Thursday, March 17, 2011

Garnaut recommends a starting carbon price of $20-30 a tonne

Earlier today the government's climate change advisor Prof Ross Garnaut released his carbon pricing proposal. It was part 6 of a series of updates he has been making to his 2008 climate change report. Garnaut's report is not government policy but it likely to be influential in deciding how to proceed in implementing a carbon price.

There is a good description of the main points here (though the headline is perhaps a little inaccurate), the report can be found here.

Here are some of the key points:
  • It is in Australia's interest to play our part in limiting climate change by reducing our emissions and working to secure global agreements to reduce emissions.
  • A market based mechanism is the cheapest way to reduce our emissions.
  • The effect of carbon pricing on the economy will be "modest".
  • Garnaut has endorsed the plan to start with a fixed price (the carbon tax) before moving to an emissions trading scheme (price set by the market ie: supply and demand).
  • Starting with a fixed price provides more certainty and stability when the scheme starts, allowing everyone to get used to a world where carbon pollution has to be paid for. Emissions trading is favoured in the long term for its ability to direct money for reducing emissions to the cheapest means of doing so.
  • The carbon price should start at $20 to $30 per tonne and rise every year before being set by supply and demand under an ETS.
  • A large amount of assistance (free permits) to business that produce products for overseas markets is favoured, this will be phased out over time (Nb: this is similar to in the EU ETS)
  • Garnaut recommends household assistance should be mainly via tax cuts focusing on low and middle income earners, with some more targeted assistance for low income earners.
Not everyone will agree with all of Garnauts' recommendations, but he does provide some details policy people can now start to debate. For the average person the big picture remains the same: Polluters start paying for pollution, people are compensated for price rises.

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