Lies, deception and Carbon tax

In The Australian today:

“Start with what is uncontested. First, once carbon emitters are issued permits, those permits will be property they own, so any government that abolishes them will have to pay compensation, possibly in the billions of dollars.

Second, entitlements created by statute may be found by the High Court to be property even if that is not specified in the legislation creating them. But specifying it in the legislation, as the government intends, makes that outcome, and the need to pay compensation, far more certain.

Third, a future government could not get around the need to pay compensation simply by mandating a zero carbon price. This is because that would almost certainly require rejecting the Climate Change Authority’s recommended abatement trajectory. But unless that government could convince both houses of parliament to adopt another abatement target, such a rejection triggers a default pricing mechanism. And far from reducing the carbon price, the legislated mechanism could increase it by up to 10 per cent in a single year.

Fourth, nor could a future government get its way by modifying the membership of the Climate Change Authority.
Rather, the legislation creating the authority limits the number of members it can have: unlike, for example, that establishing the Australian Competition & Consumer Commission. And a government has little scope to dismiss members once they have been appointed. The new government would therefore be stuck with its predecessor’s authority.”

Read on at The Australian’s website..

About Henry Ergas

Henry Ergas is a columnist for The Australian newspaper and the inaugural Professor of Infrastructure Economics at the SMART Infrastructure Facility at the University of Wollongong. The SMART Infrastructure Facility is a $61.8 million world-class research and training centre concerned with integrated infrastructure solutions for the future. Henry is also Senior Economic Adviser to Deloitte Australia. Prior to these concurrent roles Henry worked as a consultant economist at NECG, CRA International and Concept Economics. Henry's previous career was as an economist at the OECD in Paris, where amongst other roles he headed the Secretary-General’s Task Force on Structural Adjustment and was Counsellor for Structural Policy in the Economics Department.
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42 Responses to Lies, deception and Carbon tax

  1. I was under the impression that a government could not be bound by the laws of its predecessor, which this seems like a covert attempt to do. It might not be constitutionally bound by the letter of the law, but the compensation needing to be paid might be taken as a club held over a successor government’s head.

    I think there’s an escape clause somewhere; the lawyers just haven’t found it yet.

  2. JamesK

    D’ya think Henry might be secretly spewin’?

    Bravo! Excellent column.

  3. Helen Armstrong

    Could a government mount a legal challenge that forced unilateral action in this case (when the rest of the world has not and will not) is anti competition and endangers sovereign risk?

  4. Jim Rose

    Start with what is uncontested…

    Like carbon trading permits, an individual transferable quota (ITQ) can be construed as exclusive, perpetual rights. An individual transferable quota (ITQ) is an allocated privilege to land a specified portion of the annual fish catch.

    Fisheries regulators consider ITQ quota shares not to be property, but to convey a privilege to catch an amount of fish or shellfish in a given year that can be renewed or revoked.

    ITQs are quota shares may represent a different resource quantity every year as the total allocated catch may vary from year to year.

    Nonetheless, the ability to sell or lease ITQ shares implies a more enduring, if not permanent, fishing access privilege.

    No one has yet successfully argued that the ability to adjust and modify an ITQ program constitutes grounds for a regulatory taking in the USA.

    The Australian courts have found that fishing entitlements, although similar in terms of the privileges conferred, are not the common law property right of profit á prendre. They are a statutory entitlement.

    A profit á prendre is a right to take part of the soil, minerals, natural produce including fish and wild animals. The person does not own the thing gathered whilst it is on the land, but has a right to gather it.

    Compensation for modification and extinguishment of these rights depends on whether there is compensation payable under applicable legislation or on whether the plaintiffs can rely on constitutional guarantees of acquisition of property on just terms.

    The courts have clearly indicated that fishing entitlements are rights created by government as means of regulating the fishing industry and are thus governed by the legislation that created them.

    By annulling that legislation, the entitlement no longer exists. By modifying the legislation, the entitlement is redefined.

    Statutory licences are ‘inherently susceptible’ to modification or extinguishment.

    See ‘ITQs and Property Rights A review of Australian case law’ by Sevaly Sen, Barry Kaufmann and Gerry Geen Fisheries Economics, Research and Management Pty. Ltd. Australia

    Deregulatory takings is another name for it. There is a large literature on deregulatory takings and regulatory contracts in the USA.

    In electric power generation deregulation, ‘Stranded Costs’ represents the existing investments in infrastructure for the incumbent utility which may become redundant in a competitive environment.

    Stranded costs can also be defined as any investment that will be less valuable under competition than under regulation. Stranded costs are another name for the transitional gains trap.

    Given there are no constitutional protections against regulatory takings, it would be ironic that there were constitutional protections against deregulatory takings.

