What’s in a name?

John Howard didn’t have time to give it a name. His election commitment in 2007 was to introduce an emissions trading scheme, as was Rudd’s. Turnbull has quipped that if Howard won that election we would already have an ETS. As it turns out, Rudd got up and called it the Carbon Pollution Reduction Scheme, which at least explained in a nutshell what it was trying to do.

The current government has not yet give its policy a formal name. So the Opposition has obliged and chosen one for them: a carbon tax.

Now this has got a lot of people, mainly tax advisers and accountants, barking up the wrong tree. It’s not actually a tax, and won’t provide a steady stream of clients with requirements for assistance to fill out their carbon tax return.

Colin Hargreaves, director of the International Bureau of Financial and Economic Modelling, wrote an interesting Opinion piece to the AFR yesterday, lamenting the high transactional cost of collecting taxes like the GST ($0.8-1.10 for every $100), and a central quote made the back page:

the carbon tax could be very efficient if it is collected at source rather than from each individual consumer.

That’s exactly what is being proposed, and was being proposed under Howard’s ETS and Rudd’s CPRS. Only those emitting more than 25,000 tonnes per annum CO2e are defined as ‘liable entities’. They are already reporting under the NGER Act of 2007 (brought in under the Howard government). From 1 July 2012, if the legislation goes through, they will need to pay for permits to match the amount of their emissions, and such permits are automatically surrendered (ie not traded). There’s only about 1,000 point sources (or facilities) with that level of emissions. So it will pass the test of being efficiently collected. Sure, costs will be passed through to consumers, but there will be little to no transaction cost in that pass through, as the carbon price will be embedded in the price of the goods/services.

The current proposal is not a tax, but a fixed price emissions trading scheme. This is exactly the same as the CPRS, which also had a fixed price at the start. Economically speaking, a fixed price emissions trading scheme has broadly the same economic impact and budgetary consequences as a carbon tax. But it’s not a tax.

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Comments

  1. Hey guys, how about we keep this thread on topic. It doesn’t help anyone if this degenerates into yet another shouting match about the validity of climate science. I’m not going to convince you, and you’re not going to convince me, so lets just put it aside. Deal?

  2. Cost will be passed to the consumer with very little increase in electricty output (even decrease).

    Compare that to France where the Public authority is in charge, the lectricity cost 50% less than the Australian current pricing (before this Tax) with very little CO2 emission.

    but the public authority was able to have along term view, borrow cheaply and build a great infrastructure.

    Not much to expect from the “Market” beside making fat cats.

    • Two things mitigate any effects on the overall economy. One: emitters will pass the cost of the permits to their customers. Two: revenue collected by the government will be spent elsewhere in the economy. Overall, the impact is likely to be minor.

      • “One: emitters will pass the cost of the permits to their customers. ”

        Err…this won’t affect the economy how?

        “Two: revenue collected by the government will be spent elsewhere in the economy”

        Yes, because the government taking from the productive sectors and ‘distributing’ it to those it deems worthy is GREAT for economies.

        Really…

  3. I agree that the tax will be collected efficiently but there will still be a large tax interaction effect with pre-existing distortionary taxes. There are alternative forms of emissions trading/fixed price schemes that can create the same incentives in stationary energy sectors (the largest emissions sector) but not interact with the wider economy in such a negative way (mostly via avoiding increased electricity prices).

  4. If it looks like a duck, quacks like a duck…

    Ross Garnaut appears to treat carbon pricing as a tax, a few excerpts from his paper: Carbon Pricing and Reducing Emissions, Update Paper 6, 2011:
    http://www.garnautreview.org.au/update-2011/update-papers/up6-carbon-pricing-and-reducing-australias-emissions.pdf

    “This model provides the benefits of credibility and steadiness in its early years… It also provides substantial revenue.”

    “In addition, placing a price on carbon in the manner recommended in this paper will generate a large amount of revenue. The revenue can provide the means to cut distorting taxes that reduce economic
    welfare.”

    “Wise use of revenue from a carbon price can reduce the cost to the economy, and promote productivity above what it otherwise would be.

