Climate Change Mitigation: Carbon Tax -- Is it the Better Answer for Australia?

This paper discusses the domestic and global obligations Australia is facing with respect to its climate change mitigation obligations. Because of the 'enhanced greenhouse effect' caused by human activity, climate change has become a global issue that requires collective support and action to ensure its mitigation, with the prevailing question being: What is the most equitable, effective and efficient means of abrogation? Traditionally, environmental measures have been enforced through command and control regulations, with their aim being to prohibit behaviour that was seen to be damaging to the environment. However, the last 20 years or so have seen a rise in the use of 'market-related instruments' such as the implementation of 'green' taxes and 'emission trading schemes' (ETSs) to influence human behaviour indirectly. From past experience, economic incentive-based policies are generally more efficient measures than regulatory approaches at combating issues like climate change. The paper compares two such economic or market-based approaches: carbon taxes and ETSs, noting the differences, advantages and shortcomings of each. International comparisons are noted, in particular, the success of Denmark and Sweden in their adoption of carbon taxes as part of their domestic Environmental Tax Reform (ETR) initiatives to address undesirable carbon emissions in their countries. The paper then examines the major regulatory controls that address the environmental protection activities which are already operating in Australia, before discussing the problematic and unsuccessful implementation in 2009/10 of the Australian Government's own version of an ETS, the 'Carbon Pollution Reduction Scheme' (CPRS). Current developments including the recommendations of the Australian Government's new Multi-Party Climate Change Committee (MPCCC) and an examination of the recently released Garnaut Climate Change Review Updates, Nos. 6, 7 and 8, is also undertaken together with an overview of the more recent recommendations made in 'The Garnaut Review 2011: Australia in the Global Response to Climate Change'. It is concluded that despite the Australian Government's preferred option to implement another ETS variant (which would initially operate as a fixed-price permit scheme, to be converted later to a full ETS after a period of three to five years), a carbon tax would be better equipped to provide a solution that is revenue neutral, simple to administer, encourages technical innovation and, most importantly, is more likely to reduce greenhouse gas (GHG) emissions such as carbon dioxide (CO2) than other regulatory measures, or other economic or market-based schemes. [ABSTRACT FROM AUTHOR]