The Rise and Fall of the Australian Carbon Tax

The recent political victory of Australia’s new Prime Minister, Tony Abbot, may be the last straw to determine the fate of the country’s carbon tax. As a pre-election statement, Abbot promised to repeal the short-lived carbon-pricing legislation. Last Saturday, Abbot’s Liberal-National coalition ousted the long-running Labor government under Julia Gillard who instituted the carbon tax in 2012.

As discussed in an SP Policy Brief, Australia’s decision to institute a carbon tax was the result of direct and sustained experience with climate change, and a political system – with proportional representation in the Senate – which made the politics of such a tax possible.

Under the current scheme, the carbon tax was set at $23AUD/tonne in its first year, and was scheduled to increase by 5% each year for the next three years, until the transition to a flexible price cap-and-trade emission trading scheme was to begin in 2015.

But the carbon tax has been largely unpopular since its introduction. Abbot has maintained a strong opposition to the tax, and public opinion caught up with him at the polls this time around. While a carbon tax may make sense on paper in terms of the assumed benefits it brings from both increased government revenues and a reduction in the emission of greenhouse gases, the increases in daily energy costs will never be an easy pill for the public to swallow.

Many Australians blame the tax for the steep increases in energy bills. For example, businesses estimated that the carbon tax increased their energy costs by 14.5%, and household electricity rates are reported to have increased by 14.9%. However, research from Sydney University claims that only 9 percentage points of that increase is attributable to the carbon tax, and that increased charges for power transmission and distribution account for the rest.

And despite higher energy bills, it seems that voters still want to see some action on climate change. A recent poll found that voters were split when it came to choosing between repealing or continuing carbon pricing. In a question asking voters to choose between Coalition commitments to reduction targets and to repeal, 40% of voters supported the reduction targets and only 28% per cent supported repeal. These results suggest that taking action on climate change is still a concern for Australians, but that some uncertainty remains if carbon pricing is the ultimate solution to reduce emissions in the long run.

While Abbot has expressed interest in developing climate policy, he envisions taxpayer-funded incentives for polluters to maintain cleaner operations, as detailed in the Direct Action Plan. This plan has been opposed by Labor and environmental groups, who say this plan has many shortcomings and won’t meet the reduction targets. Last week, Abbot abolished the Climate Commission, which is the federal government's agency for explaining climate science to the public.

Although he did win a decisive victory, Abbot may face a challenge from the Senate regarding the proposed reforms. Repealing the tax would mean that the Coalition would have to convince both the Senate and the House of Representatives to abolish the Clean Energy Act that established the tax in the first place.

The Labour and the Greens currently hold the balance of power in the Senate, and have made it clear that they are taking a stand against the repeal. Abbot will have to gain Senate support from elsewhere, and the repeal can only occur if the Coalition holds 33 seats and support from a number of other independents when the Senate meets next July.

Ultimately, Australian policy makers will have to get the policy right — and fast. In the near future, Australia can expect the impacts of climate change to continue causing a further 1ºC of warming, up to 20% more months of drought, up to a 25% increase in days of very high or extreme fire danger, and increases in storm surges and severe weather events. And without a comprehensive plan, Australia's emissions are projected to increase by 24% between 2000 and 2020.

Though the country has new leadership, unfortunately climate change is much too large of a problem to be solved with the results of one election. Even if the glory days of the carbon tax may be over in Australia, the continuing impacts of climate change will ultimately transcend political bickering.

The real question remains as to how the country will meet its legislated reduction targets in the absence of effective climate policy. Let’s hope Mr. Abbot and his team still have some tricks up their sleeves