Latest US climate Bill follows Australian lead

The US seems to be following in the footsteps of Australia, at least in terms of climate policy. Last week, Senators Sanders and Boxer introduced into Congress a Bill that establishes a carbon price. Like Australia’s Clean Energy Act, the US’s proposed Climate Protection Act would see the majority of carbon tax revenue flowing back to households to assist with rising energy prices. Also proposed, and comparable to Australia’s Clean Energy Finance Corporation, is a $500 billion program to co-invest in, or provide guarantees for, energy efficiency and renewable energy projects.

Details of the US Bill
There are a number of components to the Bill. It sets a 2050 target to reduce greenhouse gas emissions by 80 per cent below 2005 levels, which is on par with Australia’s 2050 target. To meet this commitment, the Bill establishes from 2014 a $20 tax on every tonne of carbon dioxide emitted (or carbon dioxide equivalent in the case of methane) increasing by 5.6 per cent each year for ten years. In contrast to the Australian scheme, where the cost is imposed on the emitting company, the proposed US tax is applied at the point of fossil fuel extraction: at either the mine, refinery or processing point. According to the sponsoring Senators’ statement, the scheme would cover 85 per cent of US emissions and generate $1.2 trillion over the ten years. This dwarfs Australia’s $35 billion revenue expected from the sale of permits in first four years of the scheme.

The Bill allocates 60 per cent of the tax revenue to assist households in managing increases in energy prices. The remaining 40 per cent would be deposited into a Pollution Reduction Trust Fund to be distributed thus:
  • $7.5 billion per year to assist emissions-intensive industries to ‘mitigate the economic impacts of the fee imposed’, with at least a quarter for investments in energy efficiency. The same function in Australia is performed by the $8.6 billion Jobs and Competitiveness Program, the $1.2 billion Clean Technology Program, the $300 million Steel Transformation Plan.
  • $1 billion per year for vocational training to help transition jobs towards a low-carbon economy. This program strongly resembles Australia’s $1.3 billion Coal Sector Jobs Package.
  • $5 billion per year for a Weatherization Assistance Program for Low Income Persons. Could this be anything like Australia’s now defunct Home Insulation Program?
  • $2 billion per year into the existing Advanced Research Projects Agency-Energy (undertaking R&D into energy technologies), thus tripling its budget.
To ensure that US companies are not unfairly disadvantaged by the carbon price, the Bill proposes an equivalent import tariff on fuels and carbon-intensive products. Only products deriving from a country with an equivalent price on carbon are exempt. The revenue from these so-called ‘carbon tariffs’ would fund climate change adaptation measures and low-carbon transport solutions (including carpooling incentives and electric vehicle stations). What is unclear is how carbon tariffs may affect trade agreements.

In addition to the tax, the Bill creates a Sustainable Technologies Finance Program funded at $5 billion over 10 years. This Program is designed to engage in public-private agreements to fund low-carbon technologies in a bid to attract $500 billion in investment. Australia’s newly established $10 billion Clean Energy Finance Corporation has the almost identical mandate.

The Bill is complemented by a second one, the Sustainable Energy Act that proposes to eliminate fuel subsidies and use some of the revenue towards reducing the US debt.

What does this mean for Australia?
Whether the US enacts a type of carbon pricing is significant in the context of the upcoming Australian election. Australia’s own carbon pricing has been criticised on the grounds that other major emitters are not acting similarly. The Bill is likely to be debated in the American summer and therefore could secure passage before our election. However, this is not the first time carbon price legislation has been proposed in the US. A FlagPost from 2010 provides details of four previous attempts. Each time the legislation has failed to pass.

The difference with this new Bill is that it returns much of the revenue to consumers. Will this make the legislation more palatable to Republican congressmen, who are generally against any increases in energy prices? Already this year 18 Republicans have introduced a resolution barring a carbon tax.

President Obama has recently suggested that he is prepared to employ whatever means are at his disposal to see US action against climate change. In his 2013 State of the Union address, he urged Congress to ‘pursue a bipartisan, market-based solution to climate change’, otherwise he would direct his Cabinet to ‘come up with executive actions we can take, now and in the future, to reduce pollution, prepare our communities for the consequences of climate change’. The weakness of an Executive Order is that it can be repealed by either Congress or President. Should a Republican President win the next election in 2016, any Executive Order could be completely revoked; and probably would be—just as the Coalition has vowed to repeal the Australian carbon price.


Flagpost is a blog on current issues of interest to members of the Australian Parliament

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