Australasian Science: Australia's authority on science since 1938

Pricing Carbon to Fix the Problem

By Peter Laver

Peter Laver says that Australia should look closely at rewarding emissions reductions rather than just taxing emissions production.

The debate about carbon pricing – and the government’s announcement about its “carbon tax” – risks losing sight of what we are trying to achieve.

Rather than the debate being about compensation, wealth redistribution, making “polluters pay”, international competitiveness, exemptions and impacts on growth, we really need to focus on capital investment. We should use most of the money coming from pricing carbon to fix the problem – to make the necessary investments in low-carbon electricity generation and transport, and improved energy efficiency.

The measures announced do provide some support for renewables and for research into new technologies to reduce emissions or energy use, presumably through some competitive granting scheme. This is a bureaucratic process and not entirely satisfactory, as programs like the now-discontinued Retooling for Climate Change have demonstrated.

Many of the 500 or so major emitters of CO2 are well aware of what investment they need to make to reduce their emissions, and are now faced with having to provide cash to pay the tax as well as to fund their investment. Presumably they will be able to seek assistance or co-investment from Clean Energy Finance Corporation.

However, a market-driven solution that allowed them to claim a rebate from their tax paid if they invested it in fixing the problem would be far more efficient and would quickly focus attention away from trying to recoup the additional cost from customers while writing grant applications.

The die is now cast for Australia to begin providing the revenue stream for that investment. The continuing objective must be to ensure that the money that is raised under a carbon tax is used to reduce emissions and conserve energy.

It so happens that many of the low carbon generation and energy efficiency technologies will also have other benefits in terms of productivity and output improvements, so using the carbon tax to rejuvenate the country’s capital stock will enhance our international competitiveness.

Australia needs to look more closely at rewarding emissions reductions rather than just taxing emissions production – carrots rather than sticks. Instead of energy producers paying a tax or buying a permit, or users accepting higher energy costs as well as trying to find the capital to improve their efficiency, let them keep their money as long as they invest it in reducing emissions or energy use.

The Australian Academy of Technological Sciences and Engineering has estimated that $350–500 billion will need to be invested in low emissions technology if Australian emissions are to be reduced by 60–80% by 2050.

Rather than invest in the “low hanging fruit” types of emissions abatement, the ability to claim a rebate would allow generators to execute bolder plans, closing inefficient plants and replacing them with more efficient power generation technologies.

We need to ensure that the carbon tax reduces emissions.

Peter Laver AM FTSE is Vice President and Director of the Australian Academy of Technological Sciences and Engineering.