  5. Sean

    Seems like a scorched earth policy is the idea. A couple thought I have:

    If you buy a permit from the Government and then it is quashed, surely you get your money back.

    If the coalition are going towards an ETS also, won’t they also be selling permits?

  6. val majkus

    I wrote this comment on Jo Nova’s blog a few days ago:
    I’ve been searching on the net to see how emissions permits are treated in other countries (whether as property or something else – acquisition of property giving rise under the Aust Constitution to just compensation and thus potentially millions of dollars in compensation by a future Govt) and came across this Research Paper No. 42 March 2007 by the Australia Institute at http://www.ies.unsw.edu.au/docs/WP98.pdf
    If you search that paper for the word ‘property’ you will find on page 5

    The proposed hybrid scheme effectively privatises rights to the atmosphere
    and leaves taxpayers rather than polluters to foot the bill for the deep
    emissions cuts that ultimately will be required
    In order to guarantee certainty to investors, the hybrid system proposes to allocate a large
    quantity of emission permits in perpetuity, constituted as property rights. Allocation of an
    amount equal to 1990 emissions (as suggested by the authors) would be a gross overallocation
    far worse in its environmental and fiscal consequences than the over-allocation
    of water licences by state governments.
    It is generally accepted that emissions in Australia will need to be cut by at least 60% by
    2050 and more likely 90% in order to avoid the worst effects of climate change. If we are to
    meet these goals then it would be necessary for the government to buy back and retire most
    of the perpetual permits, probably at huge cost, even though these permits initially would
    have been allocated free of charge or at a very low price. As in the case of the overallocation
    of water permits, forcing the tax-payer to pay for past mistakes is inequitable and
    bad policy, especially when it can be foreseen.
    The property rights approach is at odds with best practice elsewhere in the world, including
    the EU ETS, the US acid rain program, and the RGGI scheme being developed by ten
    north-eastern US states. In all these cases, permits constitute a license, not a property right.
    The RGGI Model Rule, for example, states:
    6
    No provision of this rule shall be construed to limit the authority of the regulatory
    agency to terminate or limit such authorization to emit. This limited authorization
    does not constitute a property right.
    I suspect Abbott has legal advice
    http://www.news.com.au/breaking-news/tony-abbott-vows-to-scrap-carbon-scheme-if-elected-to-government/story-e6frfku0-1226142071793#ixzz1YVoeFghQ
    Abbott’s proposal is

    Labor and the Greens say dismantling it would cost billions of dollars to compensate businesses for emissions permits they’d purchased, because it would deprive them of an asset and breach the constitution.

    But Mr Abbott said today that while the Government had been “very sneaky” in structuring the complicated scheme, he believed there were ways to take it apart.

    “During the fixed-price phase of the carbon tax (from 2012 to 2015) I think we can close it down, and we will close it down without incurring the billions in liabilities that the (government) is talking about,” Mr Abbott told Macquarie Radio.

    “It is typical of this Government that they would try to booby-trap their legislation so that people couldn’t then repeal a bad law.

    And a further comment:
    some comfort is provided by this comment by Ken Parish at Catallaxy files Carbon Permits and Property Rights:
    The proposed 2012 fixed price scheme does not involve anyone buying permits at all. That phase would only begin after 2015. In the meantime Abbott has made it perfectly clear that he will roll back the scheme if elected and (at least inferentially) that he wouldn’t be paying compensation unless legally obliged to do so. I don’t have any problem at all with that. In my view Abbott is under no ethical obligation to do any more than he has already done. If the Coalition wins the next election (which looks odds-on), it would be legally and morally entitled to repeal the carbon legislation without delay.

  7. A scorched earth scheme – exactly.

    This is diabolical. Especially when you consider that 75% of the electorate don’t want it, and that it will oblige us to send great chunks of national income offshore to the … ummmm … not-very-pleasant regimes of central Asia and south-east Asia.

    However it gives Abbott a big stick with which to beat the ALP over the head for as long as the scheme continues.

    It’s hard to believe what has happened to the Labor Party. How on earth could they ever have convinced themselves that this is a good idea? But you can say that about so many things that they have done since November 2007.

  8. Helen Armstrong

    Off Topic, but it looks like the censor is out in force again. The Australian was running an exclusive this morning which has now been pulled

    Union boss steps up pursuit of Thomson
    EXCLUSIVE: Ean Higgins CRAIG Thomson allegedly took financial documents including credit card records with him when he left his position as HSU chief.

    Only appears now in the ‘most read’ section.

  9. MarkL of Canberra

    Gone from there too Helen – if you copied, can you paste?

    Mk50
    brisbane

  10. Jim Rose

    the fact that a statute calls something property does not make it property for constitutional purposes.

