"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

Tuesday, August 23, 2011

Gillard falls for the Ultimate Nigerian Scam!

Australians are continually being warned about internet scams originating from Nigeria where foolish people are enticed to send large amounts of cash abroad and end up getting nothing in return. It seems that Julia Gillard has not been reading the warnings and is one of latest gullible ones who is proposing that we send 57 billion of taxpayers money overseas and we get nothing tangible in return other than so-called permission to run our own power stations . Terry McCrann has the story.

BY 2050, Australia will be sending $57 billion a year overseas just for the right to keep our lights on, as a direct consequence of Julia Gillard's carbon dioxide tax and consequent emissions trading scheme.
Let me make it perfectly clear. We won't be getting anything tangible back for that $57bn.
It doesn't buy us windmills or solar panels made in China. It doesn't buy us technology or licensing rights. It's not even a (carbon dioxide) tax, that would at least generate revenue for the government. It just sends money to foreigners for "permission" to keep a few of our coal-fired power stations operating.
That is to say, it will be an entirely artificial cost, imposed on all Australians, by this Gillard-Brown government, with not the slightest offsetting benefit. It has the same economic consequences as taking $57bn and just shredding it. Every year.
This extraordinary "fact" is in detailed Treasury modelling of the proposed carbon dioxide tax.

It's astonishing that a government could blithely commit to throwing away -- it's not even like foreign aid -- $57bn a year of our national income.
It's even more astonishing that the formerly credible Treasury department could conclude that throwing away that money every year would have almost no negative impact on our economy.
And even more startling yet that all this is of no interest to the media or the broader commenteriat.
I am not aware in the weeks that have elapsed and all the hundreds of thousands of words and hundreds, perhaps thousands, of learned commentaries on the issue, that anyone other than Henry Ergas in this paper on August 3, has even noted, far less discussed, this bizarre and simply insane aspect of the carbon dioxide tax. And Ergas didn't quite take it the level I'm discussing.
The $57bn number is nowhere to be found in the actual Treasury document -- presumably neither the government not Treasury wanted to frighten the donkeys, otherwise known as voters.
But it's a simple matter of multiplying two numbers. I should also explain I am using the word "fact" a little loosely, hence the quotation marks.
All these numbers, presented as hard "take it to the bank" figures, are just Treasury modelling of the carbon tax/ETS well into the future.
First, at the 2020 intermediate point, where this government is committing Australia to a 5 per cent cut in our CO2 emissions; and at 2050 when the cut has been casually and entirely gratuitously -- I think we can assume Gillard will no longer be prime minister -- upped to 80 per cent.
Yet, as Treasury explains, it hasn't really been.
Its base case assumes that in 2050 we will "cut" our emissions by 80 per cent, by in reality cutting them by 41 per cent. How do we achieve a result that would an an Alan Bond green with envy?
Why, we buy international permits for the other 39 per cent. Treasury uses the twee and obfuscatory term "internationally-sourced abatement".
That is to say, we pay somebody overseas for the right to keep emitting; and that counts as a cut in our emissions. Theoretically, they cut on our behalf.
But, to stress, we don't get anything tangible. Consider the counterfactual. We keep emitting exactly as under the scheme; just don't send the $57bn overseas. Nothing would change and we would be $57bn a year better off.
If you don't understand immediately that the government's decision to take us down this path moves management of this country deep into the realm of the surreal, you must be a a warmenist or a Treasury official. The 80 per cent target cut requires us to cut emissions in 2050 by 897 million tonnes of CO2 equivalent. Closing coal fired stations, capturing the CO2 from others, and putting up zillions of wind towers and solar panels will only cut 463 million tonnes.
The Treasury modelling shows we will be buying permits on the international marketplace to cover our continuing to emit the other 434 million tonnes of CO2 equivalent that we have theoretically "cut".
Treasury's model tells us that by 2050 these permits will cost $131 a tonne. Multiply 131 by 434 million and you get the $56.85bn that we will be sending overseas every year for the right to keep producing (some) coal fired power.
Yet Treasury -- or its "model" -- believes this will have only the smallest negative impact on the economy. Ripping up the equivalent of over 4 per cent of what is today's GDP, doesn't harm it at all.
Now Treasury would respond that in 2050, actual GDP (in 2010 dollars) will be $3560bn. So we'll be ripping up "only" 1.6 per cent of GDP.
First there's the heroic assumption that the economy will continue to grow as seamlessly and strongly as Treasury's model suggests, even though, as an act of deliberate policy, we relentlessly force up the price of energy year after year after year, and directly attack this country's core national comparative advantage.
I beg to differ with the assumption of infallibity of the Treasury model. Go down this path and there is no way we will grow the economy, all of us getting richer and richer, as we pay more and more for our power.
But that aside, let's take the heroic assumption as a given. That by 2050 we'll be ripping up "only" 1.6 per cent of GDP. That's the equivalent of ripping up over $20bn a year today.
Further, not exactly incidentally, with this we don't even get the benefits of a Keynesian exercise of paying people to dig holes and to fill them up again. It's like paying foreigners to do the digging.
Only a Treasury model and an utterly compromised Treasury could believe all this would have virtually no impact on the economy.
Indeed, Treasury and its model don't even see it in these terms. To them there is no economic difference between a real cut in domestic emissions and buying a permit from overseas. Indeed, the ability to buy the permit improves the economic outcome!
On a certain level that's right. But it is a level that exists in a wonderland world far beyond the wildest imaginations of either Salvador Dali or Lewis Carroll.

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