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Emissions Policy

Carbon tax in Australia in 2011

Australia is set to introduce a carbon tax (details to be released on Sunday 10 July 2011). This post is the place to discuss this policy — the good and the bad.

A description, from the Australian Parliamentary Library:

A carbon tax is a tax on energy sources which emit carbon dioxide. It is a pollution tax, which some economists favour because they tax a ‘bad’ rather than a ‘good’ (such as income). Carbon taxes address a negative externality. Externalities arise when an individual production or consumption activity imposes costs or benefits on others. In market transactions, these costs and benefits are not normally reflected in the prices involved in the transaction, or taken into account in the transaction decision.

By placing a cost on these negative externalities the underlying purpose of a carbon tax is to reduce emissions of carbon dioxide and thereby slow global warming. It can be implemented by taxing the burning of fossil fuels—coal, petroleum products such as petrol and aviation fuel, and natural gas—in proportion to their carbon content.

There is some political support for a carbon tax in Australia as a means of implementing a carbon price. Some groups favour this approach as an interim step on the way to an Australian emissions trading scheme.

Here is what I (Barry Brook) said about Australia’s proposal a while back, in response to the 2011 update papers of the Garnaut Climate Change Review :

Garnaut has elaborated and updated his report in line with the latest science and lack of effective action nationally and globally. But the bottom line, in my opinion, remains the same. We need to scrap the renewable energy target (RET), Renewable Energy Certificates (RECs) and feed-in tariffs (FiTs), set a low initial carbon tax at about $10/t, establish an equivalent of the Board of the Reserve Bank to manage the tax and set future prices, and have some legislated schedules (gateways) such as a floor price of $20/t by 2015, $30/t by 2020, and so on. The rising price – with short-term decisions taken out of Government hands to avoid distortions arising from political expediency – is absolutely key. Finally, and in line with eliminating the RET and FiTs, we need to really level the energy playing field and allow nuclear to compete with renewables and fossil fuels with carbon-capture and storage (CCS).

Here is a useful description of some other carbon prices worldwide (Finland, The Netherlands, Sweden, India, Norway, Denmark, Switzerland, Ireland, Costa Rica).

Australia is proposing an initial carbon tax, followed some years later by a cap-and-trade system. What is the difference? Here is a brief summary (my perspective, with bad points in red and good points in green):

CARBON TAX

  • Politicians or bureaucrats set costs – inefficiencies and pressure
  • No guarantee that emissions will fall
  • Clear forward price projection = investment certainty
  • removes incentives for hedge funds, derivatives etc.
  • better allows for long-term business planning
  • Can use current tax system
  • Better handles emission-intensive trade-exposed industries via import/export carbon tariffs/refunds

EMISSIONS CAP-and-TRADE

  • Cap reductions ensure falling emissions – in theory
  • Reduce inefficiencies or overpricing
  • Creates both incentives and disincentives for abatement
  • Chance to profit from ‘doing the right thing’
  • Enrich middle men / brokers
  • Requires army of bureaucrats / new system
  • Encourages rent seeking – pleading by special interest groups
  • Limited price certainty – requires projected ‘gateways’

Here are some further details about the history of the discussion here in Australia:

Australia has considered both cap-and-trade schemes and a carbon tax. In 2007, the Productivity Commission suggested that a carbon tax should be implemented.[0]

On 30 April 2007, the state Labor Governments commissioned the Garnaut Climate Change Review, whose sponsorship was joined by the Rudd Government soon after taking office in December 2007. The resulting report, delivered on 30 September 2008, recommended an Emissions trading cap-and-trade system. Subsequently the Rudd Government proposed a Carbon Pollution Reduction Scheme, which after much criticism, was voted down in the Australian Senate by both the Australian Greens (for being too ineffective), and the conservative Coalition (Australia) (for the effect on key economic sectors), as well as independent Senators Nick Xenophon [1] and climate change sceptic Steve Fielding.

In February 2010, the Australian Greens proposed an interim carbon tax of $A23 a tonne for two years.[2] In April 2010, academics from the Australian National University published a proposal for a carbon tax on major polluters (such as coal-fired power stations and oil companies) that would provide increased funding for Australian public hospitals and other health costs associated with climate change.[3]

On February 24, 2011, Australian Federal government announced a framework to implement a Carbon Tax from July 1, 2012. It is set to be implemented over 3–5 year period upon which it will switch to a cap and trade system. The price has not been set but various proposals have been discussed in the recent past, such as $23/t and $26/t. The announcement came after an agreement between the Federal Labor government, the Greens and two Independent MPs and included commitments to ensure all funds collected go back to homes and businesses to assist in the transition to renewables.[4] This led to accusations that Prime Minister Julia Gillard had breached a pre-election promise not to introduce such a tax where she stated to Network TEN: “There will be no carbon tax under the Government I lead”. The Leader of the Opposition, Tony Abbott, has called for an election over the issue.[5]

On June 5, 2011, the Say Yes demonstrations were held in which 45,000 people demonstrated in every major city nation-wide in support of a price on carbon pollution.[6] Many demonstrations have also been held around the country and in regional towns against the proposed Carbon Tax, albeit to a lesser extent.

