Submission
to the Australian Senate Select Committee on Climate Policy – Richard
Corin
VERSION 5
The Secretary
Senate Select
Committee on Climate Policy
PO Box 6100
Parliament House
Canberra ACT
2600
climate.sen@aph.gov.au
8th April 2009
Dear Senators,
I believe the
CPRS legislation is
fundamentally ill-conceived and, if implemented, would severely
handicap future
efforts to address climate change. The CPRS legislation
should be
rejected and a whole new design created.
To this end I
submit many of the relevant
concepts, considerations and design features which I believe should be
incorporated in a more appropriate response to the threat of climate
change.
Amongst the
mostly positive suggestions,
are occasional criticisms of ideas embodied in the design of the CPRS.
Yours sincerely,
Richard Corin
On
11 March 2009, the
Senate established a Select Committee on Climate Policy to inquire into
policies relating to climate change, with particular reference to:
a)
The choice of emissions trading as the central policy to reduce
Australia's
carbon pollution, taking into account the need to:
i.
reduce
carbon
pollution at the lowest economic cost;
ii.
put
in place long-term incentives
for investment in clean energy and low-emission technology; and
iii.
contribute
to a global solution to climate change.
b)
The relative contributions to overall emission reduction targets from
complementary measures such as renewable energy feed-in laws, energy
efficiency
and the protection or development of terrestrial carbon stores such as
native
forests and soils;
c)
Whether the government’s Carbon Pollution Reduction Scheme (CPRS) is
environmentally effective, in particular with regard to the adequacy or
otherwise of the Government's 2020 and 2050 greenhouse gas emission
reduction
targets in avoiding dangerous climate change;
d)
An appropriate mechanism for determining what a fair and equitable
contribution
to the global emission reduction effort would be;
e)
Whether the design of the proposed scheme will send appropriate
investment
signals for green collar jobs, research and development, and the
manufacturing
and service industries, taking into account permit allocation, leakage,
compensation mechanisms and additionality issues; and,
f)
Any related matter.
The
Committee is inviting
submissions to this inquiries by Wednesday, 8 April 2009.
It is due to
report to the Senate by Thursday, 14 May 2009.
If
you wish to make a
submission, written submissions should be sent to:
The Secretary
Senate Select
Committee on Climate Policy
PO Box 6100
Parliament
House
CANBERRA ACT
2600
The
Committee requests
that where possible, submissions should also be provided by email to climate.sen@aph.gov.au,
preferably as
Adobe PDF or MS Word format documents.
Notes
to help you prepare
your submission are available from the website at www.aph.gov.au/senate/committee/wit_sub/index.htm.
Alternatively,
the
Committee Secretary will be able to help you with your inquiries and
can be
contacted on telephone 02 6277 3541 or facsimile 02 6277 5719 or by
email to climate.sen@aph.gov.au
.
Features of a
well designed carbon pricing mechanism.. 4
Who owns the atmosphere?. 5
Four views of ownership. 5
A just and moral basis for regulation. 6
A Fair Global Scheme. 8
An ethical carbon price mechanism.. 9
Getting countries to agree. 9
International flows. 10
Example: to stop clearing tropical rainforests. 11
One world, multiple jurisdictions. 11
A fair & equitable contribution to the global effort 12
Environmentally effective targets. 12
A different approach to targets. 12
Maintaining and stimulating economic activity and green collar jobs. 13
Training for green jobs and looking after fossil industry workers. 14
Unscrambling economic incentives. 14
Carbon Accounting. 15
A carbon price mechanism is not enough. 15
The central policy must be the strategy. 15
The Carbon Dividend. 16
The Great Recession. 17
ETS vs TAX.. 18
i) Reduce carbon pollution at the lowest economic cost 19
ii) Provide incentives to invest 19
iii) Contribute to a Global Solution. 20
The contribution of complementary measures. 21
Feed-in laws. 21
How much demand reduction and efficiency?. 21
Utility loan schemes and expert advice. 21
Efficiency standards and regulations. 22
Protecting and developing carbon stores. 22
Guesswork pricing. 22
The UNTAX - a Carbon Tax with 100% Dividend. 23
How it works. 23
Down the track. 23
Inflation?. 24
International Trade. 24
Appendix 1: The even bigger picture. 25
Appendix 2: Dividends, Subsidies and Incentives
The
price of carbon
would be determined for the whole planet by a global pricing mechanism,
with
the proceeds distributed equally amongst the people of the
Earth.
However, while working towards a well designed global system, a
national scheme
should have the following features:-
a)
A target trajectory
closely bound to a strategy for the transition to a
zero carbon
economy.
b)
A flexible emissions
trajectory which can be adjusted in response to new science within 30
days, with strategic milestones rescheduled accordingly -
and anticipated costs adjusted.
c)
Coverage of the whole economy.
d)
Employ scientifically sound
and symmetrical accounting systems, so that positive or negative
changes in
biomass incur an equivalent debt or credit. Forest, biomass
and ecosystem
managers will pay for the loss of carbon from storage, but receive
credits for
regrowth.
e)
A carbon price that is always
high enough to drive
large-scale zero-emissions energy
infrastructure investments.
f)
A carbon price which is
stable. The retail energy price should reflect the
mid-term price of
large-scale zero emissions energy. (Market delays,
like the
lead-times for constructing new infrastructure, would otherwise
generate
excessive prices, due to a shortage of clean energy.)
g)
Carbon
revenue itself should not be used to “ease” or reduce
energy prices.
That would subsidise high energy users and discourage efficiency
improvements.
h)
Public and private investment
shall be encouraged. Public investment and loans are not to be mistaken
for
subsidies. Government may act like a bank without generating
any deficit.
i)
Carbon Dividends. 100%
of net carbon revenue shall be distributed equally to every
citizen (half
for children).
j)
A green energy
investment scheme (e.g. "Green Bonds") for individuals wishing
to invest directly in zero carbon energy infrastructure and
accelerate the
transition. An option for personal Carbon Dividends to
be invested
automatically in "Green Bonds" if desired.
k)
Border
Tax Adjustments to
decouple the
effects of unequal international carbon prices on the local
economy.
o
An Australian carbon
tax or levy equivalent to the emissions imposts for
locally
produced goods and services to apply to imported goods and
services.
o
No free permits! However,
carbon expenses associated with
products exported from Australia will be initially refunded –
until
modified after international negotiations.
l)
Unconditionally reduce
emissions due to consumption by Australian
citizens to near zero by 2040.
(An offer “by 2030” has not yet been modelled and
assumptions should
be checked. My guess is that it may work if emissions due to
local
consumption by Australian citizens including imports, is less than half
the
national total CO2-e emissions. They may not be.)
m)
Conditionally reduce emissions due
to Australian exports when our customers
are prepared to
pay a premium for commodities associated with reduced levels
of emissions,
or else a global carbon price with universal dividend is
implemented.
Even
if an ETS could be
designed which responded with foresight, it would be unacceptable if it
did not
apply the carbon price to imports. Under an ETS, attempts to
impose
carbon charges on imports will look like import tariffs, but, a TAX
applied
equally to domestic and imported products will pass the WTO rules, as
did the
GST. This is vital if Australian products and those made with
low
emissions, are to compete fairly with products manufactured exploiting
“free
emissions” zones.
To
allow jobs in local production for local consumption to continue in
Australia, any system which imposes costs which do not apply equally to
international competitors must be rejected.
Because it has
always been free,
the atmosphere has been used as a waste dump by anyone and everyone -
some more
than others. The atmosphere’s ability to absorb carbon
dioxide has become
a scarce resource, and therefore very valuable. Our waste dump
is running
out. What remains will have to be rationed - and the usual method of
rationing
a scarce commodity is by price.
So,
why is it so complex to place a scarcity value on the atmosphere’s CO2
absorption capacity?
This hitherto
free service has been exploited and abused
in order provide civilisation’s cheapest source of concentrated
energy.
The atmosphere’s apparently unlimited supply of oxygen and its abundant
ability
to “remove” gaseous wastes have meant that only fossil fuels have been
the
focus of economic scarcity and rationing by price. We prefer
to overlook
the fact that the ability to dispose of combustion wastes is a very
valuable
natural resource.
The solution
to the problem of our atmospheric waste dump
filling up, is indeed difficult and challenging, but it is not
complex.
It is the common and natural desire to keep receiving valuable things
for free
which lies at the root of why things get complicated. Human
beings and
their even greedier de-personalised institutions, have an ability to
present
distorted and unnecessarily complex frames which seem plausible on a
superficial level, but tend to obfuscate assumptions and rorts, which
benefit
one interest group over another.
We cannot
pretend that rationing CO2 emissions is not
an issue of wealth distribution - it is - just as
much as allocating
the ownership of fossil fuels themselves. And, although there
is a bit
more to it, the ability to use and control energy is
a very good
measure of wealth.
One of the
first questions to arise is - Who owns the
atmosphere? - but the answer is rarely uttered. Who receives
the proceeds
of any rationing by price? And who misses out? At
the heart of the
climate solution is a deep and fundamental concept about cooperating
for the
common good and another concerning global governance of global issues
such as
the "health" of this rather unique living planet.
Thinking
globally sometimes requires a bit of a stretch,
but you don't need a brain the size of a planet to know that the air
belongs to
everyone. However, there are a lot of smart and cunning people who see
a new
opportunity to own natural wealth which is already the common property
of every
person. They want some aspects of the atmosphere privatised, simply
because
they now see it is a valuable resource – and they want it for free, if
they
can. Then they want to profit by selling your diminishing share of the
atmosphere back to you, provided you are the highest bidder.
The
ownership of the atmosphere is an issue that cannot be overlooked. Our
policy
preferences always imply one form of ownership or
another. Whether
stated, implied or unconsciously assumed, there are at least
four views
about the right to dump in the commons of the atmosphere.
These attitudes
are demonstrated by individuals, corporations, communities and nation
states.
1.
Historical justice. "The air
belongs to everyone, equally. The wasteful have already used
up more than
their share of the dump. They have even used up what does not
belong to
them and must pay just compensation for their greed." There
is only
a problem because of the excesses of wealthy industrialised
countries.
People in less industrialised countries must have the right to
the
resources they need for development and well being, without having them
appropriated. The remaining capacity belongs to those who
have not yet
used up their share. Since a just situation cannot be
restored, the
industrial countries must pay (very significant) compensation. Third
world debt
would reverse its sign to become a credit, then industrialised
nations
would continue to pay dearly to obtain carbon rations
from the rest of
the world.
2.
Fresh Start. “We must not
blame or punish for past mistakes. Nobody imagined
the atmosphere was
finite, so this is a new situation. From now on, we're going
to do things
equitably.” The remaining dump capacity belongs equally to
everybody. Those
who continue to use more than their diminishing share will have
to compensate those who use less. The dump capacity
can be rationed
through a world price, but the proceeds belong to the owners -
everybody.
Although a market mechanism is proposed, this view of ownership is
consistent
with "Contraction and Convergence".
