Why Australia’s Carbon Tax Was Repealed Laser Talk

In July of 2014, Australia repealed the carbon tax it had implemented only two years earlier [1]. In 2013, after only 9 months of the carbon tax, Australian emissions from electricity generation fell by 5.4% and renewable electric generation spiked by 28% [2]. Although the tax was successful in cutting emissions and spurring industry, it was repealed.

Reasons

  1. The tax was not 100% revenue neutral: Distribution of the carbon tax revenues were not fully transparent resulting in confusion and backlash among Australians. Instead of giving back all of the money evenly to households, the revenues were allocated to a raft of sustainability programs and to offset energy price increases among lower income families [1]. Further complicating revenue dispersal, some of the money was given back to the very polluters being taxed as an assistance program to ease their transition into cleaner technologies [3].
  2. The tax was not economy-wide: the tax was imposed selectively among 500 of the nation’s largest emitters rather than as an upstream, blanket fee to all carbon based fuels. For example, under the Australia tax, road transport fuel was exempt [1].

Lessons Learned

If there is a lesson to be learned here it is that ALL of the revenue from a carbon tax must be returned to households. Under the Australian carbon tax, some of the revenue was used to help residents cover rising energy costs. Had all the revenue been returned to households, the Australian carbon tax might have enjoyed more popular support.

We hope supporters of the carbon tax in Australia will regroup with a revenue-neutral fee. With the REMI study showing that such a fee will add jobs to the economy in the US, a truly revenue-neutral carbon fee could still be a win-win for Australia.

  1. Where Carbon is Taxed”. The Carbon Tax Center. Last updated: Jul 17, 2014.
  2. Arup, Tom. “Carbon price working? Coal slumps, clean energy soars”. May 10, 2013. The Age.
  3.  “Coal-fired generation assistance”. Clean Energy Regulator – Carbon Pricing Mechanism.