For more discussion and critiquing on BNC on the topic of emissions cap-and-trade, carbon taxes and other proposals like fee-and-dividend, please consult the following posts:

Carbon tax or cap-and-trade? The debate we never had

Fee-and-dividend is superior to cap-and-trade for effective carbon emissions reductions

Alternative to Carbon Pricing

Hansen to Obama Pt II – Carbon tax with 100% dividend

Are voluntary actions meaningful where an emissions cap is introduced?

How to make voluntary carbon offsets a reality

CPRS vs carbon tax: Senate Inquiry

I look forward to some vigorous discussion below. Please restrict all discussion here to issues related to carbon prices, and equally, cease any such discussion on the Open Threads.

By Barry Brook

Barry Brook is an ARC Laureate Fellow and Chair of Environmental Sustainability at the University of Tasmania. He researches global change, ecology and energy.

350 replies on “Carbon tax in Australia in 2011”

Dear Moderators

Thank you for your mild reproof, regarding my posting about the Telegraph article written by Mr Chris Huhne, but I would have thought it fairly obvious why I consider Mr Huhne detached from reality. The article above talks about electricity prices in France being less costly than in the UK, completely ignoring the fact that this is due to nuclear energy, not wind and solar.
Says Mr Huhne:
“Some countries already have a head start. Electricity prices in France are set to rise by just 3 per cent this year. Compare and contrast with Britain, where prices are rising by three times as much. It is no surprise that France is the European country with the least reliance on fossil fuels, and enjoys some of the lowest prices – 9.4 per cent below ours”.

I have just read in the Financial Times that Francois Hollande, the French Socialist Presidential candidate, has in mind to reduce nuclear to less than 60% of France’s energy supply should he win power.
It seems to me that Europe has some kind of death wish regarding its economy.
MODERATOR
Thank you for the extra analysis of your link.

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Another excellent article by Ziggy Switkowski today. http://www.theaustralian.com.au/national-affairs/opinion/india-uranium-ban-inconsistent/story-e6frgd0x-1226196065601

This is another of Ziggy’s high-level, strategic-thinking articles. And it supports what I’ve been saying consistently.

• Energy is essential for improving human welfare
• Therefore, we need cheap energy not expensive energy
• It is the developing world that is most important for cutting emissions over the next half century or so
• Therefore, the developing world needs cheap, clean energy; they will build many fossil fuel plants if they are the cheapest;
• If we want the developing world to cut emissions, they need cheap clean energy technologies
• The developed world need to develop the technologies to provide cheap energy
• Therefore, raising the cost of fossil fuel energy in the developed world – with CO2 tax and ETS, will not reduce the cost of clean energy so it will not cut global emissions.

(Points above are simplified to get the main point across).

EDIT: BNC does not encourage block quoting, but I will offer a tip. Try entering the exact title of the article behind the paywall into a search engine, and then click on the link that appears. Magic happens.

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Peter Lang,

Let me try a different tack. Bjorn Lomborg has a very interesting opinion piece in the Australian entitled “Carbon tax a costly feel-good gesture that won’t reduce emissions”. He argues that something like a $7 carbon tax, or less than 2c per litre of petrol, is justified, but a price above that is counterproductive. The main focus of countries, he goes on to say, should be to spend .2% of GDP ($100b globally) on R&D to bring down the price of green energy.

I think you will find a lot you agree with here; and there is much I like, too. So maybe we could use this to find common ground on an acceptable approach.

Now, I’m not going to discuss Australia’s carbon tax directly for a while, because for now it’s a moot point, because it’s a very contentious issue, and because Barry Brook wants us to stop the trench warfare.

So in the near future I hope to put up a proposal for what the US should do, based largely on Lomborg’s suggestions.

Here, I hope, is the link to the Lomborg piece:

http://www.theaustralian.com.au/national-affairs/opinion/carbon-tax-a-costly-feel-good-gesture-that-wont-reduce-emissions/story-e6frgd0x-1226197203654

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Huon, that is an excellent link. What a refreshing change to read some commonsense on the issue instead of the spin coming from the Government about so called “renewables” being the answer, and the CO2 tax being used to (partly) subsidise them. Just imagine the advantages of Gen IV nuclear: energy independence from the unstable Middle Eastern regimes, energy security in that we would have access to energy all the time as we do now, and reasonably priced energy as well. Why our politicians (for the most part- Dennis Jensen is an exception) can’t see this, I have no idea.

