The Gillard government faces a future $3 billion black hole in its carbon tax revenue, with Treasury bucking economists’ predictions and counting on a $29 international carbon price in 2015-16.
Most economists expect the international price of carbon to be hovering below $A15 when the carbon tax switches to a floating price emissions trading scheme (ETS) in 2015. But in its budget papers, Treasury has stuck to its original assumption that the market price three years from now would be $29.
If permits sell at the government’s planned floor price of $15, the government would earn only about $3.5 billion in 2015-16, which is more than $3 billion below the $6.7 billion Treasury listed in yesterday’s budget papers.
But the government would still have to pay out the fixed household compensation for the carbon price, which will total nearly $5 billion in four years’ time.
The revelation came as the government announced the closure of the Tax Breaks for Green Buildings program, saving $405 million over the next four years. The carbon price will cut carbon emissions more cheaply, it said.
The main international carbon prices were both below A$10 this week. European permits were at $A9.54 and the United Nations-backed credits were trading at just under $A5.
Economists and carbon experts who spoke to Fairfax Media ahead of the budget were unanimous in expecting the international price to be nowhere near the $29 figure.
“It will be pretty much dragging along the floor,” said Andrew Macintosh, associate director of the Australian National University’s Centre for Climate and Policy, referring to the planned $15 floor price.
Paul Hyslop, CEO of ACIL Tasman, said the international price was likely to languish around the floor “for some time”, unless there were major changes internationally, including a number of major countries setting up an ETS.
“That looks very unlikely at this stage,” he said. “The government is keen to push that idea but if you look at the major emitters … China is setting up pilots in a few areas but with a very low price and most of the non-European OECD countries are going the other way.”
Treasury is stressing that its $29 figure is a projection rather than an estimate, arguing that three years ahead is too long a time to accurately predict a price and therefore current factors such as the EU and UN prices are not taken into account.
Rather, Treasury is falling back on the figure on which it originally modelled the carbon tax scheme – $29. This is based on long-term factors, such as the assumption that all countries will stick to their greenhouse reduction pledges from the Copenhagen, Cancun and Durban conferences.
But, in a recognition of the possible plunge in revenue, the Treasury has stated that in 2015-16, the “budget would be firmly in surplus even if the price floor of $15 were to bind”. The government believes the surplus will be $7.5 billion in 2015-16.