3.
First in first serve.
"We all have to cut back equally. The dump
belongs to those
who filled it up, so we will formalise this right by issuing
permits according to current emissions levels - then
slowly cut them
back." This view is the moral equivalent of
claiming
that the last piece of the cake belongs to
those who already ate
the most. "That's just too bad for those who missed out. It's
a
competitive world. Stop that whinging - you lost, fair and
square." This attitude is most prevalent amongst developed
nations
with powerful fossil fuel industries. It is the rationale
behind
"cap and trade". If the world has to reduce total emissions
by
60% then those who use almost nothing also have
to cut by 60%
so that big consumers can maintain their relative position at
minimum
cost. Despite claiming a belief in markets, they don't want a
price for
carbon built upon equitable ownership. They want a market in
the ownership
of “emissions rights” – they want the atmosphere
privatised. First
the asset, the “atmospheric real estate”, needs to be divided amongst
nations
according to historical emissions levels. Then, by getting
their
governments to hand over emissions rights to the big
polluters, they take
possession of the atmospheric resource – finally, selling the ever more
valuable “dump capacity” back to the original owners – the
citizens of the
Earth.
4.
Freeloader. "We will
defend our freedom to the death - preferably yours!"
This view accepts
no restraint unless compelled by an overwhelming power. There
is no
concept of the public good except when it serves self
interest.
"Nobody owns the air, it is free and we love freedom. You can't put a
fence around it, so you can't make us pay neither." Such a
view is characterised by climate change denial and active
opposition to and disruption of attempts at
regulation. You'd have to
be the most powerful nation on the planet to get away with this – or
sucking up
to one.
When some
speak of fairness, in relation to the
atmosphere it often relates to how much "reduction" effort a
country should make. Metaphorically speaking – no matter if
we
be obese or starving, “fairness” says we must all cut our
calories by the
same proportion. If you happen to be a beneficiary, dividing
the Earth’s
presumed absorptive capacity for CO2 (mainly) amongst national
governments
according to how much they currently pollute, is an idea you want to
think is
fair - but it is a rationalisation for theft.
The idea of
assigning "caps" to nations based on
historic emissions involves an immediate and massive wealth transfer
from
poor to rich nations. This
idea has been exposed as a
swindle and now has little prospect of international consensus
agreement.
Will the USA and EU threaten India, China and Brazil with nuclear
weapons to
maintain their privileges of wealth and power? I hope this
doesn't
happen, but surely it is dystopian to believe that a massive
robbery can
save the world from disaster.
The Kyoto
protocol experimentally endorsed the “first in
first serve” model of dividing up the remaining assets roughly
according to who
was the biggest polluter in 1990. However several important
nations only
signed the agreement provided it said they had unlimited emissions
rights!
This
paradigm, which many of us in rich nations have been
led to accept without question, almost caused the Kyoto talks to
collapse. The Copenhagen talks in December 2009 can be
expected to fail
unless a new and equitable set of principles for a totally new protocol
are
adopted.
No person and
therefore, no nation, (except those who have
already consumed more than their fair share) has a moral obligation to
accept a
ration or cap which is less than anybody else's. People in developing
nations
should therefore offer to accept caps which are consistent with the per
capita
emissions of Australians or Americans. One partial
solution to this
problem is to assign every person a carbon ration
corresponding with the
global average – then the heavy emitters can purchase rations
from those
who have a surplus. Peter Singer advocates this is an
essential ethical
principle.
http://commentisfree.guardian.co.uk/peter_singer/2007/06/reaching_a_compromise_.html
http://www.policyinnovations.org/ideas/commentary/data/per_capita_emissions
But
there is a solution that is both fair and practical:
Establish
the total amount of greenhouse gases that we can allow to be emitted
without
causing the earth's average temperature to rise more than two degrees
Celsius
(3.6 degrees Fahrenheit), the point beyond which climate change could
become
extremely dangerous.
Divide
that total by the world's population, thus calculating what each
person's share
of the total is.
Allocate
to each country a greenhouse gas emissions quota equal to the country's
population, multiplied by the per person share.
Finally,
allow countries that need a higher quota to buy it from those that emit
less
than their quota.
The
fairness of giving every person on earth an equal share of the
atmosphere's
capacity to absorb our greenhouse gas emissions is difficult to deny.
Why
should anyone have a greater entitlement than others to use the earth's
atmosphere?
But,
in addition to being fair, this scheme also
has practical benefits. It would give developing nations a strong
incentive to
accept mandatory quotas, because if they can keep their per capita
emissions
low, they will have excess emissions rights to sell to the
industrialized
nations. The rich countries will benefit, too, because they will be
able to
choose their preferred mix of reducing emissions and buying up
emissions rights
from developing nations.
_______________________________
If economic
development is to proceed in developing
countries, then the fossil energy path must be by-passed and clean
energy
technologies implemented with the assistance of money
from selling
atmospheric resources to nations who grew fat on fossil
energy.
Otherwise, I believe, we are stuffed. An unjust climate
agreement will
produce hell on Earth, bloody revolutions and wars.
The
following is
an extract from Environmental Principles and
Policies: An
Interdisciplinary Approach - by Sharon
Beder. Chapter 12, under “THE
EQUITY PRINCIPLE”
_______________________________
Emission
allowances and targets
By
basing greenhouse emission reduction targets on the 1990 emission
levels of
each country, those that were emitting the most at that time were given
a
greater allowance under the Kyoto Protocol. This disadvantages
countries whose
lower levels of economic activity at the time meant they were not
emitting much
at all in 1990. The 1990 baseline freezes the status quo, consolidating
‘the
historic overuse by Northern industry at the expense of the South', and
is
therefore inequitable (CEO 2001). This situation has been termed
'carbon
colonialism'.
Larry
Lohmann (1999) also claims that the Kyoto emission targets are
inequitable:
Any
measure requiring all countries to reduce emissions by similar
percentages, for
example, would allow the US to go on producing roughly one-quarter of
the
greenhouse gases released yearly, even though it has only four per cent
of the
world's population. Similarly, North-South 'carbon trading' suggests
that it is
legitimate for rich countries or companies who already use more than
their
share of the world's carbon sinks and stocks to buy still more of them
- using
cash which has itself been accumulated partly through a history of
overexploiting those sinks and stocks.
Lohmann
(2004: 9-11)
estimates that carbon pollution rights allocated to large industries in
the
United Kingdom, as part of the EU Emissions Trading Scheme, will give
them the
saleable rights to some 5 per cent of the world's estimated
assimilative
capacity for carbon. Yet he questions whether the United Kingdom has
the moral
right to grant such rights, given that assimilative capacity 'does not
fall,
geographically or otherwise, under UK legal jurisdiction, but is a
capacity
inherently spread around the world'. This is why he argues that the
handing out
of rights as part of emissions trading schemes is 'one of the
largest, if
not the largest, projects for creation and regressive distribution of
property
rights in human history'. (bold added -RC)
_______________________________________
The
world’s high population level has to a large extent been made possible
through
access to fossil fuels. The importance of usable energy to
human welfare
and civilisation cannot be overstated. If we are to end our
dependence on
fossil fuels, much greater flows of sustainable energy will be required
from benign
sources. Fortunately, there is an abundance of renewable
energy to be
harvested. An insignificantly tiny fraction of the daily
endowment of
energy delivered via sunlight needs to be collected for human
use.
The main purpose of an emissions reduction program must be the rapid
replacement of energy sources, with new “zero carbon” energy systems.
The
release of CO2 is not merely a side effect of an industrial process,
such as
acidic sulphur emissions, but the unavoidable consequence of burning
carbon
based fuels. The most essential commodity for economic
activity is energy
– and almost 90% of usable energy is currently derived from burning
fossil
fuels. The low prices for fossil energy have been possible
because they
have been subsidised by every person, society, creature and ecosystem
which
will ever be effected by the consequences of climate change and ocean
acidification. The true price of energy is the price of
ecologically
sustainable renewable energy. There are no cheaper
alternatives until we
make it so.
The
high emissions technologies and lifestyles of industrialised nations
have
produced the global threat of climate change, so it is primarily our
responsibility to fix up the mess of our mistake and to ensure that
others are
able to take an ecologically sustainable path of development. Strict
justice
would require restitution for damages incurred unwittingly through
ignorance
and negligence by the perpetrators and beneficiaries of burning fossil
fuels
and clearing land. However, because of ignorance about the effects of
accumulating greenhouse gasses, I believe only emissions since 1990
should be
subject to calculations and claims relating to fairness. Although such
ignorance may be forgiven, responsibility cannot be avoided.
An insurance
fund for climate related disasters should be set up which assigns
liabilities
to developed nations according to their historic accumulated emissions,
with
the beneficiaries being every other nation. Apart from that
comment about
historical responsibility, I propose to concentrate on a fair global
scheme,
designed to bring about the necessary transition to a zero carbon
economy, when
the Kyoto Protocol expires. Liability for emissions from 1991
to 2011 can
remain a subject of future disputes in international courts.
National
questions about a “a fair and equitable contribution to global emission
reduction” becomes irrelevant when an equitable global system is
established. There would be no need for national targets,
because there
will only be one, global emissions trajectory, with
the world carbon
price adjusted using (seasonally adjusted) feedback obtained directly
from
measuring the atmosphere. Every global citizen, rich and poor, will be
treated
the same. There will be one global carbon price for dumping
into our one
atmosphere and the revenue will be distributed equally to every human
being. This mechanism minimises the mess and inefficiency of
trading, and
ensures that any person generating average per-capita emissions, no
matter
where they live, is exactly compensated for increased expenses, while
those who
use more than the global average will pay extra to the benefit of those
who use
less. The rich need an incentive to reduce emissions first,
while the
poor cannot afford to by-pass the fossil energy path to development,
unless
they receive compensation for the loss of the ability to use cheap
fossil
energy.
Note
that this system remains very generous to developed nations, as it
ignores
compensation for past appropriations and abuse of atmospheric resources.
It
has been our refusal
to acknowledge these moral and ethical issues which has produced “the
greatest
market failure of all time”. An ethical, fair and just market
based
rationing scheme would notionally allocate global per-capita emissions
to each
person and allow high emitters to purchase unused capacity from low
emitters. The simplest practical implementation of such a
principle,
combined with the economic need to price carbon, is described below. It
includes a notion of a birthright of human equality expressed as
non-transferable shares.
·
Carbon Levy. For
economic, competitive trade reasons, there needs to be one
global
carbon price paid by everyone in the world.
Otherwise, the
smokestacks simply migrate to the cheapest locations on the planet -
old
smokestacks may get closed down but it is a major waste of
resources whenever a new one gets built anywhere on the
planet. The
global carbon price makes fossil fuels and deforestation less
competitive
with clean energy and sustainable practices in forestry and
agriculture.
·
Carbon Dividend.
