ENVS6545_MA_Drunis

ENVS6545 –Impact Assessment &Climate Change
Lecturer: Michael Osborne
MAJOR REPORT
Why is a broadly accepted principle like the polluter pays
principle so easily undermined;
A critique of the of the Carbon Tax in Australia.
STUDENT: Aaren Drunis (3189437)
e-mail:c3189437@uon.edu.au
Due 20th
August 2013
Current Wordcount ~3,450

ENVS6545 – Impact Assessment and Climate Change Major Project
Aaren Drunis 1 | 10 ENVS6545
Contents
Figures List............................................................................................................................................ 1
Executive Summary............................................................................................................................... 2
1 Introduction.....................................................................................................................................3
2 The Polluter Pays Principle............................................................................................................ 4
3 Development of the Carbon Tax in Australia................................................................................. 5
4 Critical Evaluation of the Carbon Tax in Australia.........................................................................6
4.1 Politics.....................................................................................................................................6
4.2 Economics .............................................................................................................................. 7
4.3 Design Failures....................................................................................................................... 8
5 Summary........................................................................................................................................9
References .......................................................................................................................................... 10
Figures List
Figure 1: 2011-2012 Australian Electricity Generation by energy source (DPMC 2007)............................... 7

Executive Summary
Climate change presents a profound threat to socio-economic and environmental systems throughout the world.
Faced with the threat from climate change, humankind is tasked with adapting and mitigating the effects of
climate change in order to avoid the most serious impacts (IPCC 2007). While International scientific consensus
supports a widespread response to climate change and a majority of governments have accepted the role of
humans as the cause for much of the warming in the 20th century, the uptake of measures to mitigate the
impacts has been slow with governments failing to reach a consensus on the necessary measures to reduce
emissions in order to mitigate the effects of climate change.
Underpinning mitigation efforts, the polluter pays principle is set out within International law as a core principle
of sustainable development, designed to ensure that the cost of pollution is borne by the individuals or entities
responsible for producing pollution (Weijers, Eng & Das 2012). In the context of climate change, this principle
forms the groundwork for ensuring that nations take accountability for greenhouse gas emissions as an ethical
principle safeguard the environment and socio-economic systems for both present and future generations. Yet
given the potential environmental and economic costs of climate change and the need for nations to take
accountability for the pollution they produce, the principle is seemingly undermined through failure to achieve
adequate controls on greenhouse gas emissions.
In Australia, the carbon tax provides an example of the failure of the application of the polluter pays principle. It
is identified that a number of complex issues contribute to this challenge, with moral, social and economic
components impacting the development and future of the carbon tax in Australia. As a consequence of political
insecurity, public opposition to a carbon tax and the economic status of Australia as a major energy exporter
reliant on fossil fuel reserves, the uptake of the carbon tax has been a slow process, failing to achieve bipartisan
support within the government. External economic pressures and the failure of nations around the world to
commit towards unified reductions challenges political willingness to impose a carbon tax. Within the legislation
itself, it is apparent that shortcomings exist, including disadvantages to lower energy producers, exclusion of
agricultural and transports industries within the legislation and the scale of concessions provided to industry.

1 Introduction
Unless there is global collective action on climate change, the threats presented by rising temperatures and a
rapidly changing climate are likely to have a significant impact for all life on earth (IPCC 2007). It is widely
accepted that while adaptation policies can be harnessed to reduce the impacts of climate change, mitigation
through the reduction of emissions is necessary in order to avert the most serious implications of climate change
and minimise future damage. While International scientific consensus supports a widespread response towards
dealing with climate change, both in terms of adaptation and mitigation, and while the majority of governments
have accepted the role of anthropogenic emissions as the leading factor driving this change, the uptake of
measures to deal with the issue has been slow.
Both governments and businesses have been hesitant and irresolute on resolving this ‘wicked’ challenge due
to a failing global consensus on GHG reductions and due to various internal political and socio-economic
pressures. It is an irony that given the awareness and acknowledgement by many governments that humans
are the leading cause of climate change, the response is disproportionate to the severity of the issue. Within
Australia, this is highly evident in the core mechanism utilised to mitigate climate change, the carbon tax; and
the failure of this mechanism to adequately fulfil the objectives of one particular and fundamental tenant of
International Law, the polluter pays principle. This paper will explore the development of the carbon and
consider the factors contributing to its implementation, examining economic and political drivers as well as the
structure of the carbon tax itself, while also seeking to evaluate just how the polluter pays principle can be so
easily undermined.

