The carbon tax was introduced in July 2012 on about 300 of the largest polluters. Australia’s carbon emissions make up 1.5% of the world’s total. The tax was seen as a remedy to correcting market failure and a more effective method than the carbon trading scheme in Europe. However, it has caused a significant increase in the costs of production causing a loss of jobs and an increase in energy prices for the consumer. Is this an example of the’ polluter pays’ principle and internalising the costs thus establishing a more desirable equilibrium? Abbot, the Australian prime minister is now looking to scrap the tax. Will he replace it with anything? Will this be an example of government failure?