A global carbon price on its own would severely disadvantage the poor
and make
whoever collects the money disgustingly powerful, so everybody
gets an
equal share of the proceeds. This means that
persons at the
current global average per capita emissions level receive exactly
enough to
compensate them for their increased expenses. However, those who's
consumption
produces above average emissions will be out of pocket, and those who
use less
than the current average will be rewarded.
·
Carbon Authority.
To keep the planet on the emissions reduction target trajectory, the
global
carbon price will have to be adjusted regularly in manner that promotes
reasonable certainty and relative price stability. The Carbon Authority
will be
an international institution like the IMF
or WTO for example,
charged with controlling the carbon price, and using strategy,
technological
transfers and expert knowledge of energy investment decisions all over
the
world to keep the global emissions heading in the right direction
at the
appropriate rate.
Although
we don't need complicated negotiated national target
trajectories, we do
need the global one. This has the virtue that progress is
measurable through direct testing of the air. There are
important roles
for national governments, but I don't want them to tax away the carbon
dividend
before people even see it. That would be highly regressive
taxation which
would undermine the equity and incentives which are essential
for an
optimum outcome.
Ignoring
the fine print, I want governments of nation-states to agree to do
four main things:
1.
Fossil Fuels. Administer, enforce
and collect the current carbon price or Global Carbon Levy (in
currency
per tonne) imposed on fossil fuels at the well head
or mine gate;
2.
Biomass. Administer, enforce and
collect the current carbon price or Global Carbon Levy (in
currency per
tonne) for the depletion of stored biological carbon from forests and
other
ecosystems and pay out the same price for net increases in the mass of
stored
carbon.
3.
Distribute the Global Carbon
Dividend, to all adults in their jurisdiction (half for children).
4.
Cooperate with and
respect the authority of a UN Carbon
Authority to collect and
distribute payments, set the Carbon Levy and Carbon
Dividend (according to
an equal share for every person) and assist international inspectors
for the
purpose of ensuring compliance.
A
number of significant countries will continue to disagree about the
unethical
Kyoto arrangements which will be presented for endorsement at the
Copenhagen
meetings. On what basis will countries reach
agreement? Do we
all say "yes sir" to the biggest bully? Or will the
governments
eventually understand the will of the people of the Earth to have a
simple,
effective and elegant solution which is transparently just and
equitable?
When
it comes to cooperating for the common good, seeking advantage on the
basis of narrow,
competitive self interest will cause great harm to all of us.
A mostly
united world could join in solidarity to support trade
sanctions against
freeloaders, for example, provided we are united by a clear, just and
equitable
solution to this urgent problem.
Ultimately,
if any deal is not seen as just by ethical people around the world, it
is not
sustainable and will not be enforced. A workable solution must serve
the people
of the Earth as much as it enables us to build new energy systems all
over the
planet. By paying a dividend, accompanied with an explanation
of the
global situation, most ordinary people will be willing to report
cheating, and
this will greatly assist enforcement.
There
is some angst and much overestimation about large flows of wealth from
high
emitting countries to low emitting ones. This money represents new
wealth from
a new commodity. It will add to GDP and trade figures and be
a real boon
to the global economy, even as it improves the world and saves many
times its
“value” in climate related catastrophes averted. Indeed, even
the Rudd
government’s CPRS transfers huge amounts of wealth (as free permits) to
subsidise the customers of corporations who export commodities from
Australia.
That wealth does indeed belong to people living in other nations so
that they
can pay for emissions associated with products exported from Australia.
It is a
matter of who receives the benefit of carbon revenue paid within
Australia.
The CPRS prefers to pay exporters with “negotiated” handouts
based on
arbitrary thresholds rather than the rule of mathematically sound laws
of
accounting.
In a fair
global scheme, the wealth represented by those
subsidies, and the carbon revenue from every other nation, would be
distributed
equitably to every person on the planet irrespective of where they
lived. Just
as every person would pay the same carbon price included in the price
of fuels
and every product.
"Every
kg of CO2 I emit into the atmosphere affects everyone else on Earth
equally (not
to mention animals and plants etc), so they should receive equal
recompense. It
does seem the fairest system, and as you say therefore the one most
likely to
stand the test of time." - Dr Martin Williams.
Even after
GHG emissions associated with exports are
removed, the per-capita emissions figure due to consumption by
Australian
citizens (including imports) is well above the global average. Until we
modify
what we buy and employ mainly zero carbon energy sources, our emissions
will
remain above the global average. So long as the per-capita
emissions due
to consumption remains above the world average, there will be a net
flow of
money from Australia’s high emitting citizens, to low emitting persons
somewhere on the planet. We already buy oil and so much else
from
overseas, so it is no surprise that we are not self sufficient in
carbon
emissions allowances either. There is no harm in paying to
make up our
shortfall and, I believe, great benefits will come out of it.
As
an aside. It might prove expensive if high emitters
bought carbon
quotas from low emitters at a free market price – but, perhaps
the high
emitters could benefit through having a global regulated carbon price
with
universal dividend. If the system starts with a
low regulated
world carbon price, it might still produce spectacular results before
international money flows become "unacceptable" to the rich nations.
Sit back and watch how quickly rich nations slash emissions
in order to beat
the price rise!
This is
undoubtedly the method that produces the maximum
abatement at the
lowest possible cost! Nothing strikes fear into the
hearts of the
rich like having to pay the poor. This paragraph was intended
to be a
joke, but it could turn out to be the most persuasive argument for
having
global dividends and a regulated carbon price. Cut your
emissions or else
“pay a loser”.
There
are counties who would have much lower average per-capita emissions if
it were
not for large scale clearing and burning of rainforest. The citizens
and
economies of such nations would benefit by subscribing to a Global
Carbon Levy
with Dividend. By doing so, (at least) two things would
happen. Every
citizen would begin to receive the carbon dividend. This will inject
international
purchasing power into local villages and remove the necessity or
motivation to
support the destruction of forests. Secondly, it will become too
expensive to
clear or burn, when removing biomass incurs costs according to the
carbon
price. Sustainable logging of high value timbers will pay
well enough to
allow a well managed flow of wood products into the human economy.
Despite
effectively paying the population to report offences against the Earth,
if
local policing proves inadequate, then satellite monitoring can provide
sufficient accuracy to subtract the carbon cost of burning and land
clearing
from the Carbon Dividends allocated to that nation. This
method of
encouraging enforcement may also be effective for nations which have
above average
per-capita emissions and are effectively net importers of carbon
allowances.
Although there would not be dividend payments to withhold, un-met
international
obligations would become the responsibility of governments.
An issue
arises for situations such as bushfires which might otherwise generate
large
carbon liabilities. Where re-growth is expected to occur, a
carbon debt
may be carried and paid back through natural re-growth. However, there
will be
an “interest” component to account for the time that the CO2 spent in
the
atmosphere.
I do
not believe the current system of negotiated emissions caps
based on
historical emissions is going to produce anything like an effective
international agreement. Governments have simply lined up to
claim atmospheric real estate, before a fair or viable system
can be
established. (Remember MDB irrigation licences.) The unbelief
of some
governments gives them no reason to cooperate, while low per capita
emissions
countries continue to be vilified for justly
refusing to cut
back their small consumption. Will the rich beat the poor
into
submission? That looks to be what many must
be hoping for in
Copenhagen.
Any
system built upon an injustice will simply become unenforceable and
collapse. I don't believe we can afford the time to wait for
an obviously
bad system to fail.
I
submit that our best option for the successful global
management of
anthropogenic greenhouse gas emissions, is to recognise that
cooperation
on a global scale requires the consent and support of
the vast
majority of human beings. For that to be possible, the
proposed
management principles and implementation must be transparently just and
equitable. To be successful, the design
principles and practical
implementation must be ethically robust, otherwise people of good will
may fail
to overcome the inevitable cheats and freeloaders.
This
is not only an arena for governments and the self interest of
nation
states. This issue will inevitably spill out into the real
world and become
a matter of cooperation-for-survival that is vital
to everyone. To
be successful, we'll need a bigger involvement
than an annual
bureaucratic orgy of spin regurgitating the advice of every
nation's
fossil energy sector.
If
the vast majority of governments really cannot agree to a single global
carbon
price with equitable distribution before the end of the Kyoto period in
2012,
then the system described above can be implemented by individual
countries or
trading zones. However, without a global carbon price, trade
between
jurisdictions is complicated by the valid necessity to protect local
industry
from products made with “free to air” emissions.
D)
An appropriate mechanism for determining what a fair and equitable
contribution
to the global emission reduction effort would be.
The
appropriate mechanism is quite simple. First determine the
amount of
global emissions which are fairly allocated to the Australian
population.
This will be based on equal global per-capita shares of the
scientifically
determined anthropogenic emissions budget or world cap (which will
change
according to new scientific findings). The share for the
Australian
population will be the global budget multiplied by our proportion of
world
population. It will not seem much compared with the gross
emissions we
are used to belching from smokestacks located on our soil.
However, all
emissions due to exports from Australia will be excluded from the
national
allocation, as they will be the responsibility of our customers who
will
effectively import foreign emissions. On the other hand, emissions
associated
with our imports will be included in the national total because these
are due
to consumption by Australians.
No
nation need have an obligation to reduce the emissions due to its
exports. Until there is a global scheme, it is the
responsibility of
importers to impose a carbon levy, or to reject products associated
with
emissions. Exporters will reduce their emissions when the
market demands
it – and the market will demand it as soon as it costs people and
nations to
import expensive emissions.
Australian
citizens
will effectively pay the prevailing world price for their excess carbon
emissions, which are ultimately purchased from those who use less than
average
atmospheric resources. It is fair that we emit whatever
quantity we are
willing to pay for, beyond our equal per-capita global
allocation.
Without a global carbon price, there is little incentive for nations to
reduce
emissions at all. A fair and equitable “reduction effort”
takes our
emissions down to a level which tracks the falling global per-capita
average,
but it is also fair and equitable for us to profit by doing better than
that,
or to pay others if we fail to keep up. If too many fail to
keep up, the
price will be quite high.
C)
Is the CPRS
environmentally effective? Are the 2020 & 2050
targets adequate?
Not
at all. The government is looking to lock in targets which assume an
over
optimistic and outdated global goal to achieve an atmospheric
concentration of
CO2 around 550ppm. The CPRS aligns itself with the interests
of the coal
industry and the government has clearly not understood that the days of
coal
are numbered. A new era has arrived with new challenges and
opportunities
for those with the vision to look towards the future instead of facing
backwards dragging their feet. Our response to the challenge
of climate
change needs to be based on a global target concentration of 350ppm –
and we
are already at 385ppm.
Although
it has some effect, the shape of an emissions trajectory is less
important than
the total accumulated giga-tonnes of CO2-equivalents released into the
atmosphere over time. The total accumulated emissions to 2100
is the
number which counts (or to 2050, once we decide to go for zero net
emissions
before then). The total of emissions is the sum of each year
over the
period. It is proportional to the area under the curve of a trajectory
graph.
