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How green is the green paper

July 20th, 2008

I haven’t had time for a really thorough reading of the government’s Green Paper on emissions trading, let alone a full-scale response. But I thought I’d put down a few points for discussion.

The obvious omissions from the Green Paper are a target for emissions reductions, and (a big reason for the first omission) an analysis of costs and benefits. This is unsurprising in view of the fact that the previous government left virtually nothing in the way of institutional capacity to deal with problems like this. What modelling was done, mostly by ABARE, was designed to support the ever-shifting policy line of the day, and had very little value in terms of objective analysis. In any case, the departure of most of those involved in this work means that ABARE, like Treasury, is starting pretty much from scratch. Still, when it arrives, the analysis is likely to be a lot better than the spurious scaremongering offered by the Shergold committee (see my Agenda review (PDF))

Although there’s plenty of interesting and useful detail about the design of emissions trading schemes, the hot topics are obviously those concerned with exemptions, offsets and compensation. On compensation, the broad outline of the approach is pretty good. At least 50 per cent of the proceeds of the permit auctions should be allocated to compensating households for the cost increases arising as carbon costs are passed through to consumers. That leaves 30 per cent for business and 20 per cent to fund research into cost-effective ways of reducing emissions.

The big question here is whether business is getting too much and whether it is being allocated appropriately. I am working hard on this will colleagues at UQ, and my provisional answers are Yes (most of the cost will flow through to households) and No (sectors should be compensated for a general increase in costs, but firms should not be compensated for bad investment decisions in CO2-intensive technologies. In addition, more money should be allocated to workers rather than capital-owners). However, these are only provisional views – we’ll have to see how the numbers come out.

Then there’s the decision to effectively offset any impact on petrol prices. Unlike the other compensation measures (which transfer wealth but preserve price incentives) this will negate any impact of the scheme on actual behavior. The only defence for this is pragmatic – this will make it harder for the Opposition to reject the scheme and the likely impact below 10c a litre in the first round of trading is marginal compared to the price increases we’ve already seen. The big danger is that, when reviewed at the end of the first round, this fudge will prove politically untouchable.

Whatever criticisms we might have of the scheme, it’s important to take a step back, and consider how the issue stood only a couple of years ago. No progress at all had been made in nearly a decade after Kyoto and plenty of commentators were asserting that even a change of government would make no real difference. Now we are set to have an emissions scheme in place by 2010 and serious targets for 2020. That’s a fundamental shift, and one I hope to see replicated in the US once the long disaster of the Bush Administration is over.

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  1. Hermit
    July 20th, 2008 at 17:21 | #1

    A possible compromise is a hybrid handout shared between business and households. Bob Brown suggests that the government should pick up the tab for household improvements such as solar hot water, solar panels and by implication the likes of smart meters and extra insulation. Note the rebate for solar devices remains means tested. The feed-in tariff for solar electricity is confined to SA and the ACT I believe and is yet to set the world on fire. If this work was carried out at the expense of energy retailers not homeowners it could be a radical departure from or perhaps an alternative path to corporate profit maximisation. At present the more gas and electricity sold the bigger the profit. Some kind of reward system could be funded by the ETS auction revenue whereby an energy retailer who actually sells fewer kilowatt hours makes a bigger profit or earns some kind of brownie points.

    Alas I fear the handouts to the dinosaur industries who won’t change will sap much of the spare cash from the scheme.

  2. Jim Snow
    July 20th, 2008 at 18:29 | #2

    Only the broad outline of a method of compensation has been revealed and ,politically at least,the devil is in the detail.

    The obvious candidates are the income tax system, and for the people who pay no income tax, or very little, the welfare system.

    These approaches will necessarily be complex,and hard to sell.

    There is an alternative which has not, as far as I know, been mooted. The Australian GST system, unlike most others,has already identified the items such as food which are a disproportionate part of the expenditure of the needy.

    This makes possible a procedure which would be an administrative nightmare if this work was not already done and bedded down.

    If all expenditures by consumers which do not attract GST attracted a carbon credit bounty which was set at a rate so that x% of the money raised by the sale of emission permits was returned to the consumer at the point of sale, many of the teething problems would be reduced.

    The changes in merchant practice would be small, as invoices routinely include the GST paid and,the calculation of the Emission Return Bonus and its printing on the supermarket docket are simple.

