29 thoughts on “Monday message board

  1. If we can divert ourselves from mundane politics for a while to concentrate on some really big picture stuff occasionally I’d like to enlist your input in that. Perhaps imagine that there is a decent mid-season draft and as a consequence, Kevin Rudd has been drafted to the Libs as PM, along with Greg Combet as the new Workchoices Minister, Costello is Treasurer as usual, there’s no need for an expensive election and we can all go back to sleep and concentrate on better things, like whether Port can make a game of the GF against Geelong. So we’ve freed ourselves up for some really big picture discussions sort of.

    For some time now, I’ve formed an overall view of my ideal ‘constitutional marketplace’, largely revolving around my ideal taxation system. I’d like to enlist your collective help in assessing that for two main reasons. How does it stand up overall and whether it does or not, it may provide an overall framework for some collective thought and perhaps consensus seeking if that’s at all possible. Now a taxation system is a really big meal to sit down to, so obviously I had to give some thought as to how I arrived at my ideal one. In other words, break it up into small bites that don’t give us all indigestion. (I have been known to spoil the odd dinner party with the former approach here). With that in mind and with John’s kind permission, I’d like to do just that, largely because there are some fine minds and a good cross section of the political spectrum that drop in here from time to time.(suck, suck!) I had in mind introducing a small bite each week to build up my main meal, on the assumption that each taste doesn’t drive the diners away fairly rapidly. That’s a judgement for you I guess and if that’s the case I’ll quickly be dining alone again.

    I’d like to think my overall cuisine is definitely ‘Third Way’ style and with that in mind I’ll offer you all a first taste of my creation, bearing in mind the need to establish some formal etiquette rules at each tasting, so we don’t end up with a slobbering free for all (that indigestion problem) So, we are all going to assume that the overall level of taxation is given, largely by the all omniscient, aforementioned Govt perhaps, fully reflecting the overarching and omniscient wisdom of the masses. For present simplicity, we’ll also assume that’s Oz and we are it. The big picture. There are no external distractions and we can all crunch any back of the envelope numbers using Oz as our perfect example. They’re the the rules at present and with that said, it’s time to sit down to the first tasting, bearing in mind the chef might have no firm idea what he’s going to cook up at next week’s get together, but that might depend a lot on the response at this one. It might be useful for John to give his assessment of any consensus reached, bearing in mind it’s his restaurant and he has some expertise in these matters. A good umpire is needed and although they can have a bad day overall, the odd bad decision shouldn’t cloud our judgement about the problem of their scarcity and the need to encourage them to take up the whistle for the good of the game next week.

    Our ‘constitutional marketplace’ (CM hereafter) is largely set by our taxation system now. Those 10000 pages of Income Tax Act, along with the GST, excise, stamp duties and so forth, all impact on our economic decision-making to produce the market outcomes we daily observe. We have inherited that largely from the ‘science of muddling through’ and incremental change. There is no reason why our CM cannot be changed to produce radically different outcomes, or to respond to new challenges. Indeed the way in which we swallowed the GST reform of the WST suggests we have a huge capacity to do just that, any time we choose to. Should we now?

    Suppose we accept the warnings on GW as Gospel fact and that it is the greatest threat to Oz right now bar none. Our IPCC and Al Gore in Canberra have spoken and it doesn’t sound good for business as usual. Now if you accept that premise then the maximum demand amelioration with the least govt intrusion (ie individual carbon credit cards, Kyoto caps and licences to print money to large emitters, etc) is to raise ALL revenue desired (those omniscient voters again) by a carbon tax. Apart from the scientific allocation of such a tax amongst competing fossil fuels (eg a pro rata per volume/barrel/tonne tax on gas, oil, coal, depending on say the most efficient burn to produce a KW of electrical power) this form of tax would produce the greatest reduction in demand, with the least administrative intrusion and cost. So the first question is, given the likely outcome produced, would you support such a simple CM? Now you might be an absolute Al Gore disciple and hence lend total support to it, or be a total skeptic of GW, but support it on minimalist govt grounds. Does such a CM offer you all enough plusses to support it, or would you have strong reservations about it on some particular grounds? Over to you if you are interested enough in participating.

  2. The Climate Change group in PMC has today issued a discussion paper: “Early Action – Abatement incentives prior to the commencement of the Australian Emissions Trading Scheme” and are seeking public comment.


    There are two things that the discussion paper discusses. One (in my words) is how to deal with the risk that free allocation of permits to big polluters (coal fired generators and “trade exposed energy intensive industries”) will provide a perverse incentive to not decrease emissions before trading starts to take place. In the words of the discussion paper “there is a risk that further abatement may be delayed if firms are uncertain about permit allocation rules, particularly how their own emissions may impact on future decisions as to whether, and to what extent, they are eligible to receive a free allocation of permits.”

