Is the carbon tax making a comeback?

It was the year 2011. Adele’s smash hit ‘Rolling in the Deep’ topped Billboard charts and Harry Potter and the Deathly Hallows Part 2 was the highest grossing film. Closer to home, most of the current UNSW cohort spent their days contemplating whether to trade their tiny teddies for a roll-up at recess, or to use their new extra bouncy handball for the lunch time match. Times were certainly much simpler and carefree back then!

2011 was also the year that Australian Prime Minister, Julia Gillard, proposed a carbon tax plan through the Clean Energy Act (2011). At the time, Australia had (and continues to) record one of the highest per capita carbon emissions in the world. The carbon tax, hailed by the Gillard Government as “a win for Australia’s children”, passed the Senate with a 36-32 majority and was implemented in July 2012. But just over a year later, the newly elected Abbott Government repealed the carbon tax. So, what is a carbon tax, why did it fail under the Gillard Government, and will it make a comeback in Australia?

According to the World Bank, “a carbon tax directly sets a price on carbon by defining a tax rate on greenhouse gas emissions or – more commonly – on the carbon content of fossil fuels.” Overall, the purpose of a carbon tax is to reduce Co2 emissions. A carbon tax differs from other forms of government intervention, such as a subsidy for renewable energy producing industries, because it generates revenue for the government. The financial gain to the government is widely considered to outweigh the deadweight loss that arises from their intervention in the market. Under the Gillard Government, a carbon tax of $23 per tonne of Co2 emissions was imposed. This tax was significantly higher than the $8-$13 tax per tonne of Co2 European businesses were paying. During its short life, the carbon tax in Australia managed to raise $3.8 billion in government revenue and reduce Co2 emissions by as much as 17 million tonnes. 

So, where did it all go wrong? Well, like many other economic policy initiatives in Australia, the carbon tax got caught in the political crossfires between the Labor and Liberal parties. Firstly, Prime Minister Gillard had previously promised not to tax carbon emissions, so her decision to do so in 2011 damaged both her credibility and the credibility of the carbon tax. Further, slumping European carbon prices after an EU vote led to questions in Australia – was a carbon tax or emissions trading scheme more effective in reducing carbon emissions and protecting the wallets of consumers? Once the Liberal Coalition won the Federal election in 2013, the fate of the carbon tax was sealed. Within 100 days of office, Prime Minister Tony Abbott repealed the carbon tax, claiming his actions would save households $550 per year and lower the price of electricity for Australians. While the carbon tax appeared to be a solid idea theoretically, its execution was cloaked in controversy. 

Recently, the Senate passed a new climate change bill for the first time in 10 years. The Climate Change Bill (2022) outlines Australia’s greenhouse gas emissions reduction targets: 43% reduction from 2005 levels by 2030, and net zero by 2050 (Parliament of Australia). This legislation will allow Australia’s targets to be more aligned with other allies, such as Canada and Japan. Interestingly, there is no mention of a carbon tax in the Climate Change Bill and there is an air of vagueness surrounding the mechanisms that will be used to reach the goals. However, there is some reference to a subsidy-type scheme, where large polluters will be subsidised for emitting fewer tonnes of Co2. Economists, like Associate Professor Ian MacKenzie from the University of Queensland assert that subsidies are not a panacea for Australia’s climate troubles and other forms of government intervention, like a carbon tax, are still necessary (The Conversation 2022).

With support from Economists and the increasing impacts of climate change, perhaps a carbon tax 2.0 is on the cards for Australia.