Carbon tax 'better than ETS plan'

The planned emissions trading system is the wrong approach and should be replaced by a carbon tax, offset by lowering other taxes such as income or fuel tax, according to a new report.

Right-wing think tank the Centre for Independent Studies says an emissions tax linked with other tax cuts would be a big improvement over the planned ETS.

"Emissions trading is a costly, bureaucratic and inflexible approach," say the report's authors, John Humphreys and Luke Malpass.

In contrast, an emissions tax would be relatively efficient and flexible, giving players the "maximum freedom to do business", they say.

Such a tax would lead to less lobbying by interest groups, lower administrative costs, give a stable price and avoid wasteful handouts to business.

But the biggest advantage would be to link the emissions tax to other tax cuts, to offset its inevitable costs.

A $40-a-tonne carbon tax, excluding agriculture, would raise more than $1.4 billion, which could be used to raise the tax threshold for the 21 per cent and 33 per cent tax brackets. The 33 per cent tax bracket could rise from $70,000 to $140,000, moving more workers into a lower tax bracket.

Changing tax brackets should encourage employment and economic growth.

A $30-a-tonne carbon tax could raise $1.1 billion, enough to cut the company tax rate from 30 per cent to 25 per cent, leading to stronger business growth, higher wages and lower prices.

A $20-a-tonne tax could be used to replace fuel tax, resulting in petrol prices dropping by about 27 cents a lire.

The report says whatever rate was chosen, it should be brought in over time. The tax rate could also be increased if greater global warming became apparent.

"The emissions tax could be decreased or abolished if man-made warming failed to occur," the report says.

An emissions tax would cover the energy sector and industrial processing sector, but there was no need to include farming.

The goal of pricing emissions should be to speed up the shift to cleaner fuel technology rather than reduce the use of energy, transport and agriculture, which benefit society, the report says, adding that the distinction was important.

The planned ETS will cover stationary energy and industrial processes in 2010, liquid fuels in 2011 and synthetic gases, agriculture and waste by 2013.

Agriculture emitted 36.4 million tonnes of CO2 in 2007, out of a total of 75.6 million tonnes for all sectors.

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