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Diesel cut and business assistance under Garnaut climate plan

Ross Garnaut recommends business compensation and temporary cut to diesel excise under climate change scheme

By Brad Gardner | May 31, 2011

The Federal Government’s climate change advisor has called for trucking operators to receive a one-off cut to the diesel excise for one year once an emissions trading scheme begins.

Professor Ross Garnaut’s final climate change report, released today, recommends the government tinker with the excise to offset the effect of carbon pricing. Prime Minister Julia Gillard wants to introduce a carbon tax by the middle of next year.

The report recommends a carbon price of between $20 and $30 a tonne, rising by 4 percent each year before transitioning to an emissions trading scheme in 2015. Garnaut says a carbon price of $26 will raise about $11.5 billion in revenue in the 2012-2013 financial year.

“I suggest that the cut in fuel excise – that component that affects households – be permanent but that the increase in fuel offset credits be only for the first year of the emissions trading scheme,” he says.

Garnaut wants fringe benefits tax arrangements reformed to cover the cost, but has also suggested changes to other fuel-related concessions.

“The FBT reform could be accompanied by other measures to cut distortionary subsidies that encourage fossil fuel consumption,” he says.

The report, which comes as the government continues discussion over a possible carbon price, wants 55 percent of revenue from a carbon tax allocated to household assistance in the form of reducing income tax rates.

Under Garnaut’s plan, compensation for energy intensive and trade-exposed businesses will initially be set at 35 percent. It will fall to 25 percent when emissions trading begins in 2015 and then 20 percent in 2021-2022.

The report recommends household assistance increase from 55 percent at the beginning of the scheme to 60 percent by 2015 and between 60 and 65 percent in 2021-2022. Garnaut wants the remaining revenue to be funnelled into research and innovation and purchasing offset credits from rural Australia.

He says household assistance should be targeted at low and middle income households, including raising the tax free threshold to $25,000. He argues it will be much harder and more expensive for Australia to address climate change without a carbon pricing scheme.

The report calls for the establishment of three independent authorities to oversee the carbon tax. A committee will be responsible for advising on targets, coverage, the move to emissions trading and what other countries are doing to address climate change.

A carbon bank will be tasked with regulating the carbon pricing scheme and overseeing industry assistance. Finally, an agency will develop recommendations for industry assistance when the emissions trading scheme begins.

“Good governance structures and processes will be critical to the success of Australia’s emissions reduction scheme. They will help to protect the stability and credibility of the scheme, and support community and business confidence,” Garnaut says.

“The assistance scheme would be administered by an independent regulatory authority with the powers to make payments out of the carbon revenues.”

The report paints a bleak picture for Australia should global temperatures rise to 2C.

“Even an increase of 2oC above pre-industrial levels would have significant implications for the distribution of rainfall in Australia, the frequency and intensity of flood and drought, the intensity of cyclones and the intensity and frequency of conditions for catastrophic bushfires,” the report says.

Garnaut rejects Opposition leader Tony Abbott’s ‘direction action’ policies, saying they will cost Australians much more than a carbon pricing scheme.

“Direct action will still raise costs, but it will not raise any revenue to assist households or emissions-intensive trade-exposed industries in the transition, or to support biosequestration or innovation,” he says.

The Federal Government is currently negotiating with the Greens and independents on a starting price for a carbon tax. A decision is expected to be made in July.

What do you think of Ross Garnaut’s proposals? Will a temporary one-off cut to the diesel excise help you transition to a carbon pricing scheme? Leave your thoughts below

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