The Albanese government could make deep emissions cuts and restructure an ailing federal budget by taxing polluting companies more than $35bn a year for the damage they cause to the planet, according to a report backed by senior economists and ex-public servants.
The analysis by the Superpower Institute – overseen by the longtime Labor adviser Ross Garnaut and former consumer watchdog chair Rod Sims, and supported by ex-Treasury head Ken Henry – makes a case for the introduction of a “polluter pays levy” on companies that extract or import fossil fuels consumed in Australia.
It also calls for a “fair share levy” that would lift the tax paid by local gas producers on profits from about 30% to just under 60%, putting it closer to the 75%-90% that is paid in some other fossil fuel exporting countries, such as Norway.
Under the proposal, households would receive hundreds of dollars in compensation – and in some cases overcompensation – for increased costs.
The compensation would be paid through a universal energy compensation payment and a targeted additional household support package. Payments would be frontloaded over the next decade and decline as people shifted from running their homes and vehicles on gas, petrol and diesel to clean electricity.
After that, households would be expected to face lower costs than when their homes relied on fossil fuels. Small businesses would also be compensated.
The report fleshes out a 2024 call by Garnaut, the Superpower Institute’s director, for Australia to re-embrace carbon pricing 12 years after the then Coalition prime minister Tony Abbott abolished what some had described as a world-leading scheme to address the climate crisis.
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In the years since, Labor has repeatedly rejected the idea of returning to charging polluters for their emissions, fearing another brutal political fight over often inflated claims about the cost to the public.
Sims, the chair of the Superpower Institute and an ex-chair of the Australian Competition and Consumer Commission, suggested the political, economic and climate landscape had changed significantly since 2014.
He said Australia faced three choices – missing its emissions targets under existing policies, ramping up existing policies in a way that pushed up consumer costs, or forcing polluters to foot the bill and dramatically accelerating the pace of emissions cuts.
Sims said on average about $5bn a year should be dedicated to household cost-of-living relief. The rest could be spent addressing a long-term structural budget deficit, which he said was worse than people realised, and on social policies and green industries.
He said the “simple” polluter pays levy could apply to the carbon content of fossil fuel imports and the coal, gas and oil extracted in Australia by about 60 companies.
“These products are responsible for about 80% of Australia’s emissions, but ordinary Australians are picking up the tab,” he said. “It’s a simple principle: if you cause the damage you should help fix it. That’s not radical, it’s fair.”
The institute suggested the pollution levy should start at $17 a tonne of carbon dioxide, rising until it is linked to the European Union carbon price in 2034.
It said the new gas levy – similar to calls from other organisations in recent years – would ensure companies paid “their fair share for extracting the gas resources that belong to all Australians”. Institute modelling suggested the levy would be “economically neutral” and not affect gas industry investment returns or export prices.
The report estimated the two taxes would on average collect $35.6bn a year from 2026 to 2050. Annual revenue would start at less than $20bn and rise to more than $40bn after 2030.
Despite Australia’s two-decade-plus volatile contentious public fight over carbon pricing, the institute expected the policy could be popular.
It commissioned polling from Redbridge Group that suggested 68% of Australians agreed with introducing a “polluter levy” on the country’s biggest greenhouse gas emitters.
Henry, who led federal Treasury for a decade until 2011 and was not involved with the Superpower Institute analysis, said the numbers in the report were credible and backed its recommendations.
He said the government had an opportunity in the current political moment to introduce major change as many people understood “that some big things need to happen” and “that benefits that have accrued to the nation have been overly concentrated in a few hands”.
“I think there’s a view quite broadly shared in the community that much of the good fortune that Australia has been endowed with over millions of years we’ve been doing our level best to piss up against the wall,” he said.
“I think that gives leaders an opportunity to do some creative things in the national interest, and particularly in the interest of future generations.”
