What if I told you that you’re paying for someone else to make money?
It might not be in the form of a bill sent to your home, or a bite taken out of your payslip every fortnight, but nearly all of us are paying a big cost we shouldn’t be.
The problem is: it’s not really visible unless you know about it.
You’ve probably heard plenty about the need to tax resources companies more: not just for the pollution they pump into the atmosphere and damage they cause to the environment, but also because they’re effectively making money out of digging up rocks, metals and gasses which don’t belong to them.
Of course, there’s an argument they don’t really belong to any of us, except Aboriginal and Torres Strait Islander people who have looked after the land for centuries before colonisation.
But as long as companies are continuing to mine resources, it makes sense for them to pay for the privilege – and to pay an amount that properly compensates for the damage caused by their businesses. It also makes sense for us to incentivise them to clean up their act.
That’s where the Superpower Institute (started by economist Professor Ross Garnaut and former competition watchdog head Rod Sims) kicks in.
They may not have found a way to harness superpowers such as invisibility, but they (and experts Dr Ingrid Burford and Dr Reuben Finighan) have found a way to rein in the invisible villain that is greenhouse gas emissions.
As their new report explains, between 2020 and 2023, Australia’s state and federal governments took 30 per cent of fossil fuel companies’ profits (mostly through a patchwork of corporate tax, royalties and the Petroleum Resource Rent Tax).
That might seem like a decent chunk, but it’s much less than the 75 to 90 per cent that other major fossil fuel exporting countries claw back, and not nearly enough to make up for the costs of pollution or to move us towards net zero fast enough.
If we continue as we are, we’ll struggle to fund essential services and to lift spending on education, new technologies and infrastructure: things we need to do if we’re going to boost productivity.
Meanwhile, as natural disasters become more frequent, our insurance costs are going up, and we’re paying more at the checkout every time severe droughts or floods wipe out our farmers’ harvests.
It also comes at a time when the country needs a stronger budget to prepare for the bigger health and aged care bills that will come with an ageing population, to shield us from international shocks, and lift our living standards.
Budget deficits are not always bad, but always having budget deficits is, and we’re still a decade away from returning to surplus.
If we continue as we are, we’ll struggle to fund essential services and to lift spending on education, new technologies and infrastructure: things we need to do if we’re going to boost productivity (our ability to produce and do things better, faster or using fewer resources).
Luckily, there’s a big group of companies that can play a big role in this – but how do we get them to cough up?
Right now, we rely on policies such as the “safeguard mechanism” where the country’s biggest industrial facilities are forced to limit their emissions (and, if they emit more than they’re allowed to, to pay for emission-reducing projects by buying “carbon credits”).
There are several problems, though.
The mechanism allows companies to buy their way out of actually reducing their own emissions, and often, the “credits” they buy can be for projects that don’t actually make as much difference as they claim, or projects which would have gone ahead anyway – and it fails to generate any government revenue.
Instead, the first policy proposed by the Superpower Institute is a “polluter pays levy” – or PPL – which would apply to coal, oil and gas extracted and consumed in Australia, and to fossil fuel imports including oil, petrol and diesel.
For example, a company that mines and sells black coal would pay a levy for the methane released during their mining process and the carbon dioxide released when the coal is combusted to produce electricity.
The levy would start this year at $17 for every tonne of CO2 – or equivalent amount of another greenhouse gas – rising gradually until it hits the European Union’s carbon price in 2034, then continue tracking the EU carbon price.
It would cover more than 80 per cent of Australia’s emissions, would be more straightforward and difficult to game than current policies, and raise nearly $23 billion of revenue on average every year.
That’s important because while Australians tend to support policies and actions to reduce emissions, we’re sensitive to cost-of-living pressures such as energy bills. Most of us want to do the right thing, but when it costs us more, we might think twice.
The revenue from the levy would partly be used to reimburse households for higher energy costs – even generating enough to over-compensate them.
Whether $330 a year, as proposed by the institute, is enough for households to feel they are better off is up for some debate.
But if polling is anything to go by, it’s a policy that has a decent amount of public support. More than 60 per cent in a survey of 3000 voters (conducted by Redbridge Research for the Superpower Institute) agreed or strongly agreed with a polluter-pays levy.
Overall, the institute reckons compensation for households would cost about $4.1 billion a year on average: less than one quarter of the revenue raised from the levy. Small businesses would also receive $325 a year, and compensation for households could be more targeted, starting at $490 a year for the bottom 75 per cent of households by income.
The levy would also crucially help reduce Australia’s annual carbon emissions by about 2.3 times more than under current policies according to the research.
The institute also suggests a “fair share levy” on gas exports, mirroring the system Norwegians have in place.
The existing Petroleum Resources Rent Tax, introduced in the 1980s, doesn’t work very well, especially for Australia’s liquefied natural gas industry. Why? In short: because gas projects usually take decades (and a lot more money) to build than oil projects.
Gas extracting companies can deduct these building costs (which they can carry across from one year to the next, and which can balloon every year to account for interest and inflation), effectively leaving them tax-free – sometimes forever.
Instead, the fair share levy, which would collect 40 per cent of the large profits that gas companies pocket over time, would be based on expenses and revenues companies face within the year. The government would take a fixed share of profits or losses each year, with a tax refund given to companies in a loss-making year.
Since profits from the Australian oil and gas industry overwhelmingly flow to foreign shareholders, taxing these profits means Australians will be better off, with the annual benefit – at its peak – being about $1500 for every Australian household.
The tax revenue generated from the two levies – averaging nearly $36 billion each year – could be used not only to compensate households and get the budget in better shape to fund essential services, but to invest in green industries where Australia has a competitive edge over many other countries.
While we can’t claw back the resources, emissions or money we’ve let float by us, it’s not too late to take inspiration from countries such as Norway, which has – largely through its taxing of resources – built up the world’s largest sovereign wealth fund. Perhaps most crucially, if we act now, we can set ourselves up to be a superpower in the global green transition.
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Millie Muroi is the economics writer at The Sydney Morning Herald and The Age. She was formerly an economics correspondent based in Canberra’s Press Gallery and the banking writer based in Sydney.Connect via X or email.