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Well, the core proposal derived from Mr. Lomborg’s work is fairly straightforward: a $7 carbon tax with much of the revenue used to fund green energy RD&D. Renewables and nuclear would receive equal funding.

That’s the core. If one adds on the necessary political adjustments, the result is still pretty simple: a $12 tax with the revenue used to fund, in equal measure, offsets for the poor and middle class; cuts in taxes on capital; and green RD&D.

For the US, if my back-of-the-envelope calculations are correct, RD&D would be boosted by some $20 billion a year, or over .1% of our GDP, and nuclear would get at least $7 billion of that. IFR’s, LFTR’s, SMR’s, here we come.

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I don’t understand Lomborg’s implied logic of promoting more R&D before we do anything – it reminds me a lot of Arthur Dent’s arguments in this debate with Professor Brook and others.

We don’t need more R&D to start phasing out fossil fuel generation – there are numerous Gen III/III+ reactor designs ready to be deployed now at a reasonable cost. It’s not a technological problem, it’s socio-political.

Of course, we need more RD&D of advanced reactor designs too (e.g. IFR, LFTR technology) for the long term.

Additionally, how do we know that any electricity generating technology will ever end up being cheaper than coal in places like Australia, while it is abundant and external costs aren’t included? We could potentially be R&Ding forever and not get there.

Of course, Lomborg is right that if we use taxes from GHG emissions to pick and fund energy winners (i.e. losers [unreliables]) we will achieve nothing.

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The German Council of Economic Experts just released their Annual Report, and in the one chapter available in English, they put the research emphasis a little differently than Lomborg, so it might help explain his comments.
The Council is critical of existing feed-in tariffs (suggesting the immediate replacement of them with ‘green electricity certificates), argues the goal of procuring supply should be done based on price, and the goal of ‘finding new technological solutions can be left to an autonomous technology policy.’
(pg 16 of http://www.sachverstaendigenrat-wirtschaft.de/fileadmin/dateiablage/Sonstiges/chapter_one_2011.pdf)

In terms of promoting more R&D, and this thread, I’d illustrate the question isn’t simply of finding the lowest emitting source now – the argument could be that ‘green electricity certificates’ apply to all technologies based on a carbon-emissions threshold, as energy policy, while the pursuit of storage, or closing the fuel cycle (for nuclear), be funded as research in a separated technology policy.
The argument might be more impactful on those of us trapped in feed-in tariff jurisdictions, where the concept is paying a lot of money for the stuff that really excites you will somehow create a competitive industry.

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Tom Keen,

Thanks for the link to the debate; I watched the 8 minute version and enjoyed it.

The proposal outlined above would help immediately in a couple of ways. First, it would raise the price of all fossil fuels. A $10 carbon tax ($10 per tonne of CO2) would, for example, raise the price of coal-fired electricity by about 1 cent per kWh.

Second, green RD&D funds could be used to subsidize first-of-a-kind Gen III nuclear plants, which are ready to go now, and small modular reactors, which will be available in a few years.

Now let’s suppose a further refinement of the plan: The carbon price rises to $4 the first year, $8 the second (near Lomborg’s suggested price) then rises more slowly, by just $2 per year.

So fossil fuels are gradually but continually becoming more expensive, while nuclear and solar, especially spurred by green funds, are continually becoming less expensive. You can see where this this is going to end up. And more importantly, so can utility executives who today want to put up a power plan that may last half a century.

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More and more authoritative groups are recognising that the CO2 tax and ETS is bad policy. It will do nothing fore the environment but damage our economy. This just in on the effects of the EU ETS:

Europe’s 287 billion carbon ‘waste’

SWISS banking giant UBS says the European Union’s emissions trading scheme has cost the continent’s consumers $287 billion for “almost zero impact” on cutting carbon emissions, and has warned that the EU’s carbon pricing market is on the verge of a crash next year.

Describing the EU’s ETS as having “limited benefits and embarrassing consequences”, the report said there was fading political support for the scheme, the price was too low to have any significant environmental impact and it had provided windfall profits to market participants, paid for by electricity customers.

The report’s criticism of the EU’s ETS follows Barack Obama’s confirmation last week that the US would not have a cap-and-trade scheme and Canada’s refusal to implement an ETS.

http://www.theaustralian.com.au/national-affairs/europes-287bn-carbon-waste-ubs-report/story-fn59niix-1226203068972

http://thegwpf.org/international-news/4403-europes-287-billion-carbon-waste-ubs-report.html

How much more evidence is needed before the die-hards will accept our CO2 tax and ETS is bad policy?

