Update: Garnaut urges transport inclusion

Economics professor Ross Garnaut has urged the Federal Government to include transport in any carbon trading scheme in his report on the future of climate change policy released this afternoon.

Economics professor Ross Garnaut has urged the Federal Government to include transport in any carbon trading scheme in his report on the future of climate change policy released this afternoon.

Soaring oil prices have generated some calls for petrol and other transport fuels to be excluded from any emissions trading scheme or for consumers to be fully compensated for any increased costs.

But in his report, Garnaut holds firmly to the view that transport should be covered by the scheme.

“The more sectors included in the emissions trading scheme, the more efficiently costs will be shared across the economy. The transport sector should be included,” the report says.

For those likely to take suffer increased costs as a consequence of the scheme – trade-exposed industries, big emitters and consumers – Garnaut argues the Government should use all of the proceeds it receives from the sale of permits to measures directed to these groups.

To cope with the fact that trade-exposed industries may simply lose their business to overseas competitors not regulated by a carbon reduction scheme, Garnaut says financial assistance should be provided to affected sectors so they do not lose out compared to the rest of the economy.

Alternatively, Garnaut says, a large slice of the revenue raised by the scheme – up to 30% – could be directed to generalised business tax cuts that would assist trade-exposed industries and offset the impact on the broader economy.

As for the big emitters, Garnaut acknowledges that some temporary assistance may be required to help some industry sectors, and the geographic regions in which they are concentrated, to adapt to the new regime.

He clearly rejects the proposition that high emission businesses, particularly in the energy sector, should be compensated for the increased costs faced under the scheme.

As for consumers, the report comes down in favour of directing compensation primarily to lower income earners.

“As a general guide, the review has formed the view that around half of the permit revenue should be returned to the household sector, mostly as adjustments to the tax and social security systems that enhance efficiency, with some allocations to promote energy efficiency, especially among low-income earners,” the report states. “There are equity and economic management reasons for concentrating the return of permit revenue on the bottom half of the income distribution.”

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