Understanding Climate Risk

Science, policy and decision-making

The anti-carbon tax campaign is bogus

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So the Australian Industry and Trade Alliance (AIaTA) is spending $10 million in an advertising campaign against the proposed Clean Energy Package.

Step 1. Call it a tax. Which is what its being called in the press and in public. That openly associates the carbon price with the negative of a tax. Technically it’s not – it’s a levy. Much like the Medicare levy, except it’s a pollution levy set at the production end of the CO2 emissions cycle.

Over 50% of the levy collected is being returned to households, some will compensate sensitive industry, some is going to clean energy and carbon sequestration. The income tax system itself is being simplified. The scheme is not perfect, but it’s a reasonable compromise given the circumstances. A tax would go straight into central revenue. Although it’s too late to change the public label, this “tax” is designed as a fixed price mechanism preceding a trading scheme. John Quiggin explains the wrinkles and why most economists favour a price mechanism.

Everyone will keep calling it a duck even though it doesn’t walk like a duck.

So let’s have a look at what the campaign fibsite is claiming (Note – this is on a page called THE FACTS):

Claim 1: Australia produces less than 1.5% of the world’s global emissions yet the proposed tax is set by far to be the world’s biggest carbon tax.

To demonstrate this point: the European Union (EU) has had a price on carbon since 2002.  During its first 6-and-a-half years, EU scheme generated $4.9 Billion in tax revenue. In the first 6-and-half-years of Australia’s carbon tax the Government will collect an estimated $71 Billion.

Apples and oranges. This compares a tax with a trading scheme, then counts only the tax revenue from that trading scheme. It would be more honest to compare the joint revenues, because that’s the total price cycling through the system. Let’s have a look at what Sam Fankhauser, respected climate economist, says:

Carbon trading is a well-established, global industry that in 2010 turned over an estimated €90 billion.On the EU scheme: Over 5.5 billion EU allowances are traded annually, worth €80 billion in 2010. And in the same article: Economists have known and argued for a long time that tradable permit systems can be an efficient way of curtailing pollution – more efficient than traditional regulation and as efficient as a pollution tax.

The take for 2012-13 is estimated to be $10-11 billion, Australia’s GDP will be somewhere between $1,250 and $1,500 billion. That’s a levy of somewhere between 0.7% and 0.9% of GDP. The turnover for carbon trading in the EU in 2010 as a proportion of GDP was 0.7%. That suggests, given the likely evolution of the EU scheme, the two schemes are pretty much equivalent. Oh dear.

Claim 2: None of Australia’s competitors have a carbon tax or have any plans for a carbon tax.

The EU has a limited carbon trading scheme and does not compete with most Australian exports. It is more relevant to compare Australia to resource exporting countries like the USA, Canada, South Africa, China, Indonesia and Brazil. None of these countries have a national carbon tax and none have plans to introduce one any time soon. Australia will be out on its own with the biggest carbon tax in the world.

There are two points being made here – no similar schemes and resource exporting countries. In fact, the EU’s limitations on trading are similar to those in the proposed Australian scheme. The big difference between the EU scheme and Australia has been free allocation of permits in the EU. Guess what! Fankhauser again:

The design of the EU ETS reveals an intriguing mix of real-world pragmatism and adherence to market principles. To secure the buy-in of industry allowances are for the most part distributed for free. With an allowance pool of 2 billion permits and an average price of maybe €15, this constitutes a €30 billion transfer to Europe’s most carbon-intensive firms. The European Commission is now trying to claw back some of this money and from 2013 onward the majority of allowances will be auctioned. Only sectors such as steel that are subject to international competition will continue to receive free allowances. This is to maintain the competitiveness of these firms in the international market.

Goodness me, this is so similar to the Australia scheme. The EU is moving to auctioned permits with a trading scheme. Australia is moving to autioned permits and a trading scheme in 2015.

As to the “Australia’s competitive partners”, this is rubbish. It’s only production emissions that are costed whereas the export emissions are not. So the only industries that are threatened are the energy intensive industries such as aluminium production and selected manufacturing . While high emission production is an issue, commodities are not, because the CO2 price as a proportion of the selling price is smaller than other price fluctuations such as those driven by demand. Agriculture is an exception which is why it needs specific management.

Claim 3: The whole tax is designed to flow through the whole economy and make all Australians pay for all things they buy every day.

The Government and Greens own advisor, Ross Garnaut has made it clear in his latest report. He states that “Australian households will ultimately bear the full cost of the carbon price.

That’s why there is a compensation package and income tax relief. Garnaut discussed this also. This is clear cherry-picking designed to mislead. Saul Eslake describes the package, largely positively but with some reservations..

Claim 4: Even if the government reaches its target of 5% reduction in emissions, Australia will only reduce global emissions by 0.07%.

All the emission reductions Australia plans to make will be dwarfed by the emissions made by much larger countries. For example, by 2020 it will take China just 78 hours and 25 minutes to replace Australia’s projected emission savings by 2020.

The government fact sheet says that to meet the 2020 -5% target, Australia would have to reduce its emissions by 160 million tonnes CO2-equivalent. World emissions are estimated to be 16.6 Gigatonnes CO2-e in 2020 (from Victoria Uni scenarios, post GFC but not including Copenhagen pledges). That is a reduction of 0.26%, almost four times as much as the AIaTA estimate. If 5% of the 2000 Australian emissions of 558 Mt CO2 is counted then the result is 0.05%, close to the 0.07% but this is not how reductions are calculated. Emissions are calculated below what they otherwise would have been. Therefore the 0.07% figure is bogus.

What about the China figure? Our modelling suggests that projected emissions for China for 2020 in 2006 and those post GFC reduced by 3.0 Gigatonnes CO2-e from 18 Gt CO2-e. This dwarfs any reductions by Australia. So yes, China grows to levels that exceed total OECD emissions but economic and policy changes between 2006 and 2010 leads to reduced growth. In fact, lower by 3 Gt CO2-e in 2020, compared to 160 Mt CO2-e if Australia reduces by 5%. Nineteen times greater estimated reductions by China. Some of those reductions are lower economic growth but most are due to clean energy policies in China.

And the language. The Merchants of Doubt at the AIaTA have gawn hysterical. The language is hyperbolic and tautological, sometimes plain nonsense. Claim 1 – the world’s global emissions seem like the Earth’s Terran inhabitants Claim 3 – make all Australians pay for all things they buy every day. Does that mean the things Australian don’t buy every day are included? Or not?

This stuff is rubbish. It’s untrue and is designed to mislead, confuse and delay. This lot reckon they recognise the the reality of climate change, but if they really did, would have taken a constructive approach to climate policy making a long time ago.

Update: more in The Age. Hat-tip Lefty E.


Written by Roger Jones

July 24, 2011 at 11:19 pm

2 Responses

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  1. Well said Roger.

    FTR, as you know, I regard the terms “fee”, “chrage” or “price” as the most accurate ways to descibe the ficed price permit phase of the ETS.

    Otherwise, excellent.


    July 25, 2011 at 1:09 pm

  2. […] ad campaign to be released by the Australian Trade & Industry Alliance, producing a series of misleading “facts” objecting to the government’s decision. The ATI did not exist prior to the carbon tax hysteria. […]

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