"It doesn't matter how beautiful your theory is, it doesn't matter how smart you are. If it doesn't agree with experiment, it's wrong." Richard P. Feynman

Friday, April 1, 2011

Eight Myths of a Carbon Tax!

An article by Tony Shepherd in the Australian sums up the futility of the proposed carbon tax in Australia.
As Gillard has hung her reputation on getting it, will probably happen but not without great cost and zero benefit. Australia will be taxing our greatest competitive advantage to prop up the ambitions of a failed Prime Minister.

1. The greatest myth is that if we lead the world in carbon pricing the rest of the world will follow. We produce 1.5 per cent of the world's CO2; China and America account for 40 per cent. A 5 per cent reduction in Australia's emissions would be cancelled out by as little as a 0.3 per cent increase in China's emissions.
2. Another myth is that we have to lead the world because we are a carbon-based economy and will be more affected when and if the world introduces carbon pricing. Our carbon-based economy is one of our main competitive advantages. To lead on a carbon tax puts our industry at a serious disadvantage against our competitors.
Eighty per cent of power is generated from coal. This low-cost power has underpinned our standard of living by encouraging manufacture and giving low-cost electricity to consumers.
 carbon tax on imports from countries without CO2 pricing is unworkable. We would need to significantly increase the Customs Department and we would still be at risk. Such a move would undo the hard won reforms of the 1990s.
3. Another myth says if we introduce the tax now it will give industry time to adapt. Industry needs years to make the investment to meet the new environment. Planning approval alone can take four or more years. The logic of starting a carbon tax in barely 12 months' time has not been thought through; five years would barely be enough.
It would be better to advise industry that CO2 will be taxed at about $50/$60 a tonne in 10 years' time when our trading partners also start to price carbon and industry should start to adjust its long term capital plans and debt financing accordingly.
The rise in the cost of fossil fuels is already affecting local prices. We must be careful not to hit the domestic and business consumer with a double whammy. If the domestic price for gas continues to rise the price for CO2 will have to rise further to force the change from coal to gas generation.
4. Another myth is that Big Business should have known a carbon tax was coming and should have been prepared. Most of our coal-fired power stations were built and owned by state governments. The taxpayer is the largest single owner with 36 per cent capacity overall, 54 per cent in NSW and 67 per cent in Queensland.
The recent sale in NSW was at a deep discount to the replacement value because of the threat of carbon pricing; NSW taxpayers virtually lost their equity on the threat of a tax.
In Victoria power stations were sold at huge prices largely to foreign investors expecting a proper electricity market that never eventuated. The owners invested in good faith with the reasonable expectation that if a price were put on CO2 they would be given adequate notice and compensation.
Indeed, CO2 trading in Europe, the obvious precedent scheme, was accompanied by the issue of close to 100 per cent free permits to the power generators for the first decade. If we can purchase permits globally as planned why not adopt common measures with the EU?
To say to government and private investors that the federal government will wipe out your equity without compensation is patently unfair. It will introduce a dangerous level of sovereign risk for long-term investment in Australia.
5. Then there is the myth that we are morally obliged to lead the way because we generate a larger proportion of carbon dioxide a head of population. Yes we do, but there are good reasons for this. We are rich in resources such as coal, iron ore, bauxite and uranium. It gives us one of our few competitive advantages.
We also have a significant agricultural sector and are a large exporter of beef and lamb, which are high CO2 emitters. Given the size of the country, our transport consumption is higher than more densely settled economies.
Exports contribute to more than 30 per cent of Australia's carbon emissions. If we want to cut emissions sharply, should we just stop exporting?
6. Closer to home is the myth that the carbon tax will hit the so called 1000 big polluters and consumers will be protected. In the end the consumer, whether local or overseas, will always pay. If the cost is not passed on, trade exposed industry in particular will either fail to survive (and jobs will be lost), or move elsewhere (loss of jobs again).
The other illogicality in this myth is that the consumer should be protected. If the government wishes to discourage the production of CO2 then the end consumer must be sent a price signal.
The concept of charging the big emitters and passing the proceeds back to the consumer is fatally flawed. The big emitters will reduce emissions or be forced out of the economy. Then there will be no money for compensation and the shock will be large.
7. Then there is the myth that renewable energy can replace coal and gas-fired energy production without a substantial cost to the consumer or business.
Putting aside the serious issues of reliability, availability and transmission, the cost of all of the available renewables, such as wind, is far higher than coal.
8. And then there is the myth that a carbon tax or ETS will force the same big polluters to invest in alternative technologies that will create jobs. The expectation that investors who have seen their investment seriously impaired by a carbon tax will race to invest in new high-cost technologies is illogical. Banks won't lend to the impaired incumbents.
Where is the plan for what Australia will look like in 2020 or 2030? Will we still have an aluminium or steel industry or any form of processing requiring energy such as food or an agricultural sector?
California legislated to introduce a cap and trade scheme in 2006, with effect from 2012. There has been no explosion in green jobs there and unemployment stands at 12.5 per cent. Jobs have simply moved across state borders.
Global emissions are a global problem. A global solution is the only answer. If we reduce our carbon emissions unilaterally there will be no benefit to the global environment.
What is the negotiation benefit of giving away our hand now, when we should be seeking to agree an emissions trajectory for Australia as part of a global deal?
This is a momentous decision and we appear to be relying on a business and investment community that we are proposing to punish. A cross your fingers approach is just not good enough when we are considering the very basis of our economic future.