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PL my rejoinder (while it lasts) is that the EU shows how not to do an ETS, specifically by
1) issuing permits for free not selling them
2) allowing offsets of little or no merit.

Once a CO2 cap has been set at a non-trivial but achievable cut below current emissions every tonne of that CO2 must need a permit. Ideally they would be auctioned (this is called a divisible goods auction in game theory) but they could be sold for a fixed price. If free permits are issued up to a lax CO2 total there will be no emissions reduction.

Additionally in some EU countries (up to 50% by policy in the Netherlands) emissions are also excused by credits. The EU disallows carbon sinks such as tree planting but ironically they might actually work to some extent if the trees live long and fall down in the forest. What the EU approves is Clean Development Mechanism (CDM) offfsets which have proven to be a magic pudding.

CDM brings together the needy and the greedy and seems to be an artefact of Western affluence guilt. If a less developed country can persuade the authorities they emitted less than they felt they were entitled to they get a credit which can be sold to a developed country. Bizarrely that might even be a net increase in CO2 equivalent terms; example flaring methane so the CO2 counts not CH4. If the rule was that worldwide net emissions must decrease there would be no credits to sell.

Let’s hope our 2015 ETS makes neither of these mistakes but I doubt it.

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An east coast electric storm

ACIL-Tasman modelling study is reported to show:

– Electricity demand in the National Electricity Market will increase 60% by 2030,

– wholesale prices will increase by 50%-80% by 2015 and by 125%- 200% by 2030,

CO2 emissions will increase by 17% by 2030.

The CO2 taxc and ETS sure is a good solution – not!

http://www.businessspectator.com.au/bs.nsf/Article/Gillard-Labor-NSW-energy-coal-seam-gas-CSG-OFarrel-pd20111123-NUVZ3?OpenDocument&src=pmm

It’s behind a pay wall so just google the title and “magic will happen” (so we’ve been advised, so I’m not permitted to paste bits of the article).

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I decided to look back at this “uncertainty of worst case risks”:
http://realclimateeconomics.org/uncertainty_and_risks.html

It is about how economics should handle the uncertainty of extremely bad consequences.

There is a lot of talk about the “fat tail” probability distribution – for worst case, high climate sensitivity scenarios.

If the Schmittner et al paper holds up (published in Science last week), I guess it will chop off the ‘fat tail’.
http://www.sciencemag.org/content/early/2011/11/22/science.1203513

Click to access C18_Schmittner_T145B.pdf


Click to access lgm-cs-uvic.pdf

The most likely climate sensitivity of 2.3 C (1.7 to 2.6 C) to CO2 doubling means we would not increase CO2 concentrations high enough to lock in a 2 C increase until the second half of this century under Business as Usual projections. Importantly, Schmittner says in the press release that climate sensitivity cannot be higher than 3 C. That’s a big change from climate sensitivity of up to 11 C which some Alarmists have been saying.

Therefore, we have more time to get our policies right. I’d suggest they are (for a start):

1. Do not implement economically damaging polices like CO2 tax and ETS. Damaging our economies will make us less able to take the best actions. We need to maximise wealth not destroy it.

2. Start with a fresh sheet of paper for regulation of Gen IV NPPs. The principal objective must be least cost, and small units (suitable for small and undeveloped economies).

3. ‘Direct Action’ policies to remove the impediments to low-cost Gen III (or Gen II if it is cheaper) in Australia.

Any thoughts?
MODERATOR
Off topic here Peter. Barry’s suggestion is to post further comment about the Scmittner paper on https://bravenewclimate.com/2011/11/06/depressing-climate-trends/

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PL, the lower sensitivity value in the Schmittner et al paper hinges on a model reconstructed LGM temperature of 2.6C below pre-industrial values, rather than the more widely accepted 4-6C. If this is correct, then the magnitude of impacts of climate change per degree of temperature change will also be higher.

For instance, 2.6C of warming rather than 5C of warming leads to a sea level rise of 120m, which gives a rate of 46m per degree rather than 24m per degree. So if we got 3C warming under the old model at 550 ppm CO2, we might expect 72m of equilibrium sea level rise. By contrast, with the new results we expect 2.3C for 550 ppm, resulting in 106m of SLR.

More details on the implications of the new paper are here: http://skepticalscience.com/Schmittner-climate-sensitivity-goood-bad-ugly.html

Clearly then, the new results do nothing to change the urgency of the problem — indeed in some ways, it looks worse (based on arguments on the median climate sensitivity).
MODERATOR
See comment above.

