A carbon price that curbs polluters and reduces inequality

The federal government’s non-response to climate change has run its course and events are rapidly overtaking its startled members. And now, after years of resistance, Woodside, BHP and Rio Tinto have done an about face and are calling for a price on carbon.

But what would a carbon price look like in practice? One proposal is the new Australian Climate Dividend Plan (ACDP) from Richard Holden and Rosalind Dixon, both of UNSW.

The ACDP proposes a small, steadily-rising ‘tax’ on the climate polluting potential in CO2- equivalents of every fossil fuel or feedstock as each tonne enters the economy for the first time.

It starts small, say at $20/tonne, that’s about 4.6 cents per L of standard petrol, and returns all the proceeds as a rebate directly and equally to each Australian adult with a tax file number. The plan aims to simultaneously provide strong market-based incentives to reduce our carbon emissions as well as decrease economic inequality.

Returning the revenue to citizens as a dividend is important as it ensures that everyone who needs it is protected from rising costs. This in turn assures business owners that they can pass on the new costs. Both consumers and enterprises that choose to invest their climate dividend in services and products that lower their GHG emissions will then accelerate the required change in the economy and save money at the same time.

The steadily increasing fee on emissions gives investors, governments and consumers certainty about future carbon prices and enables business to plan an orderly reduction in carbon emissions. Most importantly, it enables a smoothly accelerating transition to a low carbon economy and avoids the disruption, inequity and chaos that will most likely happen without it.

In Canada they have recently introduced a federal price on carbon by fee and dividend, after years of lobbying by Citizens’ Climate Lobby.

A similar policy is advocated in the US by the conservative Climate Leadership Council led by former Secretary of State, George Schultz, former Treasury Secretary James Baker and other Republican luminaries. Their Carbon Dividends policy advocates a carbon tax starting at US$40/ton increasing annually at CPI.

It is important that carbon pricing policies include a border adjustment to level the playing field between countries. A tariff on imports from countries without a comparable carbon price and rebates to exports to those same countries protects trade-exposed industries from unfair competition. It has the added advantage of encouraging those countries to price carbon themselves and avoid paying tariffs to countries that do price carbon. It is the clearest way to create the global carbon price that transnational companies are asking for, while preventing companies moving operations to countries with lower or no carbon pricing..

It is also vital that carbon pricing policies reduce emissions effectively and transparently across the whole economy. A dividend plan can do this and is many times less complex and much more efficient than sector by sector arrangements. While having little direct impact on the agricultural sector, a very large emitting sector, a rising carbon price enabled by a climate dividend would ensure farmers who cut emissions, improve soils and revegetate are well rewarded.

The Australian Climate Dividend Plan is well timed as the political divide on climate policy is costing us dearly – in energy and health costs, damage to property, lost or delayed investment and growing cynicism and despair about government. The transparent price signal it creates enables the market to address these negative externalities, the social costs of carbon emissions. “It creates a new coalition of politically motivated citizens and politically supportive ‘citizen-shareholders’.”

The plan also gives the Coalition an opportunity to save face by endorsing an effective, popular but conservative, market-based policy that can be a great fit for the values of a pro-market conservative party.

The majority of MPs could collaborate around a sensible centrist policy that breaks the anti-democratic impasse we are currently enduring. The Australian Climate Dividend Plan is such a policy, one that shows a new way forward on national and global carbon pricing. Could it be the policy that enables us to ‘bury the hatchet’ after a 10 year climate war and make climate policy a bridge instead of a wedge issue?