    Merchants already make GST returns, and the additional paperwork would be very little, except possibly for merchants who sell only GST free goods, and possibly taxpayers with an exemption under the heading of health or education, which could possibly be excluded anyway.

    An adjustment to the bonus rate each half year, according to the receipts from emission permits would be applied, as is now done for indexing pensions.

    This proposal has some nice effects. The inflation of prices is attacked directly by reducing food prices.

    Special pleaders and rent seekers would be seen as directly seeking to increase food bills.

    Every supermarket docket would help to make the scheme transparent.

    This proposal does not preclude other adjustments to tax or welfare payments, but this provides a benefit to all consumers with advantage to the most needy.

    I am not an economist and I do not have ready access to the figures published about the revenue foregone by excluding food from the GST. Such modelling would be the next step.

  3. July 20th, 2008 at 19:14 | #3

    John, you state:

    On compensation, the broad outline of the approach is pretty good. At least 50 per cent of the proceeds of the permit auctions should be allocated to compensating households for the cost increases arising as carbon costs are passed through to consumers. That leaves 30 per cent for business and 20 per cent to fund research into cost-effective ways of reducing emissions.

    This is my understanding of what the Garnaut Review is proposing but I’m pretty sure that what the Green Paper is proposing is different. According to the Green Paper (p 469):

    Every cent raised for the Australian
    Government from the scheme will be used to help Australians – households and businesses – adjust to the scheme and to invest in clean energy options.

    The only time that funding of research is mentioned appears to be the funding of carbon capture and storage as one of the forms of assistance for the coal industry. I think that the lack of funding of research and development is one of the key problems with the Green Paper.

    I strongly agree that most of the auction revenue should go to households, especially low income households. In my opinion, as well as funding research, some of the auction revenue could also be used to address other market failures, to provide abatement in sectors not covered by the scheme (especially land use change), and to provide assistance in adaptation for developing countries.

  4. a student
    July 20th, 2008 at 19:56 | #4

    I’ve changed my mind on the petrol issue. I used to think that a scheme that did not change transportation behaviour was absurd. However, I figure peak oil should do this quite effectively. We just have to make sure that the alternatives (eg electric cars powered by coal plants) are covered by a scheme. I think, politically, this is the best option and has the greatest chance of success.

    A concern is that peak oil might be too far in the future, and there are a number of voices saying that action is urgently needed.

  5. Ram
    July 20th, 2008 at 20:06 | #5

    I suppose in looking at all the press, the spin and the general hysteria it is good to remind ourselves that this is meant to be the start of a scheme that has as its intended culmination date 2050?

    While there may be too much or too little of this and or that, depending on the outcomes of the COP in Copenhagen it will all start pointing to the longer term trajectories needed and the resulting arrangements for R&D funding, compensation to emitters etc.

    I think this is an excellent interim step. One that starts the preparation phase for Australia in case there is a global action plan while building the reputational, technical and skill base within.

    Let us not forget that most of the EU ETS gurus were ex-NSW NGAC people!

  6. pablo
    July 20th, 2008 at 21:38 | #6

    As an avid recycler I was hoping that the Green Paper would signal the start of some real monetary return for, in my case non-ferrous metal recyclers. The whinging aluminium multinationals are my target. As proposed recipients of Rudd’s compensation to keep them onside and on-shore we tax-payers are going to have to keep subsidising their electricity usage. They in turn will pump out some 3 billion aluminium cans each year and deal only with a rag tag collection system that returns some 70 percent of those wasted cans according to the NSW Government EPA estimates. Each returned can uses one tenth of the electricity to make a new can as it does to produce one from raw alumina. I don’t know what the cost of producing a new can is but on those figures you would anticipate the industry would be very interested in a very public campaign to attract and support recycling. I have yet to see it. Instead they rely on a secretive middleman system offering pathetically low prices that take full advantage of the public’s genuine desire to save energy and recycle. The best offers of $1.50 per kilo are invariably one off weekend specials and some unscrupulous operators are as low as 50 cents. It takes an enormous number of cans to reach a kilogram. So we are left with the unions and managers threatening jobs should things change under an ETS. Before Rudd brings down a White Paper he should be telling these dinosaurs that if they want to keep making aluminium cans then they better get off their bums and take recycling seriously which means paying an economic price for returnables. Maybe for starters he should restrict them to only using returnables for new cans. That would at least be a start to making them sustainable.

  7. July 20th, 2008 at 21:42 | #7

    The big question here is whether business is getting too much and whether it is being allocated appropriately.