This final limit, in gigatonnes of CO2, represents our last
tank of carbon
energy which we must use as wisely as possible. The
priority use must
be to build adequate replacement, zero carbon, energy systems for the
future of
civilisation.
Targets
for particular years are meaningless unless they relate directly to a
realistic
strategy. A target trajectory which does not also describe how it will
be
achieved, is merely an aspiration. For a given total, multiple
trajectories are
possible, so target trajectories should be selected mainly for the
qualities of
the associated plan. Simply reducing the supply of carbon on
a linear or
exponential decay curve, and hoping for the gods of the market to sort
everything out is, quite frankly, childish and irresponsible.
The time
delay between a price signal and new clean energy hitting the market is
too
long for stability and meaningful prices. The necessary
change is simply
too rapid for market feedbacks to stabilise during the process.
Markets
are good at what they can do, but they cannot be expected to substitute
for
intelligence, planning, design, skill and responsibility. To get a job
done in
an efficient and timely manner, construction programs require planners
and
project managers, rather than a pricing mechanism featuring longer
delays than
grape markets. If we’d started 20 years ago, perhaps.
My
own spreadsheet modelling indicates that zero emissions from fossil
fuels can
be achieved before 2040. The model left out the biological
sector and
assumed 2.1% supply growth, a mix of technologies with an overall
average
energy payback time (including storage and transmission lines) of two
years.
With construction starting in 2012, the model describes alternative
energy
infrastructure industries growing rapidly until 2020 with much of their
clean
energy output being reinvested into growing ever larger manufacturing
capacity. Once the critical scale has been achieved, the job
of replacing
fossil energy sources over the next 20 years can begin. The
scale of the
industry would be “sustainable”, in the sense that replacing energy
systems
that produce emissions is completed when the first generation of clean
energy
infrastructure needs replacing.
With
some additional
effort, replacement of fossil energy could be achieved by 2030, but we
would
end up with 38% more energy infrastructure manufacturing capacity than
the
“sustainable” scale, with no upgrades scheduled for another
decade. We
would have to mothball the industry for a decade, or export energy
infrastructure,
or else build 46% excess energy capacity within Australia.
Beyond solar
aluminium, we could use this clean energy glut to export hydrogen fuel
or any
other energy intensive commodity. Australians would profit
from below
average emissions levels.
E)
Will the CPRS
encourage green jobs, R&D, manufacturing and service
industries, taking
into account permit allocation, leakage, compensation mechanisms and
additionality issues;
As
mentioned above, the CPRS does not impose the carbon price on imports.
Therefore, if the carbon price ever gets high enough to do any good
against
emissions, it will harm import competing businesses. Like the
low capped
carbon price, this may be another feature designed to prevent or delay
an
effective carbon price coming out of the government’s emissions trading
system.
It
matters that the carbon price applies to all imports.
Australia's GST is applied to all imported
goods, yet
imports cannot be captured by the CPRS. Because the CPRS is
not a tax,
there can be no equalising tax on imports to reduce
the competitive disadvantage to Australian producers. Attempts
to address
this serious flaw are likely to resemble import
tariffs. But a carbon
tax on the greenhouse gas emissions
associated with
the entire production and delivery chain, could be applied to
both
imported and local products. The GST is allowed by
WTO rules because
it applies equally to both local production and
imports. This is one
very major flaw of the CPRS. The fact that
imports escape the
CPRS, creates an intolerable situation for Australian business
that will
persist as long as a global carbon price remains
un-implemented.
Given
that exporters are effectively exempted from carbon charges (some are
unjustly
compensated), but imports are not included in the CPRS, Australian
products for
local consumption will be exported and re-imported to avoid CPRS
expenses.
Businesses which cannot do this will carry an unfair burden
and jobs will
be lost because of the muddled thinking of the CPRS designers.
Manufacturing
clean energy systems will need to be a very big industry and, after the
Howard
years and the failure to extend the MRET, we have not got much of an
industrial
base. The proposed CPRS will further delay the implementation
of zero
carbon energy systems. It will do this by keeping the carbon
price too
low or too volatile to encourage investment in renewable energy and
energy
storage technologies. The proof is the maximum ETS price is
limited to
$40 / t CO2-e. That is less than 7c/L on petrol and not enough to
produce a
restructuring of energy sectors.
Australia’s
technical
and workforce training sectors should be expanded, redesigned and
re-invigorated immediately. Training for tomorrow’s green
jobs should be
happening now, but we need a plan. Financial barriers and disincentives
to
seeking skills training and qualifications should be examined and
removed. Treat
study as a job. Many who would like to undertake courses for
retraining
or new qualifications are deterred because their families simply could
not
afford to live.
Any
scheme which ignores the principle of "polluter pays, so the polluter’s
customer pays", is a scheme designed to fail. When rewards
and
penalties do not accrue to those responsible for the right or wrong
decisions,
the whole purpose of a price for
carbon emissions is lost.
People will become disheartened when they discover their actions have
little
effect. This is what the fossil industries want.
A
lot of the GHG emissions resulting from consumption by Australian
citizens are
released from Chinese chimneys. While most, so
called, Australian
emissions, go into commodities, goods and services exported to
the rest of
the world. This is why the assumptions behind Kyoto are
scandalously
screwed – they misallocate the liabilities, the responsibility and the
incentives, until you have to pay no matter how you change your
behaviour and
purchasing decisions – and no matter what you do about your emissions,
you
still have to pay – because everybody pays for everybody
else. The
incentives are scrambled. Australian emissions
produce commodities for people who live overseas, yet
Australian citizens
are held responsible. Then we point an accusing finger at
Chinese
emissions which contribute to the products which we consume.
Decoupling
the local economy from jurisdictions with a different or a zero carbon
price is
about more than just “leakage”. Flaws in how national Kyoto
targets have
been allocated will also have to be fixed. National
accounting and
targets should focus on the emissions due to the consumption by citizens
of that jurisdiction, rather than the location of smokestacks.
If
reason prevailed,
while we work towards a simple and just global emissions scheme:-
·
national quotas would be
proportional to population, with differences purchased and sold;
·
we would count the emissions
associated with imported goods and services, as well as locally
consumed
production;
·
and exclude emissions
associated with exports, because they belong on the customer’s
account.
In an
effort to reduce their imported carbon liability, in dollar
terms,
importers would automatically seek out products associated with the
least
emissions. Thus, world exporters would face global competitive
pressures to
minimise emissions, without being financially handicapped in a world
market by
an impost which their competitors don’t have.
A failure
to implement the above principles, will have the effect of scrambling
the very
incentives which are supposed to be the whole point of paying
for carbon emissions. Under the CPRS, we pay for
others, while others
pay for our imported virtual emissions, so nothing we do has any effect
on what
we have to pay, nor to our national emissions. It is a folly
to make
ourselves responsible for the choices and behaviour of others,
but doubly
so when we also avoid responsibility for our own actions.
It is worth
noting the absurdity of giving handouts to
exporters while imports are ignored. Only local products for local
consumption
will be effected by the CPRS, so Australian businesses will try to
export
everything then re-import what they wish to sell locally. As
products are
shipped overseas and back again, CO2 emissions will rise. If
not for this
loophole, there could be few jobs outside the "non trade exposed"
parasitic sectors such as lawyers and bureaucrats. Under the
CPRS,
ordinary citizens and unemployed workers will reduce Australia's
emissions
through their involuntary poverty.
Australia
will not be
able to completely replace fossil energy until overseas customers
demand, and
pay a premium for, products made with clean energy. That
will require
customer nations with the good sense to place carbon taxes on their
imports
– something which the Rudd government has decided not to do, because it
wants
its CPRS instead of a carbon tax.
____________________________
When I read
Professor Ross Garnaut's thoughts on
what I have described as "Border Tax Adjustments", I believed that he
and I were in agreement. (pp43-45 describe Garnaut’s solution)
Supplementary
Draft Report - Targets and trajectories - 5 September 2008 (PDF, 1.76MB)
“It
is important that we
stop thinking in terms of payments to Australian firms in order to
compensate
them for the effects of the domestic emissions trading scheme. There is
no
basis for compensation arising from the loss of profits as a result of
this new
policy. The reason for payments to trade-exposed, emissions-intensive
industries is different and sound. It is to avoid the economic and
environmental costs of having firms in these industries contracting
more than,
and failing to expand as much as, they would in a world in
which all
countries were applying carbon constraints involving similar costs to
our own.”
____________________________
GHG emissions
should be an expense just like any other
input to production or commodity with a world price.
Unfortunately it is
too easy to steal atmospheric capacity from the rest of us.
If we trade
with jurisdictions that do not enforce the same carbon price, how is a
carbon
refund for an exported product to be calculated? Exporters
will need to
track the Carbon Levy on all their inputs to production and justify
their split
between domestic and foreign sales. Whatever the mass of CO2 emissions
claimed
as the basis of a carbon export refund, that figure
will be on the
export papers and be available to customers and competitors.
From a
national perspective, carbon levy refunds represent emissions
liabilities
exported to another jurisdiction. Such administrative
overhead is an
argument for a global system, but it is difficult to imagine it can be
avoided.
Carbon accounting is needed, but the CPRS deals with
similar issues with
guesswork and negotiated ministerial largess.
A)
Emissions trading as
the central policy
If there had
always been a GHG price signal, we would not
be in the trouble we are in. If we had set up an international pricing
system
to restrain the rate of emissions at least one, but probably two
decades ago,
there would be time for feedback signals to work and for markets to
stabilise. But attempting to prevent the consequences of “the
greatest
market failure of all time” at this late stage is closing the gate
after the
horse has bolted. There remains an important role for the
market and
voluntary responses to a real price for emissions, but the situation
has become
so urgent and the required scale of the response so immense that
sitting back
and letting things work themselves out without strong direction and
purpose
will be a recipe for disaster. Some “intelligent design” and competent
project
management is in order to do what clearly needs to be done.
For reasons
of urgency, or at least in preparation for the
likelihood that urgency will become recognised, the method for pricing
greenhouse gas emissions needs to be a component of a larger flexible
strategy
capable of bringing about the rapid transition to a zero carbon
economy. That
strategy itself should be the central policy.
The complete
replacement or transformation of Australia’s energy systems, including
transportation, is a very big project which will require competent
project
management. Putting an economic value on GHG emissions, via a
carbon
price on fuels or by monitoring exhaust pipes and chimneys, is but one
aspect
of a well designed strategy to bring about the success of this
extremely major
project.
In the
context of strategy, I can mention targets. The
only target that really matters is the total accumulated emissions to
2100 (or
2050, after we decide to go for zero fossil energy before
then). The
shape of the trajectory is less important than the total accumulated
giga-tonnes of CO2-equivalents released into the atmosphere.
An important
observation which is often overlooked, is that any target trajectory
which does
not also describe how it will be achieved, is merely an aspiration.
The
setting of an ultimate goal or target, especially one which is likely
to change
as new information becomes available, should not pre-empt strategy by
specifying details based on shaky assumptions. For example,
lead times
between establishing a sufficient and reliable energy price to justify
building
large factories that make renewable energy infrastructure, and the date
and
rate which clean energy becomes available on the grid are seldom taken
into
account.