  11. jupes

    The solution is simple:

    For points one and two:

    Hold a referendum to insert a clause into the constitution stating that CO2 emission permits are not property for the purpose of compenstation.

    For points two and three:

    Legislate to disband the Climate Change Authority.

    Problem solved.

  12. F'legend

    This government is simply monstrous.

    They spit in the face of the constitution and hold the public’s capacity for self-determination in contempt.

    Imagine the vitriol if the libs/nats pushed through poison pill legislation that made unions illegal and individual work contracts mandatory.

    As Ezra Levant would say:

    Fire. Them. All

  13. amortiser

    All the incoming government needs to do is release unlimited permits or emission permits on demand. This will render the market price zero and problem solved.

    With that statement made by the opposition now no one in their right mind would invest in carbon permits.

    There is a simple market solution to this problem. This market is completely artificial so an artificial solution is entirely appropriate.

  14. val majkus

    Helen Yes I saw that story this morning on the front page of the online Aust and now its been pulled;
    If you search for Craig Thomson news on google there’s a ref to that story but the link doesn’t work

    curious!

  15. Michael Sutcliffe

    All the incoming government needs to do is release unlimited permits or emission permits on demand. This will render the market price zero and problem solved.

    Exactly. But you can even take the high moral ground and give the extra permits to special interest groups in the name of ‘social justice’.

  16. Michael Sutcliffe

    Have a look this assessment of UK politics by the leader of the UKIP:

    http://www.youtube.com/watch?v=0VJIakSJaiw

    and compare the accusations with most western governments i.e. politicians openly lying before election (which is not new) but openly doing exactly the opposite to their promises when elected without shame. (“There will be no carbon tax…….”), political classes feathering their own nests on the AGW agenda through extraordinary increases in energy bills, politicians openly saying you’re not getting a referendum on anything ’cause we’ll tell you what’s good for you etc.

  17. Winston Smith

    This government is treasonous.
    Time to enforce Rule 7.62mm

  18. Rafe

    On the bright side, if the climate behaves as expected (no detectable change) and this scheme turns out to be a disaster then it will be the proverbial crown of thorns that the ALP and the Greens will have to wear until they enter into a bipartisan agreement to fix it up.

  19. it will be the proverbial crown of thorns that the ALP and the Greens will have to wear

    Good point Rafe. The main problem with that is long term Coalition governments are not necessarily wonderful either.

  20. John Comnenus

    Winston,

    long ago we moved to 5.56mm, same rule different calibre. I am speaking figuratively, lest some clown suggests I support shooting anyone.

  21. JamesK

    On the bright side, if the climate behaves as expected (no detectable change) and this scheme turns out to be a disaster then it will be the proverbial crown of thorns that the ALP and the Greens will have to wear until they enter into a bipartisan agreement to fix it up.

    Sorry Rafe that is simply meaningless.

    It won’t be a Greens/Labor government that will be fixing this up.

    And it will probably take 10 years (optimistically) before there is a weight of evidence against catostrophic man made global warming such that no public policy would advocate expensive means to cut national CO2 emissions.

    I don’t expect to see a Labor/Green government again for even longer

  22. Winston Smith

    Meant in a jocular tone, the application of the rule, that is, John.
    Still favour the 7.62 round because it’s what I trained with. A bit like Goldilocks porridge – not too big, and not too small. Mind you, current diggers swear by the smaller round applied more frequently.

  23. Winston Smith

    On reflection, John, you’re right. It was a bloody stupid comment and I withdraw it unreservably.
    That’s what happens when you blog before the second cup of coffee.
    If you wouldn’t mind removing the said comment(s), please Sinclair. Or leaving them up as a monument to my inability to face the world before coffee…

  24. FYI

    See the first para of that article from The Australian here:
    http://article.wn.com/view/2011/09/25/Union_boss_Kathy_Jackson_steps_up_pursuit_of_Craig_Thomson/

    The Australian 2011-09-25: LABOR MP Craig Thomson took key financial documents including credit card records with him when he left his position as Health Services Union chief and did not return them when requested, HSU national secretary Kathy Jackson has claimed. The allegations were strongly denied yesterday by Mr Thomson, who broke weeks of silence to accuse Ms Jackson of making claims at a time when her own activities were under question. In a lengthy, exclusive interview with The Australian yesterday, Ms Jackson raised new allegations against Mr Thomson and former HSU East general secretary Michael Williamson and for the first time…

    The article was deleted from The Australian (online) post publication.

  25. Jim Rose

    from http://www.guardian.co.uk/environment/2011/jul/05/what-is-emissions-trading

    When does The European Union’s emissions trading system (ETS) start?

