Home > Economic policy, Environment > Carbon taxes vs emissions trading

Carbon taxes vs emissions trading

July 7th, 2008

Now that nearly everyone is agreed on the need for a market-based policy instrument to reduce CO2 emissions, the biggest unresolved question is whether to implement carbon taxes, tradeable emissions permits or some hybrid of the two.

I support tradeable permits, but I’ve never really spelt out my reasons for doing so. It’s important before doing this to observe that the differences between the two approaches are more limited than most of the discussion suggests. Both ensure the existence of a price for CO2 emissions and both can be set up to distribute the costs of emissions in a lot of different ways.

That said, tradeable permits have some significant advantages in my view.

I have three main reasons for preferring permits, which I will list in order of significance

First, while the natural starting point for both systems is one in which the government collects the entire implied value of emissions, either as tax revenue or as the proceeds from auctioning permits, the emissions trading system allows for (but doesn’t require) free allocation of some permits. Particularly in transitional stages when not all sources are covered, this can be used to offset unanticipated distributional consequences of the scheme, and thereby increase its political feasibility.* (OIt’s important not to issue too many free permits as was done with the first round in the EU, but some limited issue might be beneficial. I don’t want to overstress this point as much the same outcome can be achieved by paying cash compensation out of tax revenue.

Second, since we are uncertain about the elasticity of demand for emissions we are faced with a choice between allowing this uncertainty to be reflected in uncertainty about reaching the targeted level of reductions in emissions, uncertainty about the price, or some mixture of the two. Given the risk that we will fail altogether if individual countries fall short of their targets, I’d prefer some uncertainty about the price

Third, and most importantly, the ultimate solution has to be an international agreement to reduce emissions in the most cost-effective way possible. The obvious way to do this is through the creation of international markets for emissions permits. Although a full-scale global market might be some way off, regional or multiregional markets linked through something like the existing Clean Development Mechanism could be set up reasonably easily. By contrast, I can’t see how, in a world of sharply varying exchange rates, it would be possible to set up a co-ordinated global system of carbon taxes. I should say, though, that Warwick McKibbin had a piece arguing for something like this in today’s Fin. I’m going to invite him to comment on the issues, or maybe write a guest post.

Whether or not these arguments are conclusive, it seems pretty certain that emissions trading (perhaps with some modest hybrid elements) is the way we are going to go. At this point, it’s more important to push for urgent action than to get hung up in disputes about the details.

* Obviously, if you’re strongly opposed to any compensation of existing emitters and are prepared to risk total failure rather than concede on point, this is a disadvantage rather than an advantage

UpdateWarwick McKibbin has kindly responded to my invitation, and kicked off the discussion with an alternative view

Categories: Economic policy, Environment Tags:
  1. observa
    July 9th, 2008 at 09:38 | #1

    “Only some of the complexity of the income tax code is due to political meddling, a good part is also due to the ceaseless and enthusiastic efforts of business, the rich and tax professionals to game the system.”

    That’s why you always need to be mindful of creating incentives to game the system and making the system as level and bullet-proof for all as you can Ian. The administrative costs of incremental muddling through are coming through loud and clear here too you’ll notice. These are big macro questions and it’s good to see them being mulled over seriously at last, as we have the ominous fallout from well intentioned central bankers’ machinations to deal with very soon. That will no doubt concentrate the mind on the law of unintended consequences and on that note here’s an obvious example rearing its ugly head-
    http://www.guardian.co.uk/environment/2008/jul/03/biofuels.renewableenergy
    Personally I think world money supply is a bigger culprit but nevertheless a glaring externality of well intentioned C&T is no doubt a big part of the problem too. That’s a major flaw in a global ETS, that it promotes the likes of the French Co wanting to grow ethanol on thousands of hectares of so called ‘waste land’ in ET. C&T has little to say about biodiversity and the conservation of natural environment, the atmosphere notwithstanding.

    We also need to be very mindful of transition costs-
    http://www.news.com.au/adelaidenow/story/0,22606,23992078-2682,00.html?from=public_rss
    This report is somewhat alarmist, because it’s really the problem of rapid inflation requiring an implicit force majeure tear-up of lock in contractual arrangements, that one side of the contract could not have anticipated. A timely reminder of the curse of inflation.

