Business demands carbon tax be slashed

Australia's economy post 1 July

Even businesses supportive of the carbon tax in principle are beginning to tremble at the prospect. At the government’s set rate of $23 per tonne, it is way above anything else anywhere in the world, and will send Australia’s economy into a tailspin at a time of global financial uncertainty.

KEY business backers of carbon pricing have called on the government to amend the carbon tax legislation to cut the price from $23 a tonne of carbon emissions to close to the European price of about $10, warning that the difference amounts to a “tax on industry” and will hit competitiveness.

The outgoing head of the Australian Industry Group, Heather Ridout, who this week took up her seat on the Reserve Bank board, warned that industries slugged by the high dollar could “ill afford” to pay the $23 a tonne slated to take effect from July 1, when other international prices were less than half that.

She said the gap between the legislated Australian price and international prices represented “a tax on industry, and I think it’s not what it was meant to be”.

Business Council of Australia chief executive Jennifer Westacott called for the $23 a tonne price to be scrapped, and the price set at $10.

“It is clear there is a substantial gap between the international permit price and the starting price in our fixed-price period, and this is a concern for the competitiveness of Australia’s industries and the impact this might have on our economy,” she said.

The two comments came after economists Judith Sloan and Warwick McKibbin called this week for the government to lower the rate of the carbon tax.

“A figure of $10 a tonne would be closer to the mark,” Professor Sloan wrote in The Australian on Tuesday.

Her comments were echoed by Professor McKibbin, a former Reserve Bank board member, who said: “It is in Australia’s national interest to have the price of carbon on July 1 this year starting at closer to $10 per tonne.”

So as this is a sensible, responsible government, they will no doubt take the concerns of business into account? Er, not a chance:

Wayne Swan, asked yesterday whether the government would reopen the carbon package after Professor McKibbin’s call for a $10-a-tonne price, said: “No.”

Yes, the government continually insists on signing its own death warrant – over and over again.

Read it here.

India: "no binding commitment to reduce emissions"

Emissions to continue rising

Acres of newsprint have been wasted over the past week trying to convince everybody that Durban really did achieve something, namely that for the first time, China, India and the US have agreed to binding emissions cuts by 2020.

Despite the fact that Australia will have a carbon price for many years before the rest of the world, Julia and Greg have spun this to somehow justify Australia’s unilateral actions.

Graham Lloyd in The Australian falls for the line, in a piece yesterday:

The significance of setting a timeframe for a legal agreement that covers both developed and developing nations – with talks to conclude by 2015 and an agreement to take effect from 2020 – should not be understated. For the first time, large emerging economic powers such as China, India and Brazil agreed to legal constraints on their emissions.

“That would have been unthinkable” at the previous two big UN conferences in 2007 and 2009, says Anthony Hobley, head of climate change at London-based legal firm Norton Rose. “It’s a recognition of the reality of the shifts in global power.” (source – paywall)

But that’s not how India views the deal post-Durban:

Days after the Durban Climate Summit, Government today insisted that India has agreed to no legally-binding commitments to reduce its emissions in absolute terms in 2020. 

Environment Minister Jayanthi Natarajan told Parliament that India has already announced a domestic mitigation goal of reducing the emissions intensity of its output by 20-25 per cent by 2020 in comparison with 2005 level. 

“This goal is relative in nature and allows India’s emissions to grow as the economy grows,” she said in identical suo motu statements in both Houses. 

She insisted that the decision of the Durban meet “does not imply that India has to take binding commitments to reduce its emissions in absolute terms in 2020.” (source)

The reality is, that whilst they may have vaguely committed to reducing emissions intensity (per unit GDP), they have made no commitment whatsoever with regard to absolute emissions, which will continue to rise. Similarly, China is building dozens of new coal-fired power stations every year, and there is no way on earth that China will bind themselves to reduce emissions, except (perhaps) in terms of intensity.

