Australia: The future of an Australian carbon tax

Climate Change
Last Updated: 16 November 2010
Article by Ben Ricketts

By Michele Muscillo (Partner), Ben Ricketts (Solicitor) and Julian Wright (Solicitor)

With the ongoing focus on climate change globally, it seems inevitable that the Australian government will move to introduce legislation to regulate greenhous gas emissions. The question now is what form that regulation will take.

The generally-accepted options are an emissions trading scheme (ETS), a carbon tax, or potentially a hybrid of both.

Emissions trading is now old news. It came onto the agenda when Kevin Rudd entered Australia's political consciousness. Now that an ETS has been shelved (at least for now), the new remedy being touted is a carbon tax.

Key points

  • A carbon tax will put a price on each unit of carbon emitted, rather than restricting the amount of carbon emitted.
  • A carbon tax could be implemented at a number of stages throughout the supply chain as a tax on mining companies, power suppliers or consumers.
  • A carbon tax could be introduced quickly and be in place by mid-2011.
  • Businesses should be ready to make submissions to government on the design of any carbon tax.

What is a carbon tax?

A carbon tax puts a price on each unit of carbon emitted, rather than imposing a limit on the quantity of carbon emitted.

The theory behind a carbon tax is that as it becomes more expensive to emit a unit of carbon, emitters would invest in emission-reducing (green) technology, up to the point where it is cheaper to adopt these technologies rather than to pay the carbon tax.

A carbon tax is also intended to be neutral between different sources of energy, in that the tax would be levied on units of carbon emitted, as opposed to units of energy produced. This means that the most efficient sources of energy (those with low amounts of carbon emitted per unit of energy produced) should be less costly, and so favoured, over less efficient sources.

Part of the economic appeal of a carbon tax is that the 'efficient market' decides how much carbon is emitted rather than a government authority (as under an ETS).

Prime Minister Gillard's position

On the eve of the election, Julia Gillard famously made a promise to rule out implementing a carbon tax. Following this, on 15 September 2010, Dr Marius Kloppers, the Chief Executive of BHP Billiton, gave support to a gradual transition to a carbon price, involving tax, land use actions and limited carbon trading.

Fast forward to the weeks after the election, and Prime Minister Gillard found herself in a minority government, having to enter into agreements with both the Greens and the Independents in order to hold power. Unsurprisingly, due to the 'hung parliament effect', Prime Minister Gillard is now open to imposing a price on carbon by way of a carbon tax.

Internalising the cost of carbon dioxide

When coal is oxidised (burned), carbon dioxide is released into the atmosphere, effectively for free. Neither power stations nor we as consumers pay for
the release of that carbon dioxide. Economist Arthur Pigou would say that carbon dioxide is external to the price paid for electricity. In order to reflect the true cost of producing that electricity - that is, the cost to both society and the environment - the price of emitting carbon dioxide into the atmosphere needs to be internalised.

A carbon tax will internalise that cost. The problem, however, is that a tax is often seen as a blunt instrument, which is difficult to adapt to changes in the economy. A perfect example is that if a price is instigated on the entire coal industry, then there will be no encouragement for clean coal technology to be developed if both clean and dirty coal are taxed at the same rate. Further, by focusing on a tax instead of an emissions trading scheme, Australia may miss out on profiting from trade in carbon permits, particularly on the international stage. The Northern hemisphere has already proven hungry for carbon permits, and New Zealand industry (particularly those involved in forest sequestration) is already profiting from selling their carbon permits overseas.

If a price on carbon is to be introduced by way of a carbon tax, the question is what stage that tax will be implemented. If we examine a basic supply chain, such as for coal, there are three possibilities:

  1. The first option is that a tax is placed on every tonne of coal that is mined, and our mining industry bears the brunt of a carbon tax. The problem with this approach is that much of our coal is exported, meaning that a domestic tax will hinder our international trade, on which we are so reliant. This is even more relevant given the recent increase in the value of the Australian dollar. In addition, about 30 percent of our export coal is coking coal, used in the production of steel. Because we're not going to find an alternative to steel quickly, a tax levied on miners will affect more people and companies than just the emitters of carbon dioxide.
  2. Another option for a price on carbon is to tax emitters - that is, the power stations that purchase the coal from the miners and burn it, releasing carbon dioxide to provide electricity. The argument here is that a tax at this point in the supply chain will be far more effective than a broad tax on coal mining. Jim Mitchell, outgoing Managing Director of Western Australia's main electricity retailer Synergy, argues for a tax that targets a smaller portion of polluting industry, rather than broadly taxing the entire industry. The intended effect of this type of tax would be that the worst emitters would either reduce their emissions or change their approach, without necessarily causing the entire industry, and so the economy, to pay for the new tax.
  3. The final option is to introduce a tax at the end of the supply chain, on consumers. It would take a bold government to directly tax the entire voting electorate, and it is unlikely that such an approach will be adopted.

When will a carbon price be introduced?

After John Howard said 'never ever' to GST, he then introduced GST well in advance of the 2001 election. The voting public had time to adjust and get used to the new tax, which took much of the sting out of the Beazley-led Opposition's rollback GST election policy. Similarly, a carbon price has been slated for introduction in 2011, to be put in place before the next election, so that we can adjust to having a price on carbon in our economy. In the current hung Parliament, this may well be an impossible task. However, there will certainly be much debate over the coming year.

What price on carbon?

New Zealand has already begun pricing carbon, and New Zealand's Prime Minister John Key has urged Prime Minister Gillard to put a price on carbon in order to avoid a mismatch  between our two integrated economies.

The Vice President of Santos, James Baulderstone, has suggested that a carbon price of at least $20 a tonne is needed, so that new base load gas power stations can compete with the existing brown coal stations in Victoria.

Because of the hung Parliament, Prime Minister Gillard needs the support of both the Independents and the Greens to pass any legislation. On top of this, as of 1 July 2011, the Greens will control the Senate, making it even more difficult to get legislation through both houses of Parliament. The Greens have
already stated that nothing less than $23 of tax per tonne on carbon emissions will be acceptable. The government has previously suggested that a tax of
about half that amount would be preferred, as it will have a smaller impact on the economy.

A carbon tax that is not ambitious may not get through parliament, and may share the fate of Kevin Rudd's Carbon Pollution Reduction Scheme (CPRS). Climate Change Minister Greg Combet has urged the Greens to be realistic, and to avoid adopting the same approach as used in blocking the CPRS.

It seems that negotiations will take place between Labour, the Greens and business for a price on carbon somewhere between $12 -$23 per tonne.

Business' influence on the price on carbon

The appeal of a carbon tax is that an efficient market can determine what an appropriate level of total carbon emissions in the economy should be.

Given that the market is not always efficient, it is critical that business plays a role in the design of any carbon tax that the government imposes. Although economic theory may suggest that the point in the supply chain where the tax is imposed should not impact on who ultimately bears the tax, the reality is that producers may not always have the ability to push the costs down to consumers of energy, whether retail or wholesale customers.

Accordingly, businesses should be prepared to make submissions to government on the design of any carbon tax, and be in a position to readily quantify what the impact of a particular emissions reduction policy - whether a carbon tax or ETS or otherwise - would be.

For more information about how your business may be affected by, or benefit from, the proposed emissions reduction schemes being discussed, please
contact HopgoodGanim's Climate Change practice.

© HopgoodGanim Lawyers

Gold Employer of Choice - ALB magazine, April 2010
Finalist, Brisbane Law Firm of the Year, ALB Australasian Law Awards 2010

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Ben Ricketts
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.