In a landmark address to the National Press Club (NPC), former ACCC Chair Rod Sims, now Chair of The Superpower Institute (TSI), and leading economist and founder of TSI, Ross Garnaut, outline the path to restoring Australia’s prosperity by using its opportunities in the post carbon world.
Following a decade of stagnation of output per person, real wages and living standards, the NPC address discusses how Australia’s full participation in the world’s move to achieve net zero global emissions is the only credible path to restoring productivity growth and rising living standards, and so promoting Australia’s economic prosperity.
15 recommendations (see download) have been put forward covering three themes. The recommendations are a package of funded measures to ease cost of living pressures and establish competitiveness in large and growing zero-carbon export industries.
- Establishing the right balance between the role of the state, and the role of competitive private markets. Markets should be left free to allocate resources in all areas where competition is possible. That allows government to concentrate on the things government must do; efficient provision of public goods, and of natural monopoly services such as electricity transmission and hydrogen transport and storage. Also, the choice of projects within the Commonwealth’s new Capacity Investment Scheme (CIS) should support investment without imposing official preferences on market choices.
- Encouraging innovation to supply export markets. Australia should not be responding to the Inflation Reduction Act (IRA) by funding the energy transition from budget deficits or being inward looking and protectionist. Australia’s green exports can benefit from Europe’s Carbon Border Adjustment Mechanism (CBAM). Access to premium markets requires Australia to have a green premium, and improved accounting for Australian emissions. Innovation can be supported by establishing a Superpower Innovation Incentive Scheme (SIIS) to support early investors in each of the new, green export industries.
- Funding and securing a green premium through finally taking into account externalities. Markets only work effectively if firms are required to pay the costs that their activities impose on others, and are rewarded for benefits that they confer on others. The absence of such a payment or reward is a market failure. The SIIS rewards the wider benefits of innovation. The market failure associated with carbon emissions can be corrected by a Carbon Solution Levy (CSL) at all fossil fuel extraction sites and import ports in Australia. The CSL provides the funds to support the building of the Superpower and other valuable activities without placing a strain on the budget. The CSL needs to be in place by 2031 at the latest. Introducing it earlier would unlock significant cost of living benefits to Australians.
Founder and Director of the Superpower Institute, Ross Garnaut said: “Success requires investing 5 percent or more of our national income in the zero-carbon industries for several decades. That sounds impossible.
“Impossible, until we recall that we invested as much in mining during the China resources boom 2002-12.
“We know that a general requirement for polluters to pay for the cost they impose on others is impossible in contemporary Australia.
“But not as impossible politically as accepting continued stagnation and decline in living standards.
“Not as impossible as passing on to our children and grandchildren lower standards of living than our own parents and grandparents left to us.
“Australia’s immediate future involves choices of which impossible things we choose to do.”
The proposed CSL would be paid on all emissions from fossil carbon wherever they occur in the world, at the rate of recent prices of carbon permits in the European Emissions Trading Scheme. The fee would be administratively simple, and only impose transaction costs on just over 100 businesses.
If applied earlier this funding could also unlock significant macroeconomic benefits and cost of living relief such as through providing $300 per year for households and businesses as well as fully compensating for the cost effects of the CSL on electricity prices; among other benefits.
Rod Sims, Chair of the Superpower Institute said: “Securing Australia’s place in a decarbonised global economic order is a once in a century economic opportunity.
“If Australia seizes the opportunity offered by the world’s transition to zero net emissions it can repeat the experience of the China resources boom, but the benefits can continue for decades.
“We know these 15 policy recommendations are bold. But so too were the reforms of removing tariffs and ending protectionism, and these reforms underpinned Australia’s prosperity for a generation. We lost our forward economic momentum a decade ago. The Superpower Institute’s work will show Australians how to get it back.
“Our products will not be able to compete internationally until we finally address the market failures in our economy. As Lord Stern has said, the absence of payments for damage that carbon emissions impose on others is the greatest market failure of all time.
“It is time to again debate this issue. By addressing these market failures we can comprehensively create the reforms needed to boost productivity, unleash innovation and bring cost of living pressures down to ensure we create a sustainable, competitive and prosperous economy.”