    The ETS has already started. It began in 2005, but the second phase of the scheme started on January 1, 2008, and will last for five years.

    How has the system performed so far?

    The first phase has hardly proved a triumph.
    In the first year, the number of permits topped the amount of pollution – sending the price of carbon – the centrepiece of the whole system – crashing to almost nothing.

  26. Sean

    I can’t imagine the protectionist EU states liking it but allowing Australia to buy some of the surplus would make the price rise. The scheme put in place world wide has to be the goal. An efficient use of pollution in Australia is better than a poor one in another nation.

  27. JC

    I don’t quite see the concern about credits being property. Couldn’t the government simply flood the market with enough of these credits to make the old ones worthless?

  28. Judith Sloan

    Henry – I’m thinking you may be the face on the dartboard of the Treasury common room.

  29. Viva

    OT I know – but I’m fed being in a state of vigilant outrage constantly braced for the next blow and waking up each morning to find That Woman is still there. I cant help comparing this state with how I felt when Labor still ran NSW – and how nice it is not having to worry about what they are getting up to next in Macquarie Street. Having blogs to vent one’s frustration is all well and good but it would be great to able to talk about other things for a change – like the imminent collapse of the Euro lol.

  30. No Worries

    Here is an outcome of carbon credits.
    Read and be prepared to be totally disgusted.
    Poor Ugandan subsistence farmers forcibly dispossessed of their land and witnessing atrocities in the name of generating carbon credits, backed by the World Bank, HSBC and no doubt other worthy bankers.
    Refugees caused by climate change delusion.
    Alarming, abhorrent and criminal – the trifecta.

    Australia will, according to Gillard be purchasing these blood-soaked credits in order to maintain its “pollution” levels.

  31. Nameless

    Please don’t print my name. If you go to the article in the Aus relating to the ABC nicking staff from nine, there is a link to the Kathy Jackson article that still works. Pretty damaging.

  32. Bryce

    It looks like The Australian has put the page back up at 12:38pm. It doesn’t say whether there are any changes.

  33. jupes

    It looks like The Australian has put the page back up at 12:38pm.

    Hey hey hey. Thomo the gift that keeps on giving.

    Prime Minister, what say you?

    “I have full confidence in the member for Dobell”.

  34. John Comnenus

    Some uncharitable souls, who are keen to jump to conclusion whilst they are still denied, might call Thommo a confidence man! He sure has Julia’s confidence!

  35. Helen Armstrong

    MARK L

    Here is what I copied earlier

    http://www.theaustralian.com.au/national-affairs/union-boss-kathy-jackson-steps-up-pursuit-of-craig-thomson/story-fn59niix-1226146150368

    Just back from a 12 hour trip to town and back, ordered my copy of todays Oz, (wont come in til tomorrow) but they will hold til I get back into town.

    Goddamn. I am terribly excited, like a Lab that has scented duck!

  36. Peter Hayes

    There’s a legal argument going on at this very moment as to whether the government has to pay the tobacco companies compensation for plain packaging rendering their trademarks worthless. Simon Evans was quoted in The Australian saying that the Commonwealth wasn’t acquiring the tobacco companies’ intellectual property there, so didn’t have to pay compensation. If that’s true (and the courts may well agree with him eventually) then I can’t see how the scrapping of carbon permits would be any form of property acquisition requiring compensation on “just terms”. Nothing would be acquired. So Mr Ergas’s first uncontestable point is hereby contested.

  37. Helen Armstrong

    Thanks Bryce

    Hooker-Gate – Gillards last post.

  38. Le Chiffre

    Flooding the nation with Carbon Credits would be the obvious tactic for Tony to reduce the price to nil.

    However, the Greens have realised just how stupid they are and just how little they can predict the future price of carbon credits so they have insisted on a minimum of price of $15.00.

    European rorting of their ETS has led to sharp declines in the price of carbon credits and local clowns issuing massive amounts of RECs from solar schemes has collapsed the price of the RECs here already – hence the need to set minimum feed-in tariffs.

    The Greens know they are clueless about how a market will work and so have set a minimum price and mandatory annual increases. The ETS price can only fluctuate within a range. Yet they dare call this government regulatory construct of assigning value to a worthless gas and forcing its consumption upon people a market trading scheme.

    When it all invariably collapses you can bet you will get some socialist clown like KRudd jumping up and down about market failure – arrrrhhh !

  39. Le Chiffre

    Further tactic – even if the carbon credits have a minimum value – flood the land with credits and we can sell them to the European scheme and make money out of this.
    The Italians over-issued credits and actually did make money out of joining the Euro-rorted ETS – hilarious !
    We will learn a lesson or two from those wonderfully corrupt Mediterraneans.

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