    There is an interesting paper related to this issue: Hepburn, C., Quah, J., Ritz, R., Emissions trading and profit-neutral grandfathering, Oxford Economics Department, Paper 295, December 2006.

  8. July 20th, 2008 at 21:57 | #8

    I’ve changed my mind on the petrol issue. I used to think that a scheme that did not change transportation behaviour was absurd. However, I figure peak oil should do this quite effectively.

    The student, leaving it to peak oil isn’t the best idea. The problem is that the rising fuel prices all export money from Australia to foreign countries. In principle there’s nothing wrong with this, but in practice it means that there’s this money we can’t spend any more on making viable alternatives. I’m happy to pay $2/L today instead of six months time if the extra 30 or 40 cents a litre is spent on viable alternative transport and enough housing places you can walk to work from. But I’m not happy to pay increased costs just because there’s not enough to go around.

  9. stockingrate
    July 20th, 2008 at 23:04 | #9

    Political discussion focuses on mitigation not adaptation, and adaptation, when raised, often refers to other countries and not to refugees within Australia. This focus is reflected in the Green Paper and the discussion above. (perhaps the focus on mitigation is a mechanism to avoid facing the dire implications and imminence of climate change)

    I would argue for funding adaptation in Australia though not to the exclusion of mitigation efforts. Adaptation should be funded because Australia’s mitigation influence is limited and in any case it may well be too late for mitigation to avoid catastrophic change. Adaptation will be costly and climate change may overwhelm our efforts but we should try.

    A side benefit to emphasising adaptation is that it will help dismiss the whines of the energy intensive industries – if money is being collected to defend the life/health of Australians from climate change then who better to tax than the polluters with money, especially those who made the investments knowing they produced CO2.

    What adaptive efforts should be funded? Improved financial health would be a start especially as peak oil/climate change might shrink the world economy and lead to a permanent shortage of capital.
    - tax petrol to ameliorate the current account/International Investment Position
    - create a large SWF
    - translocation of Murray Darling refugees.. and all those other Australian refugees to come

    Stopping population growth in Australia would mitigate greenhouse emissions and assist adaptation. Avoiding population growth would reduce food and petrol consumption and would avoid exacerbating water, transport, and health infrastructure shortages without substantially impairing the internationally competitive elements of the economy.

  10. BilB
    July 21st, 2008 at 00:39 | #10

    I think that the fuel treatment is the most practical move possible. It has one major advantage. By reducing the excise on fuel while maintaining the price leaves alternative fuels excise free. This is the correct outcome and has the advantage of being the first practical and direct action to reduce carbon emissions from energy useage. The rising price of oil also gives an incentive to biofuel producers but leaving them excise free is the proper carbon origin adjustment. It is a good policy, although one might well ask if Rud would have made the same policy if oil was at $20 per barrel.

  11. July 21st, 2008 at 08:46 | #11

    Re #6:
    There are approximately 54 aluminium cans per kilogram. So if you are getting $1 per kilo, that’s about 2 cents per can.

    About half the cost of producing aluminium is the electricity, so if power costs go up, the scrap metal price should also rise.

  12. Andrew
    July 21st, 2008 at 09:53 | #12

    “plenty of commentators were asserting that even a change of government would make no real difference. Now we are set to have an emissions scheme in place by 2010 and serious targets for 2020. That’s a fundamental shift”

    Hmmm… not sure about this one. Wishful thinking maybe?

    As far as I can make out – the Rudd ETS looks pretty similar to what Howard was proposing, albeit coming into effect two years earlier. Rudd’s managed to introduce a fairly symbolic ETS that gets us into the game without trashing the economy.

  13. aussieoskar
    July 21st, 2008 at 11:26 | #13

    For the record, hermit, a feed-in tariff was introduced in Vic from july 1. The figure is reasonably good – 60c/kwh – but this is well and truly negated by the fact that it pays on net export to the grid, not gross export.

    This provides some info….

  14. James Haughton
    July 21st, 2008 at 11:27 | #14

    Is there an argument from market distortion for the fuel excise cut? That is, in the past petrol was taxed while other energy sources (e.g. electricity from coal) were not. Replacing the excise with the carbon tax (which applies to all non-renewable energy sources) should ceritus paribus lead to a more efficient energy market.
    Which uses more carbon per watt, petrol or coal? If it’s coal, then cutting the fuel excise is actually a greenhouse good.

