Revenue recycling carbon tax would increase Australia’s GDP

A Carbon Tax to Achieve Emissions Reduction Goals and Promote Economic Growth in Australia

A carbon tax where cash proceeds are redirected back into the Australian economy would help Australia achieve its emissions reductions goals, and also provide economic benefits.

Introduction

New research to be published in September’s issue of the Journal of Cleaner Production finds economic growth can be encouraged by following a revenue-neutral policy and redirecting the carbon tax revenue into the economy.

The Impact of Carbon Tax on the Economy

Without such a suitable revenue recycling policy approach, introducing a carbon tax policy would succeed in decreasing Australia’s carbon emissions – but also reduce GDP and real consumption, the report finds.

The Previous Carbon Tax Mechanism

The Gillard government introduced a carbon tax mechanism in 2011, whereupon emissions from companies subject to the scheme dropped by 7%. The price of a permit for one tonne of carbon was fixed at $23 for the 2012-13 financial year, and rose to $24.15 for 2013-14. However, the scheme was repealed just two years later due to having a negative impact on prices and the economy.

The Emission Reduction Fund

In its place, the Abbott government set up the Emission Reduction Fund in 2014 and emissions resumed growth. The climate safeguard mechanism is a component of this change policy tool that applies to direct emissions from designated large facilities. If companies fail to meet the baseline, they purchase ACCUs or are fined.

The Importance of CGE Models

Report author Mona Mashhadi Rajabi, postdoctoral research associate at the University of Technology business school, said that the Safeguard Mechanism should have used a Computable General Equilibrium (CGE) model to estimate the impact of a carbon tax on the economy. CGE models are large numerical models which apply economic theory to actual economic data in order to estimate computationally how an economy might react to the impacts of policy changes, shocks, or major projects.

The Study’s Findings

The study proposes two carbon tax policies and three revenue recycling approaches. It looked at what would happen if a carbon tax policy was introduced starting at $23/tCO2, increasing over time and imposing uniformly on all industries to $70 in 2030 until 2035. The inflation impact of this policy is estimated to be 0.5% in 2023, increasing to 1.52% in 2035. This would be offset through redistribution of money generated by the carbon tax between different stakeholders in the economy without increasing the government’s revenue.

Revenue Recycling Approaches

Redistribution methods would include reducing income taxes, supporting consumption, subsidising energy saving and pollution reducing programs, and investing in research and development projects. The study proposes that money allotted to investment would rise from the second year as the carbon tax rate increases – amounting to $57 billion over 13 years.

Achieving Sustainable Development Goals

Following this approach, Australia could reduce carbon emissions by 35% while GDP would increase by 0.286% by 2035 and new jobs would be created in research and development. “Although the imposition of a carbon tax increases the production cost and inflation, redirecting the accumulated tax revenue back into the economy offsets the inflation-impact of the policy on people’s budget and total economy,” Mashhadi Rajabi said. “To reach this goal, this study recommends reducing income taxes to save the purchasing power of workers in the economy while investing in research and development projects to facilitate the transition to a low carbon economy. Focusing on the importance of a carbon tax design including the gradual rise in the tax rate and full coverage of the policy, this study highlights the importance of supporting people’s budget and their spending power in order to experience economic growth.”

SDGs, Targets, and Indicators

1. SDG 13: Climate Action

   • Target 13.2: Integrate climate change measures into national policies, strategies, and planning.
   • Target 13.3: Improve education, awareness-raising, and human and institutional capacity on climate change mitigation, adaptation, impact reduction, and early warning.
   • Indicator: Carbon emissions reduction.

2. SDG 8: Decent Work and Economic Growth

   • Target 8.1: Sustain per capita economic growth in accordance with national circumstances and, in particular, at least 7% GDP growth per annum in the least developed countries.
   • Target 8.2: Achieve higher levels of economic productivity through diversification, technological upgrading, and innovation.
   • Indicator: GDP growth.

Analysis

The article discusses the potential benefits of implementing a revenue-neutral carbon tax in Australia. This directly relates to SDG 13 (Climate Action) as it aims to reduce carbon emissions and integrate climate change measures into national policies. The article also highlights the economic benefits of this approach, connecting it to SDG 8 (Decent Work and Economic Growth) by promoting economic growth and productivity.

Based on the article’s content, the specific targets that can be identified are:

1. Target 13.2: Integrate climate change measures into national policies, strategies, and planning.
2. Target 13.3: Improve education, awareness-raising, and human and institutional capacity on climate change mitigation, adaptation, impact reduction, and early warning.
3. Target 8.1: Sustain per capita economic growth in accordance with national circumstances and, in particular, at least 7% GDP growth per annum in the least developed countries.
4. Target 8.2: Achieve higher levels of economic productivity through diversification, technological upgrading, and innovation.

The article mentions the indicator of carbon emissions reduction, which can be used to measure progress towards achieving targets under SDG 13. Additionally, GDP growth is mentioned as an indicator of progress towards targets under SDG 8.

Table: SDGs, Targets, and Indicators

Behold! This splendid article springs forth from the wellspring of knowledge, shaped by a wondrous proprietary AI technology that delved into a vast ocean of data, illuminating the path towards the Sustainable Development Goals. Remember that all rights are reserved by SDG Investors LLC, empowering us to champion progress together.

Source: fssustainability.com.au

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