Article by Matthew Cranston, courtesy of The Australian.
02.11.2025
Australians would be hit with a $290bn tax burden over the next decade if current abatement settings are used to meet the Albanese government’s 65 per cent reduction in emissions from 2005 levels – more than five times the cost of reducing emissions under the Gillard government’s carbon tax proposal, modelling shows.
Using Treasury’s own marginal abatement incentives, or MAIs, published in economic modelling that accompanied the government’s new target last month, the Institute of Public Affairs has calculated that the annual tax haul would reach up to $29.7bn in 2029, around five times greater than the largest annual amount collected under the Gillard government’s carbon tax.
As the Coalition tears itself apart over its net zero policy, economists are questioning the actual cost of abatement under the government’s ambitious emissions reduction target. Climate and Energy Minister Chris Bowen insists MAIs should not be used as a measure for the cost of abatement but offers no cost estimate.
IPA chief economist Adam Creighton said if the government was serious about achieving its new 62-70 per cent emissions reduction target by 2035, then a conservatively estimated $290bn tax burden would have to be put in place – a “massively bigger impost than anything the Rudd-Gillard government contemplated”.
“The economic modelling Treasury released last month laughably assumed there was no cost at all to government’s new emissions-reduction plan, which in reality is a radical, unprecedented and unrealistic restructure of the Australian economy in a short period of time,” Mr Creighton said.
The research notes that most economists, including former Treasury secretary Ken Henry, think a carbon tax is among the lowest-cost ways to achieve an emissions-reduction target.
The estimates use Treasury’s two future emissions values for “baseline scenario” emissions reduction, including 431 million tonnes in 2025, and 216 million tonnes in 2035, which is about 65 per cent below 2005 levels.
In a Senate economics committee three weeks ago, Treasury’s climate and energy division head Alex Heath also confirmed that $293 per tonne was the assumed marginal cost of abatement.
“The model does have a marginal cost of abatement based on (incorporating) marginal abatement technology – and, based on all those assumptions, that is $293 per tonne,” Dr Heath said.
Senior Coalition MPs were enraged by the cost estimates. Opposition energy spokesman Dan Tehan said: “This is more evidence that the Albanese government is hiding the true cost of their approach to climate change with a secret carbon tax. At least Julia Gillard was upfront with the Australian people.”
Opposition finance spokesman James Paterson said the government had to communicate the cost and who would pay.
“Treasury officials admitted what Labor has refused to be honest about: to reach their net-zero target by 2050 will require an effective carbon price of almost $300 a tonne. That’s a price someone must pay – either taxpayers or consumers,” Mr Paterson said.
A spokesman for Climate Change Minister Chris Bowen said the government “does not pay regard to statements of the IPA, which openly disputes human-induced climate change and has run a longstanding, fact-free campaign against climate action”.
The true cost of hitting emissions-reduction targets has been the subject of much speculation and wide disparities.
A study by McKinsey & Co estimated it would take $US9.2 trillion ($14 trillion) in investment a year through to 2050 to meet global climate goals.
The Business Council of Australia estimates that to hit 70 per cent emissions reduction by 2035 there would need to be between $430bn and $530bn in investment.
The IPA also asserts Treasury’s current pricing of abatement to attain the promised emissions cuts is likely to be underestimated.
Applying the same methodology of its latest study using alternative MAIs from Infrastructure Australia, the IPA estimates the revenue over the 10-year period would hit more than $360bn.
“Economist Ross Garnaut in July said Australia was on track to miss its renewable energy targets, which underpin the projected decline in emissions, by a ‘big margin’. That puts a question mark over the Department of Climate Change, the Environment and Water’s assertion that net emissions were already on track to decline to 301 million tonnes by 2035, before the government’s latest suite of policies to support net zero were announced.
“If that’s correct, then inducing an additional 85 million tonne reduction, implied by the latest targets, would require higher MAIs,” the IPA said.
The paper also cited a 2025 academic review by the Institute for New Economic Thinking which concluded that a global, economy-wide carbon tax of $US175 tonne from the early 2020s would be required to achieve global emissions reductions targets.
“Emissions may be substantially less responsive to the level of the carbon price than suggested by previous empirical studies,” the study found.