Carbon Pricing Options for a Post-Kyoto Response to Climate Change in Australia
| Author | Natalie Stoianoff,Wayne Gumley |
| DOI | 10.22145/flr.39.1.5 |
| Published date | 01 March 2011 |
| Date | 01 March 2011 |
| Subject Matter | Article |
CARBON PRICING OPTIONS FOR A POST-KYOTO
RESPONSE TO CLIMATE CHANGE IN AUSTRALIA
Wayne Gumley*and Natalie Stoianoff**
I INTRODUCTION
On 24 February 2011 the Australian Prime Minister Julia Gillard announced proposals
for introducti on of a 'carbon price mechanism' to commence as early as 1 July 2012.1
This announcement follows the establishment of a Multi-Party Climate Change
Committee on 27 September 2010 with instructions to 'explore options for the
implementation of a carbon price [and] help to build consensus on how Australia will
tackle the challenge of climate change', starting from the position that 'a carbon price is
a necessary economic reform required to reduce carbon pollution'.2 Earlier in 2010 a
major review of the Australian taxation system by Dr Ken Henry was released,
providing extensive insights into how the tax system should be restructured 'to deal
with the … environmental challenges of the 21st century', and its 'interrelationships
[with] … the proposed emissions trading system'.3 These developments are largely
driven by the need for Australia to dev elop a credible climate change agenda once the
Kyoto Protocol arrangements come to an end in 2012.4 Whilst Australia seems to be on
track to meet its Kyoto commitments, setting acceptable greenhouse reduction targets
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* Wayne S Gumley BSc LLM, Senior Lecturer, Faculty of Business and Economics, Monash
University, Melbourne, email: wayne.gumley@monash.edu.au.
** Professor Natalie Stoianoff, Director, Master of Industrial Property Program, Faculty of
Law, University of Technology, Sydney, email: natalie.stoianoff@uts.edu.au.
1 Prime Minister of Australia, 'Climate change framework announced ' (Media Release, 24
February 2011) <http://www.pm.gov.au/press-office/climate-change-framework-
announced>. This media release includes attachment 'Carbon Price mechanism' (Multi
Party Committee on Climate Change, 24 February 2011).
2 Prime Minister of Australia, ‘Prime Minister establishes Climate Change Committee'
(Media Release, 27 September 20 10) <http://www.pm.gov.au/press-office/prime-
minister-establishes-climate-change-committee>, 1.
3 The Henry Review Panel, ‘Australia's Future Tax System, Report to the Treasurer, Part
One Overview’ (Report, The Henry Review Panel, December 2009), vii (the 'Henry Tax
Review').
4 The Kyoto Protocol to the United Nations Framework Convention on Climate Change, opened for
signature 11 December 1997, 2303 UNTS 162 (entered into force 1 6 February 2005).
Australia's commitment was to restrict its emissions growth to 108 per cent of emissions in
the 1990 baseline year by the period 2008–12 (art 3 and annex B).
132 Federal Law Review Volume 39
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and introducing effective greenhouse abatement strategies for the 'post-Kyoto' period
will be a huge challenge.5
This paper will critically analyse the policy options for esta blishing a carbon price
in Australia in the post -Kyoto context in the light of the Henry Review and other
recent developments. In Part II the paper considers some of the key literature in
support of market based instruments including a critic al analysis of the relative merits
of carbon taxes and emissions trading. In Part III, the recent history of regulatory
responses to climate change in Australia is reviewed, including the proposed Carbon
Pollution Reduction Scheme ('CPRS'). Part IV identifies a range of 'barriers to change'
within the Australian taxation system likely to undermine the operation of carbon
pricing options. In Part V the paper concludes that the removal of barriers to change is
a vital part of any attempts to intr oduce a carbon price, and that tax expenditure
reform should be a key element of all market based responses.
II THE CASE FOR MARKET BASED RESPONSES
Economists have generally considered environmental problems like air and water
pollution to be the result of a 'market failure', whereby those who cause the pollution
impose costs on third parties but do not themselves bear the burden of those 'external'
costs.6 Various strategies c an be suggested to 'correct' such a market failure. These
range from 'soft' approaches like environmental education and voluntary agreements,
to mandatory obligations i mposed by 'command and control' regulati on. S omewhere
between these extremes are a variety of economic incentives provided by market based
instruments.7
A Educational and voluntary strategies
Environmental education has been termed an 'informational stra tegy' by Fauchald,
who notes the utility of this strategy as supplementary to the other strategies.8
Education is aimed at informing individuals and both private and public bodies of the
environmental problems, of ways of dealing with those problems and generally
providing information that can be used to produce a positive environmental impact.
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5 Australia's Kyoto-defined emissions are expected to average 107 per cent of the 1 990
baseline level during the commitment period 2008-12: see Department of Climate Change
(Cth), ′Tracking to Kyoto and 2020: Australia's Greenhouse Emissions Trends 1990 to 2008-
12 and 2020′, (Report, Department of Climate Change, August 2009), 18 (at Table 2).
6 See, eg, Tom Tietenberg, Environmental and Natural Resource Economics (Pearson Addison-
Wesley, 2006).
7 See David Hunter, James Salzman a nd Durwood Zaelke, International Environmental Law
and Policy (Foundation Press, 2nd ed, 2002) 130-41, and earlier works including William
Baumol and Wallace Oates, The Theory of Environmental Policy, (Cambridge University
Press, revised ed, 1988); Organisation for Economic Co-Operation and Development,
Economic instruments for pollution control and natural resource management in OECD countries:
a survey (8 October 1999) <http://smap.ew.eea.europa.eu/fol034934/fol305501/fol830890/
Eco_Instr__Pollution_Control_OECD.pdf/>; Wayne Gumley 'Legal and Economic
Responses to Global Warming — An Australian Perspective' (1997) 14 Environmental and
Planning Law Journal 341.
8 Ole Kristian Fauchald, Environmental Taxes and Trade Discrimination (Kluwer Law
International, 1998) 29.
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