The distributional politics of climate change policy

One advantage of the Coalition breaking the parliamentary consensus on an ETS is that more attention is being paid to the actual content and effects of Labor’s scheme. In responding to the Coalition’s ‘new tax’ argument the government has released (to the media, I cannot find any detail online) details of how ‘millions’ of people will be better off under the ETS.

This confirms the Opposition’s point and tries to shift the politics to an old-fashioned redistributional battle. The reason millions of people will be better off is that most lower-income earners will be ‘over-compensated’ for the ETS’s price effects. This is because actual lower-income household carbon emissions will vary considerably, depending on location, housing design, and lifestyle. To ensure that households with carbon emissions at the high end of the normal range are fully compensated, households with low to average carbon emissions will receive additional payments that cover their costs and add more, which can be used to improve their overall standard of living (including consuming more energy!).

This redistribution – along with the handouts to polluters – will be financed by, as Tony Abbott says, a new tax on people with above-average earnings. Take for example a single person earning $80,000 a year. According to the government’s calculations they will be an average $677 a year worse off under an ETS, equivalent to about a 4% increase in income tax. Continue reading “The distributional politics of climate change policy”