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Climate change and the crisis

October 16th, 2008

As I’ve mentioned before, the drama of the financial crisis has tended to distract attention from the bigger long-term problem of climate change. But is there more than that? How will the crisis affect the economics of a response to climate change? I’ve been asked by GetUp to do a guest post on this.

Most obviously, given the likelihood of a global recession, there will be a modest slowdown in economic growth which will have an impact on emissions of carbon dioxide (other greenhouse gases like methane won’t be much affected). But this effect is too small to count as even modest consolation. As a first approximation, a general decline in economic output will have a proportional effect on emissions. That is, a severe recession, with a 5 per cent reduction in global output, would reduce emissions by around 5 per cent. In fact, the impact is likely to be smaller, because the supply of oil in particular is now constrained by declining reserves. An economic slowdown will reduce the price of oil but won’t do much to change consumption.

Comparing this marginal impact to the size of the reductions that we need (at least 30 per cent over the next decade relative to business as usual), it is obvious that the way to get there is not to reduce total output and income but to shift to a less emissions-intensive pattern of economic activity. As a string of economic studies have shown, we could reduce emissions greatly (60-90 per cent by 2050) at a cost of reducing total consumption by a few per cent. Unsurprisingly, as with most claims about spin-off effects, the way to reduce CO2 emissions is not to reduce economic activity or to target any other indirectly related variable. The best way to reduce CO2 emissions is with policies designed for that purpose.

The big question is whether, in the light of the financial crisis, we need to reconsider policies designed to stabilise climate, such as emissions trading schemes, carbon taxes and direct interventions to promote energy efficiency and renewable energy. In general, the answer is “No�. Most of these policies are either neutral or stimulatory in their impact on economic activity. In the case of emissions trading, for example, all existing proposals call for revenue to be returned either to households or to affected industries. So, there should be little net effect on aggregate demand.

Policies encouraging investment in more sustainable infrastructure will be more desirable in a situation where private investment in general is likely to be depressed for some time. The Rudd government has already announced that its infrastructure program will be brought forward, and that is obviously sensible.

The main implication of the crisis is that more attention needs to be paid to the employment effects of policy changes. While these will be positive on balance, since renewable energy tends to be more labour-intensive than fossil fuel industries, and energy efficiency and offset programs more labour-intensive again, the need for adjustment assistance for those who lose out (workers in coal-fired power stations and communities based on those industries) will be greater than before. This should include not only cash payments but support for the development of new sources of employment.

Finally, as regards the politics, the short-run effect has undoubtedly been a shift of public attention away from the environment. But many of the long-term effects of the crisis will be favorable for the environment. These include the collapse of ideological objections to government intervention (ludicrous now that the Masters of the Universe are begging for partial nationalisation), and a rejection of the culture of excessive and ostentatious consumption that has characterized the boom. More conservative virtues of thrift and caution are likely to come to the fore, and these are virtues exemplified more by the conservation movement (which derives its name from the same source) than by those commonly described as political ‘conservatives’.

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  1. James Haughton
    October 16th, 2008 at 15:38 | #1

    The message from the usual suspects is now “how can we trust a complex emissions trading scheme when complex financial trading schemes have gone so badly wrong” – which considering most of them are self appointed free market champions is pretty cheeky – but it does raise a point. Is the political direction likely to move towards a carbon tax, away from an ETS as people become much more sceptical of “market based solutions” in the wake of the current crises?

  2. October 16th, 2008 at 16:18 | #2

    You may be interested John that George Soros has argued for recapitalising the banks and for creating a lower bound on house prices by adjusting mortgages down so they fall short of market values to prevent foreclosures.

    Recovery from the crisis he argues should then be based on creating investments in climate change.


    I found it a fascinating interview.

    Soros by the way endorses a carbon tax not a cap-n-trade scheme on the grounds that sharpies will use the latter to make money not to cut emissions.

  3. Joseph Clark
    October 16th, 2008 at 16:27 | #3

    Soros is a socialist. It’s not surprising that he makes socialist noises.

