If I understand this correctly the article calls for finished goods to be taxed on their carbon content, as opposed to taxing carbon at the coal mine, power station or refinery. Garnaut praised the administrative simplicity of levying carbon costs upstream. Thereby clean energy like hydro escapes the net and won't have to be calculated as an input to finished goods. I think for practical purposes such charges would have to be arbitrary, say 40% on steel from China, 5% on Indian call centre services and perhaps 80% on food which is hugely carbon intensive even if grown locally.

Nonetheless I think there are many other instruments apart from our now lame duck ETS. We could have fuel ration smart cards, we could cut coal exports by 2-3% a year, we could put import quotas on goods from China, we could refuse uranium to countries that don't sign Kyoto and so on. The next few years are going to be creepy with a lot of finger pointing.

This argument has a lot of merit in principle, but how can it be made to work in practice? How can we know if a car plant in Korea or a piggery in Denmark has improved its emissions intensity and deserves a lower carbon tax?

Also, final products are a lot more diverse and complex than the commodities they are made of. How can we determine the appropriate rate of tax for a steel-framed sofa compared to one built of timber, and one covered in artificial leather compared to one covered in cotton? These might seem unnecessary distinctions – let’s tax the all the same – but unless the market is sending subtle price signals that energy-intensive products are relatively more expensive, the carbon price won’t do its job of shifting demand and production to less polluting process and products.

I suspect it’s easier and fairer to identify and price the emissions-intensive parts of the production process – energy use, commodity production etc – than attempt to calculate an appropriate tax downstream.

The author makes the following suggestion:

For those readers of the article concerned about the practicality of the consumption-based policy, please read GCA policy note #2. You can find it by clicking here: http://onlineopinion.com.au/documents/articles/GCA_Policy_Note02.pdf

Susan Prior - ed

It might be a good idea in principle, but I rather think that in practice it would be an administrative nightmare. It might provide a lot of jobs though.

David

Geoff has missed the point.

The ETS is in place to tax based on emmissions, the point of which is not to reduce production but to encourage low emmission productions. This in itself will raise the cost and discourage consumption.

As for taxing imports based on emmissions, I agree, as this will provide countries like China to curb emmissions. The rebate on the tax would be dependent on how far the country as a whole meets the Kyoto targets.

Nuclear should be encouraged as the most viable way of reaching this target.

An excellent article. The merits of a consumption based tax based on pollution reduction are overwhelming. The administration should be on par with processing the GST.

Most countries have value added taxes on consumption. So why not re-jig the Goods and Services Tax with a smarter assessment criteria - a consumption based Pollution Reduction Tax (PRT)? A PRT could completely replace the current assessment for the GST. In this way, renewable goods would be PRT exempt while goods and services with heavy green house gas emmissions would pay the highest rate of consumption tax.

The senate inquiry should throw out Rudd's poorly conceived Pollution Reduction trading scheme on the grounds that it is too weak to meet the 450ppm target and it is prone to corrupt sweetheart deals with the big polluters. It does little for our clean and green industries who are leaving Australia in droves for better opportunities elsewhere. It's back to the drawing board to get this most important of environmental policies right - and for Australia to become a world leader with an intelligent way of giving the market place the right price signals.