We would be
quite foolish to attempt to rely on foreign
sources to supply Australia’s energy infrastructure needs. There are
likely be
long delays for such items on international markets and the huge
payments will
rapidly become unaffordable. Like trams and wind turbines,
global prices
and waiting times are blowing out. We’ll have to make our
own. We cannot
afford not to.
No matter
what emissions may be relative to a current
target, it will always be a good investment to expend energy on
building energy
infrastructure that will provide carbon free energy - even at the cost
of
higher emissions in the short term. Modelling reveals that emissions
will
increase during the early phase of growing an Australian zero-carbon
energy
infrastructure industry, while it strives to achieve the necessary huge
scale.
However the mid and long term emissions will be very much reduced by
doing
exactly this. It is the total accumulated emissions before stopping
that
matters.
Generally
speaking, cost effective and efficiently
functioning systems tend to be designed by skilled human beings rather
than by
pricing mechanisms. Pricing mechanisms have an important role
to play,
but that role is not the project manager nor systems designer.
Hoping a
price mechanism on its own will spontaneously produce an optimum,
organised
energy system in a timely manner is nothing more than wishful thinking.
Even if the
urgency of our situation is not yet fully
appreciated, the design of the legislation and the policies which we
have to
depend on, need to retain the flexibility to deal effectively with the
more
rapid responses demanded by today’s science. An ETS does not fulfil
these
essential requirements, however, a regulated carbon price, or an
adjustable
carbon tax, does.
In
this country, at least, the Australian Carbon Authority will have to be
more
than a copy of the RBA board – it will also need to act as a responsive
Project
Manager for implementing Australia’s transition to a truly low carbon
economy.
Assuming
there is sound and reliable strategy to replace fossil energy with
zero-carbon
energy systems, the next highest priority associated pricing GHG
emissions or
“carbon”, is to ensure equity and justice are respected and
maintained. I
believe it is better to be able to afford efficiency than to
freeze in the
dark. I submit it is self evident that every person
has an equal
right to the benefits of access to the atmosphere, including the now
scarce
absorptive capacity for combusted carbon.
However
it is collected, the net carbon revenue should be distributed to the
natural
“shareholders” of the atmosphere. These Carbon Dividends
shall be paid to
each person equally (half for children).
Apart
from equity
considerations, there are additional reasons for not
relying on
carbon revenue for funding other worthwhile purposes.
·
It can be shown that paying the
Dividend to individuals is clearly more effective at reducing emissions
than
subsidising clean energy. It is far better to maintain a high
price for
energy while solving the affordability issue through the Carbon
Dividend.
In brief, subsidising zero carbon energy lowers both the price of
energy and
the carbon price. Subsidised energy delivers the biggest
subsidy to the
biggest energy consumers while depressed prices discourage efficiency
measures
and new investments in alternative energy infrastructure. (appendix 2)
·
Targeted subsidies or picked
winners will distort decisions. Throwing money at particular products
or
industries may not deliver the most cost effective emissions
reductions. e.g.
spending on insulation may be more effective than subsidising solar
electricity
to run air conditioners.
·
Politics. If the public
perceive the Carbon Levy as “just another tax”, it will be easy for
competing
political parties to bribe the electorate with promises of free
emissions. By effectively rewarding below average consumption
of fossil
energy, the Carbon Dividend creates a majority of enthusiastic
supporters.
·
The flow of carbon revenue is
temporary and self limiting. It will decline along with CO2 emissions.
Success
at reducing GHG emissions will reduce the funds available for general
revenue. A perverse incentive, or conflict of interest,
exists when
Governments come to depend on revenue from sources they purport to
discourage.
By far, the best use for the carbon revenue is “lubricating”
the
transition to a zero carbon economy through Carbon Dividends.
My
opposition to using Carbon Revenue for anything other than Border Tax
Adjustments and the Carbon Dividend, should not be taken to imply
opposition to
government finance. I welcome government investment in
infrastructure and
any loan finance schemes which can facilitate private investments in
cost
effective energy saving measures.
If
carbon revenue cannot
subsidise new energy infrastructure, how do we get it built?
Clean
energy infrastructure would be funded by government loans,
(loans from
the government) which are recorded as assets so
there is no
"deficit". The clean energy infrastructure loans will be
repaid
through sales of energy to customers. This is the model that
built this
country and served us well until the Monetarists insisted
private
ownership was always more efficient, no matter what the cost to society
and the
economy.
The
government is perfectly entitled to act as a bank and make loans of any
size
and on any terms it believes will advance national goals. The
main caveat
is a risk of inflation if private banks are also churning out loans at
a high
rate at the same time. Bank lending has been disastrously low since the
GFC, so
there is little risk of inflation and a desperate need for
government
investment such as the Zero Carbon Transition.
Try
to maintain a "level playing field" between government and private
enterprises so that both may contribute to building the new energy
systems with
both public and private investment.
I
prefer that we do not miss out on attracting private money
and creative effort – but I also see that the current state of
the
financial system will basically leave finance up to government
anyway.
However, it would be a great way for super funds to invest in a better
future
for their compulsory contributors, just like they were
supposed to do.
The
solution for
climate change is the solution for economic recovery!
Investment in
infrastructure provides deficit free stimulus. We could not
find the
human resources to do what needs to be done during an economic boom and
the
additional lending stimulus would risk inflation. The Great
Recession is
the best thing that could happen to enable the world to implement the
necessary
response to climate change. There's no excuse for not doing something
real and
of huge benefit – to stimulate the economy in the direction
of a positive
clean energy future.
No
doubt there have been many submissions criticising the proposed CPRS
and some
which reject the assumptions of emissions trading. I endorse
the
following criticisms of an ETS. The Cap is a Floor
below which emissions
cannot fall. This makes personal efforts to reduce
emissions futile,
leading to the collapse in the motivation to do so. The so
called "environmental
certainty" of fixed caps, sacrifices flexibility and locks us
into
inadequate targets which are expensive to change
when new scientific
realities become known. Clever tweaks or amendments might appear to
address
these fundamental design issues, but I have even more fundamental
objections
regarding the suitability for purpose.
The purpose of a carbon price is threefold:-
1) Close the price gap between fossil energy and clean energy. To break civilisation’s historical dependence on fossil fuels, a carbon price must high enough to initiate, justify and maintain massive levels of investment in zero emissions energy technologies and infrastructure.
2) Maintain relative price stability. The carbon price signal must have benign dynamics. If the carbon price is unstable or too low, urgently needed projects for zero emissions infrastructure will be delayed. If it is too high, unnecessary hardship will be inflicted on families and the economy. The economic harm could resemble the stagflation which followed the 70’s oil shocks, but, this time all energy sources will cost more until further notice.
3) Reduce waste and promote efficiency. This is almost a side effect of an adequate price. When energy costs more, consumers and businesses will appreciate its value and seek to reduce their energy bills. They will invest in energy saving technologies and modify behaviour to reduce consumption, provided they have access to appropriate finance and reliable, accurate advice.
The
main stumbling block for an ETS is the unavoidable time delay between
the price
signal and the most effective response, which is bringing large
quantities of
zero emissions energy on line to displace smokestack energy sources.
While the market waits for the eventual outcome of the
initial response,
depending upon the weather, prices from an ETS will be volatile. A low
or
falling carbon price could easily cause new energy projects to be
abandoned,
yet excessive prices will cause economic harm for no benefit, since a
price can
do little to accelerate the delivery of clean energy.
The
oil shocks of the 70’s did eventually produce a reduction in the rate
of oil
consumption, but not before producing economic harm to families and stagflation
– high inflation together with rising unemployment. High fuel prices
could
hardly accelerate the rate of technological change. It took
time for the
car fleets of the world to change over from gas guzzlers to more fuel
efficient
vehicles. It took about six years to make some adjustment to
the ’73
shock, then there was another in ’79. Despite the unfortunate
and
probably unnecessary economic damage, a higher oil price did eventually
reduce
underlying demand. By the mid ‘80s, the gas guzzler was all but dead –
but low
oil prices in the ‘90s heralded its return in the form of the urban 4WD
(or
SUV).
Who
should hold the tiller that sets the carbon price? Despite
the great
faith many of us have in their powers of divination and
wisdom,
markets provide a rather simple feedback mechanism
between buyers and
sellers. Although they have their part to play, I would not
leave the
fate of humanity up to a one dimensional chaotic system driven by short
term
greed, coupled to slow responding dynamics and oblivious to long term
consequences. If we’d started pricing carbon 20 years ago,
perhaps the
slower rate of change would not overwhelm the response delays.
We
need a stable and a correct carbon price. As suggested above,
we could do
far worse than think of the carbon price as the difference between the
price of
reliable zero carbon energy and old fossil energy. The price
of carbon
should be intelligently controlled like the price of money, with a view
to
influencing the supply of clean energy in five years
time. This
relatively stable carbon price is best delivered through an Adjustable
Carbon
Tax rather than through the volatility of an ETS.
Neither an
ETS nor a Carbon Tax changes the cost to
society of changing a light bulb, insulating a house or commissioning a
concentrating solar thermal power station. If almost every cent spent
on
emissions permits or a carbon tax is returned to society through a
Carbon
Dividend, a carbon price set by any method has an insignificant effect
on the
cost to society of implementing the list of things which have to be
done to
eliminate GHG emissions. However, the carbon price will have
a powerful
influence on what is not done and how long meaningful action will be
delayed.
Depending
upon how it is defined, the short term “economic
cost”, will mainly be determined by the necessary rate of
progress. Least
cost may be defined as “do nothing”, so the phrase could be taken to
mean
“appear to be reducing emissions while doing almost nothing”. That may
be what
the coal industry hopes that it means, but moving too slowly will
result in the
greatest economic cost.
During the
economic boom, there was a real risk that
starting the zero carbon transition would overheat the economy and lead
to
inflation. That would have been an economic cost. Now that
the supply of
credit has drastically slowed and unemployment is rising, massive
investments
in our future energy security can begin in earnest. Failure
to seize this
opportunity, will incur a very long lasting economic and social
cost.
Just like a bank, government can provide funds to purchase valuable
assets and
make loans without creating a deficit, because the debt or the asset is
a positive
which will also pay for itself. At times when banks are
failing to supply
the economy with adequate expansion of credit, it is the duty of
government to
make loans to construct national assets. This is not “spending” -
it is
the best investment in this nation’s future that could be made. It will
not be
paid for by tax payers, but by the commercial sale of energy.
Even if we
ignore the early costs of failing to prevent
climate change, moving too slowly will increase the cost to society by
adding
duplication and unnecessary items to the list of things that need to be
done –
things such as temporary half measures which only put off what has to
be done
anyway. For example, public investment in CCS will be wasted
resources if
the process cannot eliminate 99% of emissions from burning brown coal,
or if
the insurance costs make CCS uneconomic in most potential
locations. If
renewable energy power systems eventually have to be built anyway, it
would be
cheaper to do the right thing from the start.
