Former treasury secretary Ken Henry, who chaired the 2010 Henry Tax Review, said it was mind-boggling that Australia had abandoned its carbon tax policy.

Speaking to the National Press Club on Wednesday (16 July), Henry described the carbon tax as “the world’s best carbon policy” and slammed Australian politicians for dropping it.

“Why the hell did we ever drop it? That’s the question, right?” he said.

“It still boggles the mind that we had the world’s best carbon policy, and then, for purely political reasons, decided that we can afford to do without it.”

The 2010 Henry Tax Review, a comprehensive blueprint which sought to guide Australian tax reform throughout the 2010s and 2020s, argued that a carbon tax would be a “cost-effective way to reduce Australia’s carbon emissions.”

According to the review, a carbon price could curb environmental harm by providing consumers and businesses with a price signal that reflected the damage certain choices inflict on the environment.

The review said that this could incentivise people to alter their behaviour and choose less carbon-intensive alternatives, leading to better environmental outcomes.

Australia’s carbon tax scheme was introduced by the Gillard government in 2012, but was swiftly repealed by the Abbott government in 2014.

While the political will to revive an economy-wide carbon tax has never since returned, economists have continued to back the policy.

A 2021 survey from the Economic Society of Australia found that eight in 10 of Australia’s leading economists backed cutting Australia’s carbon emissions to net zero, and the overwhelming majority – nine out of 10 – wanted it done by a carbon tax or carbon price.

In its 2023–24 review of trade and assistance, the Productivity Commission said that a carbon price was still the best method to curb carbon emissions, preferable to industry subsidies.

“In many cases, economy-wide market-based methods like a carbon price are preferable,” the commission noted.

“Market based approaches to emissions reductions create incentives for a broad range of businesses to support the ordering of emissions abatement and innovation activity in a way that gives scope for higher cost abatement to become less costly and drives productivity improvements over time.”

However, it acknowledged that economy-wide carbon pricing mechanisms may be “infeasible” for Australian policymakers to implement.

As such, the commission noted that green industry subsidies such as those under the Future Made in Australia (FMIA) strategy could be a feasible alternative to a broad-based carbon tax.

“In that case, industry policy like FMIA – if guided with disciplining frameworks – can, in principle, help correct these shortcomings and guide industry towards decarbonisation.”

Henry echoed this sentiment, saying that Australia would have to make alternative climate policies work in the absence of the political will to have another crack at a carbon tax.

“Of course we need a carbon tax,” Henry said.

“But in the meantime, we’ve got something else, and we’ve got to make this something else work, right? And I am not of the view that, without a carbon tax, we should give up.”