Nov 26, 2010 - 8:30am
Failure to make major polluters take responsibility for their pollution within clear limits, such as through an emissions trading scheme or stringent regulation, shifts the financial risk of meeting emission targets from major polluters to taxpayers, potentially creating a multi-billion dollar budget liability, indicative analysis by The Climate Institute released today shows.
“The choice of a pollution pricing mechanism by Parliament has implications for who bears the risk and responsibility of pollution reductions, major polluters or taxpayers like householders and broader business,” said John Connor, The Climate Institute’s CEO.
“With the backing of both major parties Australia has internationally committed to 2020 carbon pollution reduction targets of at least 5 per cent below 2000 levels, but potentially 25 per cent reductions.”
“If there is no limit or price on pollution, the Government will have to buy domestic or international permits to meet the minimum 5 per cent reduction target, creating a liability on the budget, and therefore tax payers, of over $13.8 billion to 2020.
“If Australia sets a low pollution price and is called upon to do more and take a target comparable to what others have promised, and are doing, it faces a budget and taxpayer liability of $17.9 billion.”
The Climate Institute examined five scenarios using Treasury estimates of global pollution permit prices and ranging from no action on a carbon price in Australia through to a high fixed price.
Current liability – no action to reduce pollution. Budget liability is over $13.8 billion to 2020.
Low fixed price – the Government sets a price insufficient ($20 to $30 a tonne) to drive domestic pollution levels to 5 per cent target. Budget liability is $4.9 billion to 2020.
Higher fixed price – the Government sets a price clearly sufficient to drive pollution levels to the 5 per cent target ($30 to $50). The Budget income is increased and would be around $3.6 billion to 2020.
Wrong price – pollution prices are set at $10/tonne and increase to $20/tonne by 2020 – below expectations of global pollution prices over this period. Budget liability is around $5.4 billion to 2020.
Australia called on to do more (10 to 15% reduction target) – under this scenario, pollution prices are fixed as in the Low fixed price scenario until 2020. However, based on the actions and targets other countries have already taken on in 2014, Australia agrees to do its fair share to current pledges and pollution limits are tightened to achieve the 15 per cent reduction target. Under this scenario the Government’s fiscal liability is around $5.4 billion to 2020.
“While they are indicative, the scenarios highlight that without a strong limit and/or prices on pollution the Government currently faces a multibillion dollar budget liability to meet even its minimum agreed international pollution reduction targets, let alone those targets it should or may face,” Mr Connor said.
“Locking in low fixed pollution prices, inflexible mechanisms and the failure to make major polluters take clear responsibility for their pollution presents multi-billion dollar risks for Australian households and business and could threaten Australia’s ability to meet its international commitments,” concluded Mr Connor.
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John Connor | CEO, The Climate Institute |