  15. July 21st, 2008 at 11:39 | #15

    Its always good to drop in here, from time to time, to canvass reasoned debate and opinion. As opposed to the hysteria generated by fairfax and rupert.

  16. Nicholas
    July 21st, 2008 at 16:32 | #16

    I was wondering if there has been any analysis, by contributors to this blog or others, of last week’s article in The Australian by Dr David Evans, former consultant to the Australian Greenhouse Office. [available here: http://www.theaustralian.news.com.au/story/0,25197,24036736-7583,00.html ]
    He articulates four points which question the view that carbon emissions are causing global warming. Evans’s potshots at “alarmist scientists” and his contention that Labor is intent on “wrecking the economy” are distracting polemical flourishes which undermine his credibility, but I would still like to read an informed analysis of his points.

  17. NicM
  18. gianni
    July 21st, 2008 at 17:02 | #18

    I was wondering if there has been any analysis, by contributors to this blog or others, of last week’s article in The Australian by Dr David Evans.

    Take a look at Australian’s War on Science XV at Tim Lambert’s blog.

  19. TerjeP (say tay-a)
    July 21st, 2008 at 17:25 | #19

    The obvious omissions from the Green Paper are a target for emissions reductions, and (a big reason for the first omission) an analysis of costs and benefits.

    The real problem with an ETS is that the costs are open ended. If the price of CO2 per ton goes to $2000 or $20000 then there is nothing within the scheme to say that such a price is too high and we would rather cook the planet a little instead. Of course politics would create a relief valve in terms of changing the scheme but that seems like designing a system to fail.

    A carbon tax on the other hand specifies the cost at the outset. If $2000 or $20000 per ton is not justified then set the tax lower. Of course an ETS could get the same result with a price cap but why complicate things when a tax is much simpler all round.

    What price are we willing to pay to reduce emissions? In practice there is an upper cost limit. The whole point of going through a cost/benefit exercise should be about finding a price we are willing and able to pay not a quantity.

  20. Hermit
    July 21st, 2008 at 17:33 | #20

    aussieoskar
    10Q for that. Where I live is currently snowing and my panels earn 15c a kwh for electricity export. Fortunately I have firewood.

  21. jquiggin
    July 21st, 2008 at 17:52 | #21

    Terje, I discussed this exact topic in a recent post, and you don’t respond at all to the points I made there.

  22. July 21st, 2008 at 17:59 | #22

    Terje,

    The ETS proposed in the green paper will have a price cap. IMO this will probably not be necessary because of the existence of backstop technologies (e.g. solar power, trees), purchase of overseas permits, and borrowing of permits. Unfortunately costs of climate change cannot be bounded so easily.

  23. JM
    July 21st, 2008 at 19:27 | #23

    6. – I agree.

    Making new aluminium uses an enormous amount of energy and aluminium companies are seeking to have Iceland’s wild rivers dammed and its geothermal biosystems destroyed to get power for its processing plants. See http://savingiceland.puscii.nl/?page_id=23&language=en.

    Reduce, reuse, recycle.

  24. Ikonoclast
    July 21st, 2008 at 20:06 | #24

    Remember John Wyndham’s novel “The Kraken Wakes”? The Wikipedia entry is interesting.

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

    Now we are actually likely to exeperince the large sea level rises postulated in the above novel but inflicted on us by ourselves rather than by the aliens or “Kraken”.

    Given that the USA, India and China in particular are acting to ensure CO2 levels rise to dangerous levels and that the seas do the same, is it too much to infer that at least one of these civilizations has decieed to follow, at least by default, a “Kraken” strategy to destroy the others?

    I don’t know, it’s a long bow to draw. However, It would be interesting to look at sea level rises of 7 metres (Greenland Cap melts) or 60 odd metres (Greenland and Antarctica melt) and see what the world map would look like in each case.

    Even a 5 metre rise would do a lot a damage to many major coastal cities around the world. I suspect that 5 metres rise by 2100 is quite possible. We have entered a significant warming phase with more warming already build in by emissions to date. Yet we are still pumping more and more CO2 into the atmosphere each year. We are in big strife and playing an inadequate catch-up game late in the piece.

  25. TerjeP (say tay-a)
    July 22nd, 2008 at 10:47 | #25

    #21 – If an answer here is too much for you then a link to your answer elsewhere would be helpful.

    #22 – Thanks Peter. I didn’t know that. What price are they proposing to set the cap at? Hopefully lower than the provocative $2000-$20000 range that I suggested.

