Fiscal responses to climate change in Australia: A comparison with California

Justin Dabner

Research output: Contribution to journalArticleResearchpeer-review


Global initiatives to reduce emissions can be categorised as either regulatory measures or measures that seek to place a price on carbon. Most jurisdictions employ a combination of the two, with pricing measures generally preferred by economists. Where carbon is priced, this is typically achieved by imposing a carbon tax and/or an emissions trading scheme (ETS). Australia introduced a nationwide ETS from 1 July 2012, with California (and Quebec) following suit from 1 January 2013. The Australian ETS was set to link with that of the European Union from 1 July 2014 and linkage with New Zealand was also being explored. Meanwhile, California and Quebec linked six months earlier. The first tentative steps towards a global carbon market seemed underway. However, the Australian Opposition party rallied against the ETS and, with its subsequent election to government, repealed the regime. The prime mechanism to achieve Australia s emissions reductions commitment is now the emissions reduction fund (ERF). Under this scheme, the government holds reverse auctions whereby the cheapest emissions reduction proposals put to it by industry are funded. As a safeguard measure, large emitters are to remain subject to emissions caps with default (possibly) leading to fines where offsets cannot be sourced elsewhere. Thus, carbon pricing and (limited) trading will still feature under the revised Australian regime. The circumstances leading to the implementation and then demise of the Australian ETS, and its replacement with the ERF, are explored in this article. Both the former ETS and ERF will be compared with the Californian ETS, widely regarded as operating successfully since its commencement six months after Australia s ill-fated ETS. It will be observed that a focus on domestic emissions is a feature of both the Californian and new Australian regimes. While political expediency and, possibly, environmental integrity concerns might motivate this dislike of foreign credits, one effect is that emissions reductions are likely to come at a much higher cost and the regimes fail the opportunity to assist in curtailing developing world emissions. On the flip side, both regimes are then quarantined from the mistakes and market failures of the global market. With critics suggesting that the Australian ERF experiment may be short lived, there is a prospect that Australia might again embrace an ETS. This could serve as an opportunity to reorientate the focus on international linkage from Europe to California.
Original languageEnglish
Pages (from-to)131 - 166
Number of pages36
JournalAustralian Tax Forum
Issue number1
Publication statusPublished - 2016

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