    – The largest element of revenue (around half initially, rising to the large majority) should be applied to productivity-raising reform of the personal income tax system, focussing
    on low and middle levels of incomes. This will generate positive effects on income
    distribution as well as national productivity.

    – Short- to medium-term support for innovation in low-emissions technologies, to address market failures and lower the costs of transition to a low-emissions economy”

    ‘Box 1: A better way to tax’ (Note the heading!!!)

    “…An important element of carbon pricing discussed extensively by one of
    the pioneers of climate change modelling William Nordhaus is the opportunity to improve the efficiency of the tax system through replacing highly distorting taxes by a price on carbon…”

    “He (Garnaut)also suggests a carbon tax is likely to be significantly more efficient than many other taxes and warrants consideration as part of a tax reform program, quite apart from its benefits in addressing climate change.”
    http://www.crikey.com.au/2011/03/17/carbon-price-garnaut-backs-labors-scheme-but-switches-on-compensation/

    mmmm – Quite apart from its benefits in addressing climate change!

  5. I wonder about the connection between a legislated-to-rise carbon dioxide price impacting on old folks cost-of-living, and the latest artificial “commodity” from our friends in finance – ‘death derivatives’:

    http://www.bloomberg.com/news/2011-05-16/death-derivatives-emerge-from-pension-risks-of-living-too-long.html

    Win-win if you’re a banker.

    Profit on carbon derivatives trading.

    Profit on death derivatives when (over time) presently rising average longevity in the West begins to decline.

    Cold Northern winters get pretty nasty if you’re old, and don’t have enough dosh for electricity/gas/food.

  6. David (a different one)

    Yes I think it’s unfortunate that Gillard tried to pre-empt the ‘You’re being sneaky, you call it emissions trading starting with a fixed price but it’s really just a tax’ line on day one by saying ‘if you want to call it a carbon tax, OK it’s a carbon tax’. It’s not the same thing as a tax. Btw, how does the Coalition get away with the ‘great big tax on everything’ line? Isn’t that a perfect description of the GST?

    • the coalition went to an election saying it was going to do the GST, Labor lied directly about it.

      • GST was introduced as tax reform, The carbon tax is being introduced as a form of wealth redistribution.
        Considering the currents governments record with the henry review reforms would you trust them with anything?

    • So the GST is going to have no effect on wealth redistribution? Are you serious?!

      Stop playing politics. Both the GST and the carbon tax are necessary tax reform.

      • All taxes affect wealth distribution, the key is to incentivise productive investment and employment. A carbon tax targets production and employment and therefor is the last tax you would introduce.
        The muted compensation package claims that low income earners wont be worse off, except for those low income earners that used to be middle income but lost their job.

      • But isn’t CeC arguing it is not a tax. And isn’t the government lauding it an environmental reform.

      • there is a difference between introducing a new tax and tax reform, the GST replaced a whole bunch of taxes that were outdated and inefficient and was designed to give states all the funds they would require and stop federal govt propping up the states.

        what tax was reduced or eliminated for this oh great and powerful carbon tax?

  7. Why talk about the ‘carbon trading scheme’ when we all know it will not see the light of the day. Government change anyone?

        • Even so, will the Australian people forgive the ALP for lying to them so blatantly before the last election?

          Also, don’t forget this ‘price’ (lol) is supposed to rise in the future. Even if it doesn’t hurt the Coalition have the perfect ammo.

          This tax will be the ALP’s workchoices.

        • MattR, who cares about either the ALP or the Liberal party. They are TweedleDee and TweedleDum.

          • I share your sympathies but when one party wants to fundamentally change the economy on the back of an unproven hypothesis, it’s time to stand up and be counted.

            For the record I am a fully paid member of the LDP.

            http://www.ldp.org.au/

      • Totally agree…

        “Ruddprime loans will blow the warm air out of Juliar’s sails”

  8. I don’t trust either side, but no political party wants to spend its time as the opposition for the next century and a half.

    Labor’s day are numbered by the resumption of GFC, the ensuring economic slump does not make for happy voters.