Which means, in short… emissions will continue to rise. Which means, in short, there will be no effect on the climate (assuming a climate sensitive to CO2 as the alarmists contend), which most of us were under the impression was the main aim.

So far from being a bold agreement to “save the planet”, Durban is a watered-down compromise which will see emissions continue to rise for the foreseeable future, and which will ensure that Australia’s tiny 5% cut by 2020 will be well and truly lost in the noise.

Australia’s unilateral action is pointless and damaging, will send our industries offshore and, thanks to rapidly spiralling energy costs, will consign many to poverty. And by the way, it won’t save the planet either.

Carbon price – EU: $8 (and falling), Australia: $23 (and rising)

The EU carbon price has slumped to a new low, making Australia’s $23 a tonne carbon tax in mid-2012 nearly three times the price on the European market:

European Union and U.N.-backed carbon prices plunged to new record lows on Wednesday, beset by worries about Europe’s economic turmoil and uncertainty about a future global climate pact.

Carbon prices have shed more than 60 percent since June, as Europe’s worsening debt crisis dented demand at a time when the EU emissions trading scheme, the world’s biggest carbon market, is oversupplied with hundreds of millions of permits.

Benchmark EU carbon permits tumbled more than 8 percent on Wednesday to a fresh record low of 6.43 euros ($8.41)a tonne. They were at 6.51 euros at 1305 GMT.

Front-year U.N.-issued carbon credits, so-called certified emission reductions, fell 11 percent to a new record low of 3.92 euros a tonne. (source)

And this won’t be the end. Carbon prices will end up like the Chicago exchange, worth a few cents, whilst Australia commits economic suicide from next July with a price of $23.

Carbon trading "a pyramid marketing scheme"

John Baird - climate sense

So says John Baird, Canadian Foreign Minister. Greg Sheridan writes in The Australian:

The Conservative government of which he is part, under Prime Minister Stephen Harper, won an absolute majority for the first time at the last election on the platform of rejecting a carbon tax or an emissions trading scheme.

Australian policy should pay a lot more attention to Canada, for no other economy is so similarly structured to ours. Baird is a good friend of Australia, feels warmly towards the Gillard government, and speaks glowingly of his friendship with Kevin Rudd. He explicitly did not criticise Australian policy. But the implications of his words are deadly.

The fact that both Canada and the US have rejected a carbon tax or ETS, and that China, India and Indonesia equally will never go down such a road, means there is no prospect of global action on climate change anything like that which Australia is taking. Baird believes that neither Canada nor the US will ever implement a carbon tax or an ETS.

But it is his judgment on the international carbon trading system that is most devastating for the Gillard government’s approach. I asked Baird whether Canada would ever join an international carbon trade. He replied: “There’s nothing to join. Where is it going on today?”

More generally, on carbon trading he said: “One of the problems I have with that (approach) is that everyone just lines up to get credit. My province has a lot of trees, where do we get credit for that? We had an enhanced oil recovery project that pumps carbon into oil wells to get an additional 15 per cent of oil out of them and we had a pipeline importing carbon from the US. So they wanted to get credit for sequestration.

“I said to them ‘You’re not even doing it in our country.’ They said ‘We’re doing something good, we want the credits.’

“(Carbon trading) is like a pyramid marketing scheme. You don’t have to actually sell the dog food, you just have to get 10 of your friends to do it and you’ll get royalties.”

Sheridan’s conclusion is spot on:

“the international trading scheme [in GHGs] lies halfway between a fantasy and a fraud and is never going to make a serious contribution to diminishing greenhouse gases.”

Read it here.

Taxes as punishment don't work

Tax as punishment?

I wonder if the government will listen as intently to the Productivity Commission now as it did when the Commission was providing support for the carbon price:

THE Productivity Commission chairman, Gary Banks, has sounded a warning to the government against using the tax system to change community behaviour in areas such as gambling, road congestion and carbon pollution.

