Press club

• Leading Australian economists Ross Garnaut and Rod Sims this week sought to shake up the carbon policy debate in Australia, by proposing a tax on the nation’s fossil fuel production.
• They claim it could raise A$100 billion in its first year and position Australia at the forefront of the low-carbon revolution.
• The proposal has been rejected by the federal government and the Nationals, as well as business groups and the fossil fuel industry.

How would the tax work?

• It involves a “carbon solutions levy” applied to all fossil fuel extraction sites in Australia (around 105 sites), and on all fossil fuel imports to Australia.
• The tax would presumably be calculated according to the emissions generated when the fuels are burned.
• Garnaut and Sims say proceeds in the first year of the levy would be well over A$100 billion.
• And as Garnaut also outlined in his speech, climate change threatens Australia’s economy, which remains heavily dependent on exporting fossil fuels.

Is the levy a good idea?

• The purpose of a carbon tax, or levy, is to ensure polluting companies pay for the damage they cause.
• In theory, the taxes make polluting production processes more expensive than the alternatives, reducing demand for those products.
• The world, including Australia, has committed to reaching net-zero emissions by 2050.
• After more than a decade of the so-called “climate wars” in Australia, the term “carbon tax” remains politically unpalatable.

The rest of the world got the memo

• Notably, from 2026 a European Union tariff on carbon-intensive imports will come into effect.
• The policy is designed to level the playing field for EU manufacturers that must pay a penalty for their own pollution.
• In coming years, we can expect other jurisdictions to implement similar policies to guard their domestic industries.
• And finally, imposing a carbon levy in Australia would ensure we get to keep the revenue for ourselves.

Will such a levy ever happen?

• But as the world comes to terms with the economic reality of climate change, Australia risks being left behind.
• As Garnaut told the ABC, everyone is a winner under the plan, except fossil fuel companies which, he conceded, “will hate it”.
• But climate change is wreaking havoc on human communities, on natural systems, and on the global economy.
• A carbon levy of the type proposed is an eminently sensible approach to get to net zero.

Ian A. MacKenzie does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.