Henry Ergas

Henry Ergas in The Australian exposes the ridiculously optimistic basis for the government’s carbon tax modelling:

THE one thing you need to know about Treasury’s modelling of the carbon tax is this: it assumes that by 2016, the US and all the other developed economies that do not have carbon taxes or emissions trading systems in place will have them up and running.

This implies that in next year’s US presidential election, likely to be fought at a time of high unemployment, the winning candidate will campaign on the basis of introducing a carbon tax that will go from zero to $30 a tonne in a matter of months. And that tax will then not only get through Congress but in record time.

Moreover, that feat accomplished, by 2021 China will sign up too, and with 14 per cent of the world’s population and barely 20 per cent of world income, will agree to shoulder 34 to 35 per cent of the costs of global mitigation. As part of that deal, China’s leadership will accept a fall in national living standards, relative to business as usual, of between 5 and 10 per cent, while per capita incomes in the far wealthier US and European Union decline by a fraction of that amount. And with China on board, the rest of the world will join the party. (source)

Yep, looks pretty realistic to me.

Seriously bad

Mulling over the mess we find ourselves in, it occurred to me that there are several other reasons (apart from those most frequently discussed) why a carbon [dioxide] tax is a very bad idea.

• The US economy is in strife. Unless congress can agree an increase to the borrowing ceiling, things could get very bad, very quickly, dragging the global economy down.
• The EU is in strife. Greece is on the verge of default, Ireland’s finances have junk status, Italy has joined the queue next in line, after Spain and Portugal, waiting for a handout. If the worst happens, the European currency could be blown apart sending the economy into a tailspin, again, dragging the global economy with it.
• I am of the old school that believes that drastic reforms should only be undertaken when a government has a clear and unambiguous mandate to do so. Minority or shaky coalition governments should do nothing that rocks the boat – their job is little more than to keep the country on the straight and narrow. But here we have a government with a wafer thin majority thanks to a couple of independents and a Green, undertaking the biggest wholesale reform of our economy since the GST. Only when a government has a substantial majority and a clear mandate should it embark on such major reforms.

And despite all of these issues, and all of the well-rehearsed ones as well, the government ploughs on regardless. That is because it has, at every turn, placed its own survival above what is in the country’s best interests – the worst possible crime of a politician.

UPDATE: Add to the list the fact that consumer confidence in Australia is sinking fast.

UPDATE 2: An opinion column in The Australian on 15 July covers the same ground.

Click to enlarge

Australia’s huge reserves of fossil fuels mean that a carbon tax is just about the worst possible thing anyone could do to our economy. Congratulations Julia!

IF ever there were a single country in the entire world spectacularly unsuited to be the sole imposer of a vast, unprecedented carbon tax, which no other country in the world is remotely duplicating, it is Australia.

Isolated from our strategic friends, far distant from our biggest markets, a member of no natural trading bloc or customs union, we have just one serious, competitive advantage in the global economy.

That is the abundance of our fossil fuel endowments. If ever there were a nation well advised to move slowly and carefully on policies to cut greenhouse gas emissions, we are it.

As Productivity Commission head Gary Banks commented: “It will not be efficient from a global perspective [let alone a domestic one] for a carbon-intensive economy, such as ours, to abate as much as countries that are less reliant on cheap, high emission, energy sources . . . Modelling aside, it’s common sense that achieving any given level of abatement is likely to be costlier in a country with a comparative advantage in fossil fuels.”

Banks here did something extremely dangerous. He pitted common sense against economic modelling. Part of the economics profession has gone weak at the knees because the government has labelled its bizarre new amalgam of vast new taxes, huge new bureaucracies, massive expenditure churn, endless new regulation, huge government subsidies for preferred companies and wildly unrealistic targets, a “market-based mechanism”.

The government’s carbon tax does not pass the commonsense test at any point. To call $8 billion in new taxes in the first year, and new government expenditure so great that it exceeds even the new tax intake, a “market-based mechanism” and economic reform just illustrates George Orwell’s insight that if you control the language, you can convince people that black is white and up is down.

The whole enterprise is built on a falsehood, the supposition that nations around the world are taking comparable economy-distorting actions to that proposed by the Gillard government.

There is no really polite way of putting this but it is simply, utterly and comprehensively untrue. This is critically important. Even if you accept that all the science about climate change is true, that does not indicate what the best response for Australia is. If the science is true, then the problem can only be tackled by global action. If global action is impossible, then nations should do their best to cut greenhouse gas emissions in ways that don’t hurt their economy too much, prepare for adaptation when it’s needed and work to produce technological breakthroughs that allow lower emissions technologies to work and become affordable. This is broadly what other nations are doing. None is doing anything remotely like our carbon tax. (source)

And an economist dares speak the plain and simple truth (and we hope more will say the same):

AUSTRALIA could shut up shop and move all of its people to Antarctica and it would have little or no impact on climate change, says Griffith University economist Ross Guest.

“In terms of the world’s carbon emissions, Australia contributes 1.5 per cent,” Professor Guest said.

“So the carbon tax will have no effect on global warming.

“What Australia does makes almost no difference.” (source)