You might ask what part ‘tax’, in Australia, plays in ‘decarbonising’ the world (or vice-versa) but the following article throws light on this (from the Australian Financial Review – 14.2.24). The answer is that ‘taxes’ will not be just income tax, CGT, GST, FBT etc – they could be a “carbon solutions levy” playing its place in turning Australia into a green energy ‘superpower’ – aiming to, not just reduce our 1.2% of the world’s carbon emissions, but reduce global emissions by 8 or 9% – driving economic growth, in Australia, for a generation (and creating related political and democratic shifts). That, at least, is the aim of The Superpower Institute, launched by economist and competition ‘king pins’ – the former ACCC head: Rod Sims and the high-profile economist: Professor Ross Garnaut. Read this, and you’ll see how this ‘tax’ could play its part, amongst other multi-facetted measures – to harness Australia’s ‘natural monopoly’ in the ‘green industry’ (driven by low-carbon renewable energy). [EDITORIAL FOOTNOTE: I’m no ‘green energy’ acolyte – but these looked like interesting, and potentially powerful, ideas, worth sharing.]



Resurrect carbon price to fund superpower: Garnaut, Sims

Policy experts Ross Garnaut and Rod Sims will call on the government to bring in a $100 billion a year carbon levy by 2030 and shake up transmission companies and a key energy investment scheme to help Australia turn around a decade of falling incomes and grasp its chance to become a clean energy superpower.

They will concede that resurrecting the ghost of the carbon price looks a tall order after a quarter-century of “climate wars”, but they argue their package is a contemporary version of the 1980s Hawke-Keating reforms and the minimum required for Australia to restore productivity growth and regain its lost prosperity.

In a measure likely to be hotly opposed by the resources industry, they will say a revived carbon price must include so-called scope three emissions – those created when Australian coal and gas are burned overseas – so as to provide a “green premium” for commodity exports and avoid Europe’s carbon border tax.

Professor Garnaut will tell the National Press Club on Wednesday the idea of reviving the carbon price may look impossible but “not as impossible as passing on to our children and grandchildren lower standards of living than our own parents and grandparents left to us”.

Professor Garnaut and Mr Sims were both chief economics advisers to the 1980s government of Bob Hawke, which launched a wave of market reforms widely credited with reviving Australia’s prosperity after the stagflation of the 1970s. Professor Garnaut advised the Rudd-Gillard government on climate reforms that were partly dismantled by the Coalition and launched the Superpower Institute – which Mr Sims chairs – to advocate for Australia to become a clean energy superpower.

The idea is that Australia should exploit its natural advantages in low-cost wind and solar energy, land and resources to make green commodities such as iron, aluminium, polysilicon, critical minerals and biomass-based fuels for the world and decarbonise up to 8 per cent or 9 per cent of global carbon emissions, rather than just its own 1.2 per cent. This would require an energy transition many times larger than the one now under way, which is faltering amid opposition from landowners and environmentalists under current policies.

Comparative advantage

Professor Garnaut will say new, more forceful policies are needed to deliver the superpower vision, and history shows the political system can bring about bold, well-considered reforms backed by political leaders, institutions and key media outlets.

“Australia’s advantages in the emerging zero-carbon world economy are so large that they define the most credible path to restoration of growth in Australian living standards” and are recognised around the world from Oxford University and Germany to China and Japan, Professor Garnaut will say. For example, just meeting a quarter of China’s need for green iron in Australia would require ten times the power used in the National Electricity Market today.

“Export of zero-carbon goods can underpin a long period of high investment, rising productivity, full employment and rising incomes in Australia.”

By contrast, failure to rise to this challenge would lead to “fundamental problems for our community and our democracy”, a reference to political turmoil in the United States over Donald Trump’s bid to regain the White House as well as “Barnaby Joyce and the angry 400” anti-renewables protesters in Canberra last week.

Professor Garnaut will argue a “carbon solutions levy” introduced from 2030-31 at the same level as the European Union carbon price (about $90 a tonne of carbon dioxide) would raise more than $100 billion a year initially, enough to cover the cost of the proposed reforms and leave money over for budget repair and tax reform.

He will recommend a major revamp to the Capacity Investment Scheme, which the government expanded to 32 gigawatts of renewable energy and storage in November. This would eliminate the risk of officials choosing the wrong projects by scrapping the reverse auctions that currently determine winning projects, making the scheme generally available to private investors and funding 80 per cent of reasonable project cost at the bond rate plus a margin of, say, 2 per cent. Repayments would commence once a project turned cash flow positive, at 40 per cent of net cash flow.

The revenue from the carbon levy could help to fund the revised and expanded scheme and a proposed Superpower Innovations Incentive Scheme to reward early movers in green commodities.

The levy would ensure commodity producers could qualify for a green premium under Europe’s proposed Carbon Border Adjustment Mechanism, and provide funding to reduce fuel excise and electricity prices for households by enough to shave 1.5 percentage points off inflation and pave the way for lower interest rates.

A review of ‘natural monopoly infrastructure’

Professor Garnaut will say he and Mr Sims “expect that the established political parties will rule out this suggestion” but that won’t be the end of the debate because “if there is continued community interest and growing support, political leaders will come back to it”.

He will call for a Productivity Commission root and branch review of “natural monopoly infrastructure”, including how electricity network revenue regulation can be best structured to maximise efficiency, take full advantage of “behind the meter”, or customer energy resources, and how transmission can be structured and expanded to bring about the superpower vision.

Current regulations discourage investments in low-cost solutions to network constraints that are preventing the grid making use of large volumes of wind and solar power because they reward network companies with a return on approved capital investments. The Energy Security Board – made up of the heads of the energy market operator, regulator and rule maker – and the former head of the market operator last week called for a similar shakeup of the distribution companies.

The carbon levy on sales to economies with arrangements that generate a similar green premium – currently Europe and the UK – would be rebated. “We hope that by 2030 our major trading partners in northeast Asia would qualify for the exemption.” The levy would be integrated with markets for Australian Carbon Credit Units and Renewable Energy Target certificates which could be used to satisfy liabilities.