The government is trying to water down the carbon tax, its most costly error. Following the astonishing decision to join the EU’s carbon abatement scheme, I had a piece in the AFR on Wednesday. Henry E also had an excellent piece in the Australian. Here is the text of mine.
In a humiliating back down, Climate Change Minister Greg Combet, though failing to acknowledge the damage of a carbon tax to the Australian economy, has recognised that the tax at $23 per tonne of carbon dioxide he introduced last month is excessive.
The carbon tax sets Australia alone with the EU in imposing such a measure and at an escalating price starting at $23, is twice the level that prevails in the EU. In now saying the tax will be linked to that of the European price by allowing Australian carbon dioxide emitters to buy emission indulgences from the EU, the Government has conducted four somersaults and a belly-flop.
First it has abandoned the intent of the carbon tax, which as the Government appears to have forgotten, is an 80 per cent reduction in Australian emissions by 2050. Achieving such a level would be impossible at $23 per tonne (a tax that has raised the wholesale price of electricity by 40 per cent). To achieve its 80 per cent emission reduction objective would require a tax of over $150 per tonne. This would bring about a threefold increase in the electricity price and, as well as directly imposing colossal costs on households, would shred the present industry structure of Australia and bring about a considerable reduction in living standards.
In its eagerness to win Green support and obtain a war chest to win supporters with tax cuts, the Government eagerly grabbed Treasury forecasts that a carbon tax would have little economic effect. Such forecasts assume far-reaching technological changes favouring low-carbon energy. This is despite no improvement being experienced in the economics of these sources compared with conventional electricity generation for the past twenty years.
Linking the price to the European floor means it falls to $10, a level that will mean hardly an iota of emission reduction but imposes price rises to consumers and industry that will still drive many firms offshore and shrink the number of the most productive jobs.
Secondly, the fact that the existing and future spending requires a carbon tax of $23 per tonne escalating year by year has been abandoned leaves a massive hole in the budget. This once again demonstrates the ALP’s inability to maintain the necessary fiscal discipline. Dropping the price to $10 means tax collections halve from the $8 billion or so a year anticipated by the government. And if emitters fulfil all their requirements in emission credits from the EU then the Government will gain no tax. Will it now reduce spending if so where?
Thirdly, in opting for the highest carbon tax in the world at $23 per tonne in the expectation that all other countries would follow suit demonstrates the damage created by the government believing its own propaganda. In a raft of papers designed to shore-up the Government’s decision, all it has proved is that no major country is following Australia’s lead with a carbon tax and all of our trading competitors are simply rejecting it. In its decision to shelve the Roxby Downs expansion, BHP acknowledged to European stock exchanges (though not in its Australian press release) that the carbon tax had been a factor in demoting the prospectively of Australian investments. Other project downgrades we will see from increasing supplies from new mines across the globe and a tax-driven diminished Australian competitiveness.
Fourthly, the government is allowing Australian emitters to buy credits from EU countries. If 100 million tonnes of carbon dioxide credits are bought in this way that means gifting the EU some $1 billion a year. There is no possibility that this wasteful funding of the EU at Australian electricity consumers’ expense will mean any reduction of emissions on a global level.
It is time to recognise that the carbon tax is a total failure of policy and to dismantle it before it does further damage to the economy in general and to consumers in their power bills.
Unfortunately the AFR followed this up with a real lame piece by Tony Wood of the ALP governments’ financed “think tank”, the Grattan Institute. His article said, “The European ETS is the largest carbon market in the world. Linkage will mean we help create a bigger market. ….. the big-picture view suggests this is a good outcome. ….. The government’s move in this direction carries risks to be managed, but is heading in the right direction.” You wouldn’t read about it!
The irrepressible Warwick McKibbin McKibbin, a long-time supporter of carbon taxes, sniffing the wind, has condemned the Euro link. Previously the former RBA Board Member advocated using all the economist’s interventionary “tool kit” including:
- a comprehensive approach with a portfolio of policies that both encourage the technological solution to energy generation and encourages technological and behavioural changes in how energy is used.
- create a clear long term goal for carbon reduction over at least one hundred years, with long term property rights over carbon emissions … tradable in a market for long term carbon emissions … out past the 2050 target.
- substantial investment in research and development into carbon saving technologies.
increased awareness, through education, in how changes in consumption of energy can impact on the emissions outcome.