Australia is killing off its carbon tax (2024)

The carbon-tax experiment in Australia is now over.

Economists tend to prefer carbon pricing for tackling global warming

On Wednesday, the Australian Senatevoted 39-32 to repeal the nation's controversial tax on greenhouse-gas emissions. The tax, first passed in 2011, had charged people roughly $23 for every ton of carbon-dioxide they emitted from oil, coal, or gas.

The repeal is a big blow for climate policy. Economists have long argued that carbon pricing is one of the most effective ways to tackle global warming. The premise is simple: People should pay for the damage they cause by emitting carbon. And making fossil fuels more expensive will spur companies to seek out cleaner alternatives.

But the major weakness of a price on carbon has always been politics. So many daily activities depend on fossil fuels — from driving to home heating to industry — and the pinch from any tax is likely to be more noticeable than, say, that from more complex regulations. And that set up a major battle in Australia, whichhas one of the highest emissions per person rates in the world.

How Australia's carbon tax worked — and why it fell

Former Australian Prime Minister Julia Gillard. Saul Loeb/AFP/Getty Images

The story goes back to 2011, when Julia Gillard's Labor Government first passeda sweeping climate-change plan that included a carbon tax worth about $23 per ton. The system would then, in 2015, transform into a cap-and-trade system similar to what Europe has — and link up with the EU.

Australia's emissions fell after the carbon tax was enacted

The carbon program covered 60 percent of Australia's total emissions and appeared to be successful in nudging down greenhouse gases — with the power sector reportinga 9 percent drop in the first six months alone.

But it was also hugely controversial from the start. For one, Gillardhad initially run for office on a pledge not to enact a carbon tax (she later reversed herself because she needed support from Australia's Green Party and passed the tax).

What's more, Australia's powerful mining companies strongly opposed the carbon tax (as well as other new mining taxes that Labor had passed). And early, widely publicized estimatessuggested that household electric bills would rise by $10 per week under the climate plan. Labortried to soften the blow by using the carbon-tax proceeds to cut income taxes elsewhere and send out rebate checks. But the tax continued to poll poorly.

And so Tony Abbott and the Liberal Party made repeal of the carbon taxa major issue in the run-up to the 2013 elections. Abbott argued that the tax was costing the Australian economy some $9 billion per year and had little climate benefit so long as other countries weren't also enacting their own carbon taxes.

Abbott's party won that election — and, not long after, the Senate voted to repeal the tax. As a result, Australia won't be creating an emissions-trading program in 2015 or linking up with Europe's own cap-and-trade system.

Australiahas still committed to reducing its carbon-dioxide emissions 5 percent below 2000 levels by 2020. But expertssay that the carbon-tax repeal will make that task much harder — coal consumption is now expected to go up and wind generation down. (Abbott's governmenthas set up a $2.4 billion fund to help Australia's households and companies reduce emissions through a variety of projects. But that's unlikely to have nearly as big an impact.)

Global warming is still a big problem for Australia

A firefighter monitors a back burn near Mount Victoria in the Blue Mountains on October 21, 2013, as volunteer fire brigades race to tame an enormous blaze. William West/AFP/Getty Images.

Meanwhile, repealing the tax doesn't make global warming go away. And Australia still has plenty of reason to worry there.

Intense heat wavesare becoming more common and the country has recently endured a spate of destructive droughts and wildfires costing billions. This past January — which is summer in Australia —saw another record-breaking heat wave that forced ranchers to slaughter their livestock amid water shortages and reportedly caused 100,000 bats in Queensland to drop dead.

Scientists are increasingly linking these changes to global warming itself — one recent study in Nature Geoscience linked the long-term decline in rainfall in southwestern Australia to the rise of greenhouse gases in the atmosphere. Other studies have blamed man-made emissions for Australia's recent scorching temperatures.

Andpolls have found that a significant chunk of Australia's voters want the government to take action on global warming — even if they're not in favor of the carbon tax specifically.Some commentatorshave wondered whether a patchwork of regulations — on methane, on cars, on power plants, on appliances — might be more palatable in Australia than carbon pricing. As it happens, that's more or less the approach the Obama administrationhas been taking in the United States after cap-and-trade failed here.

Can carbon pricing survive elsewhere?

Australia was one of the major laboratories for carbon pricing. If a carbon tax could survive there — in a country dependent on coal and with per-capita emissions higher than the United States — it could presumably survive elsewhere. So the death of Australia's carbon tax is certainly significant.

Still, Australia wasn't the only country with carbon pricing. The World Bank and Ecofysrecently put out a big report noting that 40 countries, states, and provinces have already placed some sort of price on carbon, either through a carbon tax or some sort of emissions trading scheme (or ETS).

Most of that was due to Europe's cap-and-trade program, which covers 31 countries. And the extent of the taxes vary from place to place. (In the Northeastern United States, for instance, the carbon price only applies to power plants and is relatively small.)Still, the global market has now grown to some $30 billion per year:

Yet that report also agreed that a carbon-tax repeal in Australia would be a big step back for carbon pricing — particularly as the world's nations are hoping to hash outa new international climate treaty in 2015.

Right now, efforts on climate change around the world have been fairly haphazard. Some countries — like the United States — are taking further steps to reduce their emissions. Others, like Australia orJapan, have been relaxing their commitments of of late.

Further reading:

• Seven thrilling facts about carbon taxes from the Congressional Budget Office.
• A look at how Europe's emissions-trading scheme has gone.
• Here's the full World Bank report on the state of carbon pricing around the world.