(Having said
that, it is very valuable to invest in
research to explore ideas and test alternatives, if only to avoid
expensive
mistakes in the future, provided all promising options are
explored.
Governments should refrain from investing so much in the research and
development of a “picked winner” that they become “embedded” with
private
industries and start to view competing solutions as a threat to their
vested
interest. Crony Capitalism and National Socialism spring to
mind.)
There is a
significant difference of economic efficiency
in favour of a carbon tax:- it is simpler administratively, it does not
require
a huge parasitic industry of lawyers, brokers and speculators, sucking
the life
out of what people pay on the street and another army of skilled public
employees to investigate the frauds and dodgy deals perpetrated by
those
expecting to profit from the world’s need to ration carbon emissions.
Looking at a carbon tax:- transaction charges are
nominally zero,
although some administrative effort is involved - the cost is
insignificant for
the collection of tax revenue from fossil fuels and distributing
dividends. We must acknowledge that costs for verifying and
policing the
biological carbon sectors are potentially substantial under any system.
The “right”
price for future carbon emissions can be
defined as motivating sufficiently large investments to initiate the
rapid
growth of the industries which will manufacture the infrastructure that
will
eventually replace the old fossil energy technologies. This
is not merely
the short term price of intermittent wind power at convenient
locations, but a
price sufficient to pay for balanced, reliable power systems –
including
transmission lines to new wind, geothermal and solar locations, as well
as
energy storage and load levelling systems. Below this price
we are
wasting valuable time, and above this price we are forcing unnecessary
and
potentially harmful demand reductions.
An
examination of the EU-ETS demonstrates that ETS markets
are subject to severe price volatility. But a Carbon Authority
would be in
a position to publish an anticipated minimum carbon price five years in
advance, enabling major planning decisions to
be made based
on that future price. If sufficient major infrastructure
decisions are
not made to meet required targets, a Carbon Authority may
revise the
future price upwards until appropriate infrastructure approvals are
brought
forward.
A board or
trust of persons capable of understanding the
system they are adjusting, is the best way to provide relatively stable
and
predictable pricing. By contrast, a rigid supply allocation to
a market
will engender inherently volatile prices due to
demand fluctuations
caused by the chaotic variations of weather. We
cannot afford to
waste time waiting for markets to reach a threshold price for long
enough to
convince investors it might be permanent, before they give the green
light to
projects with long lead times that should have been started five years
ago –
“if only we had known then, that it would be economic by now”.
In this
situation, markets are a component of a
system which should be designed for a purpose, not left up to chance.
Successive Australian governments agree that the price of
money is too
important for politicians to decide and, also, too important to leave
up to a
free market. As a result, we have a Reserve Bank Board,
selected for
their experience observing the economy and financial system,
who undertake
to manage a well defined responsibility. They make
periodic
adjustments to interest rates with the intention of meeting inflation
targets. Thus it should be for the carbon
price. There will
certainly be a target trajectory, attached to a national strategy,
politically
accepted and endorsed – but it is the long term emissions total which
matters,
not the rigidity of daily, monthly or annual allowances, nor the
trading of
speculators upon market noise.
An ETS, and
particularly this CPRS is most likely to delay
and retard investments in alternative energy systems and green collar
jobs
until the coal industry decides it is ready to implement CCS.
By
contrast, the Australian Carbon Authority (by any name) could announce
a
minimum carbon price for five years hence within the first month of
operation.
With such an announcement, large investments could be initiated in good
confidence with better certainty than any ETS.
There can
still be a futures market where people speculate
and hedge bets on what the official carbon price will be, just as there
is
currently speculation about official interest rates – but such trading
would
not be a parasite on the actual process of running the carbon tax
system.
The existence of such a futures market may assist the Carbon Authority,
but it
would not be bound by it.
See
also: A
Fair Global Scheme
Australia can
encourage constructive international action
through a combination of unconditional and conditional
undertakings. The
key is to think less about smokestacks and where they are located, but
to focus
on consumption by Australian consumers. Governments should be
representing a
population of citizens rather than lobby full of fossil
industrialists.
It is the
domestic consumption of citizens that we can
modify through market measures. However, a nation state has
much less say
over what people in other jurisdictions want to buy from them in a
competitive
world market. Make it clear to other nations that a significant portion
of
Australia’s emissions reductions will depend upon international
cooperation and
particularly the policies of our customer nations. For
example,
Australian industries will be happy to use more expensive low carbon
energy
sources (when this energy becomes available), if our customers choose
to pay
the premium.
If we place a
carbon penalty on our exports when our
competitors do not, we will rapidly lose sales. The reduction
of
Australian emissions associated with exported commodities will mostly
depend on
international cooperation. But make no mistake, our
consumption choices
are up to us.
The emissions
due to the goods and services we choose to
consume are entirely the responsibility of the Australian community,
our
policies and political choices. Reducing emissions associated
with end
use consumption has no adverse effect on a nation’s “international
competitiveness”. Deciding to eliminate our need for imported oil,
would be a
good place to start, and would greatly increase Australia’s economic
security. Such a strategy will require electric and
compressed air
vehicles, rapid transit systems as well as additional clean electricity
to
substitute for oil energy.
Feed-in
tariffs are temporary substitutes for an adequate
Carbon Price. A PV feed-in tariff becomes redundant when the retail
price of
electricity rises to be the same as the feed-in tariff
itself. This is
exactly what an adequate Carbon Price would do. Even at a
retail price of
around 40c per kWH, energy will remain affordable, so long as 100% of
the net
Carbon Revenue is returned equally to citizens. A Carbon Levy with 100%
Dividend will replace feed-in tariffs. It will encourage and
help to pay
for any measure that reduces carbon emissions, not just PV grid connect
systems. Over the years of the transition, the Dividend will slowly
decline to
finally expose consumers to the full price of zero carbon
energy. By that
time, a mature industry will have lower real prices.
This is an
economic question which will be answered
empirically by consumers and suppliers in the marketplace. Very often,
efficiency measures save far more than they cost. Be assured
that the
higher the marginal price of energy, the greater will be the
contribution of
efficiency measures. The ultimate answer depends upon the
relative costs
of additional energy versus the equivalent saved energy in terms of
both money
and convenience to the customer. As mentioned elsewhere, the
price of
energy should rise to approach the mid term price of energy from large
scale,
zero carbon energy systems. That will set the appropriate
level of
incentive for efficiency and energy substitution measures such as solar
hot
water installations.
I will hazard
a guess. By the end of the transition,
if an amount of energy costing $300 today has gone up to
$500, I think
efficiency measures will have reduced that $500 energy bill down to
$350. My
guess is that over the period of the transition, efficiency measures
will
reduce per capita energy usage by around 30% . On the other
hand,
desalination and intensive waste recycling systems could easily put the
per-capita energy consumption back to today’s levels.
Energy itself
is usually an on-going recurrent expense
while efficiency comes in the form of infrequent capital expenditures.
Special
purpose loan schemes, especially for rented housing and offices, and
reliable
information, perhaps via independent, publicly paid consultants, will
remove
some barriers which inhibit the optimum take-up of money saving energy
options. It also helps when people can compare monthly energy
expenses
with monthly payments for efficiency measures and conveniently
structure
payments that way. The higher the marginal cost of energy,
the more
efficiency measures will become economically viable, so the more
businesses and
consumers will be prepared to invest in saving energy. Other
forms of
demand reduction involve only behaviour change and much less financial
expenditure. One extremely low cost form of demand reduction
practised by
the poor is called freezing in the dark, but it is
rarely a preferred
option.
Investing in
efficiency should be facilitated by finance
and advice, but not be subsidised. There is a point where the
most cost
effective method to reduce emissions is simply to get on with providing
clean
energy. So long as the real price of clean energy is
reflected in the
retail energy prices, the contributions of energy efficiency,
substitution and
behaviour change will find their own levels. Accept a higher
price of
energy, but make energy affordable through the Carbon Dividend.
Unfortunately
many businesses tend to respond to market
forces rather than anticipate them. When the price of energy rises to
the point
where the market cares far more about efficiency than price, most
manufacturers
will be caught asleep at the wheel. I cite Australia’s auto
industry
which would have done much better with mandatory fuel efficiency
standards. Regulated standards which anticipate the market
forces
unleashed by other necessary interventions, can be a very good
thing. Big
changes are required, faster than the usual market response times, so
setting
minimum standards for appliances are highly recommended, particularly
for
factors like energy usage which are invisible, confusing or difficult
for
customers to measure. However, responsible agencies should
deliberately
avoid propagating greenwash – be advised by independent engineers and
scientists, not sales and marketing people or industry lobbyists. (It
is no
wonder the public become bamboozled.)
When we put a price on coal, we must also put a price on biomass, otherwise our forests will be mined as fuel to burn. The one difference is that biomass can grow back – but only slowly. When biomass such as plantation timber is harvested, the carbon price should be paid, although half of the amount may be recorded as a debt to be repaid through subsequent regrowth. As a plantation re-grows, periodical carbon audits will generate payments to forest managers at the current carbon price. Previous carbon debts will be paid down and funds paid to forest managers, depending upon the mass of new growth. At maturity the forest managers will have saved enough to pay at least half the carbon price for harvesting. Although the same principles would apply for the management of carbon in old growth forests and natural ecosystems, be mindful that forest ecosystems have values beyond their role in carbon storage which should be protected by conservation laws.
If
the government committed to a target strategy consistent with zero
emissions
from fossil fuels by 2040, and I was a commissioner on the Carbon
Authority, I
would propose that the authority consider announcing an
initial Carbon
Levy of around $30 /t CO2-e (for 2010), and also announce a
minimum Carbon
Levy that would rise smoothly (monthly or quarterly) to around $180 /t
CO2-e in
five years time. (2015)
It
is the publicly announced minimum five year price which will provide
the
greatest incentive for action and investment. Affordability
for consumers
will not be a significant issue because all net revenue will be
distributed to
Australian residents. Until there is an effective global scheme,
imports will
be subject to the Australian Carbon Levy and carbon expenses for
exports will
be refunded.
Simultaneously introduce a Carbon Levy, Carbon Dividend and independent Carbon Authority.
· Establish a Carbon Levy for CO2 emissions from fossil fuel combustion. This adjustable carbon price creates incentives for energy efficiency and the transition to low carbon energy sources.
· Net revenue from the carbon levy (after border tax adjustments) will be distributed as a Carbon Dividend to all residents (half for children under 16) through the tax and welfare systems. The Carbon Dividend recognises an equal share of the carbon emissions budget. It will compensate consumers for price rises and reward reduced consumption of fossil energy.
