The staggering idiocy of the Australian carbon price

Via Domain:

Australia would fail to meet its Paris Agreement commitments to cut greenhouse gas emissions even with a $US75 carbon tax that would drive up Australia’s electricity prices by 75 per cent over the next decade.

Research by the International Monetary Fund, released on Friday, shows Australia is still so dependent on coal and other greenhouse gas-intensive energy sources that even direct intervention to address climate change won’t be enough for the country to reach its international commitments.

The government has repeatedly said Australia will reach its Paris commitment to slice greenhouse emissions by between 26 and 28 per cent on 2005 levels by 2030, in a “canter”.

OK, so we’re going to blow through our commitments, largely because we’re not going to decarbonise the power grid, which is the linchpin given it also enables the decarbonisation of transport via electrification.

The carbon price installed in the Gillard years would have done it and most efficiently too. Moreover, it would have done it at virtually no cost to Australian households because it offset higher carbon output energy prices with tax cuts. Those tax cuts were funded by the firms doing the carbon polluting paying for that output so it was all budget neutral.

Somehow Australians were persuaded to vote against this in favour of tax-payer funded “direct action” which did charge them for decarbonisation while paying the polluters to shut dirty plants which trashed the budget.

Yeh, that was pretty stupid. But it pales next to what happened afterwards.

The rise of renewables as the cheapest available power option has continued to drive decarbonisation anyway. But as renewables have displaced coal power, the grid has destabilised and become ever more reliant upon gas-fired power to support base load power during peak stress. This was precisely as predicted so should not have been a problem. But, instead of being planned for, a gas cartel developed on the east coast and stole all of the gas driving prices completely mad.

The consequence was that power prices skyrocketed anyway, right along with gas prices, smashing households and business with huge utility bill hikes. This is effectively a private carbon price, levied without any tax cut offsets, and pocketed by an egregious gas and power cartel, and we are decarbonising now via mass demand destruction, in industry and households.

So, somehow, instead of getting decarbonisation virtually for free for households, with minimal industrial and economic disruption, paid for by those doing the polluting, we ended up with decarbonisation as a profit centre for the worst polluters, paid for through the nose by the most vulnerable and industrial hollowing out.

It’s also rocked the political economy, directly contributing to the turnover of five PMs in six years, and shredding faith in politics completely.

This goes beyond being an interesting case of failed energy transformation policy. It is the worst case of energy mismanagement and politicking that I can recall anywhere and represents a hammer blow to national living standards, liberal values and economic (indeed species) viability.

All of it was engineered under a Coalition Government that has just won a third straight term from a bamboozled electorate in part owing to its support for coal, which is dying anyway, as the formerly rational opposition gives up on climate targets at all.

It is enough to shake your faith in your fellow man.

Houses and Holes

David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the fouding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.

He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.

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Comments

  1. We’ve gone post gonzo. Not even Hunter S. Thompson could take enough drugs to make sense of what has happened in Australia. It is now just cruelty for the joy of it. A form of political economic sadism. And, being as broken as we are, every three years we refuse to use the safe word.

    • What do you expect? In the great southern land known as Straya, the solution to low interest rates is to lower further. So, the solution to being dumb is to become dumber, naturally!!

  2. The craziness is happening with cars too. Petrol powered cars pay $0.43 a litre carbon tax meant to pay for roads.
    Electric cars pay zero towards the roads and are often powered by electricity generated from coal.

    Australia is run by lobbyists?

    • +1
      On which note: China is leading the world, apparently, in ‘green’ initiatives, in the process “embarrassing richer western nations”.

      Meanwhile, back in the real world, China is actually the single biggest polluter and producer of carbon emissions by orders of magnitude. The ‘green smokescreen’ is provided by China’s push into the EV space — which is fantastic if you just ignore the fact these EVs will mostly be powered by, er, coal. Which is the liberal media’s preferred method of dealing with reality and presumably the same reason why Greta mysteriously failed to slap our favourite authoritarian state on the wrist.

  3. “The carbon price installed in the Gillard years would have done it and most efficiently too. Moreover, it would have done it at virtually no cost to Australian households because it offset higher carbon output energy prices with tax cuts. Those tax cuts were funded by the firms doing the carbon polluting paying for that output so it was all budget neutral.” — this is not completely accurate. Higher energy prices are abated by lower use (which equals lower utility in the economic sense — less wellbeing). Income tax cuts were there only to remove the net impact of the tax after taking into account lower use (eg think houses not as thermally controlled for instance).

    In economics there is a deadweight loss when consumer choices are distorted by specific taxes — such as a carbon tax. One might argue this is justified by a social good (I don’t think it is since Australia is so small nothing we do can makes a difference, but that is a different issue) — however, if it is justified by a social benefit there is no denying that a carbon tax still has a cost on well-being even if accompanied by income tax cuts.