  9. And of course – i expect more attacks from the unions and industry…

    Warning – Carbon costs will sting
    http://www.perthnow.com.au/business/warning-that-carbon-costs-will-sting/story-e6frg2ru-1226061701818

    IAG, BHP call for government to focus climate debate on protecting jobs, economy

    http://www.heraldsun.com.au/business/call-to-focus-climate-debate-on-protection/story-fn7j19iv-1226061646251

    Keep up the good fight – any government that reduces society’s wealth by means of higher taxes should be thrown out of office.

    • Once the unions turn against the tax so will the labour party. Considering labour realised AGW had become unpopular and dropped it before the election, I do wonder if the reintroduction of the carbon tax is a plan to undermine the greens.
      If only the democrats hadn’t self destructed i would have someone to vote for, instead of against!

      • “If only the democrats hadn’t self destructed…”

        Yup and Labor played a big hand in it!

  10. “John Howard didn’t have time to give it a name. His election commitment in 2007 was to introduce an emissions trading scheme, as was Rudd’s.”

    Very very misleading. Howard may have had one, but ONLY when it was quite obvious that he was going to lose the election to Rudd. It didn’t help his poll numbers one bit. That would suggest that it didn’t help Rudd either. Somehow I think, if he had won, this would have been put in the dustbin pretty soon after.

    Also, there has been an election since then. BOTH major parties were 100% against a carbon tax/price/anything. And there are written and verbal quotes available all over the place to confirm this.

    “So the Opposition has obliged and chosen one for them”

    Stop putting the blame where it doesn’t belong. The ALP called it a Carbon “Price” the media called it for what it is, a Carbon Tax.

    “It’s not actually a tax, and won’t provide a steady stream of clients with requirements for assistance to fill out their carbon tax return.. The current proposal is not a tax, but a fixed price emissions trading scheme… etc… etc…”

    Oh come on, the ETS was a tax as well and you know it. Just because companies are required to ‘buy permits’ doesn’t make this any less a tax. They pay the government for the permits, otherwise they can’t ‘pollute’ (co2 isn’t pollution but we all know that so let’s not worry). It’s exactly the same as saying, ‘you can’t earn that amount without paying us x amount of it’ (income tax) or ‘you can’t sell that house without paying us x amount’ (stamp duty – it’s a duty not a tax!). If it’s the government forcing anyone to give them money through use of force it’s a tax, the name the government of the time give it is irrelevant.

    The “it’s not really a tax” line is literally nothing more than government spin. This IS a tax and it’s a tax that Gillard explicitely ruled out 6 days before the election. And pointing out the ETS is nothing but a strawman because BOTH parties ruled this out pre-election.

    All this and the science isn’t even settled. What a farce of a policy.

    • Come on, dude. Rudd won the elction with a climate change platform. Howard:s last minute backflip reeked of phonyness. Why not have the real thing? Which turned out to be anything but.

      • I disagree, Rudd won the election because of workchoices and the “it’s time for a chance”. The ETS was just along for the ride. The media might have thought it was a factor but it really wasn’t.

        Don’t forget, when Abbott won the leadership from Turnbull, it was because of his anti-ETS policy. Coalition polls numbers started to pick up from there.

        When polled, almost no-one says they are willing to pay even a dollar for ‘climate change’ policies. It’s a dud policy coming from a dud government.

        • “It’s a dud policy coming from a dud government.”

          Actually this sounds better

          It’s a dud policy coming from a dud government that is based on DUD SCIENCE

        • But similary if you ask people ‘Would you like to pay 10% more for everything?’ naturally they would say no.

          However ask the same people ‘When you get old or sick, would you like affordable healthcare?’ they will say yes.

          Or ‘Would you like better roads and public transport’

          Or ‘Would you like more opportunities to learn and develop?’

          When the GST (a great big tax on everything) was introduced, Howard actually lost the popular vote, but thankfully won on seats.

          Now it has significantly boosted the tax base, and allowed for more basic services to be provided to everyone.

          So similarly if you ask people ‘Do you want to pay more for your energy?’ of course they’ll say no.

          But then ask them ‘Do you want your kids/grand kids to have energy security ‘ and they’d say yes.

          Or ‘Would you like more liveable cities, improved transit times, improved public transport’

          No-one likes more tax, but they are more than happy to recieve its benefits.