· The Carbon Authority will be a public trust, empowered to set the carbon price for the purpose of controlling demand to meet emissions targets. It will monitor CO2 emissions, infrastructure developments and all aspects of the carbon economy to inform a mid and long term view about the appropriate carbon price. It may also act as the project manager for the transition to a zero carbon economy be empowered to issue contracts
This policy
instrument employs a carbon price to motivate
the transition to a zero carbon economy. Civilisation’s
dependence on
fossil fuels means we cannot make this transition instantly, but it
must happen
quickly enough. A practical strategy for eliminating
emissions of carbon
dioxide and other greenhouse gasses will be selected in conjunction
with its
associated target trajectory for emissions reductions. The
target
trajectory is “soft” in the sense that short term errors are allowed,
but the
future carbon price will be adjusted to compensate for accumulated
errors. The trajectory may also be accelerated in response to
new
scientific findings. Adjusting the Carbon Levy
is analogous to the
Reserve Bank setting interest rates to achieve inflation targets. It
aims for a
price which maintains both investments in clean energy infrastructure
and
demand for fossil fuels on track to meet long term commitments.
Following
the introduction of the Carbon Levy, the price of
energy derived from
fossil carbon and energy intensive products will rise.
Through the Carbon
Dividend, the “average” consumer of fossil energy and
products will receive
an amount of money equal to their cost increases. High
consumers of
carbon energy and products will end up paying more, while the
efficient, frugal
and consumers of clean energy will be rewarded. A higher
price for fossil
energy will underpin a secure minimum price for renewable
energy and
stimulate investment in renewable sources. The higher price
of energy
provides an incentive for efficiency savings. The comparative
economics
of solar hot water, solar PV, passive thermal management and efficient
appliances,
are more attractive when they provide greater monetary savings through
the
reduced consumption of “expensive” energy.
Equity
requires that people can afford these increased expenses. It
is essential
that carbon revenues are returned to people’s pockets so they have the
option
of using it to save energy, switch to clean power and low carbon
products or
continuing to pay their increased expenses. (We don’t want
people on low
or fixed incomes living in darkness, nor disruptive anomalies like
temporary demand
surges to convert vehicles to LPG.)
Over
time, as zero carbon energy becomes the norm, revenues from the Carbon
Levy
will decline. Consequently, the average consumer will be
compensated for
a lower level of carbon consumption. This encourages the
“average”
consumer to keep up with the community or accept paying more.
This
pressure comes automatically from changing community choices – through
a
declining Carbon Dividend – not directly from the government.
Under this
system, carbon revenues are effectively and equitably
recycled.
Low-carbon energy and demand reduction become affordable through
subsidising
the customer. The technological, cultural and economic
transformations
become cost effective alternatives to the rising price of fossil
energy.
The Carbon Levy with Dividend finances the transition to a
low carbon
economy by reducing the subsidy which has allowed the cost of CO2
emissions to
be “externalised”. Simultaneously, consumers are empowered to
demand more
effective energy services.
Higher
prices with more spending power looks like inflation. However, the Untax
is revenue neutral – it is not real inflation. As with the
introduction
of the GST, apparent inflationary effects can be safely ignored.
Although the cost
of carbon emissions will show up in prices, there will be no wages
pressure for
cost of living increases if the revenue is immediately distributed to
the human
shareholders of the atmosphere. Failure to return carbon
revenue to the
people creates hardship for the poor and pressure for higher
wages. Both
equity and sensible economics require an inalienable right to an equal
share of
the emissions budget. As the Carbon Dividend declines along
with GHG
emissions, net real energy prices will approach the price of zero
carbon
energy. By that time, large scale mature technology will
provide carbon
neutral energy services much cheaper than today’s.
The
net real price of energy will slowly rise over decades to be equal to
that of
tomorrow’s green energy. This small economic cost will be swamped by
the
effects of climate change itself, such as water and food shortages,
storm
damage and disease, compounded by competition for diminishing resources
such as
oil. Our failure to act soon enough will result in chronic
“stagflation”
and worse.
Within
the national economy, industries and businesses will pass their higher
energy
costs on to their customers who will have the Carbon Dividend money to
pay for
it. However, imported goods will be relatively cheaper if
they have been
made with “free to air” fossil energy, and energy intensive exports
will be
less competitive against those which have been made with subsidised
emissions.
Without a single global carbon price, “Border Tax Adjustments” will be
needed.
If
there is a world carbon price, regulated through one global entity, no
adjustment measures would be needed for international trade.
However, for
trade between jurisdictions with different carbon charges, the
following
principles are necessary to avoid a competitive race for the lowest
carbon
price. The following principles must form part of any
successful
international protocol that allows differential pricing of carbon
emissions.
·
Carbon charges shall be imposed on imported
goods & services, but refunded for exports.
·
The information provided in claiming export
refunds shall be made available to importing jurisdictions for the
purposes of
carbon accounting.
·
Accurate carbon accounting information must
accompany all imported products. If reliable emissions
information is not
available, a higher amount of emissions will be deemed for calculating
carbon
charges.
·
Emissions associated with exported products
become the liability of the importing nation.
·
Focus on consumption!
It
follows that national targets must be calculated and specified to
include only
emissions generated in the provision of goods and services consumed by
the
citizens of that jurisdiction. Imports must be included and exports
excluded
from national emissions targets and assessments.
This
is a major
modification to Kyoto style national targets which focus on the
location of
smokestacks rather than the consumption by citizens. Kyoto
does little
more than rearrange the smokestacks on the Titanic - from where
emissions are
expensive to wherever they are cheap. Global emissions will only keep
increasing until there is an adequate worldwide price on all
carbon
emissions, implemented through a “carbon levy” on fossil fuels. The
logical
consequence of “polluter pays” is that the polluter’s customer
pays. And
equity measures follow naturally from enacting every individual’s
inalienable,
non-transferable right to access an equal share of allowable CO2
emissions.
Every person will receive a dividend from the rationing their
atmosphere.
Climate
Change is a resource depletion issue, just as much as it
is a global
management issue, and there are many more resource
depletion challenges looming as the era of rapid
growth comes to an
end. I believe we are entering a new era
of rationed
resources which marks the end of the growth
economies of the
last two centuries. Our global civilisation has
already exceeded the
limits of sustainable consumption of natural resources,
and this natural
wealth will inevitably attain scarcity values
unimagined during the
era when the Earth seemed full of resources and empty of
people. (Any form
of shortage or rationing creates a scarcity value, even if it
arises in a black market.)
In
pricing nature to manage consumption, I prefer
non-renewable
resources to be taxed or levied with sufficient royalties to
encourage
high levels of recycling and substitution, while harvesting ecological
resources may be capped at the sustainable yield and
auctioned. (Yes,
there is a place for cap and trade, but it is best suited to systems
with a periodic sustainable yield or ecological surplus.)
Many
agree about the need to ration and price scarce
natural resources,
but my position also presumes an equal entitlement to the free
gifts of
nature, so the proceeds from the scarcity
value of natural
resources belong directly to each person. (This is
the equivalent of
providing tradable quotas or coupons.)
To save something
for the future, we will need to regulate the exploitation of resources,
with
the unavoidable consequence that shortages will become more
severe
in the short term! Unless revenue from rationing is used to
create a more
equitable society based on sustainable and ethical principles, people
who
advocate responsible management will be despised
for further
depriving those who cannot profit from the private
ownership
of natural wealth.
Although distributing
a dividend from the rationing of natural resources does not
pay
for the labour involved in it’s "delivery", it does allow all
individuals to afford their ration of what may be scarce items of
natural
wealth which can no longer be supplied at cost. In
the case of
dumping CO2 emissions, the cost of "delivering the service” is
zero, so the carbon price entirely
represents the scarcity value
arising from rationing the resource. In the case of water,
there is
usually a delivery cost involved - whether it be installing tanks,
digging a
well, walking to a stream with a bucket, or paying
for reservoirs, pumping and reticulation
systems - but as soon
as the shared resource can be identified as being limited,
the supply
should be rationed for the common good and managed to maintain that
source
of natural wealth sustainably for current
and future generations.
In
my accounting, the failure to distribute dividends from rationing
resources is in effect the same as imposing a regressive poll
tax.
Dividends are necessary to distribute the
scarcity value of the
rationed "free gifts of nature" which, historically, have remained
unpriced and overexploited, or else converted into private profit
via private ownership. (As an aside: land is also a
natural
resource, but, due to the evolved territorial nature of human
beings, I would place land reform at the end of a prioritised
list
which places the management of GHGs in the atmosphere
urgently at the
top.)
The
atmosphere is not privately owned, and is the prime example of a global
commons, so getting people to pay for what has always been free is the
crucial
issue. Paying them for their personal share makes the important
connection and
helps to make paying acceptable. The renewable resources of
forests would
be next, followed by the bounty of the “open seas”. Non
renewable mineral
resources will have to be recycled and the rate of extraction rationed
too.
It
is desirable that these management systems should
be implemented before
the inevitable consequences of exceeding natural limits are unleashed,
or, in
other cases, before the extortionate prices associated with scarcity
become
windfall profits for private owners to the detriment of society.
You
will appreciate the need for such management policies if you
contemplate a
rapidly rising scarcity value of natural resources overtaking a
falling price of labour on an overpopulated planet. Such a
situation would rapidly
degenerate into slavery for those who struggle
to live, simply
because they do not profit from the sale of natural resources which
have become
scarce necessities.
All
this rationing for sustainability will mean less for each person,
greater
scarcity and therefore even higher prices. Whether population
continues
to grow, is stable or declines will make a difference too.
Voluntary
reductions in fertility rates do occur without coercion where social
policies
provide security to individuals, combined with education, careers,
choice and
control to women. Thus, I hope oppressive methods of
population control
can be avoided everywhere.
In
the context of all this, humanity will have to choose whether we
believe that
“all men are created equal” with equal rights to access what has been
given for
free by nature, or whether we want some to live in guilty luxury hoping
the
deprived poor will die off and leave more resources for the
rich. I would
rather my children shared natural resources in a world where population
slowly
declined through voluntarily reduced fertility. Whatever
problems they
will face, people will need energy to deal with them. The key
to a decent
lifestyle will be a plentiful supply of renewable energy.
Questions
about a fair distribution of the tax burden to fund government
bureaucracy
should be considered as if taxes were to be applied after the
distribution of dividends from common resources. (Note that
a flat
rate of tax can automatically become progressive
taxation when there
is also a significant rebate or a Basic Income for every person,
independent of
other income.)
The
money raised from a carbon price should not be
spent by the government
on clean energy infrastructure! After dealing with “border
tax
adjustments”, the carbon revenue should be returned to the people on a
per
capita basis (half for children), to help them pay for clean energy and
voluntary efficiency measures. The best way to pay for clean
energy
infrastructure is by selling the energy produced by that
infrastructure.
Like any bank, Government can make loans for self funding
infrastructure, or
private funds can invest, but sales of energy will pay for
everything.
