Carbon Tax versus ETS (in less than 5 minutes).






Want to be smooth, sophisticated and well-informed this election? Want to do it without touching a single policy paper or watching a single episode of Q&A? No problem. I’ve got your back. Welcome to Stox’s 5 minute guide to some of the policy and political issues that will dominate the 2013 Election.

So, let’s start with something easy, eh? How about: “Everything you need to know about the carbon tax and the emissions trading scheme”. [Relax, it’s all about garbage bags on your lawn…]

Tell me in two sentences…

For both the carbon tax and the emissions trading scheme (ETS), it’s about using economics (or the pressure of having to pay for something) to reduce the amount of carbon pollution that is released into the atmosphere. If you are a big polluting company, you have to pay to pollute.

What is a “carbon tax”?

A carbon tax is the price set by government that polluting companies will have to pay to release a certain amount of carbon dioxide gas into the atmosphere. The current carbon price in Australia is $24.15 for every tonne of carbon emissions that the biggest 500 polluters release.

The carbon price is premised on a simple idea about human behaviour: if you have to pay for something, you’ll be more careful about how you use it.

Putting a price on carbon.

A quick example: if every bag of garbage that your family generates costs you $24.15 to put out on the curb for collection, you’d pretty quickly be thinking about how you could cut down on the amount of packaging you use, how much stuff you can re-use or how much you could turn into compost. If you take action to reduce your garbage, there is a financial benefit to you (you will pay for fewer bags) – so you are motivated do it.


In the same way, putting a price on carbon creates an incentive for companies to reduce the amount of carbon pollution that they are releasing into the atmosphere, or to otherwise invest in cleaner technology or alternative ways of doing things.

In Australia, only the top 500 polluting companies are paying the carbon tax. You and I don’t pay the tax directly, but the cost of the tax may be (ok, *is*) passed on to us in higher prices for goods and services.

What’s an emissions trading scheme (ETS)?

Under an ETS, companies buy and sell permits to pollute. The only role for a government regulator is to set a cap on how much pollution can be emitted by all companies in total and then to initially divide up that cap between companies in the form of emissions permits. These permits give a business the right to pollute at a certain level. If a company doesn’t have enough permits to cover the amount of polluting that they want to do, they’ll need to buy permits from other companies who don’t need theirs (or reduce their emissions to the level of the permits they already have).

Going back to our bags of garbage example… Say your local council says: each family can only put out four bags of garbage each week. I live by myself, so I’m sweet: I only produce two bags of garbage each week. My neighbour has a big family and produces eight bags of garbage every week. I pop over and offer to sell to my neighbour the two spare bags of garbage that I am not using.


I’ve sold them something I don’t need, so I am happy (and I’m also thinking: if I cut down to one bag of garbage, I can sell the other bag and make more cash…). My neighbour now needs to go and find someone else in the street to sell them their extra bags – or my neighbour needs to cut back on the amount of garbage they generate.

Bingo: we’ve got a Garbage Bag Trading Scheme (GBTS). High fives!

The ETS works like the GBTS. Except there’s a lot more money involved. And a bigger neighbourhood: companies trading in an Australian ETS should be able to trade their permits with companies in other ETSs around the world (according to the Australian Climate Commission, 33 countries and 18 states/provinces will have an ETS this year).

What do the political parties say?

The major parties agree that carbon pollution is bad for the environment and the economy, and it needs to be addressed. They differ on how to tackle it.

The Rudd Labor Government will move to an ETS.

The Labor Government says having a carbon tax that transitions to an ETS is the way forward. The Rudd Labor Government says it will move from the current carbon tax to an ETS by the middle of next year (July 2014), one year earlier than planned.

This means that the tax will earn the Government less, but they plan to make up the difference with savings including reducing senior levels of the public service, tightening up fringe benefit tax rules relating to cars and cuts to some climate change programs.


The Opposition says that it will scrap the carbon tax and replace it with a $3.2 billion Direct Action Plan. This plan will not charge industries to pollute (like the carbon tax), but will establish a $3 billion emissions reduction fund (ERF) which will make payments to companies who successfully tender projects designed to reduce carbon emissions.

This plan will also invest in carbon capture technology for soil. The Coalition previously supported an ETS (as a free market-based approach) under former leaders John Howard, Brendan Nelson and Malcolm Turnbull, but since Tony Abbott took over the leadership of the party, they have focussed on this Direct Action strategy.

The Greens Party support carbon pricing and an ETS. But Greens leader, Senator Christine Milne, has said that the Greens will not support the move by PM Rudd to bring forward the ETS to 2014.

The Palmer United Party has indicated that it would abolish the carbon tax. This is unsurprising given that Clive Palmer has refused to pay his own $6 million carbon tax bill. Katter’s Australian Party is similarly opposed to both a carbon tax and an ETS

It’s not clear where the Coke in the Bubblers Party stands, but if you want to ask them, their details are hereon the Australian Electoral Commission website. What do you say? Who wants to start a GBTS with me?

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