Carbon Tax Rates

Carbon taxation options

Broadly speaking, the various carbon tax options that have been evaluated or suggested in Australia can be divided into:

small carbon levies without revenue recycling, which involve hypothecation of revenue, and no reduction in taxes; and large carbon tax options with revenue recycling. These typically aim at stabilising emissions using a carbon tax with the revenue being handed back with a reduction in INCOME TAXES, PAYROLL TAXES or other indirect taxes.
Within these two broad groups, Table 1 identifies some of the specific carbon tax proposals that have been suggested or modelled for Australia.

The first two options, from the Department of Environment, Sport and Territories (DEST) and from the Australian Conservation Foundation (ACF), are carbon tax levies without revenue recycling. The now defunct DEST proposal was for a $1.25 levy per tonne of carbon dioxide on fixed sources of carbon. This converts into a tax per tonne of carbon of about $4.00. The ACF's alternative budget proposal was for a tax of $20 per tonne of carbon, which translates back into $5.45 per tonne of carbon dioxide.

A potential area of confusion in the carbon tax debate has been the different ways the carbon tax rate can be expressed. The ACF and the Department of Conservation have quoted their rates in different units of measurements making comparisons potentially misleading. You have to compare like with like.

When units are standardised in either tonnes of carbon or carbon dioxide, the ACF proposed tax is about four times larger than the Department of Environment's. In other respects they are similar. It appears that revenue was not to be used for reducing taxes but FINANCING other government expenditures, in particular environmental related expenditures. In addition, the tax base was predominantly to be on fixed emissions sources.

Other options recently assessed in the public debate aimed at stabilising Australia's carbon dioxide emissions from human sources at 1990 levels by the year 2000 with a much more severe carbon tax. To limit the negative impacts of the taxes, revenue was generally handed out as a cut in other taxes.

In the revenue recycling stabilisation options examined here, revenue recycling is achieved with a cut in income taxes.1 Three alternative options are examined. The first two assume that no regrets policies achieve a seven percent reduction in annual emissions in the year 2000, as estimated in Australia's National Report to the United Nations Framework Convention on Climate Change. The last option assumes that these no regrets measures are ineffective. The options are:

a carbon tax on energy sector emissions which reduces energy sector emissions by 8.3 percent. Clearly, not all greenhouse gas emissions from human sources come from the energy sector. The average reduction necessary to stabilise all emissions in