The main
reason for having a Carbon Price is to increase the price of
fossil energy
up to the price of clean energy, so that clean energy can
compete. I hope
to show that it is not appropriate to subsidise clean energy
because
it lowers the price of all energy – cheaper clean energy means
a lower
carbon tax to fill the price gap. Rather than subsidising
energy, it is
better to maintain a steeper price incentive to reduce energy use, but
recycle
the carbon revenue equally to the citizens.
A
low carbon price is a bad thing. The carbon price has to
raise the cost
of fossil energy high enough to eventually replace all carbon burning
energy
systems. A carbon tax with dividend rewards personal
behaviours to reduce
emissions. The higher carbon price, together with the
dividend, provides
maximum incentives for voluntary action on climate change.
Those who
avoid energy and products incurring greenhouse gas emissions, will have
an
option to invest their Carbon Dividend "profits" into shares for
clean energy infrastructure, so rewards for effective action can be
multiplied!
Let’s
work through an example near the start of the scheme, when 90%
of energy
comes from fossil sources. I will compare recycling the
carbon revenue
through a dividend to all individuals, with spending the carbon revenue
on
clean energy systems. I will use three households, of two
adults and two
children, which differ by the amount of external energy they
consume. In
this highly simplified world, all energy is electricity and all
household
purchases are emissions free. It is designed to illustrate a
point which
remains true in the real world.
Suppose an
average quarterly electricity bill for an
average family was $300 but zero carbon energy would cost them $500,
then tax
& dividend would need $200
worth of carbon tax to
equalise the two prices. The effect would be that customers
see the price
of electricity rise by 66% and this provides a powerful
incentive to
change light bulbs & fridges, install solar hot water, insulate
the house
better and learn about thermal management using curtains and shades.
Since this
is an average household, let’s call them the Grey
family, they would get
an average family carbon dividend of $180 to
help
them pay their $500 energy bill, or for measures to cut their energy
usage.
The average
dividend is $180 rather than the full $200,
because 9 out of 10 customers pay the $200 carbon tax for using fossil
energy -
but 10 out of 10 must share in that revenue.
(Once we include
transport fuel and goods & services, the dividend would be more
than this
$180 derived only from electricity sales.) Because
of the $180
dividend, our average household pays $320 net for
their energy bill,
which is a 6.66% increase on $300.
In reality,
if there is only enough clean energy available
to supply 10% of electricity then the retail price for clean
energy will
still be higher than fossil energy to discourage
excessive demand for
this still scarce commodity.
No matter
what their consumption, every average family of
two adults and 2 children will get this hypothetical $180 dividend per
quarter. ($60 per adult plus $30 for children.) So
if they can cut
their electricity consumption by 4%, from $500 to $480, then, after
subtracting
the $180 dividend, they’ll only pay the same $300 that they
used to.
Before we
consider using the carbon revenue as a subsidy
for clean energy, I want to look at two other households under
this
dividend scheme. One family that cuts its electricity
consumption by half
and one that continues to consume twice the average.
a) The
average family that uses half the
average electricity consumption is the Green family. The
Greens will
receive a quarterly electricity bill of $250, which, with the $180
dividend,
leaves them with a net payment of only $70. Under the
previous regime,
before the carbon tax and dividend, their bill would have been
about $150,
so this family seems to be making money from the carbon tax.
I believe
this $80 per quarter is helping them to pay for their solar hot water
and high
efficiency fridge. This family is the one most likely to
invest
any spare income into further energy savings and may
even be
interested in buying shares in a clean energy power station if
this option
were promoted. Such families are the heroes of the Zero
Carbon Transition
– the dividend system makes them winners and everyone
wants to be
like them. And so they should.
b) The
average family that uses twice the average
electricity is the Brown family. The Browns will receive a
bill of $1000
which with the $180 dividend means they pay $820. Before the carbon tax
their
bill was about $600, so they will want to find ways to reduce the extra
$220 of energy they are consuming.
Not only is Tax
and Dividend the ethically based
method of distributing carbon revenue, it also rewards those who do the
right
thing, rather than rewarding polluters.
If the carbon
revenue is directed to subsidising clean
energy, then the carbon price would only add $20 to the existing $300
bill for
the average family. The increase due to the carbon price will
only be
$20, because every nine houses paying $20
extra raises the $180
required to subsidise the one house who is
using expensive clean
energy. $500 - $180 = $320. The net energy bill for families
with average
consumption increases by 6.66%. Note that this
is the same as the
above example. However, the lower carbon price provides little
incentive and no
rewards for voluntary reductions, because it is the same for every unit
of
electricity - it is merely a 6.66% price rise.
Let's look at
the other two other households under this
scheme. The Greens who cut their electricity consumption to
half and the
Browns who still use twice the average!
a) The Green
family which uses half the
average electricity consumption will receive a quarterly electricity
bill of
$160, which, is $10 more than if they made the same effort under the
old
regime. There is no reward for spending money to reduce
emissions. Before
the carbon price was added, their bill would have been about
$150, so this
family is worse off under a system which subsidises clean energy, than
when
there was no carbon price.
b)
The Brown family which uses twice the average
electricity will receive
a bill of $640 which is only $40 more than under the old regime. Before
the
carbon price their bill was $600, so an extra $40 is hardly
worth doing
anything about.
_______________________________
Because the
difference in price between clean energy and
fossil energy is small in both cases, the demand for clean energy will
soar,
but the supply will be limited by the speed at which
we can build the
factories that will manufacture the required annual production of clean
energy
infrastructure. This is a whole new topic, but I mention it
to remind you
that it will take time to grow the industry that makes the stuff that
eventually replaces the old fossil energy system.
When the new
industries have matured and the rate of
expansion slows down, I expect the price of clean energy to fall, but
probably
not until near the end of the transition process.
When half
the fossil power stations have been
closed down, the price of the equivalent quarterly clean energy
bill without efficiency measures will probably remain
around the same
$500 hypothetical price used previously. Assuming the Carbon
Price closes
the price gap between fossil and clean energy, the Carbon
Dividend will
now only be half the $200 contribution
from the carbon tax,
rather than 90% as it used to be. With only half the
population using
fossil energy and paying the carbon tax, the dividend for each of these
average
families in this simplified model will be $100, so they will
end up paying
$400 for the same kWHs of electricity that they used to pay $300
for. If
those average families want to keep their bills down to $300, they will
have to
reduce their consumption by 25% compared with before the
transition. If
they do, they will get an electricity bill for
$400 but receive
a $100 boost from the carbon dividend – to end up with no net
change.
In the case
where carbon revenue is used to subsidise
clean energy instead of producing dividends to individuals, the
contribution to the average family's bill from the
carbon price will
be $100. These average families will all receive electricity
bills around $400. Because half the customers are
still using fossil
energy, $100 from each of the carbon energy customers will
subsidise $100
for each of the clean energy customers.
The result
for the extremely average Grey family is the
same – but with the dividend system, we have had a high and stable
carbon price
to encourage efficiency right from the start. The subsidy
method has a
low and slowly rising carbon price that does not send strong signals
for
change. Like the frog in the warming pot, the change is so
slow that it
fails to trigger action.
At the end of
the transition process, both systems leave
customers paying the full price for clean energy, but the dividend
method
improves efficiency and changes behaviour by starting with a
real carbon
price. This is no trick. It is simply the right way
to deal with
this issue. The people are the shareholders of the atmosphere
so they
receive dividends from rationing the scarcity of their shared resource.
They
are free to spend it on what works best for them. Good,
independent
advice and low interest finance should be provided for economically
viable
efficiency and energy substitution measures.
Subsidising
clean energy is highly
interventionist with a potential for misallocation and
corruption. I much
prefer to empower the customers to buy clean energy at
the appropriate
market price and to charge properly for carbon emissions!
There is no
"cost to the economy" to
recycle carbon revenue, and the real cost of clean energy will be the
same in
any case. A recycled carbon tax can be very high with
negligible negative effects on the economy.
For the same
average cost to consumers, the Subsidy
path does not encourage or reward voluntary actions, but the
Dividend
does. By recycling carbon revenue we multiply the value
extracted
from the customer's dollar. The same carbon tax
dollars are recycled
again and again until they end up in the hands of a clean
energy supplier.
This is exactly what needs to happen. Please consider these
great
advantages of the Carbon Dividend. Once people understand,
they are
usually won over to this superior solution, but it is sometimes
difficult to
help people understand something new, which they have not seen
before.
Response:-
Even if it does stimulate green infrastructure, I am concerned that
handing the
revenue to taxpayers won't result in lowering emissions. It
might go to
plasma TVs, new cars and whitegoods.
I
have already compared the scenario of using carbon revenue to subsidise
clean
energy with distributing a personal dividend. I wonder which
of the three
similar families might indulge in extra emissions generating
consumption under
the two different regimes?
You
may recall the absolutely average in every way family is called the
Grey family.
The tribe which reduces its emissions to half of average consumption
shall be
known as the Green family, and the mob with double the average
emissions is
called the Brown family.
The
Grey family found themselves with exactly the same disposable
income under
both scenarios. The Green family preferred the Carbon
Dividend regime.
Their net energy bill that was $90 less than under the clean energy
Subsidy
plan. But the Brown family had to pay out $180 more
under the Dividend system than with the clean energy Subsidy.
It
seems to me, that the Green family is the one most likely to spend
their
$90 “bonus” on reducing emissions further, or investing in
clean energy
infrastructure. I strongly suspect their emissions are low
because they
already invested in energy saving technologies and they would not have
done so
without knowing they could pay for it from savings
accruing from
the avoided consumption of expensive electricity. On
the other hand,
the Browns were much happier under the energy subsidy, because cheaper
energy
means they can afford to waste it. With the $180 extra
disposable income
they have under the price subsidy scheme,
they are the ones most
likely to spend it on emission generating purchases.
The
lesson is: don’t subsidise energy prices – pay
people for their share of
the atmosphere.
I
too am concerned about customers spending money on high energy
products. That
is why I believe it is best to charge the full price for energy, so
people will
value it. If they are already paying the full price of
renewable energy,
they will treat energy with the same respect as they would
if every CO2
belching power generator had already been closed down. The
price they pay
is the price they need to pay to make that happen. By
recycling the
carbon revenue back to customers, we provide a mechanism to smooth the
transition from today's cheap fossil energy to tomorrow's
clean energy
prices. Tomorrow’s clean energy prices will not be quite so
high once the
industry matures and the frantic rate of construction
fades.
I
hope the mental light bulbs have come on and you have been won
over, at
last. If you are doubtful about the simplifications and
assumptions in
these models, you will have to justify an alternative. I
think the clean
energy price subsidy is a very good proxy for any effective
subsidy
program which relieves the consumer from paying the full price of clean
energy. Any price subsidy, by whatever method, can
only increase
emissions because people will be less motivated to save
energy. The
carbon dividend will appear in your bank account just like a small
income
boost. It is not a rebate on your electricity bill, in fact
it will
be big enough to help you afford the carbon levy
component in the
price of almost everything you purchase. When you make
decisions about
energy choices, you will compare prices and benefits with little
thought of how
the money gets into your bank account.
regards,
Richard
Corin