Sunday, July 10, 2011

A Funny Shade Of Green

Australia has announced a new tax on carbon pollution, which will morph into an emissions trading scheme in 2015. Key players in setting this tax have said:
"My message to Australians today is we are now moving from the days of words to deeds. We are going to get this done. We are going to have a clean energy future."
- Prime Minister Julia Gillard
"What's the point of all this? This is a redistribution pretending to be compensation, it's a tax increase pretending to be an environmental policy. It's socialism masquerading as environmentalism."
- Opposition Leader Tony Abbott
"It's effectively great green action day for this nation."
- Greens leader Bob Brown
The mechanism will be to apply the tax to emissions from about 500 of Australia's top polluters and use the revenue to compensate taxpayers and key industries for the inevitable price rises.

Its stated intention is to encourage polluters to clean up their acts, by finding ways to reduce their emissions, to reduce Australia's total emissions by 5% by 2020 and by 80% by 2050.

This noble sentiment is undermined by Government figures showing that the effect on domestic emissions will be negligible and carbon reduction targets will only be met if carbon credits are purchased overseas.

As can be seen, Australia's total emissions will actually increase under this scheme, although by not as much as if the scheme was not in place. The reduction targets assume that there is a carbon market overseas from which credits can be purchased and that those credits can be audited to prove they are legitimate.

Tony Abbot, Leader of the Opposition, claims that the carbon trading schemes currently operating around the world have been open to scamming and fraud, bringing into question whether carbon credits obtained this way will reflect 'real' carbon pollution reductions. How this will be policed is yet to be explained.

The carbon pollution reduction scheme - a tax followed by a cap-and-trade market - has been cobbled together by negotiation between the Labor, Greens and key independent members of parliament. Labor does not have enough seats to govern in its own right and relies on this uncomfortable series of alliances to hold onto power.

The details are similar to an earlier scheme proposed by the now-deposed Prime Minister, Kevin Rudd. Rudd lost the top job in a party reshuffle before the last election and the new PM, Julia Gillard, promised the electorate that there would be no carbon tax introduced by a government she led. She was forced to renege on that promise due to pressure from the Greens after the election, as they are vital to her having the numbers in the House of Representatives and hold the balance of power in the Senate. Naturally, this has opened her to the charge of having lied to the electorate, which is a barrow being pushed energetically by the Opposition.

So, apart from the politics, what does this new carbon tax mean?

On a global scale, not much. Australia emits only 1.5% of the world's CO2, so anything we do will have negligible direct impact on climate change. Any reduction here will be swamped by the huge pollution increases expected from China and India. The fact that we have a carbon trading scheme, however, will add weight to world-wide calls for action on climate change. How much extra weight we will provide in this way is hard to calculate. On the one hand, we are a small economy and small polluter. On the other hand, we are an advanced economy, with very high per capita emissions. Perhaps our example will help tip the balance toward a global emissions trading market and the Utopia of genuine global emissions reductions sufficient to affect the trajectory of climate change.

On a domestic scale, the effects of the scheme will be widespread and may be profound. Economically, increasing the costs of electricity and carbon fuels will flow through the supply chain, resulting in increases to the Consumer Price Index (CPI). Government figures show the impact will be a 0.7% increase at the inception of the tax in July 2012. The Government has promised that tax cuts and pension increases will compensate many households for increased costs of living, although relatively higher income households will not be protected and can expect to be about $1000 per year worse off. How this will play out in future, as the carbon price rises and international trading in carbon credits comes into the mix, is not clear, but the pessimist in me sees businesses becoming uncompetitive, jobs being lost, government revenues shrinking and the compensation mechanism being overwhelmed.

Domestic politics will become polarised over the new carbon tax and it is expected that the next election will be a referendum on whether Australians agree with it. Labor will have a hard time explaining what is a complex and fundamental change to the economy; Greens will be laying on with a trowel their vision for a carbon free future; the Opposition (a Liberal/National coalition) will be picking it to pieces and have already promised to repeal the tax if they win the next election.

So, is this the first step toward a brave new world, or a calamity wrought by left wing tree huggers? At the end of the day, we as individuals must become accountable for our carbon footprints, if we believe the scientists who tell us that human pollution is causing climate change. By reducing our consumption in a high carbon economy, we can reduce our burden on the planet. One way to force a reduction in consumption is to increase prices, which the carbon tax will do. There are so many exemptions and compensations that the pain will initially be slight, but the genie will be hard to put back in the bottle once it is released.

I expect the direct and flow-on costs of living will continue to be pushed upwards by this policy, so I hope the results will approach the Utopia of a greener Earth.

Of course, as Peak Oil bites, our consumption of oil based commodities will be reduced by both price and availability, so the associated pollution will reduce in consequence. Government figures do not factor in this gratuitous improvement.

No carbon credits were emitted during the creation of this blog.

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