The Agenda

The Death of Australia’s Carbon Tax

Speaking of robust and not-so-robust reforms, Australia has repealed its unpopular carbon tax. Though domestic carbon pricing mechanisms are popular among environmentally-minded economists, the case for it is much weaker than is commonly understood in wonk circles, as Oren Cass and Samuel Thernstrom have made clear in this space. And if anything, the case has grown weaker as the European Union has struggled with its Emissions Trading Scheme (ETS) while the U.S. has experienced a notably high level of decarbonization associated with rising reliance on natural gas. Australia’s carbon tax has been something of a crusade for the country’s center-left, which pursued the policy despite its unpopularity, and it has been resisted not only by voters buffeted by rising energy prices (which, in fairness, are rising for a number of reasons), but also by many of Australia’s principal industries, including, of course, the mining industry. Rob Taylor and Rhiannon Hoyle of the Wall Street Journal report on the potential international implications of the decision, spearheaded by Australia’s still-newish center-right government:

The Brookings Institution has previously described Australia as an “important laboratory and learning opportunity” for U.S. thinking about climate change and energy policy, as it was one of the first major countries outside Europe to adopt a carbon price. The country was also comparable in many ways to the U.S., with similarly energy-intensive lifestyles, industries and per capita greenhouse gas emissions.

One obvious implication is that the profound unpopularity of Australia’s carbon tax and its rapid reversal is a lesson that Americans should heed. 

Emissions programs are already in place in Europe and parts of the U.S. and Canada, as well as Japan and Australia’s trans-Tasman neighbor New Zealand. South Korea is expected to begin emissions trading next year, while China is proceeding with pilot schemes in seven locations. Europe’s emissions market covers 31 countries and 40% of total greenhouse gas output inside the bloc.

What Taylor and Hoyle neglect to mention is that in 2007, Canada’s center-left Liberal Party ran on a domestic agenda centered on a “green tax shift,” and the Liberals were decisively defeated by the Conservatives, who explicitly opposed a carbon tax. And it’s not obvious that South Korea’s emissions trading scheme will prove durable. 

Britain in 2008 also committed to slashing emissions by at least 80% by 2050 when measured against 1990 levels, while the U.S. Environmental Protection Agency has finalized regulations that aim to deliver carbon pollution cuts of 30% from power plants by 2030 when compared with 2005 levels, giving teeth to U.S. President Barack Obama’s promise to tackle climate shift through mechanisms putting a price on carbon.

The consensus around Britain’s Climate Change Act has, however, been deteriorating since 2008, and George Osborne, Britain’s Chancellor of the Exchequer, often touts the benefits of fracking, which can be understood as a proxy for a technology-first approach to energy and climate policy.

But there have been backward moves as well. Japan last year retreated on pledges to cut greenhouse emissions, blaming the shutdown of its nuclear plants in the wake of the 2011 Fukushima nuclear disaster for a decision to release 3% more greenhouse emissions by 2020 instead of a 25% cut on 1990 levels previously promised. Closing down nuclear power forced the world’s fifth-biggest emitter to rely on fossil fuels for electricity generation.

“There is no question there is fragile trust and ambition around the world,” said John Connor, chief executive of Australia’s Climate Institute think tank. “At international climate talks last year in Warsaw Japan, Canada and Australia were standouts in going backward, and so steps like this do matter.”

Taylor, Hoyle, and Connor characterize these “backward” moves as outliers, yet they can also be seen as part of a larger trend — one that includes ongoing revisions to Europe’s ETS: a recognition that a pricing- or regulation-first strategy might not be the best way to approach carbon emissions. Cass explains the underlying dynamic well:

If carbon emissions actually had a quantifiable, linear, ton-by-ton cost then the Sophisticated Objection would make no sense because the value of action at home could be measured independent of what action was or was not taken abroad. If we gain the same benefit every time we reduce emissions by another ton, why would we care what China does? But of course, as [Cass] Sunstein acknowledges by taking the Objection seriously in the first place, this is not how climate change works.

Because we do care what China does, and because the notion that they will cripple their ability to grow by raising energy prices because, well, we’ve done so first, is not credible, the key to reducing carbon emissions is encouraging fundamental breakthroughs in low- and zero-carbon energy that will give rise to attractive business models that don’t require artificial subsidies, and that thus can spread rapidly across borders, and in particular to the developing world. Instead of moving backward, Australia, Canada, the U.S., and other countries can move forward by deepening their scientific collaboration and recognizing the importance of what Thernstrom call’s energy innovation reform. But it’s not inevitable that these countries will pursue better innovation policies. This is a domain where conservatives can and should play a role.


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