Let’s get real

There’s a notion going around that an Australian carbon tax will raise more tax in its first three months than the EU ETS has generated in six years. Mr Seamus French’s column in The Australian on Monday included this idea. No numbers have been put forward to justify this assertion, and it can’t go unchallenged.

Firstly it should be stated that the goal of such schemes is not, and has never been, to raise taxes. Nor should the level of tax being raised be used as a measure of effectiveness. The same environmental effectiveness in terms of carbon abatement would result from an emissions trading scheme (ETS) with full allocation of permits (no auctioning) as a carbon tax (or fixed price permit system) at the same price. The ETS would raise no tax but the fixed price scheme or tax would raise the maximum amount possible. Different tax outcome, same abatement outcome.

Secondly, let’s look at the numbers. Australia’s emissions right now are about 580MT. With agriculture initially excluded and other elements being “non-covered” we could estimate that the initial liability in aggregate of emitters would be around 450MT. At a carbon price of $25/t, that’s just over $11 billion. Looking at the EU ETS, the World Bank tracks the carbon markets globally and reports that the EU ETS represented US$100b in spot/physical carbon trade in 2008 and US$118b in 2009.

So, Australian ETS for 3 months = $2.8 billion; EU ETS for one year= over $100 billion. Go figure.

Now, if it is true that the EU ETS has collected less taxes, it’s because the first two phases of the scheme (Phase I was 2005-2007, Phase II is 2008-12) were characterised by almost full allocation of permits to emitters. With next to no auctioning by government, there’s hardly any taxes raised. Note that this is recognised as one of the main design flaws of the early phases of the EU ETS, and accordingly, Phase III (2012-2020) includes full auctioning for the power generation sector from 1 January 2013.  Under full allocation, emission intensive trade exposed (EITE) industries suffer the full consequences of power prices going up but have no offsetting scheme for compensation to address carbon leakage. Similarly, households must face the full impact of prices going up without any offsetting compensation.  The distribution of equity in this scheme has vastly favoured the incumbent emitters. No new proposed ETS anywhere in the world has, since the EU ETS experience, been proposed with full allocation of permits, with most now favouring a large proportion of auctioning.

Thirdly, Mr French uses the CPRS framework to assess the potential treatment of EITEs under a carbon price. He claims that “most Australian exports will be paying the highest carbon costs in the world but without any ability to pass on those costs”. While that may be true to varying extents, it ignores the fact that it provided the basis for EITE compensation under the CPRS in the first place. The CPRS framework accepted that if carbon costs were levied but they couldn’t be passed on, and they represented a substantial impact on a business activity, then there was a case for allocation of permits to address the impact on competitiveness. Such compensation effectively addresses the risk of carbon leakage and therefore mitigates the risk of wisespread job losses that many naysayers are suggesting.

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  1. “Firstly it should be stated that the goal of such schemes is not, and has never been, to raise taxes”
    I’ve got this bridge!
    Where the hell else are they going to get all the money they now need to cover their tracks and fulfill all their grandiose ideas…raise income taxes to 50 or 60% for the average bod? Make company tax 50%? Much better to have a tax in teh name of the ‘environment’

    “The CPRS framework accepted that if carbon costs were levied but they couldn’t be passed on, and they represented a substantial impact on a business activity, then there was a case for allocation of permits to address the impact on competitiveness. Such compensation effectively addresses the risk of carbon leakage and therefore mitigates the risk of wisespread job losses that many naysayers are suggesting.”
    OH yes? Someone from the Government has guaranteed this? We have detail on how that is determined? So far there is an almost total absence of information. They oscillate between wanting to tax the big exporters to death and then, like in this post, they are fully compensating exporters???????
    The one thing they did do to ensure the Carbon price on exporters didn’t reach astronomical heights was to confiscate the private property of farmers so that farmers would not get tax credits for the carbon fixed by trees on their properties.
    I DO know people who were closely involved in those discussions and that was the main driver of the legislation.
    In addition, in respect of farmers the emissions were counted but the carbon fixed by the grasses the animals consumed were not taken into accoun. What a croc!

    If this thing is all fair and above board why does everyone obfuscate and downright lie about it all?

  2. “Let’s get real”.

    Indeed. Lets do that.