    These are threatening currents swirling all about us and we need cool heads if we’re to avoid drowning in the maelstrom. The answer lies in thoughtful and careful redesign of the CM we do have control over, rather than being diverted from the task in trying to control the swirling currents of the world. I am eternally optimistic we have the wherewithal and the brains to do just that and set an examplary path for the ROW. If not us, who then?

  2. wilful
    July 9th, 2008 at 09:58 | #2

    A lot more rentiers (sorry, I meant to say derivative markets) in an ETS.

    I’d prefer to see any business impost be misallocated by Government than misallocated by merchant wankers, buying a new Range Rover.

  3. Ian Gould
    July 9th, 2008 at 17:11 | #3

    “A carbon tax can be administered by the ATO along side fringe benefits tax, capital gains tax and all the other taxes. A emissions trading scheme no doubt entails a new additional government department and all the associated bureaucracy.”

    Right because existing ATO staff know all about environmental monitoring, smokestack instrumentation, conversion factors and estimating fugitive emissions from industrial processes.

    Tell you what, how about we hire people who know about such things and write “ATO” on their business cards and pay cheques?

  4. wilful
    July 9th, 2008 at 17:44 | #4

    Ian, when they put child support payments into the ATO that was considered a radical move, but it worked very very well. The ATO certainly know about dodgy accounting and rorting, the skillsets needed probably aren’t that big a leap.

  5. BilB
    July 9th, 2008 at 17:53 | #5

    Ian G, in the carbon tax scenario each primary raw fossil fuel (and there are not a lot of them) will have an index value and the tax amount per tonne calculated from that. This tax will be paid on the invoice of the first transaction involving that material. The amount of knowledge required is minimal. If someone buys coal and then buries or exports it again intact then they can apply for a rebate. That is as complicated as it gets, and that is entirely the point. The only special cases are businesses that extract fossil fuels for internal consumption and there is no sale before the fuel is consumed. These businesses would have to audit their fuel consumption to assess the tax payable (this can be monitored through their product sales).

    I challenge you to come up with a solid reason why it needs to be more involved than that.

    The horrendous flaw in all of the thinking on carbon tax or ETS is the bizare belief that applying a carbon charge will some how cause people to stop using fossil fuels. People will not use alternatives that do not exist. At the moment there is no alternative (available) for oil and there is no alternative (available in significant quantity) for coal based electricity. Show me where Australia has placed an order or developed a plan to provide 120 gigawatts of alternative peak electricity capacity. I haven’t seen anywhere where there is a determined objective to use receipts from ETS to develop such capacity. Everything that I am hearing from government and Garnaut for that matter amounts to spanking the baby to make it stop crying.

  6. Ian Gould
    July 9th, 2008 at 17:53 | #6

    Yes, but whether the people with those skillsets report to the EPA or to the ATO will make exactly zero practical difference.

  7. Ian Gould
    July 9th, 2008 at 18:33 | #7

    :Ian G, in the carbon tax scenario each primary raw fossil fuel (and there are not a lot of them) will have an index value and the tax amount per tonne calculated from that. This tax will be paid on the invoice of the first transaction involving that material. The amount of knowledge required is minimal. If someone buys coal and then buries or exports it again intact then they can apply for a rebate. That is as complicated as it gets, …”

    Let a couple of hundred tax lawyers and accountants at it and see what happens.

    The US pays out several billion a year under a scheme to subsidise “alternative fuels” to people who spray waste oil onto coal dust to produce a “fuel” which more often than not they simply dump after collecting the subsidy.

  8. swio
    July 9th, 2008 at 18:36 | #8

    Right because existing ATO staff know all about environmental monitoring, smokestack instrumentation, conversion factors and estimating fugitive emissions from industrial processes.

    Tell you what, how about we hire people who know about such things and write “ATO� on their business cards and pay cheques?

    Yes, but whether the people with those skillsets report to the EPA or to the ATO will make exactly zero practical difference.

    Ian Gould,

    Of course it doesn’t make any difference which department they report to, but it seems plain as day that incorporating the cost of CO2 directly into the fossil fuels itself will be alot simpler. A carbon tax would mean remove the need for a carbon market at all which would be a tremendous saving as the market will need to take some sort of cut to operate.