      • 2007 was probably the High of popularity for the AGW brigade. Its plummeted to about a third of the population still believing the doomsday theory. It seems the average punter as a good sense of smell!

        • Which is unfortunate, because since then the effect of cosmic rays on cloud cover has been debunked, and methane and CO2 levels have continued to rise.

  11. I wouldn’t be surprised if Joolya “listens to the people” and attempts to introduce an affordable $10 tonne carbon tax(or what ever balances the budget). This will cause the greens to get upset and attempt to block the tax as it doesn’t destroy the economy enough which is their ultimate objective. Either way labour achieves their objectives(more money/power or destroying the anti human greens), which clearly has nothing to do with preventing global warming!

  12. The Nod and MattR has covered the science and technology related issues pretty well.
    The political issues are known, we all aware of the political price of ‘carbon trading’ in Oz. Think Turnbull or Rudd and expect more of the same – the electorate is cynical and will not be taken for a ride by hand picked scientists and their political masters.

    There are no winners in this discussion – everybody associated with the climate change debate and the carbon reduction scheme has lost its credibility. The trust of the public will be hard to regain.

    Refocusing the debate to environmental protection would save the world from pollution, political spin and scientific ignorance.

    • “Refocusing the debate to environmental protection would save the world from pollution, political spin and scientific ignorance.”

      A major issue with the AGW issue is that it has tarred TRUE environmentalists with the same brush. Now people who actually want to keep our air clean, protect native species and save forests are going to be painted with the same brush as the socialists who devised the whole thing.

      It’s truly sad.

      • Perhaps what you had direct experience of in India (and that which we have all had in various places) is harm from chemical pollutants in the environment/atmosphere. This is a very real issue for mankind – today.

        Reduction and/or elimination of hazardous chemical elements in the environment is something measurable and theoretically achievable. This would improve the lives of millions of people, particularly in developing world industrial megacities. Real world benefits – right now.

        Don’t know if there’s any money in it though…

        • I know what it was from, those old tech Leyland-Ashok buses primarily, but all forms of automobiles considering the (relative) wealth of Bangalore.

          I sucked in a hell of a lot of fumes while I was there. My wife’s nephews both developed lung infections from the poor air quality in Mumbai.

          As you said, tremendous health benefits to be derived from already existent technology.

          You last point.. labor there is cheap ?!

        • “Don’t know if there’s any money in it”

          Meaning where is Big Finance and its associated glorious perfectly formed environmentally conscious trading schemes when it comes to something that really matters to real living human beings right now.

          Hazardous chemical pollutants maim people, cause endemic health problems (that the poor cannot afford to treat), directly harm the environment, destroy river ecosystems, the list goes on.

          • Correct.

            Real issues.

            All but forgotten in the frenzied rush for global “emissions” trading.

        • Yeah I know what you meant.

          I’m talking about the cost-benefit analysis.

          Big business will keep labour alive if it is expensive to replace. This is the case in Australia, not so in India.

        • You mean like reduction of CFC’s?

          Or the installation of scrubbers in power stations?

          A lot of those hazardous chemicals (nitrous oxides, carbon monoxide, dust particles) could be reduced with a reduction in fossil fuel consumption.

          And China is already banning petrol powered motorcycles in some cities, and have a fleet of some 100million + electric bicycles, all of which can be powered by renewable energy (of course they’re mostly powered by coal at the moment)

      • There is a huge difference between us who believe in conservationism and the greenies who believe in preservationism.
        Conservation recognises change and encourages compromise.
        Preservation denies the reality of change and leads to totalitarianism!

      • Except how are you supposed to force people to conserve energy and the environment?

        The fact is exponential growth has quickly hit physical limits. The most likely outcome from here on in is exponential contraction, as we hit limits of our environment, climate and resources.

        So I can support the idea that regardless of any actions we take or hullaballoo about a carbon tax, the world is entering the contraction phase as the second half of the oil, coal and gas era has begun.

        Unfortunately that is only going to make it more difficult to adapt to any climate changes that are coming our way. But here again I’ve made such a value laden statement. It is not hard to adapt if people experience significant hardship/their is a sudden drop in population.