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Given that we’ve had almost unprecedented severe weather events with just 0.8C warming 3C seems unthinkable. It has major consequences for food security and demographics. There will be food crises and large populations will be unable to stay in certain regions. Compounding the climate problem fossil fuels will be in severe decline by the second half of the century and there is little sign that the market will find adequate replacements on its own. Therefore it seems stupid to keep burning oil, gas, coal and tar sands when they could be used sparingly. Since CO2 is cumulative we’ll end up with a worst-of-both-worlds problem with simultaneous energy shortages and a difficult climate.

While the world as a whole is fairly affluent we should make some sacrifice to lessen problems in the future. If we simply fritter away the cheap energy we enjoy now that bequeaths a poor legacy to today’s children. If we take some pain now there will be less pain later even within our lifetimes. Even if it all goes bad (which I fear may happen regardless) we can at least say we made an effort.

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Can anyone please refer me to a link where the estimated compliance cost of the CO2 tax and ETS is documented. [don’t point me to the Treasury, DRET or DCCEE, as they have not done these estimates).

What would be the compliance cost for the ETS once it is fully implemented and running at the level of financial security from fraud that will be expected? For example, what will be the annual cost for:

– Public servants in DCCEE, Treasury, ATO, Australian Federal Police, state police forces, state bureaucracies, Attorneys’ General Departments, Federal Department of Resources, Energy and Tourism, ABARE, BREE, the equivalent state departments of energy, resources, agriculture, forestry, environment, Prime Minister and Cabinet, State departments of Premier and Cabinet, the law courts, High Court, goals, any others I haven’t thought of?

– The businesses that have to report their emissions – what is the cost to implement and maintain the monitoring equipment and to report.? What is the cost to update and replace equipment, reporting systems and legacy data each time the rules change (as they do every few years)?

– Farmers and all the upstream and downstream industries (farming will be included eventually if the tax and ETS remain)

– Accountants, lawyers, accounting firms, law firms, courts?

– Firms that use the data, analyse it and report? What is the cost for them to have to maintain and continually update their systems and legacy data?

– I haven’t even started to ask questions about the compliance cost for purchasing overseas carbon credits

I understand the some of the costs involved in doing what the USA EPA requires (clearly we would have to move to that level of accountability and well beyond it eventually), are in the order of $23 billion per year. The link below provides some insight into the requirements. We can only imagine what the costs would be for the businesses involved and all the people who use and analyse the data. Notice that the rules have been changing (for emissions other than CO2) every few years for about the last three decades (roughly); think of the compliance cost that imposes.

Click to access ECMPSEMRI2009Q2.pdf


Click to access plain_english_guide_par75_final_rule.pdf

The EPA recently stated in a court submission that the cost to the EPA alone to manage the existing regulations would be $23 billion per year. That is not a typo. They estimated they would have to increase their permanent staff numbers from 17,000 to 250,000 permanent employees. (It is clear from this why the unions want a carbon tax and ETS – it means lots more public servants and hence lots more union dues). The cost to business could be expected to be at least ten times this cost, and the other departments who have a role to play would at least double the EPA cost.

We should also ask what is the likely benefit to be gained from this expenditure?

1. By how much will the CO2 tax and ETS reduce global emissions?

2. By how much will the CO2 tax and ETS change the climate?

3. What effect will the CO2 tax and ETS have on the ecology of the Great Barrier Reef and Kakadu National Park?

4. What effect will the VO2 tax and ETS have on sea levels?

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Peter a quick answer to some of those questions is that if only 500 or enterprises pay most of the carbon tax then the compliance cost should not run to more than a few million dollars per year. The question of monitoring and deception is harder. We know from TV wrestling that referees often choose not to see things. Will defaulters be shut down or have their execs thrown in jail? It’s hard to see how all this will be ready by July despite the former CPRS supposedly starting in 2009.

As to the climate change benefits let’s ask why bother voting if individual action makes no difference.

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JN,

Clearly, if implemented, it wouldn’t stay at 500 enterprises. Eventuall virtually everyone would have to be involved if we are goig to trade in CO2-eq. Its so obvious I am surprised you even bring it up.

As to the climate change benefits let’s ask why bother voting if individual action makes no difference.

That is saying that implementing bad policy is justified. It is these sorts of answers that are driving everyone away from trusting anything the advocates say.

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More evidence the Australian metals industry is in a death spiral with the sidelining of a manganese alloy plant, in this case a BHP-B subsidiary that presumably gets the same cheap electricity rates as Tasmanian zinc and aluminium smelters. Is it a coincidence it comes weeks before the introduction of carbon tax?

