Aiming for elegance, one thought at a time

Alternative carbon policy

Posted: February 10th, 2010 | Author: | Filed under: Reflection | No Comments »

Every now and then – just for kicks – I like to play armchair senior public servant and imagine alternative policy. I’ve struck on what I think is a pretty good alternative carbon policy.

Now, not being and actual senior public servant, I don’t have access to Treasury advice and am thus liable to get some terminology wrong. I’m not sure if this is an emissions trading scheme, or if it’s a carbon tax. It is the bastard love child of carbon trading and the GST.

It seems there are three criteria that a good carbon policy has to fit:

  1. It needs to work in some reasonably intuitive way, and do so efficiently.
  2. It must attend to the real or imagined threat to “trade-exposed” companies.
  3. It must not harm Aussie battlers.

Now, Rudd’s policy initially hit points 1 and 3, but completely missed point 2. In order to fight back on point 2, Rudd watered the policy down. Now it misses point 1.

Abbott’s policy really doesn’t address any of the points above. It’s targeted at an alternate policy problem: how to win elections.

My alternative – let’s call it a Wholesale Carbon Levy (WCL – need something snappier?) – works this way. “Wholesale” carbon emitters – coal miners, oil wells, importers, farmers, etc – buy a certain number of carbon permits. That’s the carbon trading part. No mystery there.

“Wholesale” carbon emitters then pass that cost on to their customers (retail carbon emitters – power plants, petrol stations, financial services companies), but they pass it on as a separate item on any invoice or receipt. Using existing GST infrastructure (software etc), retail carbon emitters are able to pass this forward to their customers, and so on. That’s the GST part.

So far, so bad. The twist is that the ATO will allow a company to tax-deduct any WCL-amount on any goods and services sent overseas, until such time as a binding global agreement is reached.

This addresses the three points above:

  1. Only so many carbon permits are available. Therefore, carbon emissions are reduced. Same as any ETS.
  2. Trading-exposed companies are reimbursed for any WCL amount, and so business has little cause for complaint (assuming GST infrastructure can be used easily.)
  3. Naturally, part of the additional revenue from the WCL would be directed to income tax cuts for Aussie battlers. As with every policy, weak points can be hidden behind tax cuts.

I’d very much appreciate any criticism the internet can muster. Suggested starting points: the stunning lack of originality (references please), or how it will cripple Australian farmers.

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