  4. October 16th, 2008 at 16:30 | #4

    Actually Joseph in the telecast Soros says he opposes socialism just as strongly as he opposes free market fundamentalism. He likes markets but he likes market signals to reflect reality.

  5. jquiggin
    October 16th, 2008 at 17:04 | #5

    Joseph, I don’t think general boo-noises directed at socialism are of much value. If anyone has proposed a serious response to the current crisis that cannot be loosely characterized as socialist, I haven’t seen it. Of course, as Soros says, we haven’t seen anything resembling real socialism so far, just a move back towards the mixed economy that served us well for decades after 1945.

    And moans that loans to poor people caused the problem are no value. Even if such an absurd claim were true, a system so fragile that it could be destroyed by a marginal intervention in housing markets is a system that can’t be sustained.

  6. rog
    October 16th, 2008 at 17:06 | #6

    Soros also says he thinks that the govt is doing a bad job and should play a smaller role and is against financial engineering

  7. Joseph Clark
    October 16th, 2008 at 17:42 | #7

    But I like making boo-noises! I’ll stop making glib comments about socialists when you stop making triumphant pronouncements that all your opponents have been discredited and that all the debates are over, deal?

  8. Joseph Clark
    October 16th, 2008 at 17:54 | #8

    “a system so fragile that it could be destroyed by a marginal intervention in housing markets is a system that can’t be sustained.”

    Let’s be careful before saying anything is “destroyed”. Last time I looked there were still people buying and selling things without the assistance of the government. Hyperbole does nothing for your argument.

    I have heard at least a dozen solutions to the “crisis” that aren’t socialist. Here’s one: stop the government interfering in asset and money markets. Bang, fixed.

  9. Nick K
    October 16th, 2008 at 17:58 | #9

    JC, Agree that the current crisis is hardly conclusive evidence of the failure of the free market and the need for more government control. Although that is the way it is being interpreted by the average Joe, and that will become the accepted wisdom.

    I’m not sure if Soros is a socialist though. From what I have gathered, he seems to be a slightly left-leaning, liberal to moderate Republican. He is at least a good philanthropist.

  10. jquiggin
    October 16th, 2008 at 18:00 | #10

    “stop the government interfering in asset and money markets”

    So, just to be clear, you are advocating that the Australian government should withdraw its guarantee of bank deposits with immediate effect and announce the end of financial regulation. Given that you say others feel the same way, why don’t you issue a public statement. I have to say I have not seen this view put forward even by groups like CIS and IPA.

  11. Joseph Clark
    October 16th, 2008 at 18:03 | #11

    “So, just to be clear, you are advocating that the Australian government should withdraw its guarantee of bank deposits with immediate effect and announce the end of financial regulation.”

    Immediately and completely. Consider this my public announcement.

  12. rog
    October 16th, 2008 at 19:46 | #12

    See “lame duck thread”

  13. carbonsink
    October 16th, 2008 at 20:40 | #13

    Call me a cynical bast*rd, but I think the only thing that will reduce global CO2 emissions in the short term is a severe recession. As soon as the global economy recovers, CO2 emissions will explode, as will oil prices.

  14. jquiggin
    October 16th, 2008 at 20:50 | #14

    #11 Joseph, if you can induce some prominent supporters of the free market to join you in this statement, I’d be most impressed.

  15. pablo
    October 16th, 2008 at 20:52 | #15

    James Haughton @ 1 raises the questions that seem particularly relevant to me. ET schemes suggest to me a degree of mass public rationality that I doubt really exists.

  16. Hermit
    October 16th, 2008 at 21:00 | #16

    The UN’s ideas for a Green New Deal are discussed here. Note that within the EU Italy and Poland want to veto scheduled carbon cuts. As carbonsink points out the problem may be self correcting in the short term ie emission cuts of 2-3% a year.

    However it may prove that countries that greenshift recover consumer confidence faster. Poland has coal but not oil. Italy has neither so they are in trouble. I suspect the countries that make an effort will do better.