    Quote Matt Taibbi’s now famous 2010 exposé on “vampire squid”, Goldman Sachs:

    “BUBBLE #6 – Global Warming …

    The new carbon credit market is a virtual repeat of the commodities-market casino that’s been kind to Goldman, except it has one delicious new wrinkle: If the plan goes forward as expected, the rise in prices will be government-mandated. Goldman won’t even have to rig the game. It will be rigged in advance…

    The feature of this plan that has special appeal to SPECULATORS is that the “cap” on carbon will be continually lowered by the government, which means that carbon credits will become more and more scarce with each passing year. Which means that this is a brand new commodities market where the main commodity to be traded is guaranteed to rise in price over time.

    Goldman wants this bill. The plan is (1) to get in on the ground floor of paradigm-shifting legislation, (2) make sure that they’re the profit-making slice of that paradigm and (3) make sure the slice is a big slice. Goldman started pushing hard for cap-and-trade long ago, but things really ramped up last year when the firm spent $3.5 million to lobby climate issues. (One of their lobbyists at the time was none other than Patterson, now Treasury chief of staff.) Back in 2005, when Hank Paulson was chief of Goldman, he personally helped author the bank’s environmental policy, a document that contains some surprising elements for a firm that in all other areas has been consistently opposed to any sort of government regulation. Paulson’s report argued that “voluntary action alone cannot solve the climate change problem.” A few years later, the bank’s carbon chief, Ken Newcombe, insisted that cap-and-trade alone won’t be enough to fix the climate problem and called for further public investments in research and development. Which is convenient, considering that Goldman made early investments in wind power (it bought a subsidiary called Horizon Wind Energy), renewable diesel (it is an investor in a firm called Changing World Technologies) and solar power (it partnered with BP Solar), exactly the kind of deals that will prosper if the government forces energy producers to use cleaner energy. As Paulson said at the time, “We’re not making those investments to lose money.”

    The bank owns a 10 percent stake in the Chicago Climate Exchange, where the carbon credits will be traded. Moreover, Goldman owns a minority stake in Blue Source LLC, a Utah-based firm that sells carbon credits of the type that will be in great demand if the bill passes. Nobel Prize winner Al Gore, who is intimately involved with the planning of cap-and-trade, started up a company called Generation Investment Management with three former bigwigs from Goldman Sachs Asset Management, David Blood, Mark Ferguson and Peter Harris. Their business? Investing in carbon offsets. There’s also a $500 million Green Growth Fund set up by a Goldmanite to invest in green-tech … the list goes on and on. Goldman is ahead of the headlines again, just waiting for someone to make it rain in the right spot. Will this market be bigger than the energy futures market?

    “Oh, it’ll dwarf it,” says a former staffer on the House energy committee.

    Well, you might say, who cares? If cap-and-trade succeeds, won’t we all be saved from the catastrophe of global warming? Maybe — but cap-and-trade, as envisioned by Goldman, is really just a carbon tax structured so that private interests collect the revenues. Instead of simply imposing a fixed government levy on carbon pollution and forcing unclean energy producers to pay for the mess they make, cap-and-trade will allow a small tribe of greedy-as-hell Wall Street swine to turn yet another commodities market into a private tax collection scheme. This is worse than the bailout: It allows the bank to seize taxpayer money before it’s even collected…”


    [Bubble #6 exposé starts on page 7]

    With just a little cursory attention to the topic, Blind Freddy can see that a carbon dioxide “price”/tax is just a lead in for what the bankster industry has ultimately been seeking. Our own govt openly confesses that “pricing carbon” is just a brief transitional arrangement, on the way to an ETS. In other words, a foot in the door. A wedge. The goal is global *derivatives* trading on CO2 permits. The ultimate bubble. Another bankster con(fidence) job.

    The tentacles of the GS “vampire squid” extend right here to our shores. Into our own parliament. Consider just who has been a prime mover in pushing for an ETS in Australia, ever since he suddenly entered politics in 2004 under the twin clouds of the dubious turfing of sitting member Peter King in Wentworth, and of Goldman Sachs Australia’s “bankstering” viz. the collapse of HIH? Who got saved from appearing in court as a named co-defendant in a $500M lawsuit viz. HIH, thanks to an “undisclosed” settlement made on his behalf by … that’s right, Goldman Sachs? Who announced his intention to retire from politics after failing to book a deal with the Rudd govt to introduce an ETS and simultaneously losing the Opposition leadership, only to strangely renounce this decision immediately on return from a trip to the USA to visit his GS masters?