    The discussion paper also discusses possible ways to encourage abatement prior to the scheme taking place through activities such as offsets etc.

  3. Peter
    I shall read the paper tomorrow. Off the top of my head I’d suggest a/ bringing the scheme forward to an earlier start date and b/ auctioning off the initial permits with a moderately challenging total cap.

    If Rudd signs Kyoto and China doesn’t accept caps I think we have to look at punitive tariffs, either on goods imports or coal exports. After all they caved in to a huge price increase on LNG even without carbon imposts. The present fad to conflate tree offsets with rural welfare (both domestic and regional) needs a hard think or it will also undermine the scheme.

  4. Keep an eye on developments in Burma this week

    Monks Pressure Myanmar Junta

    Hundreds of Buddhist monks marched through rain-washed streets for the third day in Myanmar’s main city today, taking the lead in month-long protests that the military junta has so far been powerless to contain…

  5. Hermit,

    I totally agree with (a) and (b), if all permits are auctioned then there won’t be the perverse incentives and the money raised from auctions can be much better spent on other things than welfare for shareholders in energy intensive industries. There is an interesting paper suggesting that if free permits are given away, they would need to be less than 50% of total emissions in order to be profit neutral: Hepburn, C., Quah, J. and Ritz, R. (2006) ‘Emissions trading and profit-neutral grandfathering’, Oxford Economics Department, Paper 295, December. http://www.econ.ox.ac.uk/Research/WP/PaperDetails.asp?PaperID=1045

    Border taxes are worth looking into, especially considering that the emissions from Australia’s coal exports are greater than our direct emissions. Most coal in the world seems to be mined as fast as possible, suggesting not much elasticity in supply. There was also an article in the June 2 AFR suggesting not much elasticity in the supply of coal. We should keep in mind that our per capita emissions are over 7 times greater than China’s so perhaps the best way to provide an incentive for China to reduce its emissions would be for us to reduce ours.

    There is a bit of a conundrum that offsets need to be permanent, verifyable, additional and measurable, while the cheapest and most environmentally sustainable ways to reduce emissions associated with land use and land use change is to avoid deforestation and land clearing, and revegetate with a variety of locally indigenous species that provide habitat. Instead of including these environmental activities in an emissions trading scheme directly (e.g as an offset) I would suggest spending a fixed percentage of the money raised from auctioning permits on activities such as avoided deforestation. This would avoid undermining the credibility of an emissions trading scheme. Allocating a percentage of funds raised from auctioning permits would also provide the long term price signal that would be required in order to make it more profitable to use land for environmental purposes instead of logging etc.

  6. “You lost me observa. Can you simplify this all down to a few sentences without the explanation?”
    Fair enough. I was interested in whether or not a reasoned consensus could be achieved on a broad brush tax system, which I suggest might be the cornerstone of a market based approach to addressing ‘our’ pressing problems. Essentially we inherit the current incremental one, with the current outcomes we observe. What are the major problems and short of more direct govt command and control, how would we design a new ‘constitutional marketplace’, largely via taxation to address those? Now presumably GW is THE big problem needing urgent addressing. That said, it leads to a simple conclusion that the maximum market based reduction of CO2 emissions, would be to raise ALL current expenditure via a carbon tax. Just how pressing is that, in the sense that disciple or skeptic of GW, would you be prepared to adopt the most extreme market based amelioration regime outlined, or not? Generally the skeptics accuse the disciples of being control freaks and the reverse of failing to see the obvious because of their aversion to ‘sensible’ govt planning and controls. Could they(you) compromise on that in a win, win maximum, market based solution?

    OK lets’s fire off some quick benefits here. Maximum price increase of carbon means maxm reduction of CO2 demand wise, which presumably we can also try to achieve with cap and trade schemes for big emitters or administratively impossible carbon credit cards for all consumers (a maximum of big govt intrusion) You would imagine taxing carbon so heavily, would best produce alternatives to fossil fuels without the need for govt deciding what how and for whom here, the sort of failures command economies exhibit inexorably. Now taxing carbon could produce more equity than the current mix. ie it taxes the lifeblood of capital and soaks the richest hardest. It doesn’t tax labour or savings like income tax does. It taxes, private, business or charitable consumption equally(neutrality) Basically pay as you consume. It doesn’t favour negative gearing with its housing affordability impacts, or indeed any borrowing over saving for investment. In other words, can the most extreme market based solution to GW, satisfy both ends(and the middle) of the political spectrum here? Your conclusion might depend on just how important you view the threat of GW or does it?