  17. tin tin
    October 16th, 2008 at 21:08 | #17

    John, I suspect you are right. It will be difficult for global warming to capture much attention while people have more immediate concerns like job and financial security. This may be the case for at least a good year or two anyway.

    My question is this: when the dust settles, how do I make money out of global warming/carbon credits? I see a fantastic opportunity in the next decade. You’ll have demand for credits enforced by government legislators and the central banks of the world falling over themselves to hand out cheap credit – not to mention assets selling at a discount. Do I buy land, plant trees and flog the credits? Does anyone know the cost benefit / break-even on this sort of strategy. What sort of tax sweeteners are in offer?

    I haven’t given the idea much thought up until now but I’d be interested if anyone has any ideas.

  18. tin tin
    October 16th, 2008 at 21:18 | #18

    #14. Sorry Joe. No support from me on this one
    . However I can put in touch with an Austrian Economist who would support your view. Also, Jim Rogers (Soros’ partner at Quantam for 20 odd years) would be behind you 100%.

  19. observa
    October 16th, 2008 at 22:31 | #19

    I’m not a big Soros fan but he at least has the good sense to see the writing on the wall with an ETS vs straight carbon taxing John. There is no way, the little bloke can ever trust regulators and global finance with emissions permits, offsets and all the derivatives that could possibly sail with ETS in future. If you can’t see that ETS as a solution is in tatters now, you’re in more denial than you accuse AGW deniers of. I say that in the sense that the overall paradigm for any asset boom and bust remains intact. Namely- progressive income tax is an incentive for perpetual 2-3% inflationary targetting and taxation by stealth. That in turn can lead savers to hanker after high nominal returns and to the extent that capital gains gives them some respite and borrowing is tax deductible, that encourages debt and risky negative gearing in particular. Your answer to that apparently (bearing in mind 42.2% of household now pay no income tax) is to incentivise the other 58% even further to pursue such treacherous paths again. Flog them along with ever higher marginal incentives, whilst others advocate Grocerywatch and Fuelwatch to remind them they’re really squirrels in cages unless they can break free. Well try they all did in droves and here we all are.

    So how do we all break free of this dreadful paradigm we’ve inherited from the science of muddling through? Our disastrous sqirrel cage of failed incrementalism right here and now? By some sensible imagineering of course. Let’s assume for the moment the AGW threat IS the greatest threat to us all since George Bush and now Sarah Palin. OK, so the greatest theoretical impact we could have on CO2 emissions is to raise all possible revenue by CO2 taxation and CO2 taxation alone. You got that ETS fans? Even your revenue from emission permits has that hypothetical upper bound. That’s it, unless our Govts want to start piling extra widgets we make and don’t consume, in special warehouses for some future event. No real sense in that other than normal inventories so we can imagine just that.

    So what does that society look like and what are the plusses and minuses of that simple first step at imagineering the future? Notice immediately some huge plusses. First there’s that inexorable price signal from consuming fossil fuels. Should have a fair bit of equity in it because those wealthy bastards consume the most FFs- eg jet travel, Hummers, dishwashers, pool pumps, central aircon, etc, etc Hey if you don’t believe me just ask the Chinese for their opinion on that score. No incentive for those central bankers and their pollie pals to inflate and tax us by stealth either. If they want to raise the CO2 tax on us for more Govt GDP they’ve got to be open and transparent abot it. Taxes the life blood of capital with no tax on labour so Eco101 will tell you what happens there. No income or company tax, payroll tax, no incentive to borrow or negatively gear, no black economy, no special treatment of FF use for private, businessm charitable or religious puposes. Ah the neutralty of it all, not to mention the freeing up of all those accountants, lawyers and ATO experts. It would take a mere fraction of that precious manpower and intellect to administratively levy the CO2E tax at the mine and well head. Of course that price signal will be sending the whole economy in CO2 saving directions and with no stamp duties or capital gains tax upon sale, that would free up capital to transfer seamlessly between marshallers and users to allow fleet of foot directional change.