They blame the high $A but it wouldn’t be so high if we didn’t export $55bn worth of coal. It’s a bit rich to blame carbon tax since for the next year at least smelters will be exempted from 94.5% of carbon tax. However I believe big business secretly plans to offshore most of the metals industries to countries like China and India whose carbon penalties seem trifling at best for the foreseeable future. This is the killer; not only could they be using Australian ores but they could be using Australian coal, either thermal or coking, then selling it back to us as embodied energy.

I believe the best approach is the carbon tariff on imported metals if produced with carbon intensive methods. No free ride on our carbon restraint. The carbon tax exemption approach clearly doesn’t do anything to stop this. However I believe it likely that Canberra will not only persevere with this wrong approach (exemptions) but will make further cuts such as reducing the tax from $23. The whole exercise could become pointless.

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John Newlands, @ 22 February 2012 at 10:57 AM

As to the climate change benefits let’s ask why bother voting if individual action makes no difference.

Let me check if I understand you correctly. Is this what you are arguing? That even though a CO2 tax and ETS will have no effect on global emissions, no effect on the climate, no effect on sea levels, no effect on Kakadu or the Great Barrier Reef, but will damage our economy (and therefore human well being) and will force manufacturing industries to move out of Australia (and take the employment with them), will reduce Australia’s productivity, despite all this you still advocate Australia impose a CO2 tax and ETS. Why would that be?

Is this an example of being objective?

John Newlands, @ 23 February 2012 at 8:55 PMyou say:

However I believe big business secretly plans to offshore most of the metals industries to countries like China and India whose carbon penalties seem trifling at best for the foreseeable future. This is the killer; not only could they be using Australian ores but they could be using Australian coal, either thermal or coking, then selling it back to us as embodied energy.

There is nothing secret about it. The western democracies – like USA, UK, Canada European countries and Australia have been adding more and more regulations and taxes on business. This makes them less competitive than the Asian countries for manufacturing and some other businesses. Despite other advantages of the western democracies – such as better governance – there still becomes a time when business finds they cannot remain competitive in an international market unless they move their business to a country with cheaper costs of production (less tax, less regulatory burden, cheaper energy, less risk of industrial action to disrupt production and therefore less risk of massive costs from breach of contracts to deliver their products to customers, etc. the CO2 tax and ETS, (which will grow in price, will expand in its reach and whose compliance costs will increase enormously (as I pointed out in my previous comment) make life more difficult for business in Australia compared with its competitors.

John, I would seriously urge you and others to attempt to answer the questions in my comment @ 22 February 2012 at 10:07 AM honestly and quantitatively. These are not intended to be rhetorical questions. The reason I ask them is because, I am sure, if you did honestly attempt to answer them, you would understand why people are so strongly opposed to the CO2 tax and ETS. Those who are opposed are not ignorant. They realise the consequences – the human consequences – and they also realise that these imposts will not do anything to the climate at all.

One of the reasons you and others gave for Australia imposing a CO2 tax and ETS was that Australia could lead the world by example. The vast majority of people knew that this was complete and utter nonsense. And the conferences at Copenhagen, Cancun and Durban have demonstrated that unequivocally for everyone to see. If you had followed international negotiations, such as the general Agreement on Tariffs and Trade, over 50 odd years you would realise that international agreements are not achieved by giving away a negotiating position before you start negotiating.

The CO2 tax and ETS will seriously damage our economy for no gain. Please focus on the n gain’ part first. They CO2 tax will not change the climate, sea levels, or the ecology of the Great Barrier Reef.

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Peter the voting analogy is to show that a snowball effect can and does eventually make a large difference. If CO2 is a problem (which I say it is) then whose problem is it? For starters I’d nominate a country which is the OECD’s largest per capita emitter, is the world’s biggest coal exporter (and growing) and is ravaged by droughts, fires and floods.

I think imposed carbon pricing is a step in the right direction it’s just they’ve got the mechanics wrong in my opinion. Could they have foreseen the metals industry exodus? Deep down they must know exporting $55bn a year in coal really means exporting emissions and jobs. Along with the naive belief in renewables I suggest they haven’t thought it through properly.

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Peter, can you explain what this means:
“That statement is based on production not consumption”

Consumption of emissions? I’m confused.

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Evcricket,

Sorry for not explaining properly. Often I tend to write for just the person I’ve been conversing with previously on this subject, and forget to explain my comments well enough for the boarder audience.

