Watch—Close of Business: Why Australia needs a carbon price

This episode of ABC Close of Business aired on Friday 5 September 2025. Host Alicia Barry interviews TSI chair Rod Sims on the need for the need for Australia to set a strong emissions reduction target to 2035 - with the right policy settings to achieve it.

TRANSCRIPT:

Alicia Barry: Everything is on the table – that was the promise at the recent productivity summit. But missing was any consideration of a carbon tax. It’s politically toxic for the Labor Party after the long-running climate wars. But according to Rod Sims, chair of the Superpower Institute, imposing a carbon tax is necessary and urgent. Rod Sims, welcome to Close of Business.

Rod Sims: Thank you.

Alicia Barry: Were you surprised a carbon tax wasn’t canvassed at the government’s recent economic roundtable?

Rod Sims: The agenda wasn’t structured that way, so I wasn’t surprised. But it has to be part of what we’re talking about as we think about climate change and our objectives for emissions reduction. You really can’t have that conversation without looking at putting a price on carbon.

Alicia Barry: A carbon tax hasn’t been in operation in Australia since 2014. It wasn’t politically palatable then. Why would it be now?

Rod Sims: I think there are good reasons it should be politically acceptable. First, if you’re going to meet any emissions reduction target, it’s best to do it in the lowest cost way– and a carbon price is the lowest-cost way to meet those objectives. If you don’t do it the least-cost way, either consumers pay more, or you draw on the budget – which is already under pressure – or both. We don’t want consumers burdened, and without a carbon price you don’t have revenue to compensate them. We also don’t want to put pressure on the budget. A carbon price – or a carbon tax – gives you the revenue to compensate consumers and actually helps reduce the budget deficit. Those are political gains.

Secondly, if you’ve got really inefficient measures, the public is aware of that, and that comes at a political cost. And thirdly, unless we have a carbon price, our electricity system is headed for a lot of trouble.

Alicia Barry: Australia has the carbon credit scheme and the Safeguard Mechanism. Isn’t that enough to curb emissions?

Rod Sims: No, it’s not. Firstly, the Safeguard Mechanism only covers about 30% of industry; it doesn’t cover electricity. So it doesn’t address the problem that we’re not getting enough new generation into the system to meet future electricity demand. It doesn’t address that at all. It also has an arbitrary cap on the amount you have to pay to meet your obligations. And a lot of people are meeting their obligations by buying things called ACCUs – which are things you get for not doing land clearing, planting trees, and so on. There’s a real debate about how effective those things are in actually reducing emissions. We need better mechanisms for recording the real emissions reductions from those taking those sorts of steps.

Alicia Barry: The government this month is set to announce its 2035 emissions reduction target. Your institution is calling for it to aim high and reduce emissions by 75%. Is that achievable?

Rod Sims: That’s the key point – it has to be doable. To aim high and get 75%, you need a price on carbon. Indeed, I’d argue that even to meet the 43%, you need a price on carbon, because the 43% target by 2030, which we have now, is essentially reliant on getting 82% renewable energy into our electricity system. I don’t think we’re on track to do that. I don’t think we will do that unless we have more incentive for renewable energy, and the way to provide that incentive is through a carbon price.

So without a carbon price, I don’t think we’ll achieve the 43% by 2030, and we certainly won’t achieve higher ambition beyond that.

We’re arguing two things simultaneously: aim high, because that’s the efficient thing to do; and have a carbon price, otherwise you won’t get there. If you don’t have a carbon price, your ambition will be limited – and there are big problems for our electricity system down the track.

Alicia Barry: The Business Council is warning a target of 70% could risk $150 billion in exports and send companies offshore. What do you make of that claim?

Rod Sims: I think it fundamentally misses the point about the electricity system. We need to get an electricity system that can meet demand at low cost of people who want to use electricity. Otherwise we will send people offshore because we’ll have an inefficient system that can’t cope with the demand coming at it.

If we’ve got an efficient carbon-pricing mechanism that allows lowest-cost emissions reduction – and that allows extra revenue for tax reform or whatever else you want, and that allows extra revenue for compensation for those who might be adversely affected – so if you’ve got that, you’re going to be bringing people to Australia, not sending them offshore.

Alicia Barry: Rod Sims, thank you.

Rod Sims: Thank you.