    There’s a broad brush solution for the doomsayers on AGW, without revisiting our disastrous past with global ETS and derivatives trading. Plenty of plusses and few negatives by the looks of that. There you go. You happy with that or you reckon it needs a bit more work and why?

  20. Joseph Clark
    October 16th, 2008 at 23:34 | #20

    “#11 Joseph, if you can induce some prominent supporters of the free market to join you in this statement, I’d be most impressed.”

    There are certainly a number who would join me in private, though I’m not sure what you mean by “prominent”. I suspect we have different ideas on that score.

    I should probably put a bit of meat on the bones of my plan before I start looking for supporters. First, I think the government should set up a deposit taking bank. Anybody who wants government assurances can bank there. Anybody else can enter into whatever contracts they like, including issuing currency to each other, without being pestered by regulators. I imagine a lot of people would go with the government bank and government currency. Some would choose to go it alone under the strict understanding that the government would do nothing more than enforce contracts.

    I think my plan has the best of all worlds: the perfect security and tranquility of government guarantees for those who want them and the option to go it alone for more adventurous types. I’m even prepared to negotiate on a third group of regulated private providers though I prefer the simplicity of just two groups.

    So what do you reckon John? Will you support my plan? If not, know that I’m a bit negotiable. What can I add to ensure your support?

  21. Tony G
    October 17th, 2008 at 01:11 | #21

    JQ Said;

    “So, just to be clear, you are advocating that the Australian government should withdraw its guarantee of bank deposits with immediate effect and announce the end of financial regulation. Given that you say others feel the same way, why don’t you issue a public statement. I have to say I have not seen this view put forward even by groups like CIS and IPA.”

    They might as well withdraw it, unless they are actually promising to deliver something of substance like gold instead of that funny money.

    I’ll bet there are millions of people in Iceland and other countries that are owed Icelandic coloured ‘paper’ that would agree with Joseph.

    The Fiat currency is just ‘paper’ and the guarantee is of the same value.

    So Joseph is right
    “stop the government interfering in asset and money markets� We do not need them interfering and we could do a much better job ourselves to transfer assets with currencies like gold.

    Governments created both credit and fiat type moneys and as clearly demonstrated in Iceland gold bars are worth a lot more than a pieces of paper and promises.

  22. Damocles
    October 17th, 2008 at 01:40 | #22

    Let’s follow Tony G’s link:

    “With the privatization of the banking sector, completed in 2000, Iceland’s banks used substantial wholesale funding to finance their entry into the local mortgage market and acquire foreign financial firms, mainly in Britain and Scandinavia…In just five years, the banks went from being almost entirely domestic lenders to becoming m’ajor international financial intermediaries.”

    Clearly then Iceland’s problems are entirely caused by government intervention and fiat currency.

    I’m sure it’d be a mattg\er of second for Tony to find us a dozen or so examples of the right-wing commentators who decried this and other examples of financial deregulation.

    Hell, I’ll settle for ONE.

  23. BilB
    October 17th, 2008 at 04:37 | #23


    What you are seeing now is the failure of the soft approach to GW. The cap and trade ET scheme is indirect and unimmediate. Hence the first distraction has put it out of mind. Furthermore it panders to the markets to apply infrastructure solutions which require bank backed investment. Now can you see that blasting ahead in anything like the near future?????

    Who would have ever predicted an economic meltdown interfering with a market driven GW solution? Well pretty well everybody without an economics degree!!!

    The primary GW solution has to be carbon tax funded public investment. Otherwise it will never happen. Markets will follow once the pattern is set. Market directions are as predictable as a chook with its head cut off.

    Rudd is playing the very dangerous game of trying to manage the GW problem.

  24. BilB
    October 17th, 2008 at 04:43 | #24

    Had the world accepted the need for a carbon tax then that would have been a universal tool available for managing economic intensity through variation.