        It has been decided by scientists/parties around the world that a carbon tax is at least a start, albeit hardly sufficient to avoid collapse.

  13. Rusty Penny,

    No living person denies that air, water and soil pollution is real, but many of us don’t believe carbon trading is the universal solution to the myriad of environmental problems.

    Most of us would prefer to cleanup/reduce the pollution at the source…not somewhere on the international derivatives market.

    Well…i am a simplistic fruitloop:-).

    • I agree, and it’s the sad point made by MattR.

      However while the Ku Klux Klimate-changers keep peddling forward their dogam as ‘enviromental concerns’, genuine enviromental concerns are going to get tarnished by association.

      Such as Dr Kiminori Itoh, an Environmental Physical Chemist from Yokohama National University and (ex)IPCC expert reviewer

      “Man-made warming is the worst scientific scandal in history. When people come to know what the truth is, they will feel deceived by science and scientists.”

    • But how are you going to do that?

      When you are talking about replacing our existing energy systems, you’re talking of trillions of dollars of investment.

      In order to make that investment, investors have to know that they are going to be able to sell their power.

      This doesn’t mean I think derivatives are necessary. The financial criminals who are already running rampant throughout the global economy should be stopped. Only problem is they’ve stolen that much that they already have huge money and power.

  14. Rusty,

    I actually believe that the reason the climate change debate has become so heated is – people feel cheated, they expected real policies to reduce pollution and all they got is a new money spinning exercise. Everybody is angry, really angry.

    • Then you need to government (i.e. everyone/society) to invest in new solutions.

      Hang on, where are you going to get the money from?

      Hmmm let me think…

  15. To all of those that persist in holding this forum to ransom with discussion of climate change science, I’m getting pretty fed up with it. You’ve been asked to keep your discussion to the economics. Please do so or the deleting will get more widespread. Otherwise, love your work!

    • All due respect but you can’t have a discussion on climate change policy without discussing the science of it. If you are going to bring on a blogger to take on this issue, I feel it’s a little silly to complain when the inevitible happens.

      It’s a controversial issue.

      Still, have you thought of a disclaimer? Something along the lines of “this blogger accepts that the science of climate change is not settled and the debate is on going. This blog operates under the assumption of xxx and accepts that they may or may not be correct”?

      • No, because the disclaimer is bullshit.

        How about a disclaimer that reads: “Here at MacroBusiness we accept the consensus view of climate science. Our blog topics are presented with the premise that human-induced climate change is real, and mitigation efforts are required.

        If you wish to discuss the validity of climate science, please post your comments here”.

        And provide a link to a dedicated thread for denialists to knock themselves out and sane people can safely avoid.

        • Somehow I don’t think it is in the best interest of Macrobusiness to patronize and insult the intelligence of their readers.

          That disclaimer is a challenge to debate. You might believe it entirely, but it just plain isn’t true. The science is not settled and the debate rages no matter how hard you cover your ears, close your eyes and shout ‘na na na, not listening’.

          Good to see where you have come since you were banned from Bolts blog by the way.

          • Debate rages between creationists and scientists as well, at least in America.

            Just because there’s a noise in the media that sounds like “debate” doesn’t mean your point of view is taken seriously by the overwhelming majority of climate scientists.

            Peer reviewed science is all about upsetting the consensus. Its about making new discoveries and devising new theories that replace the old consensus. That’s how scientists make a name for themselves. Nothing would bring a climate scientist more recognition than to have evidence contradicting the consensus view accepted into a peer reviewed journal.

            It hasn’t happened.

            Now if you’re going to tell me that peer-reviewed science itself is broken then you’re drawing an extremely long bow. This is a system that’s served us well for hundreds of years and has delivered the astounding advances in our knowledge over the past few centuries.

            BTW, being banned by Bolt is a badge of honour.

          • Honestly Lorax, I have heard it all before. You people use the same tiresome chiches over and over in the vain hope that it somehow makes you right.

            And yes, this:

            “Debate rages between creationists and scientists as well, at least in America.”