  26. David
    July 23rd, 2008 at 09:52 | #26

    I have changed my mind on global warming. I used to think it was important that Australia become involved in a carbon trading scheme to reduce carbon emissions etc. But now I don’t think it is that important. By all means we should give it a go, but intervention will fail.

    Probably the most beneficial thing we can do is to try and mitigate some of the worst consequences of diminishing biodiversity. I am not a biologist but perhaps corals from the warm northern barrier reef could be relocated to the cooler southern regions. At least then when humans have disappeared from the planet these corals will have a chance of continued existence.

    David

  27. TerjeP (say tay-a)
    July 23rd, 2008 at 15:52 | #27

    David – Once we have disappeared from existance who really cares what the coral does? It can migrate to Mars if it likes. To suggest that the most benefical thing we can do is to save coral for after our extinction seems to suggest a rather extremist view of humanities responsibility to other species versus responsibility to itself. Does it worry you that around the world scientists are at this very moment working hard to make many varieties of microbe extinct?

    It’s this type of deification of nature that gives the green movement such a bad name. I do like coral but are you serious?

  28. wilful
    July 23rd, 2008 at 17:40 | #28

    terje, are you serious? Does nature have absolutely no value for you beyond human utility?

    You may characterise the alternative view as religious (read, batshitinsane), but most people are on the other side of the ledger to you, most people strongly consider that the environment and biodiversity has intrinsic value, even if and where no human has any interaction with a species or place.

    David, it’s a trade-off to be sure. We’ve locked in some need for adaptation, but it’s still clearly much cheaper to keep working hard towards mitigation. The only reason to do only adaptation and not mitigation is if we believe that the big polluters will not ever play ball. I’m not that pessimistic.

  29. spangled drongo
    July 23rd, 2008 at 20:07 | #29

    The developed world creates around 20% of ACO2 emissions so the EEs who create around 80% are going to increase by how much?
    If they go 10 times they will still be less than the DW [per capita]and that will bring their contribution to 98% and the DW’s to around 2%.
    What effect, in practical terms, could any DW reductions make?
    If Australia in this time achieved reductions of 50% of its now 0.2%, this would represent 0.1% of ACO2.
    I think Penny and the Advocators need a reality check.

  30. Ian Gould
    July 23rd, 2008 at 20:42 | #30

    “The developed world creates around 20% of ACO2 emissions so the EEs who create around 80% are going to increase by how much?”

    The EU and US by themselves produce around 38% of total GHG emissions.

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

    Japan, Australia, South Korea and Canada produce another 12%.

    What was that about a reality check?

  31. spangled drongo
    July 23rd, 2008 at 21:00 | #31

    Ian Gould,
    On those figures [if they are right] Australia’s
    percentage is even less.

  32. Ian Gould
    July 23rd, 2008 at 21:04 | #32

    Oh and China’s emissiosn per capita in 2004 were 3.9 tonnes per annum; the UA US’ were ca. 20 tonnes.

    So no need to worry about a 10-fold increase in their emissions.

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

  33. Ian Gould
    July 23rd, 2008 at 22:36 | #33

    “On those figures [if they are right]”

    Feel free to check the figures and link to any creidble altenrative figures.

    “Australia’s percentage is even less.”

    Even less than what?

    Australia’s 2004 emissiosn were 1.2% of world emissions, that’s higher than the 1% figure usually mentioned in these discussions.

  34. spangled drongo
    July 24th, 2008 at 11:03 | #34

    My original figures obviously weren’t good but my point is still just as valid.
    If Australia succeeds in reducing our 1.2% of emissions by 50% [highly unlikely] this 0.6% will be decimated due to the EE’s increases.
    Taking a moral stand for pure principle and no earthly effect [whilst very noble] is not a coat traditionally worn by Australians.

  35. Ian Gould
    July 24th, 2008 at 11:16 | #35

    “Taking a moral stand for pure principle and no earthly effect [whilst very noble] is not a coat traditionally worn by Australians.”

    Right, that’s why we sat out both world wars and didn’t intervene in East Timor.

  36. spangled drongo
    July 24th, 2008 at 12:31 | #36

    Funny, I had the impression we achieved something in those situations.

  37. Ian Gould
    July 24th, 2008 at 13:57 | #37

    Ah but what percentage did we contribute to the allied war effort in both world Wars? 1%? 2%?

    surely you must realise that was totally swamped by the Russian contributions.

