Reintroducing a carbon price the 'most economically efficient tax reform' to repair budget

Australia Broadcast Center

29-07-2025

The father of emissions trading in Australia has warned the nation is "on a path to comprehensive failure" without the urgent reintroduction of a carbon price.
Speaking at the Australian Clean Energy Summit in Sydney, Professor Ross Garnaut said the Albanese government had the right objectives on renewable generation, emissions reduction and supporting new export industries based on clean energy.
However, he added that, despite the Albanese government's "Herculean efforts", Australia looked set to fall short of its objectives.
"Failure to reach them will have tragic consequences for Australian productivity, budgetary strength and contribution to the global climate mitigation effort," he argued.
Professor Garnaut's speech comes as Minister for Climate Change and Energy Chris Bowen is preparing to announce an extension of the Capacity Investment Scheme (CIS), which promotes investment in renewable energy generation.
"In three short years, we have seen Capacity Investment Scheme unlock record levels of investment in Australia's energy grid and get us on track to reach 82 per cent renewable energy by 2030," he will tell the Investor Group on Climate Change in a speech on Tuesday evening.
"We will be further expanding the CIS with a further 3 gigawatts of generation, enough to power more than 1 million households.
"We will also incentivise even more storage to come online. Through the CIS, we will underwrite an additional 5 GW of dispatchable capacity or storage.
"This is equivalent to supplying 4.6 million households in the National Electricity Market with energy at peak times, and will support an additional $21 billion in investment in dispatchable capacity."
However, speaking ahead of Mr Bowen's announcement, Professor Garnaut was critical that almost all new private grid-scale investment in solar and wind power was now underwritten by government.
He said the combination of falling prices for solar and wind power, along with the sliding value of large generation certificates (LGCs) for renewable projects, meant that even effective government subsidies like the CIS might no longer be effective in attracting enough renewables investment.
In fact, Professor Garnaut argued that they might be discouraging voluntary private sector investment.
"Announcement of the extended CIS was one of several Commonwealth policy and other changes that led to a slowing of voluntary commitments to use renewable energy. The election of President Trump in November 2024 has been the latest of these developments," he observed.
Professor Garnaut instead urged the government to completely overhaul its carbon reduction strategy.
"There are limits to the progress that we can make towards Anthony Albanese objectives using Tony Abbott policies. These policies include the safeguard mechanism and heavy reliance on voluntary commitments to using renewable energy," he said.
"Australia now needs Anthony Albanese policies to achieve Anthony Albanese objectives."
The eminent economist urged a return to the past to help Australia achieve a net zero emissions future at the lowest possible cost.
"The best cure in the national interest is a carbon price. Not by a little bit, but by a big margin," he argued.
"The carbon price greatly reduces contingent budget liabilities from the CIS and other underwriting schemes.
"In addition, it can add about 1 per cent of GDP or about $25 billion to government revenues, with only a small proportion being required to compensate households for increases in power prices."
Ahead of the federal government's Economic Reform Roundtable next month, Professor Garnaut said that reintroducing some form of carbon price was a far better idea than increasing the Goods and Services Tax (GST).
"Introduction of carbon pricing is the most economically efficient tax reform available to Australia at a time when we need budget repair," he told the audience.
"It delivers all of the economic advantages claimed for increases in GST by its advocates, with the additional advantage of increasing the efficiency of markets.
"The carbon price unleashes the innovation, dynamism and capital resources of competitive markets to build the transition. It efficiently reduces emissions through most of the economy and not only in electricity generation."
If the politics of a carbon price are still too difficult, an alternative temporary fix suggested by Professor Garnaut would be to extend the federal government's Renewable Energy Target (RET).
However, he argued it would not contribute to budget repair, nor to reducing emissions outside the electricity sector, and would ultimately need to be supplanted by carbon pricing "well before 2050".
"Apply neither of the remedies, and we are headed for energy and climate policy crisis within a few years, with demands from the energy sector contributing to severe budgetary problems," Professor Garnaut warned.
In the absence of either, the economist warned that Australian consumers remained vulnerable to the "oligopolistic" behaviour of gas suppliers and big energy generators.
"Average gas power prices are now much higher than during the height of Ukraine disruption, despite gas commodity prices having fallen back," he observed.
"They have been driven to a considerable extent by the loosening of inhibitions in the use of oligopolistic power to lift prices.
"At times, gas generators reduced output when low renewable output was lifting market prices above the average."
Professor Garnaut said a carbon price was the most technology-agnostic, efficient and equitable way to reduce emissions.
"All forms of energy and all ways of reducing emissions can compete on a level playing field," he argued.
"There is no need then for a climate trigger in environmental legislation.
"Nuclear power, which is genuinely zero emissions like solar and wind, gets the same advantage on climate grounds as wind or solar. Gas gets an advantage over coal because it does less climate damage.
"Geological carbon capture and storage is rewarded for its reductions in emissions at the same rate as renewable energy. So is sequestration of carbon in plants and soils."
Professor Garnaut ended with this message to politicians of all political persuasions:
"Let's stop kidding ourselves in the 48th Parliament," he concluded.
"Let's start telling the truth. The truth is that early adoption of carbon pricing is in Australia's national interest, and needs to be considered as a matter of urgency."