  7. Phew! Now let me summarise. The greatest threat to us all can be managed most simply and equitably if only the left and right agree on the obvious market based solution staring them all in the face- Raise ALL necessary taxation on carbon. Agree or disagree and why?

  8. That is a little bit clearer. So you are talking about a carbon tax (not a general taxation scheme) instead of the rediculous trading in emission exemptions as proposed by the government. I, among many others, have always proposed this.

    But there are 2 issues here. The primary objective is to eliminate the release of historical carbon accumulations. The second is to rapidly replace the loss of utility with something else equally convenient.

    A tax on its own will do nothing to reduce the release of carbon into the atmosphere. Equally a cap and trade “scheme” will do nothing to reduce carbon emissions. The only thing that will reduce carbon emissions is to provide an alternative.

    This is where Howard’s ridiculous scatter brain approach utterly fails. The only thing that he wants is to be able to, some how, dig up cubic kilometres of coal and flog it, and some how call that green. And thanks Peter Wood for that pointer to the government’s admission that they haven’t got the foggiest clue as to how to make their stupid plan work.

    Rapid deployment of alternative energy solutions requires start up money. Once the alternatives are performing the need for fossil fuels will diminish naturally. The scale of the energy source replacement programme is best facilitated with the efficient application of a direct tax on the problem, carbon. The market can take over as soon as the direction shift has been put into place.

  9. I’ve read the early greenhouse action paper and what I said above still stands. My guess is that the paper arose because a major player wants an early handout eg for a high temperature boiler or planting a few trees. Seems virtue is no longer its own reward.

    An awkward question is this; would carbon trading be viable without giant loopholes? Mother Earth won’t be fooled by bodgie carbon accounting. The architects of the proposed Australian national scheme have decided to ignore the fact the Europeans won’t have a bar of tree planting. Even one guilt-free travel company, TerraPass, takes this few though it endorses ‘clean development’ type offsets for which perverse examples crop up every week.

    I do agree that there is less uncertainty with saving an existing forest than planting a new one. However I think auction receipts should go to grants for clean tech, not tree planting, with big emitters first in line to get some of their money back.

  10. Cap-and-trade is a crock.


    On a global scale, carbon trading is little more than an untested economic experiment that may not avert climate catastrophe in time. Moreover, carbon trading aids and abets climate injustice. In the main, trading is designed to parcel, privatize, and sell the right to pollute the atmosphere with carbon dioxide. The very same petroleum, natural-gas, and electricity concerns disproportionately responsible for carbon-dioxide emissions and climate change – which denied the existence of climate change and are now urging gradual steps to address it – all stand to make windfall profits on untested and perhaps unverifiable cap-and-trade schemes buoyed by increasingly fraudulent numbers of “offset projects”.

  11. “So you are talking about a carbon tax (not a general taxation scheme) instead of the rediculous trading in emission exemptions as proposed by the government.”
    I am interested in a general taxation scheme and as such I’m asking you to think about that from a clean slate, albeit with our historical experience and current state of play in mind. With that in mind, GW seems to be the big catalyst for major change, bearing in mind we can only control price or quantity, not both. That’s the big left right divide it seems to me and if there’s no compromise, it will be more muddling through and incremental tinkering. If we’re happy with that then fine, I’ll roll over and go back to sleep.

    Generally the hard left want to go the quantity control road, while the right accuse them of a scare campaign, communard, power grab. Really cap and trade (eg Kyoto) will only ultimately produce less CO2 via impacting on its price, the big licensed emitters will be forced to pass on, when and if the public servants can get the grand, central planning right. (shades of Murray Darling water rights allocations all over again) Their alternative, more egalitarian path might be to issue carbon credit cards to everyone and when your allocation runs out, freeze in the dark buster. Even they know that’s untenable Utopian rubbish. Now they could allow each cardholder to trade their allocation(welcome to the price mechanism again), but it’s still an administrative nightmare of central planning. Their logical compromise is to restrict themselves to the big emitters and really fall back on the back door price mechanism. Why not come clean and rely on the price mechanism openly, albeit we know what that maxm theoretical price hike is? It’s to totally rely on carbon taxation for ALL revenue raising.

    What are the pluses in this compromise path, perhaps staring them both in the face? Carbon taxing is equitable,(soaks the rich more), neutral, administratively simple and unavoidable, albeit we’d all be paying our power and gas bills weekly. Just the very goal of going in that direction would no doubt push the marketplace in the right direction immediately. You wouldn’t have to mandate lightbulbs or any such trivial winner picking. Leave it to the market, which we all know works. It’s just the constitution of that marketplace and the prices reflected by it that is the problem nowadays eh? Is this simplest, win win, constitutional marketplace really staring us all in the face, or are there other major problems/objections being glossed over here?