  1. When you next lie down to rest after a hard day's work, ask yourself this question:

    Does this government seriously expect us to believe that we humans can change the world's weather systems with another tax??? Seriously....

    When you awaken in the morning and greet the new day, you'll have your answer.

  2. The greatest moral challenge of our time is to expose this Government for the lies it makes firstly, claiming dangerous anthrpogenic global warming exists and, secondly, that a tax will save the planet!

    My bullshit meter has maxed out....

  3. Well said Schoolamahaja. When seeking election the various political parties always claim the things most in need of fixing are those the other side has got wrong, or has missing from its political agenda. What they fail to understand is that sometimes certain things don't need fixing at all and the right thing to do is simply leave them alone.

    All of their endless tinkering simply creates a 'pendulum effect' where we see giant swings in one direction automatically counterbalanced by giant swings back again in the opposite direction. They simply don't understand the Master Clockmaker's concept of 'fine tuning' a delicate mechanism to keep it running in perfect working order.

    What they are constantly seeking are major causes that will generate huge headlines and which they can 'spin' to their advantage to gain the widespread publicity that feeds their huge egos, keeps them in the public eye and hopefully makes them look good.

    It seems the days of the truly great, altruistic leaders who often reluctantly accepted the job of leading their countries and frequently did so at great personal cost are long gone. In their place we now have robot like leaders backed by huge publicity machines fueled by an endless supply of money which operate for one single purpose...the pursuit and exercise of power.

    If this process continues, we might well see the day when the people in democracies like ours will rise up against this system and demand something better, just like the people are doing in non-democratic countries right now.

    Democracy is great but like any system, it can be abused and when this abuse reaches alarming proportions it is up to the people to take corrective action and get things back on course.

    Fortunately, in a democracy like ours, this corrective action can be taken at the ballot box, rather than with bombs and guns. All we need is some fresh blood willing and able to step up to the plate and make themselves available.

    Unfortunately, I see no one like this on the political horizon right now but as a wise man once said...'Cometh the time, cometh the man'.

    Hopefully the day is not far off!

  4. People really need to waken up stop watching reality tv when it happens its too late,I am not any sort of activist but common sense tells this is not right just another tax,promises promises why can't we have someone tell the truth for a change because we've become so numb to lies and no one objects and if they do their classed as nut cases. Its a fraud that only the rich will benefit from.

  5. They need to be careful in the environmental issue. It's all about proper handling of the case.