2 The Polluter Pays Principle
The polluter pays principle (PPP) was originally adopted by the OECD (of which Australia is a member) in 1972
as an ethical and economic principle for the allocation of the costs of pollution control (OECD 2008). More
recently, under the 1992 Rio Declaration, the principle is set within International policy as a core principle of
sustainable development, dictating that in the best interests to the public and without distortion to international
trade and investment, the cost of pollution should be borne by the individuals or entities which bear responsibility
for the creation of pollution (Bates 2010).
The principle is regarded not as means of compensation for the damage caused by pollution or merely as a
preventative measure, but as a legislative tool allowing public authorities at both a National and International
level to determine appropriate charges towards the prevention of pollution and control measures aimed at
managing pollution. Additional consideration is provided on the requirement for just preventative measures,
restoration or a requirement of both (OECD 2008).The principle acts as both an economic and environmental
tool effectively ‘internalising the externality’ by requiring individuals or organisations to not just manage private
costs, but also be accountable for external social and environmental costs by providing incentive to prevent
pollution as a consequence of moral responsibility and accountability (Weijers, Eng & Das 2012).
In the context of climate change, these environmental and social costs can be viewed as the subsequent
impacts we are likely to face as a consequence of rising global temperatures. As it is identified that
anthropogenic GHG emissions are the leading cause of climate change, the PPP, in essence, provides a
legislative framework for nations to develop pricing mechanisms covering the emission of greenhouse gases,
ensuring that each country and the industries contained within take appropriate responsibility for preventing
and controlling the emission of greenhouse gases. The PPP is an ethical principle encapsulated within the
notion of sustainable development. The prevention and control of pollution in the context of climate change
seeks to not only safeguard the environment for current generations but also for future generations. Within
Australia, the carbon tax was developed to achieve such a goal, however this has not been achieved without
numerous challenges and while Australia has adopted a carbon pricing mechanism, it can be argued that this
does not achieve enough with the legislation falling short of satisfying the requirements of the PPP.

3 Developmentof the Carbon Tax in Australia
While the groundwork for the development of emissions trading was developed in the 1990’s, it was not until
the release of the Stern review in 2006 that apt consideration was given to development of a carbon pricing
mechanism. In response to the findings of the review, the former Coalition government under pressure from the
Labor opposition, established the Prime Ministerial Task Group on Emissions Trading to assess the
implementation of an emissions trading scheme (ETS) in Australia (Spash & Lo 2012). The final report
presented by the Task Group acknowledged the failure of global efforts in achieving reductions in emissions
and the shortcomings of the Kyoto protocol. However, it was identified that it was not in Australia’s best
economic interest to wait for a global consensus as the benefits of early action would outweigh the potential
costs (DPMC 2007). Identifying the risk presented to Australia by climate change, the report recommended the
development of an ETS in order to reduce GHG emissions in Australia as a means to manage risk, respond to
future constraints at a minimal cost and safeguard Domestic and International economic interests (DPMC
2007).
Initial support was given to the findings of the report (DPMC 2007) by the Coalition government which
committed to introducing an ETS no later than 2012, with a target set to be provided by 2008. In the same year,
the Labor opposition commissioned the Garnaut Climate Change Review (2008) to examine the impacts of
climate change on the Australian economy and provide recommendations on future policies and frameworks to
improve sustainability with Australia (Spash & Lo 2012). Effectively regarded as ‘the Australian Stern Review’
the report recommended reductions between 5%-25% on 2000 GHG emission levels by 2020 and set an initial
cost of carbon in the order of $20-$30 (Garnaut 2008).
In response to the Garnaut report the Labor government developed its proposed Carbon Pollution Reduction
Scheme, a proposed ‘cap-and-trade’ system of emissions trading (Spash & Lo 2012). Following the withdrawal
of Coalition support for the ETS, the scheme failed to win the support of either the Coalition or Green parties
and was voted down in the Australian Senate. It was not until 2010, under the Gillard administration that as
requirement for Green support, the Multi-Party Climate Change Committee (MPCCC) was established to
determine ways to introduce a carbon price. Eventual agreement was reached on a fixed price scheme which
would transition to a flexible ETS by 2015. By 2011 the Clean Energy Bill (2011) passed both the lower and
upper houses in government and was finally brought into effect on the 1st July 2012. The legislation introduces
a carbon price accounting for approximately 60% of Australia’s GHG emissions, including emissions from
electricity generation. Initially set out as a fixed price, the carbon tax is/was due to be replaced by an emissions
trading scheme in 2015 (Spash & Lo 2012).