  38. spangled drongo
    July 24th, 2008 at 15:50 | #38

    So you believe our 0.6% reductions [if we can make 'em] will make a difference?

  39. Stephen L
    July 24th, 2008 at 16:16 | #39

    Spangled drongo, what proportion of the contributions on the blogosphere do you think you make? I’m guessing its less than 0.6%. By your logic that can’t make a difference, so there’s no point you making them. (Which is true, but for other reasons). I likewise trust that you never vote in any electorate where you represent less than on 200th of the electorate.

  40. Ian Gould
    July 24th, 2008 at 16:25 | #40

    Presumably Spangled Drongo doesn’t contribute to charity because his contribution would be an insignificant percentage of the total.

  41. spangled drongo
    July 24th, 2008 at 16:30 | #41

    My contributions, like yours, are free and voluntary.
    Make your point.

  42. jquiggin
    July 24th, 2008 at 16:38 | #42

    SD, I pulled this morally obtuse line to pieces in a very recent post. Why don’t you read it and comment there?

  43. BilB
    July 24th, 2008 at 17:06 | #43

    SD,

    There are 195 countries in the world, and they all have their little bit to do. Every little bit adds up to a lot. 195 times 1.2% is 234%. So think about how significant our share is in that context. To get into a football match might cost $10, but $10 is just a small part of the $20,000 that it takes to put on the match. So as it is such a small amount, why should you have to pay at all?

    The other approach to this is to realise that in our system of law a persons responsibility is proportional to their ability to act. We, as a community, have a superior ability to act on climate change, proportional to most other countries, and it would be a breach of our own common law to not act to prevent massive damage to our environment through negligence, when we are well aware that action is imperitive.

  44. July 24th, 2008 at 17:12 | #44

    There are some serious problems with Chapter 4 of the Green Paper “Emissions targets and scheme caps”. The preferred positions are that the Government announce a minimum of five years of the indicative national emissions trajectory, and a minimum of five years of the scheme cap at any time.

    Addressing climate change requires resolving the international prisoner’s dilemma and resolving it quickly. Setting a minimum five years before adjusting Australia’s emissions trajectory risks Australia dragging its feet when it comes to international cooperation on climate change.

    We also need to be flexible enough to tighten the trajectory in the case that we approach any tipping points or the science proves to be worse than expected (which seems to be the case). The risks are too high for five year delays.

  45. spangled drongo
    July 24th, 2008 at 17:22 | #45

    John,
    If you’re referring to companies pursuing social goals for moral reasons, that’s not the same thing.
    This is individuals being “mandated to be moral”.

  46. Ian Gould
    July 24th, 2008 at 17:49 | #46

    “This is individuals being “mandated to be moralâ€?.”

    No actually it’s about the democratically-elected government of Australian moving to enact laws which it promised to enact before it was elected and which are supported by a large majority of the electorate.

    Hence I have to repasond “what’s YOUR point?” since the mutterings about the voluntary nature of charitable donations are an obvious logical non sequitor having no relation to your previous argument about the small relative size of Australia’s contribution.

  47. spangled drongo
    July 24th, 2008 at 18:47 | #47

    You embrace your own pointless contributions.
    Just let me decide what mine will be OK?

  48. Martin
    July 30th, 2008 at 18:46 | #48

    Is there an argument from market distortion for the fuel excise cut? That is, in the past petrol was taxed while other energy sources (e.g. electricity from coal) were not. Replacing the excise with the carbon tax (which applies to all non-renewable energy sources) should ceritus paribus lead to a more efficient energy market.
    Which uses more carbon per watt, petrol or coal? If it’s coal, then cutting the fuel excise is actually a greenhouse good.

    James, I think you have a good point there. I at first thought the offset was a mistake but no longer object.

    Suppose that, in between plundering the Assorted Creams, the outgoing Howard government had decided to cancel the fuel excise. Would we now be arguing that a new tax should be imposed on fuel in addition to the carbon cap price? Looked at this way it does seem quite distorting.

    Well, we might, because vehicles have costs and externalities beyond just their CO2 emissions: smog, accidents and crime, road congestion, wear and tear on infrastructure, and so on. Fuel is a reasonable proxy for use of the roads. However, now that part of the cost of pollution is going to be captured by the carbon charge it may be reasonable to reduce the rebate.

    If we want people to switch to more efficient vehicles then cutting the tariff might help.

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