    From my point of view you get a carbon tax with government administration or an ETS with more government administration (because its more complicated) plus a national Carbon Market which will have its own overhead and costs.

    Your counterpoint that the government is not very competent doesn’t help us either way as there’s government involvement in both solutions.

    If you feel an ETS is superior perhaps you should construct an argument, or at least provide some solid detractions to a Carbon Tax.

  9. observa
    July 9th, 2008 at 20:37 | #9

    “Only some of the complexity of the income tax code is due to political meddling, a good part is also due to the ceaseless and enthusiastic efforts of business, the rich and tax professionals to game the system.”

    That’s why you always need to be mindful of creating incentives to game the system and make the system as level and bullet-proof for all as you can Ian. The administrative costs of incremental muddling through are loud and clear here too you’ll notice. These are big macro questions and it’s good to see them being mulled over seriously at last, as we have the ominous fallout from well intentioned central bankers’ efforts to deal with very soon. That will no doubt concentrate the mind on the law of unintended consequences and on that note here’s an obvious example rearing its ugly head-
    http://www.guardian.co.uk/environment/2008/jul/03/biofuels.renewableenergy
    Personally I think world money supply is a bigger culprit but nevertheless a glaring externality of well intentioned C&T is a big part of the problem too. That’s a major flaw in a global ETS, that it promotes the likes of the French Co wanting to grow ethanol on thousands of hectares of so called ‘waste land’ in ET. C&T has little to say about biodiversity and the conservation of natural environment, the atmosphere notwithstanding.

    We also need to be very mindful of transition costs-
    http://www.news.com.au/adelaidenow/story/0,22606,23992078-2682,00.html?from=public_rss
    This report is somewhat alarmist, because it’s really the problem of rapid inflation requiring an implicit force majeure tear-up of lock in contractual arrangements. A timely reminder of the curse of inflation which any form of carbon costing has to deal with. Quantity controls mean letting go of price.

    These are threatening currents swirling all about us and we need cool heads if we’re to avoid drowning in the maelstrom. The answer lies in thoughtful and careful redesign of the CM we do have control over, rather than being diverted from the task in trying to control the swirling oceans of the world. I’m eternally optimistic we have the the brains and wherewithal to do just that and set an exemplary path for the ROW. If not us, who then?

  10. TerjeP
    July 9th, 2008 at 21:07 | #10

    With a carbon tax quantities will fluctuate. However who really cares if the CO2 emissions in June are twice the quantity of those in January. What matters is the aggregates over decades.

    With an ETS prices will fluctuate because demand fluctuates but supply will be unflexible. Lots of people will care if emitting costs twice as much in June as it does in January. Especially if you need to pay for heating.

    Given the politics of petrol prices it seems likely that anything that gives consumers more energy price volatility is going to prove politically difficult.

  11. observa
    July 10th, 2008 at 00:31 | #11

    Not wrong Terje. Our industry body has just produced figures to show the cost of steel has added $2000 to the cost of a new house this year, largely via reinforcing steel. As for decking and the like, costs have risen over 30% this year after the last rise of 15% on July 4th and our supplier has just announced another 12% applicable after Aug 31st assuming availability of coil from their supplier. The supplier states-
    ” The volatility of steel pricing in steel decking(currently exceeding a 30% increase throughout 2008) may continue and for this reason [we] strongly advise our customers to factor in further increases in the pricing of medium and long term projects.”
    These sorts of price rises are going to quickly send some construction and building comapnies the same way as the truckers. You could say all this will be good for CO2 emissions in the medium term folks and will take the urgency out of setting up any ETS.

  12. observa
    July 10th, 2008 at 00:48 | #12

    And all the while you never suspected those central bankers could be so green deep down eh?

  13. July 10th, 2008 at 01:40 | #13

    A document which may be of interest is A critical discussion of the IPCC analyses of carbon emission mitigation possibilities and costs by Ted Trainer which can be downoladed as a Micro$oft Word document from here.