The article I linked to explains the attribution of CO2 emissions on a production versus consumptions basis better than I can:
http://www.ipa.org.au/news/2364/we-emit-less-co2-than-combet-gives-us-credit-for

However, in short, the carbon tax and ETS would tax and trade emissions on the basis of the emissions produce by producers of CO2 emissions in Australia (or anywhere in the world). The problem is that that approach is grossly unfair. The reason it is unfair is that countries like in Europe have forced their manufacturing industries to move to Asia so Europe’s emissions appear lower. But then Europe imports the products that have been manufactured in Asia. The Asian countries get blamed for the CO2 emissions for the products that the Europeans then consume. So the Europeans are not blamed, or taxed, for the emissions they cause (by buying products with embodied CO2 emissions).

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Okay, that makes sense, thanks.

It does go near an ethical consideration though; we are paid for those items. Australia earns money by emitting carbon and then selling the product. So who is liable for the emissions?

Making the purchaser solely responsible seems harsh; they have no control over how intensely emissions are produced for the item, but make them responsible for them anyway? The purchaser does not have “operational control”, which is the criterion for responsibility under NGERs emissions law in Australia.

Conversely, this seems to suggest that responsibility for the emissions lies with whom ever sells the emitting product; this seems to suggest we are responsible for our coal emissions then doesn’t it?

I don’t see it possible to have this both ways. Either we are responsible for the emissions of products we sell and then we get our coal emissions; or the purchaser is responsible for something they can not control.

This is not the first time I have been in furious disagreement with Alan Moran of the glorious IPA.

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Evcricket,

I don’t think you should blame Alan Moran and IPA for explaining the issue. The issue has been around for a very long time and discussed by economists for ages.

While a consumption based emissions price is clearly near infinitely preferable to a production based one, it is virtually impossible to implement given the systems we have in place.

But the point I was making is that it is absolutely wrong to say Australia is the largest per capita emitter of CO2 if you probably account for embodied emissions per capita.

I don’t think this statement is correct:

It does go near an ethical consideration though; we are paid for those items. Australia earns money by emitting carbon and then selling the product. So who is liable for the emissions?

Making the purchaser solely responsible seems harsh; they have no control over how intensely emissions are produced for the item, but make them responsible for them anyway? The purchaser does not have “operational control”, which is the criterion for responsibility under NGERs emissions law in Australia.

The end user should be liable for the emissions. It is the purchasers decisions that buy the products that contain more or less emissions. If there is a price on emissions, it should apply to the emissions embodied in the end product. In that case it would work like the GST, VAT, consumption taxes. It penalises the products with the highest content of the evil emissions. If applied across all emissions of evil it would penalise the products with the highest content of evil emissions the most.

But, I recognise this is hypothetical because it would have to be implemented world wide and it is not going to happen in the foreseeable future.

As I said up thread there is a much better way. Remove the impediments that prevent the safest and cleanest low emission electricity generation from being a low cost alternative. That could be done without a CO2 tax or ETS. It would also have many other benefits as well, as explained up thread.

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Peter I’d like the IPA to doctor the figures a bit more so Australia is in the bottom ten not the top ten.

There plenty of cases where the seller of a harmful product is liable. Selling alcohol to minors, selling narcotics, ammonium nitrate and no doubt asbestos. From a simple compliance perspective it is easier to nab the top of the pyramid than the bottom layers. Recall on other matters GW Bush said ‘you’re either with us or against us’. My question to China is ‘are you serious about reducing emissions?’ That’s all good about new nuclear etc in China but it seems based on their unequivocal response to the EU airline tax this must be some time in the future.

They’ll get the coal somewhere else someone will say. Good luck finding a country with 9 coal loading ports in the Pacific region though I see the US has joined the rush.

I therefore think we should ask China to pay carbon tax on Australian coal on a voluntary basis, with the revenue to be paid into an approved green fund. In 2015 they can come under a CO2 cap. Clive Palmer’s new ‘China First’ coal mine could be renamed ‘Earth First’ with lumps of coal reburied in a simple ceremony.

To some this may all sound a bit silly. It’s no more silly than selling China all the fossil carbon they want when we have to cut back.

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Prof Brook has stated that he is apolitical and the blog does not support any particular political ideology.

After a discussion on the subject, Professor Brook has asked me to inform BNC commenters that blatant political tirades(of any persuasion) and attempts to rally support for any political party will not be tolerated.

When presenting facts, please frame them in a politically non-partisan manner. Obviously the odd, off-the-cuff political comment is permissible.

He also asked me to convey that any moderator decision has his full support and to request that commenters desist from appealing any such decision.

These rules now form part of the Comments Policy under the About tag.

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(Comment deleted.)
MODERATOR
From the Comments Policy:

Moderator — Any moderator decision has the blog owner’s full support. Please desist from appealing any such decision.

Please abide by the rules.