  25. TerjeP
    October 17th, 2008 at 04:55 | #25

    #11 Joseph, if you can induce some prominent supporters of the free market to join you in this statement, I’d be most impressed.

    Ron Paul is prominant. And he is a supporter of the free market. And he agrees with Joseph.

  26. TerjeP
    October 17th, 2008 at 05:00 | #26

    p.s. I also agree with Joseph but I’m not prominant. I personally think that the core problem is interest rate regulation. The price of credit should not be manipulated by monetary policy (OMO). The price of credit should float freely according to market dynamics and monetary policy should be focused on ensuring that the real value of the currency is stable.

    The virtue of the Rudd plan regarding bank guarantees is that it is for three years only. However the principle of the idea is wrong. It encourages risky behaviour.


  27. tin tin
    October 17th, 2008 at 06:37 | #27

    #26. Absolutely. The current crisis could not have occurred without an excess of credit. Central banks spend every waking hour trying to manipulate the price of credit. Had the public not responded to the low interest rates set by the world’s central banks during 2001-2003 by creating credit, central banks would have lowered interest rates even further. What probably would have been a period of mild disinflation without central bank intervention ended up transforming into a global asset price boom. Even Federal Reserve governor Fisher is willing to lay part of the blame for the current crisis on the Fed’s low rates earlier this decade. Other Fed governors have been less forthcoming.

  28. BilB
    October 17th, 2008 at 07:38 | #28

    25-27 I think that you guys are away with the fairies. You do not seem to realise that governments are simply another market force, expressing the desires and needs of what essentially on single individual with all of the mechanisms that any on single individual can muster. In that framework the range of possibilities are everything from Japan to Zimbabwe.

  29. BilB
    October 17th, 2008 at 07:40 | #29

    ^”essentially is one single”^

  30. Donald Oats
    October 17th, 2008 at 07:54 | #30

    Back in 1987 and 1988 the Australian Greenhouse Conference and a series of workshops were conducted. Note the unfortunate timing, being a year of a stockmarket crash. The scientists back in 1987 were optimistic that we (the people) could get the Australian response to the global warming threat up and running. They didn’t count on the recession we had to have, which came along. That scotched any further interest that the Labor government had with respect to aiding a nascent solution to global warming. Things have bumped along since then.

    Fast forward to today; we have a Labor government which is (once again) interested in dealing with climate change, after nearly 20 years of neglect by both parties. Once again, we have a financial crisis and an economic growth slowdown to contend with. Once again, interest rates are relatively high and are on a downward trajectory.

    Under these conditions I now think a carbon tax is far simpler and much more direct than an ETS. Prior to the financial disturbances I was willing to see an ETS solution or a carbon tax.

    Perhaps we should aim at simpler and more immediate solutions that can survive some level of economic doldrums. For example, the first home owner’s grant for new building of homes could be conditional on having low energy architectural design. In 2008 there is really no excuse for house design missing out simple measures for handling Australian seasons. Water tanks, solar water heating, awnings, verandahs, etc. Country town councils could undertake local power generation via wind or solar farms, with Aussie technology and labour.

  31. Donald Oats
    October 17th, 2008 at 08:11 | #31

    As a footnote to #30, labour force changes in fossil fuel industries, such as coal for electricity, are naturally variable due to “normal” market activities. The current pullback in the economy will cost jobs in these industries. We seem to treat these natural employment variations as of relatively low importance, yet potential changes due to the (undoubtably slow) introduction of renewable energy production are treated extremely negatively.

  32. observa
    October 17th, 2008 at 08:13 | #32

    deleted – you’re on a 48 hour break, remember

  33. tin tin
    October 17th, 2008 at 08:51 | #33

    #28. Bilb, I’m sure if you actually lived in Zimbabwe you wouldn’t be so indifferent to government interfrence.

