From an economic point of view, this was counterproductive; the whole point of the CPRS (which Julia Gillard was bold enough to explicitly state in Question Time last week, something Grog noted with enthusiasm) is to increase the cost of activities that emit greenhouse gases.

As many others have noted, a carbon tax is likely to only have an extremely modest impact on the price of petrol – about 0.23 cents per litre, for dollar per tonne CO2e that the tax is set at. A $25 per tonne carbon tax would be around 6c/l. But it’s likely that any rise in the price of petrol that happens in the first few months of operation will be blamed on the government, regardless of the actual source of the rise.

Bob Brown was on Meet The Press denying claims that the Greens were insisting that the rise go “uncompensated” (by which it is presumably meant that the compensation is in the form of general income tax and benefit adjustments, rather than petrol-specific measures):

PAUL BONGIORNO: There’s discussion in the papers this morning that the Greens would insist that transport, that petrol be kept in, and there is now talk that maybe the Gillard government will offset some of that pain. Are the Greens sympathetic to compensation for any carbon tax that is introduced?

SENATOR BOB BROWN: Well, absolutely. Our job is to ensure that the average Australian householder and car user is not punished by a carbon price. The idea here is to make the polluters pay. The big corporate polluters, who are threatening this country’s economy and jobs with dangerous climate change…

Petrol-specific compensation is a political fix, pure and simple. The fairest and simplest way to compensate for rising petrol prices is the same way we’re compensating for every other CPRS-induced price rise – an adjustment to income tax and welfare benefit rates. But if a political fix on petrol prices necessary, it’d be nice if it was done in a way that didn’t damage the overall long-term intent of the scheme. So here’s my modest proposal – a one-off cut to the petrol excise exactly equivalent to the initial level of the CPRS. So, if the initial carbon price was $25, which works out to 6c/l of fuel, the excise gets dropped by 6c.

This might sound similar to the CPRS’s fix on petrol, but there’s one key difference; the CPRS proposed to match the excise cuts with the carbon price as it rose; this proposal doesn’t.

This idea is based on several observations:

• The government is most likely concerned about a one-time hit to petrol prices when the carbon price is introduced.

• The effect of the modest initial carbon price on the transport sector will be very small anyway – the stationary energy sector will almost certainly clean up first unless Peak Oil cleans up transport for us.
• To clean up the transport sector with a carbon price, it will have to go a lot higher than anything mooted in the short term; my guess is well over $100 per tonne CO2e.
• As such, from a policy perspective what matters is that the transport sector is affected by the rising carbon price in the longer term.
• With this policy, there would be no price impact when the scheme is launched, so no matter how hard Tony Abbott squealed, he couldn’t blame any coincidental rise in the petrol price on the government.
• But as the carbon price goes up bit by bit, year by year, it will imperceptibly start to bite, so in 2020 or so that pluggable hybrid or EV starts to look like a good financial bet.

What do you think?