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Carbon pricing for Australia

I am pleased that the Australian Government will introduce a carbon tax of sorts from July next year – a common guess is that it will be about $26 per tonne CO2 although the size of the tax has not yet been announced.  Then an emissions trading scheme in 3-5 years after that.  The little information available on these pricing plans is provided by Peter Martin here.  The ‘on-again’, ‘off-again’ attempts to price carbon in Australia make me more than a little cautious but certainly this is the best news for years.  From what I can read, Tony Abbott has committed to oppose the measure now but not yet agreed to revoke it if he should gain power at the next election – it is easy to understand this since the Liberal Party do not have anything approximating a credible policy on climate.  (Update: Abbott has, since I wrote this, indicated he will repeal the measure. That does not mean he will.) Julia Gillard and the Labor Party now face the task of selling the proposed measures to the Australian people.   This will ensure their political skins and much-needed credibility for the measure if electrical power suppliers are going to undertake the types of long-term investments required by a low carbon economy. They have not shown skills in doing this in the past – Malcolm Turnbull made the best political speech on the issue – perhaps it could be recycled.

A difficulty is that the carbon tax proposal – despite it being good policy in my view – was not Labor Party policy going into the last election.    At a stretch it can be argued that a Labor Government was not elected but rather a Labor Government in coalition with Greens and independents so that things have changed.  Australia will of course get the chance to vote on this pricing measure at the next election.  

I hope the measure does not get ambushed by unthinking ec0nomics critics – it will have enough foolish opposition from those who reject the climate change science because of their political priors or because of their political opportunism.  I was a bit distressed to see the following report attributed to Warwick McKibbin in this morning’s Australian. I hope it is an instance of the Australian’s slack journalistic standards and not an attack by Warwick on the proposed policy:

“Australia’s leading climate change economist Warwick McKibbin said it had been established that the only carbon abatement in Europe had been the result of regulation and subsidies, which had boosted the use of solar and wind power.  A carbon price is just a pure cost and gives you little incentive to avoid it unless you know what will happen in the future,” he said.

He said a carbon tax was preferable to an emissions trading system, because it conferred greater certainty, but it was really only an interim step.”

We don’t need these types of comments when the proposal has not even been fully specified – you cannot judge pricing effects when the scale of price changes is yet to be announced.  It is important to get a pricing policy up and running. As Ken Henry remarked last year the likely effect of such comments is to reduce the chance that anything at all will happen. 

If his comments have been taken out of context Warwick should correct them. If he is quoted in context then I think he is just wrong. If Warwick is saying that we need long term political agreement bon the case for carbon pricing from both political parties I agree.  It is long term expected prices that really matter not current carbon prices.

Update 1: There is something of a squabble developing over whether the carbon tax should be applied to fuels.  A $20 per tonne carbon tax would translate into about a 6 cents per litre tax on petroleum fuels.  Currently the fuel excise is 38.143 cents per litre  so including an additional carbon levy is  not going to substantially alter the way government impacts this sector.   The advantage of imposing an additional tax now is that bit can be ramped up as the price of carbon rises through time.

Update 2: Here is Geoff Carmody on the case for designing a carbon tax that attacks the consumption of carbon emissions in Australia. A case I strongly support.  I don’t agree with the title of this piece but the rest is right. We should introduce border taxes and compensate exporters for the taxes they directly or indirectly pay on carbon.  I cannot see any case for compensating the producers of  domestically produced nontradeables such as electricity and I’ll bet a lot of subsidies end up going exactly there. Malcolm Maiden discusses the case for border taxes on steel imports  (among other things) in The Age.  Among other things it reduces the need for explicit financial compensations for local producers. Craig Emerson gets it wrong on BTAs dismissing them as protectionism.  That they are not. He wants to hand out subsidies to local firms affected by import competition.  That is clearly a second-best option.

16 comments to Carbon pricing for Australia

  • Warwick McKibbin is right. And the tax has to be big, not a piffling $26 per tonne. There can be no half measures in this game. Either you put the big emitters out of business, or you are just window dressing. To achieve the former the tax has to be a minimum of $100. See Tony at Jen Marohasy’s today on the general picture.

