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The IMF reckons Australia needs a carbon tax if it's going to hit its Paris targets – and says we likely can't hike it quickly enough

Jack Derwin
  • The IMF has officially prescribed a carbon tax as the best way for governments around the world to meet their Paris Targets, five years after Australia scrapped its last one.
  • However, the IMF has said while a low tax might work for countries like China, due to its huge fossil fuel reserve Australia would need more than the maximum $US75 ($111) one it modelled.
  • Despite the call, Australian politicians are unlikely to answer given the political toxicity of the issue domestically.

In Australia, there aren't two more loaded words in Australian politics than 'carbon tax'.

Tony Abbott, who successfully snatched the keys to Kirribilli in 2013, ran very successful fear campaign against it. He would claim its abolition as one of his greatest achievements in office, slamming climate science as "crap".

The International Monetary Fund (IMF), which works with governments to achieve economic growth, disagrees with Abbott's pointed assessment.

"The longer that policy action is delayed, the more emissions will accumulate in the atmosphere and the greater the cost of stabilizing global temperatures – let alone of failing to
do so," the IMF said in a new report on how governments need to act on climate.

"[Carbon taxes] are the most powerful and efficient [strategy to mitigate emissions], because they allow firms and households to find the lowest-cost ways of reducing energy use and shifting toward cleaner alternatives."

It's not a groundbreaking statement. Even for the small window of time, Australia had a carbon tax, it did make a difference. National emissions fell 0.8% in its first year – the largest fall in 24 years of records – according to The Guardian.

Under its Paris target, Australia has committed to reduce greenhouse emissions by more than a quarter by 2030. While the IMF says carbon tax is the most effective way for governments to meet that target, Australia remains one of the hardest places to implement one due to its abundance of fossil fuels. Of three carbon tax prices, the IMF modelled, even the most expensive one – about $111 – wouldn't get Australia to where it needs to go.

"Whereas a $US25 a ton price would be more than enough for some countries – for example, China, India, and Russia – to meet their Paris Agreement pledges, in other cases – for example, Australia and Canada – even the $US75 a ton carbon tax falls short," it said.

Under that $US75 price, coal would become 263% more expensive. The price of natural gas would increase 44%, petrol by 15% and electricity by 75%. That's unlikely to win the tax many fans among the electorate, reducing the chances of an Australian government running with the $75 price, let alone a higher one.

To offset that pain, the IMF has recommended that the money raised from the tax be used to offset other taxes, lower electricity prices via greater investment in renewables, or pay it back to Australians as a dividend.

But despite the suggestion, it's unlikely that Australia will heed the call of the IMF. Since it helped sink – an admittedly already sinking – Labor government in 2012, it's gone on to prove as much of an issue on the other side of the aisle.

Consider former Prime Minister Malcolm Turnbull who was forced to abandon his National Energy Guarantee (NEG) by his own party.

Perhaps his experience from nearly a decade earlier was still ringing in his ears. In 2009, as leader of the federal opposition, he had stated his support for Labor's Carbon Pollution Reduction Scheme (CPRS). One week later, he lost a party ballot and the prime ministership, to Abbott.

Given those cautionary tales, both major political parties look prepared to take their chances with the climate, thanks.