Call to tax, not trade, carbon emissions
Australia's proposed emissions trading scheme — considered by the draft Garnaut Report as a way of curbing carbon discharge — may face problems under the World Trade Organisation.
So says senior lecturer in Law, Keith Kendall, above, who suggests instead that a carbon tax should be Australia's answer to climate change. Mr Kendall specialises in taxation law and has spent the last year researching environmental taxation.
As a result, he says his position is that a carbon tax would be a much more effective and feasible option for dealing with carbon emissions than an emissions trading scheme.
While the Garnaut report briefly considered a carbon tax, Mr Kendall says it did so very superficially, focusing mostly on how an emissions trading scheme (ETS) would work.
Mr Kendall argues that a carbon tax has two practical advantages over a trading scheme. 'First, Australia already has a structure in place to administer a carbon tax — the Australian Taxation Office. There is no bureaucratic structure in place to administer an ETS.
'The scheme involves establishing a permit auction market and then maintaining a secondary market, a complex and expensive process.'
Arguably more important, he says, is the political opposition that traditionally accompanies these measures. 'The most vocal opposition often comes from emissions-intensive industries. However, experience elsewhere has shown that such opposition dissipates if international competitiveness concerns can be resolved.'
Mr Kendall claims such concerns can be resolved through an effective border tax adjustment (BTA) mechanism. Under this, imports are subjected to an equivalent charge and exports are exempted – or, more correctly, have the charge rebated upon export.
'This is how imports and exports are currently treated under Australia's, and most other countries', goods and services tax.
'Concerns arise, though, regarding Australia's obligations under the World Trade Organisation — for example, whether a rebate represents an illegal export subsidy.
'It is arguable that a BTA under a carbon tax is consistent with the WTO. This is not the case with an emissions trading scheme.
'Assuming such legality, Australia can afford to act unilaterally in imposing a carbon tax incorporating a BTA, thereby addressing concerns over climate change without losing international competitiveness. This removes the "first mover" problem that has received so much publicity.
'Those seeking a global solution to this issue should prefer this option. Experience has proven that achieving multilateral consensus on environmental issues is unlikely any time soon.
'Eventual agreement is more probable where one or a few actors take the initiative and implement a suitable system. This is highly unlikely if the price of such action is to sacrifice international competitiveness.
'A carbon tax,' Mr Kendall concludes, 'is capable of addressing these concerns whereas an ETS is not.'
Read the full argument in La Trobe Opinions.