The Government’s key climate change adviser has recommended polluters pay a carbon price of $26 a tonne, raising $11.5 billion in the first year of a carbon tax.
In his final climate report, Professor Ross Garnaut says 55 per cent of the revenue should go to households and 35 per cent to the polluting businesses as compensation.
The remainder will go towards innovation and carbon farming, which will be offset by existing spending.
The package is said to be budget-neutral.
Professor Garnaut says the move to a full floating-price emissions trading scheme should be made in 2015.
The Government had already said more than 50 per cent of the revenue would be returned to householders - particularly pensioners and low-income households - to compensate them for higher prices.
Professor Garnaut recommends the increase in petrol prices be offset by a one-off reduction in petrol excise, with the revenue loss made up with reform of private vehicle fringe benefits tax arrangements.
He says low- and middle-income households should be compensated via tax cuts, including raising the tax threshold to $25,000.
“For those low-income households that do not stand to benefit from tax cuts, adjustments could be made to indexation arrangements for pensions,” the report said.
“Full compensation and not over-compensation should be the objective.”
The report says $1 billion over four years should be used to help workers and communities in coal-based power generation areas, such as the La Trobe valley.
Prime Minister Julia Gillard’s minority government wants a carbon tax on 1,000 of the country’s biggest polluters to start in July 2012, with a transition to a full emissions trading scheme three to five years later.
The Government, Greens and independent MPs are currently working out details of the carbon tax, including the starting price and levels of compensation for industry and households, with final details expected by early July.
The report recommends transitional assistance for emissions-intensive, trade-exposed industries which find themselves competing against cheaper overseas produced goods.
It says such assistance would prevent industry from moving offshore to a country with less stringent pollution controls.
Assistance to these industries would no longer be needed once other countries impose similar carbon constraints to Australia, the report said.
Professor Garnaut says good governance is pivotal to the success of the scheme and he recommends three independent bodies be set up to implement it.
One would advise on future targets and scheme caps, another on assistance to the trade-exposed polluters, and a third scheme regulator or “carbon bank” to administer the final emissions trading scheme.
Should the Government disagree with recommendations made by the independent committees, then it would be required to present to Parliament its reasons.
Battle of interests
The report describes the climate change debate as a struggle between “special interests and the national interest”.
It says a market-based emissions trading scheme will be far more resistant to vested interests rather than a fixed-price regulatory approach which provides opportunities for industry lobbyists.
Innovation success, the report says, will govern how much the transition costs. It recommends $2.5 billion a year be poured into support for research into new technologies - mainly through public institutions like the CSIRO.
It says there is a massive potential for reduction of carbon in the atmosphere through biosequestration - farmers adding carbon to their soil by planting trees.
Professor Garnaut predicts a 3 per cent reduction in demand for electricity when the scheme is introduced as a result of prices rising by about 10 per cent.
But he says price fluctuations will be less than those experienced in 2006 due to distortions in price regulation of distribution networks.
Professor Garnaut also has hit back at critics of the carbon tax who argue Australia is getting ahead of the world.
He says Australia’s decisions on climate change influence other countries.
“I don’t accept that my country is a pissant country. All the evidence is against it,” he said.
“We matter even on climate change, even though our emissions are only 1.5 per cent of the world’s, just like the UK matters with its 1.7 per cent.”
• Global carbon emissions reach record, says IEA
Energy-related carbon emissions reached a record level last year, according to the International Energy Agency (IEA).
The watchdog says emissions rose again after a dip caused by the financial crisis in 2009, and ended 5% up from the previous record in 2008.
China and India account for most of the rise, though emissions have also grown in developed countries.
The increase raises doubts over whether planned curbs on greenhouse emissions will be achieved, the group says.
At a meeting last year in Cancun, Mexico, world leaders agreed that deep cuts were needed to limit the rise in global temperature to 2C above pre-industrial levels.
But according to the IEA’s estimate (HERE), worldwide CO2 emissions from the energy sector reached a record 30.6 gigatonnes in 2010.
The IEA’s Fatih Birol said the finding was “another wake-up call”.
“The world has edged incredibly close to the level of emissions that should not be reached until 2020 if the 2C target is to be attained,” he added.
“Unless bold and decisive decisions are made very soon, it will be extremely challenging to succeed in achieving this global goal agreed in Cancun.”
• The Age: Garnaut’s cry from the heart