Australian ETS = Carbon Tax + Consumer Welfare

I have been rooting for the ETS for a while now but with better understanding of the legislation (thanks a lot to the commentary on BusinessSpectator.com.au) I have learned that the ETS in its current form is not going to solve Australia’s problems at all. With ability to pacify any group that the government seems fit and the issue of carbon offsets there are not guarantees on how on the scheme will work.

The latest comes from Robert Gottliebsen who explains how the money from the ETS will be used as a welfare card by the labour government to stay in power.

Over the period from 2011 to 2020 the government expects to raise a staggering $114 billion from industry based on a carbon price of above $20 a tonne.

Where will that money go? John Howard retained office via the so called ‘Howard battlers’. Rudd learned from Howard so that’s where the money goes.

About $54 billion, or just under half, goes to lower and middle income people. Around 90 per cent of all low income households – or some 2.6 million households – will receive assistance equal to around 120 per cent of the overall cost increases they face.

Around 50 per cent of middle income households – about 1.7 million – will be fully compensated for overall cost increases flowing from the carbon trading legislation. And it gets better. Once the scheme starts, assistance will continue in perpetuity because these assistance payments are indexed to CPI and upfront assistance will automatically increase in line with the increasing carbon price as it affects household cost.

Think about it, if we provide people with 120% of the increase in costs; so more than what the costs have increased; then there is no hope in changing behaviour which is the goal.

Earlier I quoted Greg Mankiw on the fundamental theorem of the ETS:

Cap-and-trade = Carbon tax + Corporate welfare.

Well Greg, we have changed that in Australia. It should now read,


Cap-and-trade = Carbon tax + Consumer welfare + Corporate welfare.

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One thought on “Australian ETS = Carbon Tax + Consumer Welfare

  1. How does taxing the consumer more help reduce carbon emissions? We all know business will only pass the cost onto the consumer

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