            Is a good analogy because people who push AGW, more often than not, push it with a zeal that you often see in many religions (it actually is a religion but that’s another topic).

            And no ‘peer-review’ aka ‘pal-review’ has not ‘served us for hundreds of years’. It is a system that people use to decide whether or not to publish studies in journals for sale. It does not judge the validity of any findings at all. In fact the peer-review process has been found wanting so often it’s ridiculous.

            Also, all this talk of consensus is utter nonsense. It doesn’t take 1000 scientists to prove a hypothesis, it only takes one. You still haven’t found your ‘one’, no matter how often you talk about ‘the science’ it still isn’t proven.

            Finally, love the first post in this thread and getting banned for consistent abuse is not a badge of honour (no you didn’t get banned for disagreeing even if you tell yourself that).

          • MattR remember your claim that trace gases can have no effect in the atmosphere?

            Have you gone and found out about the other trace gases in the atmosphere? e.g. water vapor, co2, methane, you know the ones that stop us from being a cold desolate rock.

          • Scientific peer review is dead. Which is why over the last century our understanding of physics, climate, biology, psychology has grown exponentially.

            Do not confuse scientific peer review with economic peer review, as scientists actually need evidence to make their claims (macrobusiness excluded of course)

        • By the way, thank you for highlighting the problem with starting a blog based around ‘man made’ climate change then demanding people refrain from debating the science.

          It’s like locking a child in a lollie shop on their own and telling them not to touch anything.

        • “Debate rages between creationists and scientists as well…”

          Good analogy. Global warmists have the religious zeal and apocalyptic vision and skeptics resort to scientific methodology.

          • How about the govt taken the money to start all this carbon tax and ETS and using towards protecting these companies that are on the cutting edge creating cleaner ways to create energy. Anytime someone comes up with something good the oil companies etc… just buy them out. Protect them. I am not a pro AGW person at all I think it is a hoax but am for seeing better ways to produce energy and cleaner. There are ways to do it just that it needs to be protected.

          • Yes LBS

            If it was understood how close we are to the exponentially declining side of the fossil fuel energy curve, then a transition to other energy sources will save our climate/existing life as a bonus.

    • Perhaps something along the lines of the disclaimer over at The Big Picture:

      “Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data, ability to repeat discredited memes, and lack of respect for scientific knowledge. Also, be sure to create straw men and argue against things I have neither said nor even implied. Any irrelevancies you can mention will also be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.”

      Something for all of us!

    • H+H, The economics of climate mitigation is that 96c in the dollar are wasted. Adaptation is the only option. Considering our stone age ancestors could adapt to 10deg of warming coming out of a ice age, why cant we adapt?
      The planet used to be 14deg warmer than now as revealed by fossils of dinosaurs and forrest below the antarctic circle!

      • Point well made Rob.

        However, if one takes the word of our High Priest Climate Kommissar Flannery, then mitigation is the *only* option.

        Mind you, in my lowly ignorance I fail to see how mitigation is anything other than tilting at windmills (pun intended), when the Kommissar himself (in)famously conceded that it would take 1,000 years for *a total shutdown of the human race* to show a measurable effect on global temperatures.

        Stop breathing. Now. *Everyone*.

        The little green Martians will doubtless measure the change in temperature a millennia from now.

        Of course, there *is* that multi-trillion money-spinning benefit to consider 😉

  16. All right – since the ‘scientist’ have calculated the Australian per capita carbon emission (the known known) – it simple algebra to calculate that an X per cent emission reduction (also known from international agreements) would require Y percent decrease in population (the only unknown).

    Start setting a population target.
    My bet – no politician or market economist would advocate this simple and cheap solution. We all know – nothing can stand between a politician/a market economist/big business and the endless (ponzi) supply of new fools (taxpayers/consumers).

    So while the eminent scientist on the panel may advocate the establishment of a brand new derivative trading market – no one dares to advocate a target for sustainable level of people in Oz. I should know – i am a migrant.

    • Exactly. Unfortunately population targets /limits to growth don’t seem to be very appealing to the masses.

      As an aside, Flannery has been a member of Sustainable Population Australia for years, a group that advocates a reduction in Australias population to levels that can be sustained by our country