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http://www.businessspectator.com.au/bs.nsf/Article/Business-leaders-call-for-10-a-tonne-carbon-tax-pd20120307-S6LSG?OpenDocument&src=am&utm_source=exact&utm_medium=email&utm_content=20159&utm_campaign=am&modapt=news

The Australian Industry Group (AIG) and Business Council of Australia (BCA) ― two crucial supporters of Labor’s carbon tax ― have called on the federal government to cut the starting price from $23 per tonne of carbon emissions to a level closer to Europe’s $10 a tonne price, according to a report by The Australian.
The business groups warned that the $23 pricing level was excessive, and amounted to a tax on industry specifically, rather than on carbon emitters in general, while saying that the planned pricing will weigh on competitiveness.

Of course, we still have no estimate of what the compliance cost of complying with carbon pricing will be and how it will grow over time. The best we have is what is being revealed in the court case against the US EPA. $21 billion per year, 230,000 extra full times staff required in the EPA alone, and 10 year for EPA processing of all applications for new carbon emitting businesses. That is the estimate to implement the existing US laws.

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CO2 pricing will have near zero benefit but high cost

The benefit/cost ratio for the Australian CO2 tax and ETS is near zero given that we are in effect acting alone. But the cost is very high.

“What is the ratio of benefit to cost of the Australian CO2 tax and ETS from 2012 until 2050? Is it true that the benefits are near zero and the cost (in lost GDP) would be about $1,350 billion? Is it true that these facts are known to the world’s leading authorities and have been known for years? If so, why is the government apparently not aware of these facts?”

Rough calculations indicate the benefit/cost is 0.03 using the damages from the Nordhause Yale-RICE (2010) model and the cost of the ETS from Professor Henry Ergas.

Henry Ergas applied Garnaut’s discount rate to Treasury’s estimate of the loss of GDP that would be caused by the government’s Clean Energy Future legislation. The cumulative loss of GDP to 2050 is $1,350 billion.

The damages due to AGW, according to the default values set in RICE, scaled to Australia’s share on the basis of Australia’s share of world GDP, is $41 billion

2012 US$ billion PPP
World Damages if no Ctax, cum to 2050 (RICE with $0 Ctax) = $3,529
World GDP (2011) = $78,853
Australia GDP (2011) = $919
Australia GDP proportion of world GDP = 1.17%
Australia damages if no Ctax, cum to 2050 (RICE with $0 Ctax) = $41
Australia ETS cost (cum GDP loss to 2050) = $1,350
Benefit / cost of ETS to 2050 = 0.03

References:

Yale-RICE Model (2010):
http://nordhaus.econ.yale.edu/

Henry Ergas:
http://www.theaustralian.com.au/national-affairs/opinion/climate-policy-a-burning-issue/story-e6frgd0x-1226072611617

World and Australian GDP (2011): http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)

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Peter Lang the Nordhaus model generally favours carbon mitigation as creating a net benefit under max GDP or 2C temp objectives. Those interested can see the summary in

Click to access Nordhaus_Copenhagen_2010_text.pdf


Therefore we must ask how Australia can be the odd man out.

I doubt it is valid to use bits of the Treasury model and bits of the Nordhaus model when it suits. Claims of $1,350 bn in costs need to be analysed. When Ergas uses phrases like ‘an insult to common sense’ his objectivity comes into question.

I agree that Treasury assumptions are unrealistic. I also agree we are making several of the carbon pricing mistakes pointed out by Nordhaus. The answer is to fix those mistakes.

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John Newlands,

Your comment is dismissive but without substance. You need to do better than that.

The message is clear, even if the figures are not exact (which I acknowledged in the comment).

What this rough analysis demonstrates (for those who have not yet accepted it) is that carbon pricing is the wrong approach, at least until the world agrees to a mechanism – and that is clearly a very long way off. It may never happen.

Ziggy Switkowski also sent a similar, very clear message in this comment on 28 March:
http://www.theaustralian.com.au/news/opinion/struggle-to-balance-climate-action-today-with-future-benefits/story-fn558imw-1226311785673

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I believe Ziggy Switkowski’s letter is behind a paywall, so I’ll post an extract from it:

There are real costs to climate action in higher energy prices, handicapped industries, displaced workers and loss of competitiveness, but with no measurable improvement in our environment. Evidently, we’ve decided to take an economic hit for the global good. But even far-sighted and fair-minded voters struggle to balance today’s cost of living pressures against tomorrow’s ambiguous benefits.

Plus, entangling tax reform, wealth redistribution and costing carbon in a climate narrative leaves people confused and voters cynical.

http://www.theaustralian.com.au/news/opinion/struggle-to-balance-climate-action-today-with-future-benefits/story-fn558imw-1226311785673

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