Australian think tank proposes $35 billion “polluter pays” carbon levy with household compensation

A new report from Australia’s Superpower Institute is calling for the reintroduction of carbon pricing through a comprehensive “polluter pays” levy that could generate over $35 billion annually while providing direct compensation to households. The proposal, led by prominent economists including longtime Labor adviser Ross Garnaut, former competition watchdog chair Rod Sims, and backed by ex-Treasury secretary Ken Henry, represents a significant push to revive carbon pricing mechanisms twelve years after they were abolished under Tony Abbott’s government.

The proposed levy would target companies that extract or import fossil fuels for consumption in Australia, essentially making polluters pay for the environmental damage their activities cause. Rather than simply adding to government coffers, the plan emphasizes returning revenue to Australian households as compensation, addressing concerns that carbon pricing unfairly burdens consumers. This approach aims to make the transition both economically fair and politically palatable.

The timing of the report is particularly significant as it builds on Garnaut’s 2024 call for Australia to re-embrace carbon pricing as a critical tool for emissions reduction. The proposal comes as the Albanese government faces pressure to accelerate climate action while managing budget constraints. The institute’s analysis suggests this dual approach could simultaneously drive deep emissions cuts and provide much-needed revenue for federal budget restructuring.

The report’s backing by such high-profile economic figures signals growing mainstream support for market-based climate solutions in Australia, potentially setting the stage for renewed political debate over carbon pricing policies that have remained contentious since their previous implementation and subsequent repeal.