Why a carbon tax should be Australia’s answer to climate change

Tuesday, September 2. 2008

The recent release of the draft Garnaut Report has focused attention on how an emissions trading scheme (ETS) should be implemented in Australia in order to curb our carbon emissions. In serving this purpose, the draft Report glosses over a number of considerations and makes several assumptions that appear designed to make an ETS a fait accompli as far as the best response to climate change goes. This is unfortunate, since an ETS suffers from a number of problems that do not arise under a carbon tax.

As with many official pronouncements regarding climate change, the draft Report starts from a position that carbon emissions must be reduced. While this may be the case, it mischaracterises the problem of carbon pollution by setting up the issue as one of quantity control. The correct approach, which would lead to a more appropriate regulatory response, is to recognise that the problem is really one of undercharging (or, as here, not charging at all) for the use of a particular resource, specifically, emitting carbon into the atmosphere.

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