  • hc

    Tony’s post is nonsensical. There are plenty of viable substitutions for coal at prices of around $40. This is well known – the first off the rank will be switches to natural gas which provides lower emissions. Tony seems to be saying that generation operates with fixed factor proportions if it is efficient but this discounts the changes in technology sought which the power sector has already recognized will come. At a bit above $40 come wind and renewables and a bit above that nuclear power.

    What’s happening in this crazy world? Exaggeration and stupidity rule the day. These switches will occur without drama and future generations will look back at what is happening as an interesting period of mass delusions.

  • hc: go back to Tony, it is all about base load. Wind/solar cannot compete there, and gas is only marginally less CO2-intensive than coal (check the combustion equations).

    Ironically, natural gas (CH4)does have lower CO2 emissions than other hydrocarbons (check the formulae), but Garnaut thinks otherwise and wants to eliminate all sources of CH4.

    Go to Barry Brook’s BNC for deep analysis of nuclear, showing clearly that it is only otiose regulatory requirements that force up its costs.

  • MH

    This is a welcomed change and sensible policy to implement. James Hansen has always advocated a Carbon Tax as the most simple solution to deal with emissions without the interference of carbon rights and trade all tied to an agreed cap. Imposing a tax will lead to appropriate substitution and drive firms and individuals to reduce their use of carbon. The tax leaves the goverment with plenty of policy room to deal with the obsfucation and procrastination that is the quaqmire of international treaties and agreements. Expect plenty of noise from the those who need to change.

    I am not sure why the use of this measure has to be gloom and doom either, we all know that carbon free world given our current state of technological development is not possible and this is not the end game and for many many activities there is no way that carbon can not be emitted – heat for warmth and cooking to start with, making steel etc. all the tax has to do is at least contribute to holding and slowly reducing CO2 to safer level, there will be an inevitable hit in the form of negative cost impacts but substitution and innovation will drive the rest.

  • observa

    ‘Expect plenty of noise from the those who need to change.’
    What?
    You mean those precious battlers and working families?

    As Bob Brown said about the Greens new petrol tax here-
    http://www.theage.com.au/national/greens-fuel-petrol-tax-debate-20110227-1b9om.html

    “Our job is to ensure that the average Australian household and car user is not punished by a carbon price,” he told Network Ten.

    “The idea here is to make the polluters pay.”

    Hilarious if it weren’t so bloody serious with these economic paedophiles grooming our kids with it.

    Well at least they’ve come round to the notion that their Carbon Profiteering Rorts Scheme was just that and the venerable chaps at Morgan Sachs and Co will have to come up with something else for their bonuses. We can all thank Blairs Law and Copenhagen for that.

    “The advantage of imposing an additional tax now is that bit can be ramped up as the price of carbon rises through time.”

    So fertiliser taxing fans, it would appear your maximum pricing impact is to ultimately raise ALL taxing via the CO2E taxing mechanism(with the anomaly of excise on booze and fags presumably)or am I missing something here?

  • observa

    Well there you go Harry. Despite all the post-normal science on climate change, that so many real scientists dropping in at Climate Audit and Wattsupwithat are pulling to pieces by the day, I can still remain agnostic on CO2 induced warming(albeit it gets harder with each debunking of the more hysterical claims of the climate warmists then changers and now weather extremists)and put myself around your side of the table and see the obvious-
    If you’re all so convinced the grandkids are gunna fry or whatever then how far hypothetically are you prepared to go with raising the price of CO2 emissions? Are you prepared to go to the max for your unfailing beliefs, which simply means raising ALL taxation via the CO2 equivalent tax mechanism? That’s the maximum price effect you can have without mandated controls. What’s your problem with it or do you just lack the imagination to see it? Or isn’t it really as important as the doomsayers have had us believe, or are you just jerking our chains and frightening kids in order to justify more taxing to facilitate more control over our lives? Or lastly is there other important tradeoffs that would need to be considered?

    If you can’t come up with any of the latter then Abbott is right and you’re all just a bunch of big tax and spend control freaks and power grabbers, all in the name of some new Gaia religion.