4 Critical Evaluation of the Carbon Tax in Australia
4.1 Politics
The development and establishment of the carbon tax has been a drawn out and politically bruising process,
highly politicised and contentious. Since 2007 climate change policy has contributed to the downfall of a number
of both prime ministers and opposition leaders (Jotzo 2012; Spash & Lo 2012). Not only has this lead to
increasing political uncertainty, but has also led to considerable shifts in the views and beliefs on the suggest
outcome of climate change policy within Australian government over a relatively short period of time. In 2009,
the former opposition leader Malcom Turnbull was defeated in a leadership challenge by Tony Abbott
subsequently leading to the rejection of Coalition support for the proposed carbon pricing mechanism, which
ultimately lead the way for the subsequent rejection of the Labor cap and trade proposal. Subsequent leadership
spills in then Labor government saw Kevin Rudd ousted as prime minister by Julia Gillard in 2010 and then
subsequently in 2013 Rudd regained leadership only to be ousted as prime minister by Tony Abbott in
September 2013.
With the current government rejecting carbon pricing and seeking to repeal the carbon tax, the future of the
carbon tax in Australia appears in doubt with the recently elected Coalition government seeking now to
dismantle the current mechanism and cap emission reductions to 5% by 2020, replacing the carbon tax with a
‘Direct Action Plan’. This approach has been widely criticised by economist and other organisations alike as
being ineffective, and may in fact allow emissions to increase. Given the environmental and socio-economic
threats facing Australia in regards to climate change, it is confounding to witness this sudden reversal in the
development of a carbon tax in Australia, which appears to fly in the face of logic; sidelining the PPP, removing
the requirement for business to be accountable for their pollution and reducing Australia’s commitment to
reductions in emissions.
It is emphatic to note the vital role in which this political uncertainty has governed the development,
implementation and even the future of the carbon tax. Successive governments have failed to reach a bipartisan
consensus on what the carbon tax should entail (Jotzo 2012), an apparent flaw of the PPP as a principle which
falls whim to the policies, ethics and beliefs of the governing political party; subjected to political debates and
vested interests (Spash & Lo 2012). While the political environment within Australia has been the major driving
force influencing the application of the PPP and carbon tax, the issues underlying these views and ethics are
broadly economic by nature, with the structure of the Australian economy having a significant impact on the
direction of the carbon tax.