    Read all about *that* here, with multiple links to all the *minor* unnoticed news stories covering the topic of HIH and GSA’s former chief (2nd half of article) –


    In closing, I find macrobusiness.com.au one of the best financial blogs out there, required daily reading. I find the introduction of this clearly *very* vested interest blogger, parroting the standard arguments and blurring the key point (ie, is CO2 reduction truly necessary, and if so, why tax/trade it?) with financial arguments / sophistry, to be greatly demeaning to an otherwise exceptional, *contrarian*, non-mainstream, reasoned and thought-provoking publication.

    I hope the 4 original principals of macrobusiness will fully wake the contrarian, sceptical parts of their brains on this controversial topic sooner rather than later, and dump this blogger, or at the least, introduce a balanced counterpoint focussing on the real question – WHO stands to benefit most from the CO2 tax/trade movement? “Humanity”? Or banksters… and their myriad assorted hangers-on.

    • Terrific response.

      With one exception! I think the mix of bloggers on MB works – and I would rather a spirited debate on issues than going to a site to confirm my own bias’. CeC’s post here has prompted your ‘spirited’ response. I happen to agree with your view – but I really like the opportunity for open discussion. Don’t shoot the messenger!

      • A fair call re spirited debate and avoidance of confirmation bias, 3d1k. I agree with you in that regard, and am certainly not seeking to stifle debate. That is the status quo of the other side of this debate … “the science is settled”, and all that 😉

        What I take umbrage with is not debate – it is the fact that the principals of this excellent mega-blog (great concept) are generally right on the ball, skillfully presenting and arguing *non-conformist* viewpoints on all things finance. In classic example, they’re right on the ball viz. the great housing Ponzi/s, and who really benefits from it/them the most.

        The bankster industry.

        So, I am deeply disappointed that they have now seen fit to invite regular commentary from one who is (a) a deeply vested “bankster” interest, and (b) pushing the conformist, *mainstream*, group-think, *self-interested* view on what is arguably the hottest (pun intended) topic in the world.

        I do not think that gels at all well with the overall tenor, and thoughtful, sceptical intelligence, that is otherwise demonstrated here.

    • I wholeheartedly agree, carbon coyote stands out like DOGS B***S on this website.

      It’s really unpleasant to see this kind of MSM guff here.

      A real turn off. I don’t know who pays the bills but it makes you wonder.

      Bad, bad, bad

      • Maybe its because all the bloggers here accept the mainstream science on climate change? Just because you hold contrarian views on housing and the resources boom, doesn’t mean you have to align yourself with denialist nutbars.

        If you don’t like it, go post your nonsense at Bolt’s blog.

        • What “nonsense” Lorax?

          You repeatedly fail spectacularly to even *attempt* to address the actual point/s of debate. This alone reveals far more about yourself than it does about the objects of your vituperation.

          Further, your continued substitution of mindless insult for intelligent comment, only serves to reinforce the ever-growing suspicion – supported by real world evidence – that carbon “pricing” thence emissions trading is nothing more than a massive con job being foisted upon humanity by the bankster class, ably supported by those self righteous and arrogant know-it-alls suffering from the twin delusions of a superiority complex allied to a wannabe authoritarian bent.

        • “…all the bloggers here accept the mainstream science on climate change…”

          MacroBusiness authors one and all, is that true?

          With sincere respect, as a daily reading fan of all-but-one of the bloggers here, I’m afraid that if this be so then you have all dropped considerably in my esteem. To think that such informed, well-read, critical-thinking commentators have failed to research deeply enough into this, potentially the most paradigm-changing (and not *necessarily* for the better) topic of public debate of the last 100+ years, and have instead simply “accepted the mainstream consensus”, would be deeply disappointing indeed.

          Perhaps a word from a real scientist, the legendary physicist Richard Feynman:

          “Science is the belief in the ignorance of experts”.


  3. Wow.

    “Looking at the EU ETS, the World Bank tracks the carbon markets globally and reports that the EU ETS represented US$100b in spot/physical carbon trade in 2008 and US$118b in 2009.”

    And rising fast; $144b in 2010.

    No wonder the elite are so keen for Gillard to pass this financial feast.