  14. BilB
    July 10th, 2008 at 06:15 | #14

    Wizofaus 50,

    The problem with carbon tax credits for tree planting is that planting a tree amounts to nothing substantial. A tree growing amounts to carbon absorption and would be worthy of a tax credit on a year by year basis. But harvesting the tree, or the tree dying in a way that would cause it to decompose, or the tree being destroyed in a fire would require giving the money back as the carbon absorbed was rereleased to the atmosphere. The only situation that warrants carbon credits is where the tree’s substance is used for a time then buried in deep land fill. There are some types of trees that would be worthy of carbon credits, trees such as redwoods and kauri trees where the growth time can be for hundreds or even thousands of years. But there would have to be absolute commitment that the land would not be rezoned to residential, say by making it a world heritage national park. And then the other rider would have to be that the land was not in a part of the world where global warming was likely to make a desert ie any where in Australia south of Gladstone.

  15. say again
    July 10th, 2008 at 21:28 | #15

    can we have some science before racing of to trading CO2
    also majority of opinion has nothing to do with truth
    http://www.globalwarminglies.com/
    youtube and web search has many sites if CO2 or global warming is searched with words like scam..hype…risk…debate…effect on third world…vs iceage etc etc

  16. say again
    July 10th, 2008 at 21:30 | #16

    can we have some science before racing of to trading CO2

    http://www.globalwarminglies.com/
    youtube and web search has many sites if CO2 or global warming is searched with words like scam..hype…risk…debate…effect on third world…vs iceage etc etc

  17. TerjeP
    July 10th, 2008 at 21:59 | #17

    Say Again – I’m a bit sceptical about the website you offer.

    Global Warming Lies is an attempt to break down the science into every day language, provide facts, use logic and common sense instead of the “Your going to die” method.

    The “Your going to die” method of communicating science sounds interesting. How does it work?

  18. Ian Gould
    July 11th, 2008 at 00:35 | #18

    “Of course it doesn’t make any difference which department they report to, but it seems plain as day that incorporating the cost of CO2 directly into the fossil fuels itself will be alot simpler. A carbon tax would mean remove the need for a carbon market at all which would be a tremendous saving as the market will need to take some sort of cut to operate.”

    A carbon tax by its nature ignores t5he differential cost of carbon mitigation – i.e. the cost of reducing emissions for some entities is far higher than for others.

    The inefficiencies resulting from that swamp the operating costs of a carbon market.

    Also, none of the discussion here to date has taken into account the other sources of GHG emissions besidew fossil-fuel emissions.

    I look forward to hearing how an at-source tax on coal will, for example, address perflurocarbon emissions from the semiconductor industry or nitrous dioxide emissions from agriculture.

  19. Ian Gould
    July 11th, 2008 at 00:42 | #19

    “can we have some science before racing of to trading CO2″

    Yes, after all it was only in 1896 that Svent Arrhenius proposed the greenhouse gas theory.

    We wouldn’t want to rush into anything.

  20. Ian Gould
    July 11th, 2008 at 00:51 | #20

    “youtube and web search has many sites if CO2 or global warming is searched with words like scam..hype…risk…debate…effect on third world…vs iceage etc etc”

    Better yet – search on “global warming” and “Zionist conspiracy”.

    After all, if it’s on the internet it must be true.

  21. BilB
    July 11th, 2008 at 01:17 | #21

    Ian G,

    Your using your economic electron microscope to focus on the problem, not the solution. Your car is hurtling toward a solid stone wall. Are you going to put your foot on the brake? or are you going to put your arm out the window to produce air drag to slow you down? The only thing that will slow down carbon release is to provide an alternative. With an alternative and legislation there is no need for either a tax or an ETS. But the alternative requires funding so a tax provides both the funding and the pressure to change. A tax is almost certainly going to be lower than an ETS as it can be set to only what is required for the alternative building process, and even then that is only required for part of the alternative building process, as this process becomes self funding.

    Businesses that cannot carry the small cost of the tax have clearly been unsustainable for a long time and should shut down, just as inefficient banks are shut down.

    No doubt you have cow fart power in mind as well. To this I suggest that cows eat vegetation that would otherwise rot and produce CO2 and methane. I think that it is an over blown point. Methane is a natural substance as we will all find out when the 13 trillion tonnes of methyl hydrate on the Arctic see floor starts to boil off.