4.2 Economics
What makes Australia such a unique example is that unlike many of its counterparts within the OECD, Australia
is a net energy exporter, with energy exports equating to approximately 63% of Australian production (DIISRTE
2013). Irrespective of the fact Australia is a net exporter of energy, with an economy largely reliant on the export
of natural mineral resources (in particular, coal & recently to more of an extent, natural gas), GHG emissions
produced by Australia only represents approximately 1.4% of the world’s total emissions (Spash & Lo 2012).
Yet in terms of GDP, Australia has one of the highest emission rates in the world. Regardless, the argument
becomes that of equity; “that it is inequitable to assign emissions ‘against the country of manufacture’ when the
benefit of those goods is enjoyed elsewhere” (Spash & Lo 2012, p.349).
With developing countries arguing their right to economic development and prosperity it seems that neither the
provider nor the polluter want seize responsibility for pollution. This case is further complicated when
consideration is given to the perception within Australia that unless there are moves by developing countries
and other major polluters to curb greenhouse gas emissions, foreign emissions could counter Australian efforts
at reducing greenhouse gases, leading some to believe that the implementation of a carbon tax would impact
competitiveness in Australia markets, placing Australia at an economic disadvantage to other nations.
Figure 1: 2011-2012 Australian ElectricityGeneration by energy source (DPMC 2007)
In the domestic market Australia also has a heavy reliance on the same resources it exports – with fossil fuel
energy accounting for approximately 69% of domestic energy production (Fig 1). While it may be argued
Australia should not bear the responsibility for the pollution from the energy it exports, action still must be taken
to account for domestic greenhouse gases in order to satisfy the objectives of the PPP and meet international
targets for emission reductions.

Given the political nature of climate change policy and the reliance of the Australian economy on natural
resources and manufacturing, a common political discourse is the economic impact the carbon tax is likely to
or would have on the Australian economy. Indeed, the initial proposal of the carbon tax received strong
opposition from both opposition parties and a number of interest groups which claimed the tax would result in
economic contraction, unemployment, higher electricity prices and most notably the demise of the coal industry
(Meng, Siriwardana & McNeill 2012). Notwithstanding, Australia continues to experience steady economic
growth and increasing employment levels. While electricity prices have risen and manufacturing costs have
increased, the impact on Australian consumers has been somewhat negligible and the pretence remains that
GHG emissions can be controlled without significantly impacting the current economic environment (Spash &
Lo 2012).
4.3 DesignFailures
While political elements can be said to influence the implementation and future of the carbon tax in Australia,
and the economic structure and reliance on natural resources underlies much of the policy of the carbon tax, it
is the inherent design flaws within climate change policy (governed by political and economic influences) which
really undermines the PPP principle. Spash & Lo (2012) identify several core issues with the structure of the
carbon tax;
 Australian model developed departs from a number of defining principles of a pollution tax,
 Subsidises big polluters; providing rewards directly proportional to the volume of pollution,
 Lower energy intensive industries are penalised by requiring non-tradeable permits at a fixed value
while,
 More energy intensive industries are provided with free tradable permits
It can be argued that the influence of the vested interests of big business, primarily of the major polluters has
in effect ‘hijacked’ the carbon tax and the application of the PPP, with highly polluting industries receiving greater
concessions in order to maintain economic growth. While the allocation of free permits to the major polluters
provides an incentive for the costs to be passed on to consumers and result in greater profits (Spash & Lo
2012). Furthermore to note is the selective allocation of the tax applying only to entities which emit more than
25,000t/yr; and the tax excludes both agricultural and transport industries. As a consequence, the majority of
the carbon tax is paid by only a small proportion of companies, with the 15 top contributors accounting for
approximately 70% of the carbon units lodged.