  34. James Haughton
    October 17th, 2008 at 09:48 | #34

    The problem with a carbon tax is that it doesn’t create an upper limit of carbon emissions (so in theory people could pollute just as much as before if they were willing to pay the extra taxes) and it creates a perverse incentive for governments to encourage carbon emission to secure their revenue base. Like pokies. The fact that under a tax one can’t transfer credits across industries etc also makes it harder for the “low hanging fruit” to be picked quickly. Any tax proponents got answers for these problems?

  35. Ender
    October 17th, 2008 at 10:16 | #35

    Joseph – “First, I think the government should set up a deposit taking bank. Anybody who wants government assurances can bank there.”

    So what you are proposing is a sensible mixture of socialism and free markets not unfettered free market capitalism?

  36. Joseph Clark
    October 17th, 2008 at 10:19 | #36

    Sure. You in?

  37. observa
    October 17th, 2008 at 11:40 | #37

    “deleted – you’re on a 48 hour break, remember”

    Woops! I had missed that on the other post

  38. Tony G
    October 17th, 2008 at 12:25 | #38

    Re 32 “deleted – you’re on a 48 hour break, remember”

    How come observer only gets 48 hours and I always get a week?

    The credit crisis is a collapse in credit money, which intern is a de facto collapse of fiat money.

    The central banks credit regulation created this mess and now they are flooding us with more of this pooh paper. Not only deregulate and get rid of fiat money and credit money all together, but get rid of the rest of the government as well and just use gold or anything else of real value to transfer assets.

  39. October 17th, 2008 at 12:28 | #39


    An emission trading scheme = Auctioning a fixed quantity of emission permits at a variable price

    A carbon tax = auctioning an unlimited quantity of emission permits at a fixed price

    Both should in general mop up the low hanging fruit first. Both can handle emission sinks also if need be. The ETS would do it via sinks being granted additional permits that they could sell on the open market. The tax via a rebate on company tax. Although it would probably be neater in both instances to leave sinks out of the equation initially.

    If the cost of permits means that brown coal can’t compete with black coal or gas then brown coal will exit the market. This will be true whether the cost of permits is set by fiat (ie a tax) or set by supply and demand.

    What a tax does better than an ETS is deal with the social costs of the transition via an orderly process of political feedback. An ETS would also entail such feedback however with more pain via volatility. Given the politics of volatile petrol prices I don’t know why the advocates of emmission reduction policy are so keen to take the difficult road. Price certainty and clarity makes more sence for energy suppliers and consumers.

    Sin taxes make more sense than sin permits.

  40. October 17th, 2008 at 12:31 | #40

    Tony – I advocate gold as a unit of account but I think credit is a superb medium of exchange. In short I don’t agree with you at all.

  41. Tony G
    October 17th, 2008 at 13:23 | #41


    I am not advocating getting rid of credit, merely substituting credit money with Commodity money if that is possible?

  42. Damocles
    October 17th, 2008 at 13:33 | #42

    If one were to go with a carbon tax over emissions trading, the logical thing to do would be to use a big chunk of revenue to fund emission reductions projects via an open tender process – i.e. Comalco says “give us $100 million and we’ll cut our emissions be x tonnes” , Hazelwood Power goes “no give us the money and we’ll cut our emissions by 2x.”

    The obvious argument here is that you’re subsidizing polluters – but the money comes from the polluters in the first place.

  43. BilB
    October 17th, 2008 at 13:43 | #43

    tin tin @32

    I don’t like the negative interference of Telstra, Integral energy, Woolworths, the government or the criminal. These are all individual influences on a transaction by transaction basis. In Italy the mafia have a larger influence on business than the government does. My point is that we live in as free a market as it is ever possible to have. What you guys are advocating is a “pure” market….from your point of view.

    James Haughton,

    A cap and trade does not create a concrete ceiling above which emissions cannot go, it creates a level at which more permits must be sought and bought.

    If you get to Wednesday night and the CO2 emission meter on your car is sitting on the red line, and you’ve rung you boss who said “you’d better be here tommorow on the dot” and you’ve rung your bank manager who said “you’d better have that mortgage amount ready for Friday”, and your wife said “I have to pay the school fees tomorrow, and buy food”,,,you know what you are going to do on Thursday morning. You’re going to ignore the meter and carry on as normal.

