Nick Xenophon (SA, Independent) Share this | Hansard source

I will do this in less than two minutes because I know time is very short. There is a fundamental misapprehension about these amendments. These amendments are about substantially reducing the economic distortions that the proposed scheme would create. By doing so, you can actually be more ambitious in your targets.

The amendments that have been proposed are based on the Frontier Economics modelling. They will include increased permit allocations to emissions-intensive trade-exposed industries and the electricity sector based on the emissions intensities for each sector.

This approach can be called an intensity target—

says Frontier—

an output based allocation, a performance standard or a “feebate”. What it means is that emitters are penalised for emissions intensity above the standard, but rewarded if emissions intensity is below the standard. It preserves the same incentive to reduce emissions but it does not raise tax revenue (or electricity prices) in the same way as a tax or a cap and trade on all emissions. This intensity approach is equivalent to introducing a tax on emissions but providing a targeted reduction in a production or company tax—the carbon tax introduces a distortion but the effective reduction in other taxes (by rewarding lower emissions) reduces these distortions and hence the size of the tax interaction effect.

That is what this is about: it is about having a much more efficient way to achieve the same intent, the same outcome, and you can actually go for a more ambitious target. It is about less churn, it is about fewer distortions to the economy and it is about dealing with the tax interaction effect that even Professor Garnaut says needs to be addressed.

My 90 seconds are up, but I think it is important that it be put on the record that this is about a much better, smoother way of transitioning to a low-carbon future.