How will a price on carbon pollution impact low-income households?

Archived News, Posted on 04 Jul 2011

04 Jul 2011

The overriding objective of a price on carbon pollution is to cut carbon emissions by ensuring carbon-intensive producers face the full cost of their carbon pollution. A price on carbon will make it more expensive for large power producers to generate electricity from carbon-intensive sources of energy, ultimately encouraging them to use cleaner sources of energy. In time it will reduce carbon pollution across many aspects of the Australian economy.

As a result, a price on carbon pollution is expected to increase the cost of all carbon-intensive goods, including carbon-intensive electricity sources (such as coal). It is anticipated that low-income households will be impacted by these increased costs in a disproportionate way. This is because low-income households:

• incur the greatest energy costs as a proportion of weekly expenditure;
• consume relatively high levels of energy despite earning very low-incomes;
• may not be able to purchase appliances that will reduce their energy consumption;
• are more likely to be living in sub-standard housing which is poor in energy efficiency;
• be located in isolated communities that have either inadequate infrastructure or restricted choice of energy source; and
• may have health and disability issues.


However, a carbon pollution price also provides government with a source of revenue which can be used to reduce its impacts on low-income households.

The most effective ways to provide assistance to low-income households are through targeted energy savings measures and tax or social security adjustments.


Energy saving for low-income households

Energy saving is a way of ensuring low-income households will be assisted in meeting the increased energy costs associated with a price on carbon pollution. It will also drive the behavioural change needed for low-income households to move away from pollution-intensive energy sources and reduce emissions. Furthermore, increased adoption of energy saving measures:

• helps households to reduce overall energy consumption, which reduces overall energy costs
• has flow on effects such as job creation and the reduction of the cost of energy efficient products for the whole community;
• reduces peak and non-peak demand for energy
• engages and empower households in the use of energy and its impacts; and
• presents households with the opportunity to contribute to the task of reducing pollution.


Energy savings measures for low-income households could include:

• Financial support for purchasing energyefficient products, such as energy-efficient light bulbs, insulation or appliances
• Financial support for undertaking energy efficient retrofits, such as installing solar hot water or small-scale renewable energy systems
• Information about energy efficiency
• Provide incentives for landlords to adopt energy efficiency measures for low-income tenants.

The Clean Energy Council (and a number of other organisations) support using carbon price revenue to increase energy savings, particularly in low-income households. This should be complemented by a National Energy Saving Initiative (NESI) that draws from the most effective national and state-based initiatives, with specific consideration for programs that target low-income households.


Tax or social security adjustments for low-income households

Revenue from a carbon price could also be used to replace inefficient taxes and to fund well-designed tax reform for low-income households, such as a reduction of personal income tax rates and social security withdrawal tapers. Revenue to support efficiency-improving tax reform of a kind proposed in the 2010 Henry tax review could help address equity concerns for most taxpayers on low and middle incomes.

The Clean Energy Council