    There are only 2 things that will reduce emissions…abstinance or alternatives. The sole purpose of the carbon tax is to fund the rapid development/introduction of alternatives.

  44. Nick K
    October 17th, 2008 at 13:44 | #44

    Damocles, the problem with this is that it involves a large amount of churn. The government would be taxing industries, and then giving subsidies back to the same industries. This is economically inefficient.

    If you have a carbon tax or cap n trade system, there would be incentives to reduce emissions anyway. So there is no need to recycle subsidies to industries.

  45. Damocles
    October 17th, 2008 at 15:16 | #45

    “If you get to Wednesday night and the CO2 emission meter on your car is sitting on the red line, and you’ve rung you boss who said “you’d better be here tommorow on the dotâ€? and you’ve rung your bank manager who said “you’d better have that mortgage amount ready for Fridayâ€?, and your wife said “I have to pay the school fees tomorrow, and buy foodâ€?,,,you know what you are going to do on Thursday morning. You’re going to ignore the meter and carry on as normal.”

    You know that this bears absolutely no resemblance to how emissions trading actually works, right?

  46. BilB
    October 17th, 2008 at 15:38 | #46


    Of course it is not, it is how people work. And insofar as much as the government is the people, it is how the government will (is) work.

  47. mitchell porter
    October 17th, 2008 at 21:13 | #47

    JQ – what are the economic studies that showed “we could reduce emissions greatly (60-90 per cent by 2050) at a cost of reducing total consumption by a few per cent”? I am reminded of your BrisScience talk on the general subject, but I don’t remember anything about 90% reductions.

  48. Damocles
    October 17th, 2008 at 21:44 | #48

    Emissions trading schemes don’t involve individuals having “carbon dioxide meters”, they work on the principal that major emitters such as power stations and fuel refineries have to measure their emissions and pay accordingly.

    In the case of fuel, the refiner or the wholesaler will be charged on the projected emissions from burning each unit of fuel and incorporate that cost into the retail price.

    There are a number of countries tghat already have emissions trading schemes – none of them use anything like the mechanism you’re talking about.

  49. BilB
    October 18th, 2008 at 04:20 | #49

    Damocles, you are completely missing the point. Despite the fact that personal individual emissions controls have been floated, I am making the point that any entity (businesses, governemnts) face the same pressures as any individual person and will act in similar fashion. As they have indeed done to date.

  50. TerjeP
    October 18th, 2008 at 04:49 | #50

    If you have a carbon tax or cap n trade system, there would be incentives to reduce emissions anyway. So there is no need to recycle subsidies to industries.

    Spot on. The revenue should be use to cut income taxes, corporate taxes, fuel taxes etc.

  51. Hermit
    October 18th, 2008 at 07:18 | #51

    It seems that despite plenty of advance notice the Feds could lose their nerve on the ETS. I think Garnaut’s idea of a fixed carbon price for the first two years is astute. However to make the ETS more politically palatable I suggest the lag between revenue and refunds should be turned into a lead. If say 400 Mt @ $20/t = $8 bn revenue is initially funded from the main budget it could be repaid later. Thus if the Feds hold their nerve and commence the ETS on 1/7/10 they should already be putting in solar water heaters and creating green jobs on a large scale. Hit the ground running. Do it downturn or not to steer the economy in a new direction.

  52. Damocles
    October 18th, 2008 at 08:26 | #52

    Terje – yes let’s drastically reduce the progressive elements of the tax system while whacking on a massive regressive tax on consumption.

    While we’re at let’s introduce a $10,000 poll tax.

  53. BilB
    October 18th, 2008 at 09:01 | #53


    For you guys who believe in this flat tax, user pays for everything approach there is the wonderful possibility of pooling your resources globally, buying an island somewhere, creating your own nation and proving that these theories really work in practice with real people. The experiment would be watched with great interest.

