Carbon pricing and petrol

Australia is in the midst of deciding how its eventual carbon taxation and trading environment will work, and the conservatives have switched back to their default climate change denial position, as they had before they thought it might win them last year's election. These supposed fans of the free market are now calling for petrol to be excluded from any eventual carbon pricing mechanism.

Crikey has been banging on about the fact that excluding any sector of the economy from the carbon taxation means the cost of carbon for every other sector will be higher. Our government would do well to resist these regressive moves, and aim for a flat carbon price that is based solely around the carbon emitted. We are, after all, trying to get the economy to be less carbon-intensive, so any moved by any sector to reduce their carbon emissions should be encouraged, via a price signal.

Last week China removed some subsidies on processed oil products, which caused a sharp rise in prices. This change was partially caused by pressure from economists to remove the subsidies and instead focus the subsidy on those in most need of financial help. This is the same approach Australia should take.

So the eventual approach we need to take is to tax all carbon sources equally, and help households that meet the criteria of fuel poverty through direct, means-tested and targetted subsidy. Otherwise you'll end up continuing to subsidise road transport over other forms of transport, the rich will end up with cheaper fuel, the poor will still be struggling.

Obviously part of the package needs to be providing alternatives to single-occupant petrol-based transport throughout the economy.