and the interests of different groups in . His paper on the subject, 'Carbon pricing that builds consensus and reduces Australia’s emissions,' is released by the Center today.

“Phased carbon pricing means we can be confident the economic impacts on introduction are manageable. And once Australia’s emissions target is resolved and international carbon markets more developed, we can shift to market-based which is the efficient long-term approach.”

He added that the carbon price needs to start turning Australia’s emissions trajectory downward, even in the face of strong underlying growth in the economy. So what matters for low-carbon investment is not the price in the first year of the scheme, but the expectation of medium-term prices.

“To turn the trend around, the carbon price will need to rise, and reach perhaps double the starting levels that people talk about now,” said Dr. Jotzo. “A relatively low starting price gives confidence and will show that no catastrophe happens. Then it can ramp up.”

Dr. Jotzo says that over the coming months big emitters will be making loud claims for compensation under the scheme, but it’s consumers that deserve assistance.

“The most legitimate claim for assistance is with consumers, who will be facing higher bills. The increase may be only one per cent or so across the board, but that matters at the lower income scale,” he said.

“The answer is to cut , especially at the low-income end. The GST, for example, wasn’t just a new tax, but a new tax system, reducing existing taxes in return for the GST. The same can be done under carbon pricing. It’s time to stop looking at only one side of the carbon tax ledger.”

He added that under the scheme, industry claims for assistance were less valid than previously.

“Starting the scheme with a fixed price takes away much of the carbon price risk, and there is more climate policy action around the world, including in developing countries. Payments should be limited and phased out over time, and what payments there are should be structured so that the businesses still have the full incentive to cut their emissions,” said Dr. Jotzo.

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User comments : 3

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4.7 / 5 (3) Mar 15, 2011
It will be interesting to see the public response to Dr. Jotzo's proposal.

With kind regards,
Oliver K. Manuel
5 / 5 (1) Mar 16, 2011
There are a number of cases of political double-speak here. For instance, the idea that a carbon reduction market would be something that goes on forever is flawed. If it meets the goals, then it should naturally come to an end, right? Unless you set it up so that some industries can NEVER meet the goals. That doesn't sound like a reasonable approach. It's just a tax once you reach the maximum attainable level if you continue to fine them. Another place where this guy is fleecing you is where he uses the word "investment" in place of the word "cost" or "expense". I also question the part where he's talking about the imaginary "internation trading market". I've heard talk about even Japan backing out of the Kyoto treaty. I would imagine they are even more inclined to back out now. The biggest polluters aren't even thinking about a carbon trading market, so he needs to start with some realistic assumptions. This guy is a BS artist. I'm not buying it.
5 / 5 (1) Mar 16, 2011

He also says at the end in several places:

A relatively low starting price gives confidence and will show that no economic catastrophe happens. Then it can ramp up

Then the catastrophy happens, and it's too late to stop it. Great.

The most legitimate claim for assistance is with consumers

So the other claims are legitimate, but not as much?

The increase may be only one per cent or so across the board

That's the average, but it will be concentrated in certain areas, and highest in areas that effect poor people the most.

industry claims for assistance were less valid than previously.

Again, less valid, but still valid.

Starting the scheme with a fixed price takes away much of the carbon price risk

again, much of the risk, but not all of it, and he knows it. Oh by the way, the US has reduced greenhouse gasses just as much as the EU since the EU started C&T but we don't have C&T. Hahahahahahaha. fools.

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