  4. I don’t really care, which way anybody chops the numbers up, I’m against it.

    I’m against taxing people (And YES it is a tax if you earn over $75k or $150K family, as per other Labor cut off rates, which I expect it will be the same).

    I’m against creating a section of society totally reliant on Govt handouts to keep the power on, feed their families, etc.

    I’m against being personally blamed for something totally out of my control.

    I’m against how this Govt is trying to sell this to lower and middle income earners that they will be ‘Better Off’ under the scheme. Getting higher Govt handouts than the increases, I dont classify as being ‘Better Off’

    Remember “What the Govt giv’th, the Govt can take’th away, just as fast”

  5. With all due respect, David, it’s kind of ludicrous to accuse Carbon E.Coyote of being a vested interest when he’s just demolished the PR job offered up by CEO of Anglo Coal and head of the Queensland Resources Council. Who’s is more vested do you think?

    • Carbon E. Coyote’s profile mentions his entire studies, career and vision is tied on AGW theory. A theory that is scientifically weaker than the alternative theory of solar activity.

      If his vested interest turns out to be false, his investment in time and resources, his esteem, his entire existence turns out to be a sham that was riding on the coattails of a lie and a swindle.

      The CEO of Anglo Coal, and the head of the QRC just get other jobs.

      I would say Carbon E. Coyote is more vested.

        • Yes, my lack of deferral to a bunch of sneering, self-proclaimed truth bearers can only be seen as a sign of me being a nutter.

          Can I ask, where does this confidence of theory come from when the alternative theory has a stronger scientific case?

          Why do you objective so much when I don’t treat the AGW theory as the word of Jehovah and submit to all claims.

          How did you conclude that you can see a truth that ‘non-believers’ can’t see?

          I’m not against a carbon tax btw, after travelling India and seeing the effects of air polution in the big cities, I see great merit in a carbon tax, but I won’t swallow what is a scientifically weak case.

        • Lorax, I’ve noticed that it appears ever more clear from your numerous responses to critics of CeC’s posts, that you have nothing more substantial to offer by way of rebuttal than cursory ad hominem.

          You would cease to lose intellectual credibility by the post, if you were to attempt to address the substance of critics’ comments, observations, linked sources etc, rather than simply generically label them all as “nutters”.

    • H&H, I’m disappointed to see you resort to a blatant “red herring” fallacy in defence of CeC.

      By comparing CeC to the CEO of Anglo Coal and asking “who’s is *more* vested?”, it seems you are indeed conceding that CeC is a vested interest.

      Having followed your quite brilliant commentary since your Business Spectator days, I’d have hoped that any comment from you on my post might have addressed the actual substance of it. To wit, the demonstrable lead involvement of the global bankster industry in pushing for trading in CO2 permits, and, the disturbing local connection/s at the very heart of our own political machin(ations).

  6. “Firstly it should be stated that the goal of such schemes is not, and has never been, to raise taxes.”

    I do not disagree with the general themes of this article, but only a complete fool would believe the above statement.

    The carbon tax will allow the current government to shore up the budget deficit, that is the first and primary goal.

    The second goal is to create a slush fund to redistribute money to swinging voters in compensation for cost of living increases.

    It is this second reason, why Tony Abbott will never get rid of the tax once implemented. All governments get addicted to spending, especially if it is redistributive spending that creates political winners and losers.

    • We have already witnessed the Govt stance on this.
      “Tony, Tell the mums and Dads, the pensioners, and lower income people that U will be ripping money out of their pockets”

      Or something along those lines from Gillard.

  7. “Such compensation effectively addresses the risk of carbon leakage and therefore mitigates the risk of wisespread job losses that many naysayers are suggesting.”

    It effectively addresses the risk of carbon leakage.. just because you say so ?

    I don’t buy this argument for a second, it doesnt hold up.

    • Carbon E Coyote

      No, not because I say so, but because this has been a design feature of every scheme that has ever been put forward in this country. From Shergold Report in 2007 to the Green Paper and White Paper process in 2008 leading up to the CPRS in 2009, to the amendments made by the opposition in 2010 (under Turnbull), and also Garnaut’s treatment in 2008 (section 14.5 of the Review) and updated in 2011. I have summarised in a sentence a huge body of work on this subject, and not accordingly have not done it justice.

      I’ll explore this in more detail in future blogs because it clearly needs more explanation.

      • Care to comment on the Turnbull / GS connection per my post and link, CeC?