Speaking at the end of the first day of the tax forum in Canberra yesterday, Mr Banks warned that raising taxes to change behaviour had to be done in “the right way to the right extent”.

“That is very hard,” Mr Banks told the forum. He argued that much of the detail on how to change behaviour with taxes was “unresolved” and risked authorities’ ability to convince the community that the taxes were worthwhile.

On carbon pricing, Mr Banks said “the complexities are unbounded” and a key challenge for the government would be reviewing which of the 200 other climate schemes around Australia “deserve to stay and which of those deserve to go”.

His comments echo the Productivity Commission’s findings that state climate change schemes such as solar feed-in tariffs were greatly increasing the cost of carbon emissions abatement.

Taxes really don’t change people’s behaviour – people will just use more of their disposable income to maintain the status quo.

Read it here.

Embarrassing: Gillard wanted direct action approach to climate

You won't be laughing...

In other words, Julia Gillard wanted to pursue a policy very similar to that presently advocated by, er, the Coalition. Oops.

It’s common knowledge that Gillard opposed the ETS being pushed by Kevin Rudd in 2009, and now it has been revealed that she encouraged alternatives to a carbon [dioxide] price, which can only realistically mean some kind of direct action policy.

It’s also common knowledge that the carbon dioxide price is the Greens’ policy, but even so, the revelation that she favoured an approach other than a carbon dioxide price is deeply embarrassing for Labor and Gillard, desperate to force through a carbon tax without a mandate and in the face of huge public opposition:

JULIA Gillard faces new pressure over her climate change convictions as Tony Abbott seized on a report revealing she previously pushed for a bipartisan approach that didn’t involve a carbon tax or an emissions trading scheme.

Mr Abbott today questioned what Ms Gillard stood for, saying her post-election carbon tax plan had been dictated by the Greens.

“What that shows is that the Prime Minister’s attacks on our policy aren’t genuine,” Mr Abbott told ABC radio today.

“It demonstrates that the policy that the government is currently adopting is Bob Brown’s policy. Not Julia Gillard’s policy.”

The Australian Financial Review reports that Ms Gillard, as deputy prime minister, had encouraged the Rudd government’s “kitchen cabinet” to shelve plans for a carbon price in favour of other alternatives.

The revelation is extremely damaging for Ms Gillard, who with Treasurer Wayne Swan urged Kevin Rudd to dump his emissions trading scheme.

A spokesman for the Prime Minister today said the government did not comment on cabinet processes, but did not refute the story.

Mr Abbott said it now appeared Ms Gillard had backed the Coalition’s direct action policy.

“No-one can take her seriously,” he said.

“The nearest we get to ‘real Julia’ when it comes to climate change policy is the note that she gave to the inner cabinet just before she became prime minister herself where she said what the government should do is embrace the kind of policy the Coalition’s got.” (source)

Like Combet and the rest of her government, they have been blackmailed by the Greens to take urgent action on climate change, in direct opposition to Gillard’s previous position.

So when Gillard says “It’s the right thing to do”, she says that with a loaded gun to her head, wielded by Bob Brown and Christine Milne.

Gillard "untrustworthy and tricky" over carbon tax

Twisting in the wind...

Julia Gillard is just like a weathervane, twisting in the wind this way and that with no guiding principles to fall back on. She is like Humpty Dumpty: words mean exactly what I want them to mean.

The Australian’s Cut and Paste summarises perfectly:

I’m happy to say tax. 7.30 on ABC, February 24:

HEATHER Ewart: With this carbon tax, you do concede it’s a carbon tax, do you not?

Julia Gillard: Oh, look, I’m happy to use the word tax. I understand some silly little collateral debate has broken out today. I mean, how ridiculous.

