‘Not radical, it’s fair’: Australian households would receive compensation in proposed ‘polluter pays’ levy scheme | Climate crisis

The Albanese government is considering a plan to significantly reduce emissions and address budget concerns through a “polluter pays” levy on companies extracting or importing fossil fuels, potentially generating over $35 billion annually. The proposal, backed by prominent economists and former public servants, aims to accelerate emissions cuts and redistribute revenue to households and address structural budget deficits.

Proposed “Polluter Pays” Levy

An analysis by the Superpower Institute, overseen by Ross Garnaut and Rod Sims, and supported by Ken Henry, advocates for a levy on companies involved with fossil fuels consumed in Australia. The institute also proposes a “fair share levy” that would increase the tax rate on local gas producers from approximately 30% to just under 60%, aligning it with rates in countries like Norway.

Under the proposal, households would receive compensation for increased costs through a universal energy compensation payment and a targeted support package. Payments would be front-loaded over the next decade and decrease as households transition to cleaner energy sources, ultimately resulting in lower costs than those associated with fossil fuels. Small businesses would also be compensated.

Reviving Carbon Pricing

The report builds upon a 2024 call from Ross Garnaut for Australia to reintroduce carbon pricing, 12 years after the Abbott government abolished a similar scheme. Labor has previously resisted returning to carbon pricing due to fears of political backlash and inflated cost claims.

Rod Sims, chair of the Superpower Institute, argued that the political, economic, and climate landscape has shifted since 2014. He presented three options for Australia: missing emissions targets, increasing existing policies at a cost to consumers, or making polluters financially responsible for emissions reductions.

Sims suggested dedicating approximately $5 billion annually to household cost-of-living relief, with the remaining revenue allocated to addressing the budget deficit and investing in social policies and green industries. The proposed levy would apply to the carbon content of fossil fuel imports and domestically extracted coal, gas, and oil, impacting around 60 companies.

Revenue and Public Support

The institute proposes starting the pollution levy at $17 per tonne of carbon dioxide, increasing it to match the European Union carbon price by 2034. The two taxes are estimated to generate an average of $35.6 billion per year between 2026 and 2050, starting below $20 billion and rising to over $40 billion after 2030.

Polling commissioned by the institute from Redbridge Group indicated significant public support for the levy, with 68% of Australians agreeing with its implementation. Ken Henry, former head of federal Treasury, affirmed the credibility of the report’s figures and supported its recommendations.

Henry stated that there is a growing public understanding that significant changes are needed and that the benefits of Australia’s natural resources have been unevenly distributed. He believes this creates an opportunity for leadership and innovative solutions in the national interest, particularly for future generations.