‘Polluter pays’ is the way for thriving Australian industries

Australia needs more investment, urgently and at unprecedented scale, in the industries that will underpin our future prosperity. Getting the policy and tax settings right to provide efficient and predictable investment signals is critical. On that much we agree with the Chamber of Minerals and Energy (CME) of WA (The Australian, 30 January 2026).

We can also agree that emissions reduction is important. Australia has seriously committed to this, as has most of the rest of the world. So the question is not whether to act, but how to do this most efficiently, promoting Australia’s economic interests.

CME has claimed that The Superpower Institute’s proposals will undermine international competitiveness and investment. This is simply not so. Let’s first make clear what we propose.

Our reforms respond to three challenges Australia faces: we are not on track to achieve our emissions targets; the budget is structurally weak yet facing growing spending demands; and economic fundamentals, including productivity, are weak.

The policies we propose will meet these challenges head-on and give Australia economic strength in a decarbonising world.

The first policy is a Polluter Pays Levy. It is a simple levy on the carbon content of fossil fuels, applied upstream and on imports, affecting only around 60 companies directly. It would send a clear, predictable signal across the economy, delivering substantial emissions reductions and significant budget revenue. This is the most efficient type of market signal.

The levy would not apply to non-fossil fuel mining like iron ore, alumina or critical minerals. In fact, these industries would become relatively more attractive destinations for investment compared with coal and gas extraction under a PPL.

These reforms are not anti-industry. They shift incentives away from emissions-intensive extraction and toward the processing, manufacturing and clean energy investments Australia needs to remain competitive as global markets decarbonise.

The second policy we propose is a Fair Share Levy. It is a levy on upstream gas and oil production, and LNG liquefaction.

Australia drastically under-taxes its fossil fuel rents by international standards. These deposits are owned by Australians yet we receive under 30 per cent of profits from the industries compared with almost 80 per cent in places like the UK and Norway. This undermines our standards of living and long term prosperity.

Importantly, the Fair Share Levy is a neutral tax that, by-design, will not distort investment decisions, affect gas prices nor the amounts of gas available for use by Australian industries and households. It is able to do this while seeing a fair share of economic rents returned to Australians.

Now let’s address some of the misconceptions about the impact of these policies.

Contrary to the claim by CME, these policies will provide the simple and predictable mechanisms that Australia needs to encourage investment while decarbonising. All economists agree that pricing the carbon externality is the most efficient way to deal with it. So too does Rio Tinto and the Productivity Commission.

Australia can thrive as a producer of green commodities, leveraging our comparative advantages in producing renewable energy and with abundant mineral resources. Projects in these industries are capital-intensive and will have long lifespans.

Patchwork regulation, shifting baselines, bespoke exemptions and over-reliance on ad hoc subsidies increase sovereign risk and raise the cost of capital. Transparent, economy-wide pricing does the opposite: it leverages the power of market signals, reducing administrative burden and allowing firms to plan with confidence. This is the environment in which capital will flow freely to areas of highest value.

Patchwork regulation, shifting baselines, bespoke exemptions and over-reliance on ad hoc subsidies increase sovereign risk and raise the cost of capital.

The centrally planned and extremely complex Safeguard Mechanism has delivered limited emissions reductions and generates no revenue to support households or the budget.

In contrast, a Polluter Pays Levy is transparent, market-based and highly efficient at driving emissions reductions. The substantial revenues it generates can be used to support households through energy and cost of living relief measures to smooth the pathway to decarbonisation, in addition to benefitting the budget. We propose using $8 billion of the combined $35 billion per annum to support households.

The greater risk to Australian exporters is not domestic pollution pricing, but having emissions priced by others. As major trading partners move ahead with carbon border adjustment mechanisms, as in the European Union, refusing to price pollution at home does not protect competitiveness but it does relinquish control and hands revenue to foreign governments.

The greater risk to Australian exporters is not domestic pollution pricing, but having emissions priced by others.

It is unsurprising that the gas industry argues that any increase in taxation will deter investment. But extensive economic analysis and international experience show that well-designed taxes do not have that effect. We have demonstrated that Australians can receive a fair share of gas industry profits without hurting investment.

We also have some real world examples to test the claim of the impact on investment. Both Norway and the UK have introduced similar taxation changes to our proposed Fair Share Levy and neither has seen the collapse in investment the gas industry would like Australians to fear.

Moreover, opinion polling suggests the public is on our side, with 87% of people agreeing that Australians deserve a fairer share of fossil fuel profits.

Australia’s challenge is not choosing between competitiveness and decarbonisation, but aligning the two. Getting the policy settings right will strengthen investment, lift productivity and secure prosperity.