Goodbye carbon tax: hello ETS

| July 17, 2013

The carbon tax will be scrapped next year in favour of an early start to an emissions trading scheme (ETS). Charles Sturt University (CSU) economist Professor Kevin Parton outlines the implications of the decision.  

The Prime Minister Kevin Rudd has outlined the plan to introduce an ETS in 2014, a year earlier than originally planned.

There is no reason to delay moving to an ETS where permits can be traded on the market like shares in a stock exchange.

The carbon tax was introduced to provide stability in the Australian carbon price prior to the introduction of a totally flexible, market-determined price under an emissions trading scheme.

The intention of having an Australian price comparable to the European price to make the transition easier will probably not be met.

When the Australian carbon tax was conceived and set at $23 per tonne the European carbon price, considered the world price, was between $22 and $28 per tonne.

Since then, European prices for carbon have fallen dramatically, in line with the decline in economic activity. Carbon is now trading in Europe at around $6 per tonne.

A key point is that nobody knows what the carbon price level will be in July 2014 when Australia moves to an ETS.

While it is currently $6 per tonne, in relation to the current carbon tax of $24.15 per tonne, the market is extremely volatile.

If, and that’s a big if, these relative prices remain the same there are three significant implications.

First, about 500 businesses who are subject to the carbon tax will receive some relief as they will be paying a much lower impost per tonne of greenhouse gas emissions.

Second, the level of compensation to households provided by the government could justifiably be lower.

Third, there will still be some deterrent to polluters.

Professor Kevin Parton is from Charles Sturt University’s Institute of Land Water and Society. He has teaching, research, research management and research training experience in a range of organisations, including universities, Australian and Canadian Government agencies and international research organisations.