First Thoughts on the Australian Government's Climate Package

For those of you outside Australia, the federal government is announcing its planned climate change package today. They have the numbers in parliament to pass the legislation so we can expect this to actually happen this time. One surprise is the increase in the 2050 emissions reduction target from 60% to 80%. The carbon price will initially be $23 before a switch to carbon trading in 2015. After trading starts there will be a floor price of $15 for the first three years.

Some initial thoughts:

1. The tax free threshold for income tax is being raised to $18,200 from $6,000. That is massive. $2,000 less tax for every taxpayer who earns more than $18,000 a year. This shift to a higher tax free threshold was one of the things proposed by the Henry Review. But in effect the tax cut is much smaller due to a reduction in the low income tax offset and increases in tax rates. See my next post for more details.

2. Petrol won't be included in the scheme. Given the structure of the scheme which regulates emissions from the 500 largest emitting companies it's logical to exclude petrol. In the short-run this likely raises the costs of the scheme by focusing the reductions on a smaller group of emissions sources. In the long-run it probably doesn't matter as long as other countries drive innovation to develop alternative energy cars. Australia won't manufacture or use petrol driven cars if no-one else in the world does. This is similar to the fact that once major players had adopted lead free petrol other countries had to follow.

3. This package includes more complementary measures than Kevin Rudd's CPRS in terms of funding for renewable energy innovation and biodiversity funding and other things which balances the focus on just the 500 biggest emitters instead of the top 1000 under the CPRS.

4. Because of the structure of the Australian economy, a large share of energy use and carbon emissions is accounted for by the largest 500 emitters. This includes the electricity generation sector, airlines, and of course most heavy industry from BHP and Rio Tinto on down.