The media may make me say it. Gillard, Today, February 27:

LAURIE, I didn’t want to get caught up in what I knew would be one of those semantic word games about whether I would say the word “tax”. You know how these games are played. A politician decides they’re not going to say a word, and then media, people like yourself, Laurie, spend weeks trying to make them say it. I wasn’t going to do any of that.
The parliament made me say it. Gillard, Radio 2SM, February 28:

YES, I did, John, and working with this parliament I have agreed that there will be a fixed price period before we get to a full market-based pricing scheme. That is effectively like a tax, I’m happy to say that and I’m happy to say that I worked with the parliament the Australian people voted for.

Tony Abbott made me say it. Gillard yesterday:

NOW, what Tony Abbott likes to refer to as a carbon tax, a fixed-price period for an emissions trading scheme, is a period I believe should be as short as possible and today can I say to Australians the debate that they are hearing about a carbon tax is a debate about what Tony Abbott calls a carbon tax, which will be for a limited period of time, and then we will move to an emissions trading scheme which I support, John Howard supports, Malcolm Turnbull supports. (source)

Not forgetting the biggest porkie of all, in August 2010,

“There will be no carbon tax under the government I lead.”

And Tony Abbott pounces:

Mr Abbott said Ms Gillard had been calling the carbon price a tax for months. “If it looks like a tax, if it works like a tax, if it costs like a tax, it is a tax.

“What we see is a Prime Minister who is compounding incompetence with trickery.

“We know that this is a government which was untrustworthy, now it’s being tricky as well and I think that the Australian public deserves better than a Prime Minister who is not only untrustworthy but tricky on top of that, too,” Mr Abbott said. (source)

This is unfortunately what happens when you have no principles (except the one reminding you to stay in power at all costs).

EU carbon market crashes


The shambles that is the EU is held up as a shining example of what Australia should aspire to be – fractured, miserable, uncertain, and verging on bankruptcy. Terrific. And to cap it all the carbon price has now crashed to 12 Euros, or AU$16, far less than the Three Gs (Garnaut, Government and Greens) want ours to start at. Hopefully it will continue on down until it reaches the level of the Chicago Climate Exchange, where trading finally ceased at a few sad, sorry cents per tonne. Right before it was closed for good.

PRICES in the European Union’s emissions trading scheme have plunged to two-year lows, intensifying pressure on the Gillard government to start with a low carbon tax and threatening to complicate negotiations with the Greens, who are pushing for a strong start to the Australian scheme.

Business groups yesterday seized on reports that the EU permit price fell 11 per cent on Friday — and 22 per cent in a week, testing a two-year low of $16.79 a tonne — saying it highlighted the dangers of a fixed-price scheme that could leave Australian businesses facing higher prices than international competitors.

The EU price has traded well below the $20-$30 starting rate recommended for the Australian scheme by government climate change adviser Ross Garnaut.

European analysts said the reasons for the fall included the bleak economic outlook sparked by the Greek debt crisis, lack of confidence in the will of European governments to achieve their stated policy aims, and the fact energy-efficiency measures appeared to be replacing carbon pricing as the EU’s main climate change lever.

So Australia will plough into carbon pricing just as others, who have experimented with it and seen it fail, are looking elsewhere. Brilliant again, Julia, Greg, Ross etc etc.

Read it here.

World of "sham carbon policies" exposed

Henry Ergas

Earlier in the week we had the government plugging the same old line: “Australia is falling behind other countries and we need to catch up – and by the way, here’s a Productivity Commission report which agrees with us.” Henry Ergas in The Australian unpicks the spin:

CONTRARY to repeated assertions by the Prime Minister, the Productivity Commission did not endorse an economy-wide emissions trading scheme. Rather, its recently released report on carbon emissions policies models an ETS that applies only to the electricity sector and excludes all trade-exposed industries.

As the commission shows, current policies aimed at subsidising renewable energy incur high costs for pitifully little outcome. No surprise then that its modelling finds that scrapping those policies and imposing a carbon price of $9 a tonne on the electricity sector would cause less harm.

True, the eight countries the PC analysed have more than a thousand policies in place, many focused on electricity generation. But in aggregate those policies yield barely 210 million tonnes of electricity sector abatement.

