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Abstract
This
paper
identifies
principles
for
carbon
pricing
that
could
attract
a
broad
based
and
durable
societal
consensus
in
Australia.
It
applies
these
principles
to
a
phased
carbon
pricing
architecture
as
put
forward
by
Australia’s
Multi-‐Party
Committee
on
Climate
Change,
namely
a
government
determined
(fixed)
carbon
price
transitioning
to
emissions
trading.
Linking
to
international
carbon
markets
decouples
Australia’s
domestic
carbon
price
from
its
national
emissions
target,
allowing
significant
net
national
emissions
reductions
with
manageable
transitional
impacts.
A
fixed
price
in
the
near
term
can
end
costly
delays
to
carbon
pricing
while
dealing
with
uncertainties
about
Australia’s
target
and
international
markets.
A
strategy
is
outlined
to
manage
international
uncertainties
and
to
accommodate
the
multiple
goals
of
domestic
constituencies,
while
achieving
efficiency
and
effectiveness.
First,
ensure
the
medium
term
carbon
price
is
high
enough
to
for
emissions
to
begin
to
trend
down
in
the
next
few
years,
recognising
that
investment
decisions
are
shaped
by
current
expectations
about
future
prices.
Second,
set
the
initial
price
at
a
level
that
gives
confidence
that
short
run
impacts
will
be
manageable,
given
other
transitional
assistance.
Third,
ensure
that
wider
policy
settings
do
not
compromise
incentives
for
reducing
emissions,
and
make
the
scheme
robust
in
the
face
of
competing
claims
for
carbon
revenue
and
lobbying
efforts.
For
Australian
carbon
pricing
policy,
these
principles
suggest
the
carbon
price
may
need
to
rise
rapidly
over
the
course
of
the
decade,
to
double
or
more
compared
to
starting
prices
that
are
currently
in
the
Australian
discussion.
Payments
of
carbon
pricing
revenue
to
industry
may
need
to
be
limited
to
create
more
room
for
income
tax
cuts,
possibly
by
means
of
an
overall
cap
and
accelerated
phase-‐out
of
industry
assistance.
Forestry
and
agricultural
offsets
can
be
supported
through
the
scheme,
but
at
the
cost
of
fiscal
revenue.