    Perflurocarbon emissions can only be deterred by providing an alternative. If providing that alternative is a matter of cost then funding for that research comes from the tax proceeds.

    It is all very straight forward.

  22. July 11th, 2008 at 09:12 | #22

    Guys, don’t feed the denialist trolls!

    Back to serious discussions, it seems Brendan has yet another new position on the ETS today…

    It is understood that Dr Nelson is considering the hybrid emissions trading system advocated by Reserve Bank board member Warwick McKibbin, which combines the sale of fixed-price annual emissions permits with long-term permits that can be traded.

  23. swio
    July 11th, 2008 at 20:09 | #23

    “A carbon tax by its nature ignores t5he differential cost of carbon mitigation – i.e. the cost of reducing emissions for some entities is far higher than for others.”

    I can’t see the logic of this point. How does an ETS not also ignore the this issue? Unless you are talking about giving away free permits as compensation to certain entities. If that’s what you mean then I refer you to my #43 above where I pointed out that Garnaut’s ETS may have no free permits at all and compensation given in the form of cash on a case by case and year by year basis. Something that is exactly how a carbon tax would handle compensation anyway.

  24. observa
    July 12th, 2008 at 10:17 | #24

    Seriously guys, how on earth do you tack some form of carbon costing on to the current CM we inherit when you have this sort of problem with housing affordability rearing its ugly head-
    http://www.news.com.au/business/money/story/0,25479,24007992-5013951,00.html
    It seems pretty obvious to me you need to look a lot deeper than that for answers.

  25. BilB
    July 12th, 2008 at 12:22 | #25

    Observa,

    Considering the fact that today’s average house is a mansion, I suspect that a lightly smaller house would be the way to cope with that one in the current climate.

    I remember the debate that went on back in 1961 over having to trim back on the number of power points to keep the building cost within the bank’s finance allowance when my dad built the house that he lived in for the next 45 years. Its an old problem.

    But the other method is to thin out some of the materials. Some of those roofing materials, for instance, are still a weighty .45mm thick. There is plenty of room for adjustment there.

  26. Chris O’Neill
    July 12th, 2008 at 13:39 | #26

    Pr Q:

    Second, since we are uncertain about the elasticity of demand for emissions we are faced with a choice between allowing this uncertainty to be reflected in uncertainty about reaching the targeted level of reductions in emissions, uncertainty about the price, or some mixture of the two. Given the risk that we will fail altogether if individual countries fall short of their targets, I’d prefer some uncertainty about the price.

    I think the significance of a probable temporary missing of targets while the price (i.e. tax) is adjusted is greatly overstated. So what if it takes a few years to get the price right? It’s taking years to set up a trading scheme anyway so that argument is defeated anyway. Using price means we have a control system with the most important economic variable under direct control which needs to be adjusted until the desired outcome (emissions level) is achieved. Without that direct control the economic consequences are much more uncertain. Emission levels will need to be reduced over many years so there is simply not the need for “instant” setting of emission levels with all the undesirable consequences of that approach.

  27. Ian Gould
    July 12th, 2008 at 14:52 | #27

    “Your car is hurtling toward a solid stone wall. Are you going to put your foot on the brake? or are you going to put your arm out the window to produce air drag to slow you down?”

    Right, the situation is urgent and needs immediate action so let’s scrap the solution we’ve spent the better part of the past twenty years on and start from scratch.

    Just because it took from 1992 to 1998 to negotiate the Kyoto Protocol and another decade to implement is no reason to assume we couldn;t have a global carbon tax in place by next Tuesday.

    Sure a few hundred thousand businesses here and there will go under but they’re “unsustainable”.

    I guess the people who currently work from them are “unsustainable” too.

  28. Ian Gould
    July 12th, 2008 at 14:56 | #28

    Oh and if the sole purpose of a carbon tax is to raise fund – why not just jack up income tax?

    The whole point of both carbon taxes and emissions trading is to make people pay for the environmental harm their activities cause.

    I’m also struck by the fact that some people who nodded sagely when it was suggested that at some point non-climate-scientists should simply accept the consensus of climate scientists see no need to accept the environmental consensus.