Take China, the world’s largest and most rapidly growing emitter, which the Garnaut report says has “pledged large reduction targets, implemented reforms that deliver on its commitments, and set sail on a global mission to dominate new opportunities”. But the PC finds China’s abatement affects barely 1 per cent of its electricity emissions, while its abatement outlays, at one-third of 1 per cent of gross domestic product, are well below Australia’s.

Moreover, the PC’s measure of net abatement takes no account of subsidies to emissions. Recent estimates place subsidies to fossil fuel use in China at about 1.4 per cent of GDP. For each dollar spent curbing emissions, China therefore spends $4 promoting them.

Yes, some countries, notably Germany and Britain, devote substantial resources to emissions reduction. But even there, the PC finds high costs for modest impacts. Indeed, as the report notes, the Germans spend $150 to $300 a tonne of carbon securing emissions reductions that under the European Union’s ETS are simply offset by increased emissions in Italy and Spain.

That may seem irrational. But the reality is that this is an area whose politics are now entirely symbolic. Notwithstanding sweeping promises in international forums, and regardless of the homilies of climate change’s high priests, governments do not believe communities have any stomach to make real sacrifices for a goal that seems ever more illusory.

Trapped between the zealots and that brute fact, they resort to what are little more than bribes, buying, at absurdly high cost, a bit of abatement here, dispensing an exclusion from obligations there, and sprinkling the whole with scarcely credible claims to moral principle. Unsurprisingly, the policies born from this combination of shabbiness of motives and pretence to public spirit are as incoherent as they are socially wasteful. But that does not mean those policies are not privately profitable. Indeed, studies find even the EU ETS increased European generators’ profits by some 30 to 50 per cent, as free permit allocations ensured revenues increased by more than costs. Such transfers merely increase the inefficiencies, as profits are dissipated in attempts to secure and protect rents, while those who would bear the costs throw further resources at self-defence.

Only in bad light, and even then only by the weak-sighted, could such policies be confused for meaningful efforts at tackling climate change. That is the sham the commission’s spotlight exposes. But none are so blind as those that would not see. Forcing the government to face up to the PC’s findings is the task ahead.

Read it here.

Models wrong again – so what's new?

Warwick McKibbin

Not climate models this time (for a change), but Treasury modelling of the effects of a carbon price on the Australian economy. And according to Wayne Swan, we won’t even notice it! Brilliant! It’s almost as if the model was tweaked to produce the desired result… where have we heard that before? Tiny little question, if the economy doesn’t notice it, how is it supposed to reduce emissions?

But Swan has been caught out:

A prominent economist who sits on the Reserve Bank board has criticised the Government’s assessment of the economic impact of the carbon tax.

Yesterday Treasurer Wayne Swan said that based on Treasury estimates, a $20 per tonne carbon tax would not have a long-term impact on jobs and the economy.

He said employment will increase by 1.6 million jobs by 2020 under a carbon price.

But economist Warwick McKibbin, from the Australian National University, says the Government’s modelling is flawed.

He told Lateline Business a carbon tax could affect the cost of living.

“That’s the adjustment process in these models; if you raise carbon taxes and people lose their jobs, real wages will fall and therefore you’ll go back to full employment,” he said.

“So the critical question in that sort of model is not what happens to jobs: it’s what happens to real standard of living.”

Professor McKibbin runs his own software company which develops modelling for policy analysis, including a carbon pricing model.

He says he has submitted different modelling to Treasury and says the Government should use his model in its estimates.

“It would be very unfortunate if the leaked announcement that came out yesterday about the employment effects of carbon taxes was used in a model that wasn’t mine, because mine is the only model that has unemployment,” he said.

“The other models that people have for carbon pricing actually assumes full employment, so by definition, no matter what you do to the economy, employment cannot change.

“What should happen if you put on a carbon tax in those models is real wages should fall. Now, from the selective leaking, I think that that question hasn’t fully been understood.” (source)


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