  12. Personally, I think there is one big snag with such a simple constitutional marketplace and Peter Wood has touched on it here-

    “There is a bit of a conundrum that offsets need to be permanent, verifyable, additional and measurable, while the cheapest and most environmentally sustainable ways to reduce emissions associated with land use and land use change is to avoid deforestation and land clearing, and revegetate with a variety of locally indigenous species that provide habitat. Instead of including these environmental activities in an emissions trading scheme directly (e.g as an offset) I would suggest spending a fixed percentage of the money raised from auctioning permits on activities such as avoided deforestation. This would avoid undermining the credibility of an emissions trading scheme. Allocating a percentage of funds raised from auctioning permits would also provide the long term price signal that would be required in order to make it more profitable to use land for environmental purposes instead of logging etc.”

    Now, suppose by some amazing breakthrough in nanotechnology, or fusion power we could suddenly eat that 60% CO2 reductions by 2050 for breakfast? Too easy, we just shift the tax to the new power source eh?

  13. Observa, I’ll give a vote of support. I can see positives and negatives, but I think it is a proposal worth considering.

    Our current tax system is a complicated mess, and the “market place� only seems to work when it is not distorted by government intervention, so if we can begin afresh with something really simple then I am in favour.

    The current cap-and-trade proposal is already suffering from promises of intervention by, at least, the NSW and Federal governments.

    The biggest hurdle is the internationalism of the market place. How do we avoid shifting carbon use to somewhere else where market place distortions are allowed? Can we avoid the creation of such places or are they a natural outcome of the use of the market place?

    De/re/forestation can only ever be of short term or transition value. I doubt that we can continue to increase carbon storage indefinitely by increasing vegetation cover (or even by carbon sequestration), so ultimately we must reduce CO2 production.

  14. The trouble with using carbon flow as a general taxation device is that the intention is that carbon taxing is just a temporary measure. If we end up with huge revenues from carbon tax for a century then the game is up we will all be living underground in tunnels to escape the heat Star Wars style. Further more I will have solar collectors on the roof of my house and factory to run my machinery and battery electric vehicles, and I won’t have to pay any tax at all. Also a government with a cash flow would be encouraging people the use more fossil fuel, a bit like Howard is now. It’s kinda wobbly, but keep working on it.

  15. Agreed. When you think about the logical maximum demand strategy, it can run into the problems you speak of. Futhermore it doesn’t address the left/green critique of dwindling natural environment(a point Peter raises) Simply put, some breathtaking breakthrough in non-polluting energy, could simply allow us all to continue to plunder the natural environment, more rapidly and presumably with a lot less less guilt, CO2 wise. That leads you to conclude we should tax resources more generally, including carbon. Notice that can still leave all the benefits of a simple carbon tax only regime, although we add the complexity of what other resources and how much to tax each. Still that seems a lot simpler than trying to define income, the income earning unit and the 10000 pages that go with that, the lawyers and accountants, etc now. It can still provide the equity, neutrality, simplicity, minimal avoidance and a more desirable environmental outcome. Clearly more recycling and less environmental impact, as the constitutional marketplace demands longevity and concentrates on quality over quantity. New resource use has a penalty attached. It’s much more attractive than what I’d call plastic shopping bag economics, where of all the packaging and waste in a trip to the supermarket, you pick on the ubiquitous shopping bag. ‘Would you like a free doggy-do bag with that sir?’ Imagine trying to legislate and police around that sort of economic lunacy, as some are advocating now. Let the price rule such decision-making, which it would do more successfully in such a constitutional marketplace. We’re still not taxing labour or savings or encouraging negative gearing and the like notice and we don’t have to tell people what sort of houses and offices to build, etc. Is there enough equity and environmentalism, coupled with get off our backs pricing in it all though?

  16. I should add that if a maximum theoretical carbon pricing regime like this has problems, then the cap and traders have no theoretical idea where their backdoor carbon pricing regime will lead. They need to be called on that point.

  17. JQ

    Do you think in the medium to longer term that global warming will drive a political wedge between the Nationals and the Liberal party? It seems to me that as it becomes more costly to compensate farmers for the “drought” that their relationship might become more strained.