  54. Joseph Clark
    October 18th, 2008 at 09:23 | #54


  55. Joseph Clark
    October 18th, 2008 at 09:24 | #55

    sorry, that was for BilB.

  56. Michael of Summer Hill
    October 18th, 2008 at 10:39 | #56

    John, my guess is that the world will take advantage of the current state of play and clean up their act and go green for the renewable energy market is begging to be exploited.

  57. Donald Oats
    October 18th, 2008 at 15:05 | #57

    I sure hope an ETS or Carbon Tax is in play before the next election. Otherwise it is too easy for the next government to ignore any commitment to take action. For example, the Kyoto ratification back in the 90’s was ignored by the (Liberal) government for 10 years.

    Something else that I think is missing from the picture is a big block of cash for consumer-level CO2e reduction. For that matter, blocks of cash for local townships to take action on renewable energy. While $1Bill AUD went to coal-related technologies, only one tenth of that went to all other renewable energy technologies. We aren’t going to have true reductions in CO2 outputs unless we have a critical mass of installed alternative energy stations at the local township level, and consumer-level. Efficiency and production improvements will most likely come rapidly once an installed base of users of alternative energy stations (and other products) exists. Big improvements certainly won’t come without it.

    How about it Rudd? Don’t razor gang the current alternative energy funding; increase it to that of coal instead.

  58. observa
    October 19th, 2008 at 21:40 | #58

    JamesH says-
    “The problem with a carbon tax is that it doesn’t create an upper limit of carbon emissions…”
    and raises the Nick Xenophon line.
    That’s why I raised the notion of a theoretical maxima to either form of carbon tax regime, because tax it will be whether levied communally(Govt) or privately by those lucky enough to be given them gratis or allowed to bid for them early on with limited knowledge. On the last point I note that agriculture and transport are to be given a holiday, as are some ‘essential’ import/export competing sectors. Now ETS fans have to face an ugly truth here because if they choose to control quantity, they must leave price to the market.(the converse of central bankers controlling the price of money and leaving quantity to float we should all note here) Immediately we can see the peril in doing that as there is no theoretical upper bound to that private price, so much so that Govt may be forced to back off those targets. They may only realise their mistake (really ours) once the taxing power has been ceded to selected interests. (think MDB water rights and private bank money creation here)

    ETS fans have to be aware of a price maxima here and who will be awarded the right to charge it ie. progressively commandeer it. For mine, they are privatising blue sky taxing powers with their radically reducing, quantitative emissions permits, at the expense of ‘our’ communal ones.

  59. observa
    October 19th, 2008 at 22:34 | #59

    I guess all I’d say to ETS fans is be wary of those taxi licences where cabbies and rides are free to trade late Saturday night, with no buses in sight.

    Universal price is like atmospheric pressure on a balloon, whereas quantity controls are akin to crudely squeezing the balloon-
    They have a nasty habit of simply bulging out elsewhere

  60. Damocles
    October 19th, 2008 at 23:48 | #60

    BilB & Joseph Clark – was my sarcasm too subtle (hard to believe) or am I missing something?

  61. BilB
    October 20th, 2008 at 09:37 | #61

    Damocles, sarcasm is hard to spot when communing with the Friedman/neoliberal/religeous right set, because the whole damn philosophy is so extreme.

  62. observa
    October 20th, 2008 at 14:05 | #62

    Actually the Forbes article link should be specifically to ‘Cooking the carbon books’ item that leads off with-

    ‘Los Angeles has either the second-smallest or second-largest carbon footprint in the United States. Which is it? Depends how you ask.

    In the past six months, the Brookings Institute, a Washington D.C.-based policy organization, and a team of NASA researchers have respectively ranked Los Angeles as the nation’s second-smallest and second-largest carbon footprint. And, like it or not, they were both right–at least according to their own carbon calculations.’

  63. John Mashey
  64. October 27th, 2008 at 14:40 | #64

    If the enivronment is the issue then I think Paul Keating said it best “This is the recession we had to have”

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