The bigger elephant

by ericknight

Gillard’s decision to introduce a carbon tax deserves credit. It is a brave move and it is the right idea, poorly executed. I say this as someone partial to a carbon tax over emissions trading. A carbon tax is a more direct economic strategy in the early stages of energy market transformation. To explain why, I need to give a bit of background. Forgive me if I put you to sleep.

Carbon trading works by putting environmental standards front and centre and letting the carbon price bob like a volley ball around it. This is potentially dangerous as it can create an enormous amount of instability in investment decisions. (When things are unstable, people tend to do nothing.) It only works when you have a flurry of commercially viable low carbon energy technologies at hand. In these cases, it only takes a slim carbon price to change energy behavior at the margins.

A carbon tax, by contrast, is geared directly at investment decisions. You can slowly and steadily increase the tax until the floodgates for technology are unleashed.

So what? Gillard would have been better off sticking to a carbon tax instead of locking in an ETS in 3-5 years time. Nonetheless there is a bigger elephant in the room: nuclear technology. Labour’s decision to embargo nuclear is like trying to solve a problem while hiding the answer. Technologies take decades to mature and nuclear is far more technically and commercially mature as a technology than wind or solar.

In my opinion, it is no longer credible in the modern age to be serious about de-risking climate change and be against nuclear energy in this country or anywhere else.

{ 2 comments… read them below or add one }

Nicholas Howarth March 7, 2011 at 12:09 pm

One of the problems I see with the carbon tax route, is the degree to which it will be used as a political feint to distract attention from a substantive change in incentives.

The economy is already full of implicit carbon taxes – fuel excise the most obvious one – what is to stop the ‘re-branding’ of these various fuel charges as carbon taxes for the political points from carbon taxation to be scored with little actual change? Mind you, even this move could send a moral signal that the government was on the right track to recognizing carbon as a ‘bad’. A hard thing for the government to do when our carbon exports are the engine of government revenues (and China’s booming emissions profile) ‘better not attract too much attention to carbon at all’ I hear the political apparatchiks on the banks of Burley Griffin murmuring to eachother as they pad around the corridors of power worrying about how to respond to the public’s climate concerns.

A carbon trading scheme would be more unambiguously a new price on carbon – and it is more ‘least-cost’ than taxation as it can link into international carbon markets to reward those with the best ability to reduce emissions in the cheapest way. It also captures the positive incentives and narrative of entrepreneurship, rather that the regulatory stick of taxing a ‘bad’. Turning the fiends of carbon into potentially environmental champions!

Fair point on nuclear – but no way in Australia! We can’t even decide where to put our low level nuclear waste from medical treatments – which is brewing away in suburban basements – let alone deal with the prospect of high level waste from fission – and why go to all the trouble of establishing a high-brain powered knowledge based industry like that when we can just keep on digging raw materials out of the ground for ever, tax it for the Gov’t then let BHP and RIO sell it to the rest of the world where it is someone else’s problem?

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Nicholas Howarth March 9, 2011 at 1:13 pm

I bumped into Tim Flannery our new Climate Commissioner last night at the Oxford Launch of his bold new book ‘Here on Earth’. After taking a lot of flack from the floor – led by Dr Ian Goldin head of the James Martin 21st Century School – for Australia’s ‘laggard’ status – he seemed very upbeat on the potential of the implementation of a carbon price this year in Australia – first with a tax, then moving to an ETS in a few years time.

One of the problems I see with the carbon tax route, is the degree to which it will be used as a political feint to distract attention from a substantive change in incentives.

The economy is already full of implicit carbon taxes – fuel excise the most obvious one – what is to stop the ‘re-branding’ of these various fuel charges as carbon taxes for the political points from carbon taxation to be scored with little actual change? Mind you, even this move could send a moral signal that the government was on the right track to recognizing carbon as a ‘bad’. A hard thing for the government to do when our carbon exports are the engine of government revenues (and China’s booming emissions profile) ‘better not attract too much attention to carbon at all’ I hear the political apparatchiks on the banks of Burley Griffin murmuring to eachother as they pad around the corridors of power worrying about how to respond to the public’s climate concerns.

A carbon trading scheme would be more unambiguously a new price on carbon – and it is more ‘least-cost’ than taxation as it can link into international carbon markets to reward those with the best ability to reduce emissions in the cheapest way. It also captures the positive incentives and narrative of entrepreneurship, rather that the regulatory stick of taxing a ‘bad’. Turning the fiends of carbon into potentially environmental champions!

Fair point on nuclear – but no way in Australia! We can’t even decide where to put our low level nuclear waste from medical treatments – which is brewing away in suburban basements – let alone deal with the prospect of high level waste from fission – and why go to all the trouble of establishing a high-brain powered knowledge based industry like that when we can just keep on digging raw materials out of the ground for ever, tax it for the Gov’t then let BHP and RIO sell it to the rest of the world where it is someone else’s problem?

Reply

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