Leading the world

It’s interesting how within an hour or so of the release of the Productivity Commission Report yesterday that commentators were lining up on both sides of the debate to use it to justify their positions. I thought it would be useful to point out what the report doesn’t say and therefore the conclusions that can’t be drawn from it.

The first thing is that due to either or both of its terms of reference and the timeframe available, the number of countries that it analysed were a small subset of the countries that Australia competes with. It analysed those countries that have been most active in abatement policies (UK, Germany, NZ, Japan, South Korea, China and so on) but left out trading competitors like South Africa, Indonesia, Brazil etc. You can conclude simultaneously, therefore, that we are not “leading the world” on abatement efforts but that many of our competitors aren’t either, and are possibly further behind.

Another issue is that the carbon price equivalents calculated doesn’t say anything about distributive impacts on the economy, and especially on trade exposed emission intensive trade exposed (EITE) sector. This was also a problem with last year’s Price Tag on Carbon report by Vivid Economics. You can have, say, a $10/t implicit price on carbon while also having no impact on competitiveness. A good example of this are feed-in tariff that only apply to residential customers, or a mandated renewable energy target that exempts EITEs, or a taxpayer funded support mechanism to drive abatement while shielding large industry. Yes these infer a cost, but they don’t apply the cost to EITEs; the cost is spread to other sectors of the economy. A $10/t explicit carbon price, on the other hand, does have an impact on competitiveness but spares the taxpayer from the budget expense of the implicit policy measure.

Thus it was an inadequate survey to form an opinion on the relative harm or lack of harm from implementing a carbon price on emission intensive trade exposed industries. Whether or not this will then answer the questions that the members of the MPCCC may have remains to be seen.

It was never the stated purpose of the PC Report to demonstrate the effectiveness of economy wide carbon pricing, but that is one conclusion that can be drawn from it with greater confidence. By surveying a raft of alternative abatement policies, it shows that for the same (implicit or explicit) price of carbon, you get far more abatement for carbon pricing mechanisms relative to other mechanisms, or that you could get the same abatement for a much lower cost.

Lots of other countries are “leading the world” with abatement policies, some of them economically efficient and most of them not. So putting a price on carbon would not be leading the world in terms of the amount or vigour of policy measures, but it would be close to the head of the pack of efficient abatement policy if implemented as a broad-based carbon price. To the extent this has an impact on the competitiveness of some trade exposed industries, there is a strong, valid case for assistance, as Garnaut and others have put forward.

By efficient abatement policy, I mean policy that has a least cost impact on the economy as a whole. This will mean that jobs are lost in some sectors as they grow in other sectors. It will mean that electricity prices go up to signal the higher cost of clean energy to those using it. But it is more efficient in terms of cost incurred for abatement achieved for the economy overall. Other policies may be easier to implement politically, because they have a lower impact on electricity prices, but that doesn’t make them more efficient.

The abatement effort would become more efficient still, on this measure, if it dismantled the inefficient policies as the carbon price came in. After all, these other policies were implemented in the wake of successive failures over the last decade to implement carbon pricing but while there was still community pressure to “do something” about reducing emissions. So if the choice is made to reduce emissions in this country, any economic self-harm comes from implementing inefficient policy, rather than implementing policy per se.

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  1. What worries me was the beard presenting the PC report. Did anyone else see that? Did they show the beard on commercial TV news?

    No-one takes a beard like that seriously. He’s obviously a hippy.

      • Watch this video

        Check out the beard at 1:45 from the Productivity Commission. Are telling me that guy isn’t a hippy?

        You can’t trust a beard like that. If you want to sell the Carbon Tax to the punters it has to be sold by clean-cut grey-hairs in impeccable suits and nice ties.

        • It’s an indisputable fact that clean cut men in suits & ties are the smartest, most trustworthy people of all.

        • Bit of a bummer Lorax. I thought you started off the thread nicely about hippy geak messengers with suspicious beards and impeccable suits but after reading all the comments below, have realised that there is way too much ‘mass-abating’ going on now and we are getting even more off topic.

    • Scientists have beards too, and it’s taking them seriously that got us in this mess in the first place.

  2. As RobJM said yesterday, what this report is essentially saying, is that if we are going to shoot ourselves in the foot, we should aim for the small toe.