  29. BilB
    July 12th, 2008 at 19:07 | #29

    Ian G,

    The problem itself is obsoleting long held plans. The scientists who were standing on the ice when a melt ice lake suddenly disappeared down a hole and ten minutes later a massive section of ice split off and slid away lubricated by the water that had just gone from the top of the ice sheet to the bottom, at that point realised that the ice which it was assumed would take centuries to melt could well crack up and disappear in just a few. That was a moment of altered perception. That was a point at which long held plans became instantly obsolete, and new plans had to be made. This a war. When the battle changes the strategy must change with it.

    I think that you are exagerating in the extreme the risk to business of the increases that will flow from an ETS or a carbon tax. For most businesses the energy (electricity) is a very small part of the cost spreadsheet. Businesses for which liquid fuels are significant have tolerated a tripling of that cost before the cracks have appeared. There is nothing like that projected for electricity. Further the incresed costs related to energy are proportional to the energy replacement not the tax. The new cost for electricity will not include any carbon tax (in principle).

    Ian G 78

    That is entirely my point stated further up. I believe it is possible to effect the change to alternatives without any ETS or tax at all. Much of Australia’s electricity infrastructure is up for replacement now. A clear thinking government would replace these facilities with CSP on an accelerated programme and the new coal and gas facilities would most likely be at their due replacement time by when the infrasstructure programme got to the point of replacing them with solar or geothermal. It should be realised that the world can only make this hardware at certain rate. Steam turbines take 2 years to build and there are only so many companies in the world who know how to do it. With 194 countries all needing to do massive infrastructure changes all at the same time because they have all sat on their hands over global warming action there will be a huge shortage of turbine building capacity for decades. Rud with his cute little well organised plan, his neat tidy desk is pushing Australia way down the turbine delivery order. So in short, peak oil is solving the fuel part of the equation, and natural atrition could be used to solve the other.

    And what is this
    “make people pay for the environmental harm” ?

    This is not a police action. This is not about punishing bad boys. This is about stopping the damage, and that can only be down if there is a way of stopping ie some non damaging way of doing the same things.

    “simply accept the consensus of climate scientists”

    I hate to say it Ian but you seem to be heavily into good boy bad boy stuff. All any body is asked to do is examine the information properly and see what is going on, not tow tow to what someone is “saying”.

    I have been concerned about this since I learned in high school (in the 60′s) that a family car uses 1000 times the oxygen of a human being. From that realisation I started to look at the oxygen cycle and every thing that I have learned has led me to anticipate all of the changes in the world that we are see around us. The science is only quantifying what I have suspected (and I have no doubt that this is the same as for yourself). And the bad news is accelerating.

  30. July 13th, 2008 at 12:33 | #30

    Hear, hear carbonsink.

    Let’s not feed the denialist trolls, who have shown that they care f**k all for the future of their children and grand-children. Australia spent 30% of its budget fighting the Second World War in order to defeat a threat far less serious than global warming. Anyone who quibbles about the cost of combatting global warming is either a certifiable moron or a sociopath and a complete waste of everyone’s time.

    I have my own doubts about Garnaut’s free market supposed solution to global warming. I have written of it in the article Garnaut to provide cover for privatisation of Snowy Hydro? and on Online Opinion, but at least Garnaut is right in pointing out that the problem is deadly serious.

  31. wilful
    July 14th, 2008 at 09:38 | #31

    Carbonsink, looks like the EU are going to introduce a permit system for airlines. But 85% free, only 15% need to be purchased: http://www.carbonpositive.net/viewarticle.aspx?articleID=1141

  32. wizofaus
    July 14th, 2008 at 11:24 | #32

    BillB, surely the solution is simply require carbon permits to be bought before any trees are chopped down?

  33. wizofaus
    July 14th, 2008 at 12:21 | #33

    Ian, the fact that we’ve spent 20 years working on a solution isn’t in itself a logical reason to be too attached to it. The evidence regarding the effectiveness of ETS’s so far is, well, a little underwhelming. In fact I’m quite willing to predict that in 10-15 years time when we’ve failed to make much of a dint in global emissions and the climate situation is far worse than today that we’ll regret not having attempted something tougher but still palatable and relatively inexpensive when we had the chance. Certainly by 2040 I expect we’ll be looking at the problem as justifying spending the sort of amounts of money that we spent fighting WWII.