  • observa

    I’ll help you out a bit here by pointing out Gillard reckons we should be taxing a few other resources. Is she right?

  • hc

    No, not at all. Get rid of carbon based electricity but gradually.

    Tax increases should be almost revenue neutral. Some funding net for R and D.

  • […] Harry Clarke who writes On economics, politics other things gave measured support to the announcement rather than an emotive response: I am pleased that the Australian Government will introduce a carbon tax of sorts from July next year – a common guess is that it will be about $26 per tonne CO2 although the size of the tax has not yet been announced. Then an emissions trading scheme in 3-5 years after that. The little information available on these pricing plans is provided by Peter Martin here. The ‘on-again’, ‘off-again’ attempts to price carbon in Australia make me more than a little cautious but certainly this is the best news for years. From what I can read, Tony Abbott has committed to oppose the measure now but not yet agreed to revoke it if he should gain power at the next election – it is easy to understand this since the Liberal Party do not have anything approximating a credible policy on climate. Julia Gillard and the Labor Party now face the task of selling the proposed measures to the Australian people.Carbon pricing for Australia […]

  • observa

    I like the revenue neutral bit there Harry(and I’m not the only one by the looks) and Gillard is on the right track with increased resource pricing. Of course to get the maximum effect of price signalling for all natural resources we plunder from our natural environment, without plundering the shirts off our backs requires serious constitutional change to our marketplace. Essentially a shift to complete reliance on resource taxing with a few clever tweaks. Then we wouldn’t need to ban plastic shopping bags or worry about this sort of thing-
    http://www.adelaidenow.com.au/ipad/clean-up-forced-on-homes-in-citys-north/story-fn6bqphm-1226014957997?from=public_rss
    It’s all about the constitution of the marketplace and our current one has clearly outlived its usefulness and been overtaken by new realities(the Spaceship Earth paradigm predominantly). Get the constitutional settings right via taxation and we can all sit back and let the level playing field free market do the job, rather than at present where the usual suspects want to control all our lives, largely for their own benefit. Wood vs trees and treehuggers.

  • […] On economics, politics & other thingsのHarry Clarkeは今回の発表について慎重に支持し、感情的な反応は控えた。 オーストラリア政府が来年7月に炭素税のようなものを導入すると聞いて嬉しく思っている。税の規模はまだ発表に至っていないが、二酸化炭素1トンあたり26ドルというのが一般的な予想だ。そして3年から5年後に排出量取引が実施に移される。Peter Martinがわずかではあるが計画されている価格情報を提供している。オーストラリアの炭素価格については前に進んだり立ち止まったりを繰り返してきて、私としてはいささか慎重になってしまうが、確かにここ数年で一番良いニュースだ。どこかで読んだところによると、トニー・アボット氏は今は今回の方策に反対する立場だが、次回選挙で多数を獲得した場合にこの方策を白紙に戻すとは言っていない。理由は簡単で、自由党は気候変動に関して、信用のおける政策と呼べるものは持ち合わせていないのだ。ジュリア・ギラード氏と労働党は、オーストラリア国民に対して今回の方策を売り込む課題に直面している。 オーストラリアにとっての炭素価格 […]

  • […] Harry Clarke who writes On economics, politics & other things gave measured support to the announcement rather than an emotive response: I am pleased that the Australian Government will introduce a carbon tax of sorts from July next year – a common guess is that it will be about $26 per tonne CO2 although the size of the tax has not yet been announced. Then an emissions trading scheme in 3-5 years after that. The little information available on these pricing plans is provided by Peter Martin here. The ‘on-again’, ‘off-again’ attempts to price carbon in Australia make me more than a little cautious but certainly this is the best news for years. From what I can read, Tony Abbott has committed to oppose the measure now but not yet agreed to revoke it if he should gain power at the next election – it is easy to understand this since the Liberal Party do not have anything approximating a credible policy on climate. Julia Gillard and the Labor Party now face the task of selling the proposed measures to the Australian people. Carbon pricing for Australia […]

  • Carbon pricing for Australia « Harry Clarke

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