    “Pricing” carbon is cheaper than other forms of ‘abatement’, but the cheapest and best thing to do is to do nothing. Doing nothing costs $0 and gives us a competetive advantage against those who do ‘act’ (many of these countries are now winding back their ‘abatement’ programs due to the cost and anyone who thinks China is going to reduce emissions should look at this great bridge I have for sale).

    You also (or did the commission do this?) forgot another of our trading competitors who aren’t doing anything, Canada. Canada, more than anyone, are the country we should be comparing ourselves with, simply because they are our biggest competitor in export markets and their recent election made it very clear that they would not pay any head to this AGW/abatement nonsense.

    Canada should be our focus right now. We should be doing everything we can to NOT give them an advantage. We are shooting ourselves in the foot, right when they are donning the speed boots.

    • Hey Matt, just a point of clarification, by “cheapest and best thing to do is to do nothing” Do you mean:

      A) Climate change is not true, or if true not due to human activity.
      B) Climate change is true, but there is either nothing to be done about it, or economic cost of action is greater than the cost of inaction?

      • A bit of both really.

        Lets just say, the cost of action far outweighs the cost of inaction, of which the cost is nothing.

          • Hilarious. I can just see the government using this to sell the tax.

            Greg Combet: if we don’t have a carbon tax we’ll end up like Venus. This is what Tony Abbott wants, he wants us to end up like Venus. A vote for Mr Abbott is a vote for ending up like Venus.

            I’m sure voters would respond to that rhetoric.

        • Lol Venus, you mean that planet that is 40 million miles closer to the sun than Earth? Wow, gee, I wonder why that planet is hotter than ours. 😀

          Wouldn’t want to be alarmist or anything.

  3. Can someone explain why a carbon tax is more distorting to the economy than any of the other myriad taxes that we as Australians pay?
    Am I being a simpleton by thinking that if the government is going to raise $X in total revenue, then changing the mix a little so that a little less is raised by taxing income and corporate profits (for example) and the same amount is instead raised through taxing CO2E emissions, then it is not a train smash?

    • Better still, we could ditch all the current abatement measures that cost a lot and don’t work, replace them with a carbon tax and get both more abatement and lower costs to the economy.

  4. So presumably it is simultaneously possible to lead the world in abatement and also lead the world in rate of emission increases?

    In other words this looks like an apples and oranges discussion.

    Imagine I am a factory dumping 100 litres of effluent a day into a lake and the water contains 100ppm of dioxin. If I reduce the amount of dioxin in the effluent to say 50 ppm I might actually be leading the world in dioxin abatement. But If I simultaneously, through growth in output, dump 300 liters of effluent into the lake a day I am now dumping 150 ppm of dioxin into the lake so my total emissions have risen even though I am a champion abater.

    This sounds like a lot of mass abating to me.

      • How about:

        mass abating — the act of spinning data via semantic gymnastics to make countries that are increasing their emissions seem like they are actually decreasing their emissions. The intent being to subtly increase guilt levels so as to achieve policy objectives.

        mass abater — person engaged in mass abating.

        • Notice how everyone who is “long resources” is also against a price on carbon.

          Funny that. I wonder what the Minerals Council position is on the carbon tax? Oh silly me, do I even need to ask!

          • I take it you have nothing to add then about the fact that total emissions are rising, even among those singled out as being champion abaters. The data speaks to itself and can’t be disputed so lets cast aspersions about the motives of those that point this out to others. …right?

            nice one.

          • Oh I am way more cynical than you about the world’s ability to reduce emissions. WAY MORE.

            However, when I see failed abatement schemes I don’t conclude that its all just a big waste of money and global warming is a fraud. I conclude the price on carbon isn’t anywhere high enough.

            As for Australia, we won’t, and never will, take this problem seriously while our economy is addicted to coal exports. Does a junk voluntarily pay more for smack? Of course not.

            The real “leaders of the world” in terms of GDP per tonne of CO2 emissions are the usual suspects — Norway, Sweden, Denmark (socialists the lot of ’em) the French and the Swiss. As far as I’m aware all these countries are either part of the Euro ETS or have imposed some kind of price on carbon.

            The French do particularly well because of their fondness for nuclear energy and diesel-engined cars.

          • You’re off topic if your comment is intended as a response to anything I have written.