  34. BilB
    July 14th, 2008 at 17:59 | #34

    Wizofaus,

    It is best not to include anything biological in the carbon formula at all as it is all already over subscribed. The only thing that we can do is try to prevent its deterioration, all but impossible. So from a carbon trading point of view that leaves to trade…well nothing actually,.. unless of course you believe in being able to make CO2 just disappear like sweeping it under the rug. I guess that you could call that carbon sequestration. A possible dream that will follow the fate of supersonic passenger air travel.

    The biological world will be used as an solar energy conversion catalyst, and shade.

  35. Ian Gould
    July 14th, 2008 at 23:38 | #35

    BilB: “This is not a police action. This is not about punishing bad boys.”

    No! No! NO!

    This is a truly specular misunderstanding on your part – and an illustration of the problems that arise when laymen, however well-intentioned and intelligent, decide to dive into what is essentially a technical discussion.

    When I spoke about making people pay for the cost of environmental harm, I wasn’t talking about punishing them, I was referring to one of the fundamental elements of environmental economics.

    To wqit: Markets tend to misprice goods which have significant environmental externalities.

    Here’s a link to start you off:

    http://en.wikipedia.org/wiki/Coase_theorem

  36. Ian Gould
    July 14th, 2008 at 23:40 | #36

    “Ian, the fact that we’ve spent 20 years working on a solution isn’t in itself a logical reason to be too attached to it.”

    No but it is a logical reason to fear that another twenty years will be wasted trying to come up with an alternative.

  37. observa
    July 14th, 2008 at 23:51 | #37
  38. Ian Gould
    July 15th, 2008 at 00:03 | #38

    “In a question and answer with reporters following the rally, Dion said he has not abandoned his support for a “cap and trade” system for carbon emissions in favor of a carbon tax.”

    http://www.ctv.ca/servlet/ArticleNews/story/CTVNews/20080619/dion_green_plan_080619?s_name=&no_ads=

  39. Chris O’Neill
    July 15th, 2008 at 01:38 | #39

    “In a question and answer with reporters following the rally, Dion said he has not abandoned his support for a “cap and trade� system for carbon emissions in favor of a carbon tax.�

    More of that quote was:

    “But he said such a system — which would force companies to buy credits if they go above emissions quotas — is likely years away.”

    “Ian, the fact that we’ve spent 20 years working on a solution isn’t in itself a logical reason to be too attached to it.�

    No but it is a logical reason to fear that another twenty years will be wasted trying to come up with an alternative.

    i.e. it may not be the best system but so much time and effort has already been spent on it that it is now better than the alternatives. Maybe, but I’m still curious as to why the alternatives were rejected in the first place. BTW, how long does it take to set up a carbon emissions tax?

  40. BilB
    July 15th, 2008 at 06:48 | #40

    Ian G,

    “no,no,no”

    I know exactly what you are trying to say. But I believe that you are getting bogged down in marginal effects. Think of the situation of a wall between a desert and a garden. It is just as flat on either side of the wall but to get to the garden requires significant effort. Once we have climbed the wall to drop into the garden average effort is the same only the garden is more comfortable. The wall is the change in energy infrastructure, the effort to climb it is the carbon tax/ETS/CAT (what ever), and is not a permanent feature. Scrambling over the wall does not have to be beautifully executed it just has to be done and done with the minimum effort.

    If you are saying that twenty years have been spent learning how to apply an emissions trading scheme then I will say that that is twenty years wasted, because it is a pointless exercise which represents a complete misunderstanding of the purpose. Certainly the intellectual content of the economic model of the ETS is very impressive, but it is conceptually flawed.

  41. BilB
    July 15th, 2008 at 07:40 | #41

    I should have added, Ian, that had governments taken carbon responsibility twenty years ago then the market driven approach would have been the way to go. But the time is up. The is no room for gentle nudging. We are at the brute force stage.