    And let’s not even start about the impact on business and its competitiveness. So let’s not pretend one can have one’s cake and eat it too.

    You don’t increase your economic well-being with higher priced inputs.

    • “there is no denying that a carbon tax still has a cost on well-being”

      How is your well-being with a 3C average temperature rise and 1m sea rises?

      But even on merit, your argument is ridiculous. Our taxation system has 3 volumes of specific taxes causing all sorts of distortion!!

      “You don’t increase your economic well-being with higher priced inputs.” Again, FFS, do you realize how much current GDP is going into climate change related weather events? How is Queensland & NSW going economically at the moment due to fires and drought?

  4. I have a solution that not only might work but is likely in the process of happening under our noses right now:

    Trash the currency (the AUD) leading to a yuuuuge rise in the cost of fuel, meaning people do less driving (less emissions, yay!), the cost of all goods goes up leading to a decline in overall living standards, wages go nowhere on account of mass immigration, demand for goods collapses as prices rise, the economy finally goes into recession (at an official level) despite lunatic inflows of warm bodies and Joshie rushes over to the RBA in a fury to demand Lowey drop cash rates from -1% to -4% immediately to ‘save’ the economy and boost ‘aggregate demand’.

    #notajokefcken

  5. Great summary, but I was confused by this: “OK, so we’re going to blow through our commitments, largely because we’re not going to decarbonise the power grid”

    Do you mean “we’re NOT going to blow through”?

  6. The only really good news with all this stupidity is that technically skilled Australian’s are starting to find solutions themselves.
    Last week I spoke with a friend who runs a small company on the NSW north coast he told me that he was so sick of ever increasing electricity bills that he went full off-grid for his home and his business.
    He has done some really innovative things like storing excess PV energy as Chilled/heated water that is pumped through the slab to cool/heat the house / business. He has about 20kW of PV installed but only about 10kW of battery storage, so far it is working out great for him…he expects to have it fully paid for in under 3 years. (this might be wishful thinking but I’d say 5 years payback is definitely doable ).

    The main take away for me was the need to really understand your current electricity usage budget and to find alternative ways to address this need that don’t require storing massive amounts of power in huge battery banks. In his case the single biggest item was AC/heating, the second was lighting and than third came PC/Server power. everything else was insignificant.
    His lighting issues were solved with high efficiency LED and his server power was quartered by upgrading to a more modern server along with some off-site support through web storage data.

  7. For a long time I’ve always held that the damage Tony Abbott did by getting the public to vote in the stupidity that was Direct Action as a policy, over a far more economically efficient Carbon Tax was a catastrophic failure of this nation for which there would be severe consequences to pay (even just from a purely economic perspective)

    Now we live to rue that which we brought upon ourselves.. It truly is sad and frustrating indeed.

    It’s to the point where every time someone brings up our carbon based economy or how we havent transitioned in any positive manner, a very strong sense of anger comes up each and every time when I automatically recall this incredulous event. I sometimes feel I need to seek professional help about the anger I feel everytime someone brings up the topic…

    • Direct action would have worked, if done properly.

      But then again, central planning doesn’t work because any direct action won’t be done properly due to vested interest.

  8. come on folks, get real here…

    the entire nation could cease to exist tomorrow and it would have exactly ZERO effect on anything. If it happened that we ALL disappeared (that includes you, the ‘indigenous’), the first ones in would be the CCP to exploit the undug up minerals & LNG ( all that nasty carbon stuff) …

    no-one would notice and no-one would care …. get a grip people and start thinking about how things can be made better to work for Australia because, believe me, no-one cares (most of all our ‘leadership’) …

  9. “…So, somehow, instead of getting decarbonisation virtually for free for households, with minimal industrial and economic disruption, paid for by those doing the polluting, we ended up with decarbonisation as a profit centre for the worst polluters, paid for through the nose by the most vulnerable and industrial hollowing out.”

    This outcome IS BY DESIGN. It is not an accident.
    I find it likely that the Coalition (who have been in power for the last 10 years or so)
    could never have produced such an outcome without close supervision from
    the IPA and the Minerals Council.

  10. Australians were persuaded to vote against this in favour of tax-payer funded “direct action” which did charge them for decarbonisation while paying the polluters to shut dirty plants which trashed the budget.

    The plebs were extremely angry at the carbon tax because electricity prices had already soared – due to privatisation and perhaps the renewable energy target – and because Gillard said there would not be a carbon tax.

    The right wing pricks were clever: “the point of the carbon tax is to get you to use less electricity by making it more expensive and if the price of electricity does not go up much, what is the point of the carbon tax”.

    A different approach was needed. Why not phase out negative gearing and use the money to build solar power stations. Why not phase in a land tax and use the money to build wind farms. Why not phase out the franking credits garbage and use the money to build solar power stations.