            However, when I see failed abatement schemes I don’t conclude that its all just a big waste of money and global warming is a fraud

            …and if you can find where I have concluded that global warming is a fraud then alert us to the relevant passage or concede that you are making a straw man argument. The fraud I am commenting on is the fraud where a poster boy abater is actually increasing emissions.

            Fraud number 2 is the sense of urgency that we need to do something now. This is all politically motivated. In the last 4 years politicians have flicked the switch on alarmism and urgency depending on how they read the polls, i.e science has nothing to do with it.

            You might think of yourself as a cynic but mate you have been totally hoodwinked.

      • Good work Troy but there needs to be a historical,(hysterical?) reference to one of the greatest mass-abaters of all time…thats right, Kevin Rudd, who after proclaiming that AGW was ‘the greatest moral challenge of our time’, then proclaimed that we should have a ‘big Australia’; (for what reason I don’t know maybe to have more people to share all the pain the mass-abating would cause) . Even the average bogan can figure out the inverse to this that when there’s, “99 bottles of beer on the wall and you take one down and pass it around”, with x number of people and you increase x, that beer is gonna go alot less further.

    • “So presumably it is simultaneously possible to lead the world in abatement and also lead the world in rate of emission increases?”

      Exactly what the Chinese are aiming for.

    • Love it. So true, through all this, emissions haven’t even reduced. What a massive waste of money.

      • Carbon E Coyote

        MattR, it’s incorrect to say emissions haven’t reduced. They have reduced relative to what they would have been if the countries in the report did nothing. The $0/t price you advocate will lead to continuing increases. To actually get a reduction from where we are (as opposed to a slowing of the growht), then you need much more concerted effort (and economy wide price signal is the most efficient way to do this).

        • Why is impossible for you guys to imagine both rising emmissions intensive exports and abatement? With an ETS the aim is to trade permits with other nations so you can buy abatement.

          The alternative is to wait until the world panics and starts slapping tariifs on you.

          • or the alternative could be to do what both parties planned to do a year ago when neither were advocating a tax.

            In other words the need to do something now has only arisen because of a change of policy by the government, ergo the need is politically motivated.

          • Carbon E Coyote

            How about the years before that when both parties advocated an emissions trading scheme (from 2007-2009), the thing that changed was the leadership of the Libs, which changed the policy. The ALP position hasn’t changed.

          • OK I get it. We needed to something now from 2007-2009, but didn’t need to something now in 2010 but now we do need to something now in 2011.

            …but none of these urgent needs to something now are politically motivated. Right gotcha.

        • No, it is incorrect and a logical fallacy to say they HAVE reduced. By all measures they have gone up. Saying ‘well they would have gone up even more if we did nothing’ is irrelevant, they still went up.

          Emissions are a result of a growing economy. Imagine where they could have been if they hadn’t spent anything on this silly scheme? To get a reduction you need to essentially turn the economy off. What would THAT cost us in REAL terms, not just a reduction of a harmless gas.

          H&H no, the alternative is to do nothing, watch the climate keep changing like it has since the planet was born, deal with any effects, which will probably be minor and almost certainly positive (warmth is the provider of life) and let the economy and the human race advance as it always has.

          Who is panicking? You are the ones who want to tax the cr*p out of us for less than a degree of warming. Lol…

        • Hi I’m Troy McClure,

          You might remember me from such examples as the factory that emits dioxin.

          In my example above, in the absence of abatement, the growing factory would have emitted 300 units of dioxin growing from its initial amount of 100. Under the champion abater scenario it emits 150 after growing output. Only in spin city can 150 be defined as a reduction on the basis that it could have been 300 otherwise.

          Meanwhile the factory down the road that emitted 5 units of dioxin into the lake is still emits 5 units of dioxin into the lake and is demonized for doing nothing compared to the poster boy champion abater up the road (notwithstanding that the champion abater now emits 30 times as much as the “bad” factory compared to 20 times previously).

          go figure!

          thus we have mass abating.

  5. I just wish someone would knock some heads together. “Bogan economics” lower taxes and free stuff and budget surplus.

    Governments builds nuclear, solar power etc, introduce carbon prices after new sources created, sell assets off Let market get rid of polluters. Not reverse, same as get rid of market propping mechanisms, such as purchasing RMBS , rent assistance,

    Can see a big demand for good ole boys to earn some carbon credits by killing farting camels