What is a carbon tax and why is it being proposed?
The government plans to tax the carbon pollution caused by the burning of fossil fuels, including coal and petroleum. A carbon tax puts a price on the carbon released when fossil fuels are burned. It is designed to include in the price of fossil fuel use the cost of the environmental damage it causes.
By increasing the price of using fossil fuels, supporters of a carbon tax argue it will create incentives to develop and use technologies that reduce carbon emissions, including fuel-efficient cars and renewable energy sources. Supporters say that taxing carbon will make individuals take into account the price of using fossil fuels in their personal decisions, including the cars they buy and the appliances they use.
For emitters, using carbon-based fuels would eventually cost more than reducing their use of fossil fuels.
How does a carbon tax work?
With a carbon price, the government taxes each tonne of carbon pollution released when fossil fuels are burned. The carbon price is a tax rate set by the government.
The Gillard government has not announced the price it will set on carbon pollution. However it has said the price will be fixed for a period of three to five years.
The tax will include the stationary energy sector, the transport sector, and the industrial processes sector. Agriculture will not be included in the scheme.
How is it different to an emissions trading system?
The federal government plans to move to an emissions trading system three to five years after a carbon tax is introduced.
Emissions trading is different to a carbon tax. In an emissions trading system, a central authority sets a cap on how much a pollutant such as CO2 may be emitted. The cap is allocated to companies in the form of emissions permits, which give them the right to emit a certain amount of the pollutant. Firms are required to hold a number of permits equivalent to their emissions.
The total number of permits issued to all companies cannot exceed the emissions cap, limiting total emissions to that level. Firms that need to increase their emission permits must buy them from companies that require fewer permits. This means permit buyers are paying a charge for polluting more, while sellers are being rewarded for reducing emissions.
This excerpt is reproduced from the SBS article "Factbox: Carbon taxes around the world"