5 Summary
Establishing a carbon tax in Australia has by no means been an easy task, fraught with political uncertainty as
a consequence of the shifting political landscape. Economic factors such as Australia’s reliance on natural
resources within both the International and domestic markets have influenced the approach to carbon pricing
within Australia, with concerns over the impact of the carbon tax on Australia’s booming natural resources
industry weighing heavily on the political debate over climate change policy and legislation.
The establishment of the carbon tax in Australia identifies a number of potential shortcomings with the polluter
pays principle. In the context of climate change, it is apparent that reservations are present over the
implementation of carbon pricing mechanism unless a unified global approach is reached. This is echoed in
concerns that in the absence of similar pricing mechanisms in developing nations, Australia may be placed at
an economic disadvantage to other countries and the reductions achieved by the carbon tax offset. Similarly it
is commonly argued, that while Australia is a net exporter of energy, it should not bear the responsibility of
paying the cost of pollution from these exports, instead shifting the onus to those who produce the pollution.
It could be argued that it is not necessarily the case that countries do not want to reduce GHG emissions, yet
the political and economic landscape introduces a number of complexities which challenge the application of
carbon pricing mechanisms, thus presenting a challenge to application of the PPP itself. While set out in
International legislation, the principle falls to the whim of the government in power whereby its ethics, morals
and beliefs govern the application of the principle in establishing carbon pricing mechanisms.
The requirement of the principle therefore does not appear absolute given the extent to which polluters pay and
by how much, is governed by political and economic influences. This is characterised within the structure of the
carbon tax in Australia, whereby not all polluters are subject to the requirements laid out within the carbon tax.
Those who are required to pay a price on pollution only include some of the most prolific polluters, only
accounting for approximately 60% of Australia’s emissions (Spash & Lo 2012). Additionally, the allocation of
permits is structured in such a way that the cost is eventually passed on to consumers, so is it really the polluter
who is paying?
While it may be considered that the development of the carbon tax is a step in the right direction, the legislation
falls short of satisfying the requirements of the polluter pays principle; a principle which looks set to be further
undermined as the future of the carbon tax within Australia appears once again uncertain. Yet the real loser is
the polluter pays principle, for as long as nations continue to unabatedly pollute the environment, the principle
will continue to be undermined.

References
Bates, G 2010, Environmental Law in Australia (7 ed.), LexisNexis Butterworths, Sydney.
IPCC (Intergovernmental Panel on Climate Change). 2007. Climate Change 2007: The Physical Science
Basis. Contribution of Working Group I to the Fourth Assessment Report of the Intergovernmental Panel on
Climate Change. Cambridge, UK: Cambridge University Press.
DIISRTE 2013, 6TH National Communication on Climate Change, Department of Industry, Innovation, Climate
Change, Science, Research and Tertiary Education, viewed 17th November 2013,
<http://unfccc.int/resource/docs/natc/aus_nc6.pdf>
DPMC 2007, Report of the Task Group on Emissions Trading, Department of the Prime Minister and Cabinet,
viewed 17th November 2013, < http://pandora.nla.gov.au/pan/72614/20070601-
0000/www.pmc.gov.au/publications/emissions/index.html#viewing>
Garnaut, R 2008, "The Garnaut climate change review." Global Environmental change, vol.13, pp. 1-5.
Jotzo, F 2012, “Australia’s carbon price”, Nature Climate Change, vol. 2, pp. 475-467.
Meng, S., Siriwardana, M. & McNiell, J 2013, The environmental and economic impact of the carbon tax in
Australia, Environmental and Resource Economics, vol. 54 (3), pp.313-333.
Spash, C.L. & Lo, A.Y 2012, Australia’s carbon tax: A sheep in wolfs clothing?, The Economic And Labour
Relations Review, vol. 23, no. 1, pp. 67-85.
OECD 2008, The Polluter Pays Principle, OECD Publishing, viewed 17th November 2013,
<http://www.keepeek.com/Digital-Asset-Management/oecd/environment/the-polluter-pays-
principle_9789264044845-en>
Weijers, D., Eng, D. & Das, R 2012, “Sharing the responsibility of dealing with climate change: Interpreting the
principle of common but differentiated responsibilities”, In Public Policy: Why ethics matters, (Eds. Boston, J.,
Bradstock, A. & Eng, D.), pp.141-158, Australian National University E-Press, Canberra, Australia.

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