        Do you “deny” that GS’s man Turnbull has been a (the?) prime mover in the political push for an ETS in Australia, ever since he was parachuted into Wentworth in 2004, rapidly moved up the ranks to the key post of Environment Minister under Howard, and protected from political fallout over the GS/FAI/HIH %$500M lawsuit by the ultra-deep pockets of GS?

        FWIW, I don’t recall there being any talk from any politician in Oz about an ETS, until MT’s “remarkable” rise into the Howard top ranks.

        Coincidence? I think not. I’d be most interested to hear your views on the topic.

  8. I strongly suspected in 2007 that Kevin Rudd was creating himself a poisoned chalice as he promised to lead Australia into a leading role in fighting AGW. ‘Wait till we find out it’s going to cost us’ I bleated to anyone who would listen.

    This conversation on one of the more measured and balanced sites demonstrates how difficult it is going to be to make any progress if you do think that we need to take action to amelerioate climate change.

    In a dozen comments we have the arguments that we haven’t caused the problem (assuming of course that it exists), it’s just another way for the government to raise taxes to protect their precious projected surplus, we don’t want another tax and it’s just another ‘market’ vehicle for the financial elites to rip us off.

    I’m of the view that the science does support the claims of those who state that there is a problem, we have caused it and we should do something about it.

    If AGW is real we are not paying the full cost of our consumption, in effect we’re benefitting from a negative tax or subsidy. Because the cost is an externality the only way to make the market take it into account is by some government intervention. This will immediately put off, I guess, about half the Australian electorate who regard the public sector as totally inept at best.

    In my possible ignorance I suspect that if we do very little we will be materially better off as our contribution will not make much difference globally and though lagging behind technologically we will be able to adopt pretty quickly when the need arises.

    Anyway I agree with 3d1k that we should keep the debate open and encourage respectful debate rather than robust agreement. It’s a pity that our politicians can’t for whatever reasons reach the standard this blog aspires to.

  9. In eocnomic terms, a vested interest is someone with power to influence policy in his or her favour.

    On this definition, it’s still ludicrous to elevate a fringe blogger above a coal CEO that sits at the power table.

    • I’m always amused by claims from denial-o-sphere that climate scientists have “vested interests” to defend.

      They conveniently forget that the multi-trillion dollar global fossil fuels industry might have few vested interests of their own.

      You think a respected climate scientist couldn’t benefit financially by flipping to the other side and admitting that it had all been a giant hoax?

      • “Denial-o-sphere”.

        There you go again Lorax, with the pompous, self-inflating ad hominem.

        And yet another red herring from a formerly-distinguished blogger to boot.

        I’ve not seen anyone critiquing CeC in this thread raising the subject of the global fossil fuel industry. I’ve not seen anyone “deny” that that industry is *also* chock full of vested interests.

        Sadly, you’ll not convince any thoughtful, critical-thinking person that your position is the correct one – or even that you have a well-researched and well-reasoned position at all – by effectively bleating nothing more substantial than feeble, generic, ad hominem put downs, and, “But but but … that other lot over there is even more bad than my side!”

        FWIW, despite its topical irrelevance to my post and those of others here, I do agree with you that the fossil fuel industry is loaded with vested interests. So what?

        The issue at hand is *not* which is the more “vested” interest out of the fossil fuel industry and the bankster industry.

        The issue at hand is whether or not spruiking the case for C02 trading is legitimate, honest, egalitarian, and altruistic. Or, just a big bankster-inspired con.

        If you want to keep throwing up red herrings, and debate (vested interests in) the global fossil fuels industry, then perhaps you’d care to invite another blogger – one with their career built on and dependent on fossil fuel profits – to join macrobusiness to spruik the case for some new-fangled global derivatives trading scheme that “punishes” the global renewables sector? That would be only fair and “balanced”, right?

    • H&H, that’s indeed a fair call re defining “vested interest”.

      So then, how is CeC any different from a Christopher Joye?

      Or a Tim Flannery – given his personal investments in govt-subsidised “green energy” schemes?

      Or indeed, any other person (“rent-seeker”?) spruiking a particular cause that, if accepted at face value, will lead to increased personal profit for themselves?

      It’s about time we started calling out *all* those who are simply “talking their own book” for what they are.

      Not *just* those doing it in industries that we have a particular beef with (eg, housing).