Veteran economists say a carbon levy would cut emissions, cut inflation and raise billions, but see little prospect of adoption

The Carbon Solutions Levy being proposed is confined to fossil fuel companies. (ABC News: Daniel Mercer)

Two of the nation’s most respected economists have put forward a bold plan they say can lower global carbon emissions by at least 6 per cent, super-charge a new green export industry for Australia, deliver much cheaper power bills and even dramatically cut the rate of inflation.

They also frankly admit their ambitious blueprint, due to be unveiled at the National Press Club today, is likely to be immediately shot down by the major political parties.

Professor Rod Sims and Professor Ross Garnaut have spent the past six months working on what they’re calling a pathway to prosperity for Australia in a net-zero world. Their work is for The Superpower Institute, a think tank focused on the economic opportunities of climate change, founded by Professor Garnaut and now chaired by Professor Sims.

Under their plan, a “Carbon Solutions Levy” would be imposed on all fossil fuel extraction sites (around 105 coal and gas projects) and all fossil fuel imports (oil and diesel). The levy would be in place by 2030-31, set at the level of the European Union’s carbon price (currently around $90 per tonne of emissions).

The pair suggest the levy would raise well over $100 billion a year, declining slowly as fossil fuels exit the market. That enormous pool of funds would then be used to over-compensate households, slashing their electricity bills by $440 a year and removing all petrol and diesel excise. They estimate this would significantly lower the Consumer Price Index by more than 1.5 percentage points.

“This is the mother of all cost-of-living events”, Professor Sims told the ABC, highlighting the benefit to households. “Everyone is a winner except those fossil fuel companies”, which he frankly admits “will hate it”.

The sizeable funds raised by the levy could also be used to repair the budget and fund further tax cuts.

The other key pillar of the plan is to set aside at least $6 billion a year from the funds raised for a new “Superpower Innovation Incentive Scheme”.

This scheme would help the first few early movers in green exports get off the ground, with grants covering up to 50 per cent of their capital costs.

The vision is for Australia to become a major manufacturer and exporter of metals and fuels made with renewable energy, including green iron, green aluminium, green polysilicon, green transport fuels and green urea.

Zero and low-emissions industry would be powered by large-scale solar and wind farms in remote areas including the Pilbara.

“We are consumed by how to reduce carbon emissions here”, says Professor Sims, arguing the greater focus should be on reducing global emissions, which could be 6-9 per cent lower if Australia were to adopt this plan.

The Superpower Institute is less focused on the ongoing battles over lowering domestic emissions. It’s more concerned Australia may miss out on the enormous opportunities in the great global transition to a net-zero future.

Europe has already legislated a Carbon Border Adjustment Mechanism (CBAM), which from 2026 will impose a levy on imports of carbon intensive products including aluminium, iron, steel, cement, and fertilisers.

Professor Sims says this means “green iron will be more competitive than black iron” in the European market from 2026.

He argues China will also need to import “green iron”, due to its limited capacity to transition its own industry.

Professor Sims insists the plan being unveiled today is “not a Carbon Tax or an Emissions Trading Scheme”. The Carbon Solutions Levy being proposed is confined to fossil fuel companies.

Nonetheless, the plan’s authors acknowledge the levy will be branded a tax and will be initially rejected by the major parties, given the bruising history of climate and energy politics in Australia. Even if the scale of ambition in the plan was halved, they doubt either side of politics would embrace the idea.

“It doesn’t matter”, says Professor Sims. “This is a long-term game. The debate starts now. Every policy idea that involves complex economics takes years to permeate through consciousness”.

But the longer Australia waits, the two economists argue, the more opportunities will slip away.