  42. observa
    July 15th, 2008 at 15:04 | #42

    I see Anna Bligh is not waiting for the Rudd Govt and is moving ahead at a rapid pace with her version of an ETS-

    “AUSTRALIA’S first new coal port in 25 years could be built in central Queensland, to boost the state’s coal exports by 40 per cent.

    Premier Anna Bligh today announced a “trifecta” of proposals for the Bowen, Galilee and Surat coal basins, during a Budget estimates committee hearing.

    Ms Bligh said the Government was considering a $5.3 billion proposal by Waratah Coal, including a new mine near Alpha.

    The Galilee Coal project would produce 25 million tonnes of thermal coal a year for export.

    A new coal port would be built near Shoalwater Bay, between Rockhampton and Mackay, with a 100 million tonne a year capacity.

    A 500km rail line from the Galilee Basin to the new port would open the region to coal exports for the first time.

    Ms Bligh said the Government was in discussions about using Australian Defence Force land, so the adjacent Byfield National park was not affected.

    “The project is expected to create around 2200 jobs during construction and some 760 permanent jobs during operation,” she said.

    The second proposal, the Bowen Basin Growth project, comprises two new mines at Daunia and Caval Ridge, and the expansion of the existing Gooyella Riverside Mine, north of Moranbah.

    The BHP Billiton-Mitsubishi Alliance proposal would boost exports by about 20 million tonnes.

    Ms Bligh said both had been declared significant projects and would undergo an environmental assessment process.

    The third proposal was a 30 million tonne a year open-cut mine near Wandoan by an Xstrata Coal consortium, which was declared a significant project in December last year.

    The draft terms of reference for the environmental impact statements are expected to be released by late September”

    Shouldn’t be any problem getting that EIS through quickly with something as important as an international ETS at stake (we trade and they emit)

  43. observa
    July 15th, 2008 at 15:12 | #43

    Coal exports increasing by 40% eh, on top of that info that Macarthur are exporting over 30% of the world’s pulverised coal now. It all makes sense when you really put those thinking caps on now doesn’t it?

  44. wilful
    July 15th, 2008 at 15:57 | #44

    Observa, your point is what? That politicians are hypocritical and short-sighted? Thanx for the insight.

  45. Chris O’Neill
    July 15th, 2008 at 17:12 | #45

    “Ian, the fact that we’ve spent 20 years working on a solution isn’t in itself a logical reason to be too attached to it.�

    No but it is a logical reason to fear that another twenty years will be wasted trying to come up with an alternative.

    Even if an alternative does take 20 years, at least that’s better than never.

  46. observa
    July 15th, 2008 at 21:03 | #46

    Acyually wilful, I would have thought this perverse action on behalf of wall to wall Labor shows quite categorically that any remaining believers in localised cap and trade policy, let alone ‘metooing’ some failed EU internationalism are delusional, to say the least. It points irrevocably to a horses for courses approach for Australia now, similar to Canada. However, given our intimate involvement with supplying much of the world with the worst posiible raw materials for CO2 emitting, we may well need a much better solution than the Canadian opposition are proposing. That’s my position and I’m calling the delusionists on it right here and now.

  47. wilful
    July 17th, 2008 at 10:34 | #47

    observa, Queensland and Federal governments aren’t the same. Bligh has a sovereign right to do what she’s done. QLD isn’t Australia.

    Of course we have got to stop selling coal sometime soon. So this is a terrible decision she’s made. But to suggest this is all Kevin Rudd and Penny Wong’s fault is more than a stretch

  48. Chris O’Neill
    July 18th, 2008 at 16:57 | #48

    I would have thought this perverse action on behalf of wall to wall Labor shows quite categorically that any remaining believers in localised cap and trade policy, let alone ‘metooing’ some failed EU internationalism are delusional

    “Cap and trade” or any other technique is a method for reducing our own emissions and has nothing to do with the emissions of countries that Australia exports coal to. It might suit someone’s wishful thinking to believe that we could countrol the emissions of China, say, by stopping export of coal to there but such belief is delusional. I can just imagine the type of language from Chinese officials if we told them we weren’t going to export coal to them anymore because we wanted to reduce THEIR emissions. That type of action is never going to work and the only type of action that has any hope of working is Australia setting a good example from its own emission reductions.

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