Carbon Pricing
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Carbon Pricing

Early Experience and Future Prospects

Edited by John Quiggin, David Adamson and Daniel Quiggin

In 2012, Australia took the major step of introducing a carbon price, involving the creation of a system of emissions permits initially issued at a fixed price. Carbon Pricing brings together experts instrumental in the development, and operation, of Australia’s carbon policy who have played a significant role in the broader debate over climate change policy. Together they have achieved an in-depth analysis of Australia’s policy stance on pricing carbon and its implications for the wider economy.
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Chapter 1: The carbon tax: early experience and future prospects

Ross Garnaut

Extract

This chapter introduces some issues in the economics of climate change that became important in my two policy-oriented reviews for successive Australian prime ministers, Kevin Rudd (Garnaut, 2008) and Julia Gillard (Garnaut, 2011). The chapter begins with a brief description of the recent history of carbon pricing policy in Australia, placing my two Climate Change Reviews into perspective. It then touches on a number of issues that had to be considered in the Climate Change Reviews, relating to how we should calculate the amount of mitigation to equate the marginal costs and benefits of reducing greenhouse gas emissions, and how we should go about achieving the desired amount of abatement. We have to come to grips with many complexities in internalizing the external costs of greenhouse gas emissions, particularly related to the realities that we are dealing with a global and not a national externality, that it is the stock of emissions accumulated in the atmosphere and not the flow in any year that determines the extent of the damage, and that the costs of mitigation are felt much earlier than the benefits. The chapter then takes a closer look at two issues that required attention: choice of discount rates in comparing the respective value of costs at one time with benefits at another; and assessment of whether and the extent to which established emissions-intensive industries should be compensated for any private costs incurred by the introduction of a mitigation regime.

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