  18. I have an open mind on whether it is better to provide a carbon price signal using a tax, a cap and trade scheme, or a hybrid approach. If we had perfect information about climate change abatement costs and the cost of climate change, then it wouldn’t matter too much, we could set a price or cap at a level where the abatement cost equals the cost of climate change damage (Weitzman 1974, Hepburn 2006). Instead what we have is the cost of climate change being a probability distribution with a scary long tail, while it is easier to estimate a maximum cost for climate change abatement:

    The question of whether to include offset projects is independent of the question of whether to use taxation or cap and trade schemes.

    It is worth mentioning that Point Carbon recently did a study which unfortunately is paywalled that estimates that the cost of the EU meeting its 2020 target will only be 16 billion Euros: http://www.pointcarbon.com/Home/News/All%20news/Kyoto%20International/Domestic%20policies/article24587-881.html

    One of the main problems with cap and trade schemes is that the public doesn’t understand them very well which encourages governments and firms to engage in protectionist activities like handing out free emissions permits. This is the main way that permits are allocated in the EU ETS and a substantial number of permits are proposed to be allocated this way in the proposed Australian scheme. If a trading scheme was replaced with a carbon tax then the free permits would be replaced by billions of dollars in cash subsidies for certain firms, in which case the public would be less likely to support it.

    Emissions trading schemes are sometimes criticised for providing a bunch of property rights to polluters, “privatising the atmosphere” so to speak. Firms and lobbyists like the AIGN ( http://en.wikipedia.org/wiki/AIGN ) have been lobbying for emissions permits to be treated as full property rights. Stern argues (p 312) that a full set of property rights cannot be allocated, because many of those affected by the impacts of climate change are yet to be born. I don’t see why emissions trading permits need to be treated like property rights, all a trading scheme needs to do is provide the regulation that if a certain amount of greenhouse gases are emitted, then a corresponding number of permits need to be bought, whether someone with those permits has the right to pollute can be treated sepatately.

  19. Whether carbon trading or taxation is the more regressive, whether they can become major revenue sources or will always be corrupted by giveaways are arguable points. However the standout feature of a cap is that it is target driven. In contrast a tax will require constant fine tuning to get the right physical outcome. A cap administered in an authoritarian way should deliver incremental cuts in emissions, but almost certainly at the cost of short term GDP. Do governments have the political will to do it?

    We also forget that by burning fossil fuels so quickly there may not be enough spare high yield energy to construct the new technologies, medicines and specialty plastics required in the future. A slowdown both reduces emissions and saves resources for later.

  20. A slowdown reduces resources for later which is why we need a reliance on resource taxation generally. As to the political will it’s been there for years but needs the nous to explain how a slowdown in GDP will be shared. That’s an equity issue that can’t be ignored and will clearly need to be addressed.

    Another major problem Peter touched on is the need for the natural environment to have as great or greater market imperative to preserve and enlarge it, as covering it with momotreme agriculture, bitumen, concrete and Tuscan boxes. In other words a constitutional marketplace where investment in a John Walmsleys Eart Sanctuaries Ltd, is as highly sought after as developing the former. At present our CM fights a pitiful rearguard action on that score and ESL type investments are totally uneconomic. That needn’t be the case with some simple design around resource taxing.

  21. The sole significant problem I can see with carbon taxes is that they can’t be used internationally. And our few remaining non-carbon exports would get creamed even further.

  22. It would be nice if ‘exit packages’ for farmers would value the vegetation that is on the farm, both in terms of carbon sequestered, and its value as habitat. This would provide an incentive for farmers to return the land to something approximating the state the land was in prior to clearing, and a disincentive for further clearing. It could also be a cheap way for Australia to further reduce its LULUCF emissions.

  23. David R: didn’t you know? The plan to privitise Telstra was a secret Liberal Party plot to destroy the Nationals 😉

  24. Yes, I think the particular species of mallee that they use has a large root which will store carbon. Because of this, CO2 Australia’s projects meet standards of measurability, permanancy, verifiability and additionality that have given it certification under the govts ‘Greenhouse Friendly’ program. As far as I am aware, this is the only revegetation project in Australia to have recieved such certification. There are probably also environmental cobenefits from farmers planting mallee on their land.

    The Climate Change Group’s draft discussion paper recommends that the emissions trading scheme recognise abatement from eligible projects that occurs after 3 June 2007. This might be good tor CO2 Australia’s share price.

  25. John, you’ll want to add this new version to your collection. Spotted by a poster at RC, and I dug out the relevant links.

    http://www.oism.org/pproject/s33p41.htm Letter from Frederick Seitz [OISM petition cover letter]
    http://www.oism.org/pproject/s33p36.htm Paper: Environmental Effects of Increased Atmospheric Carbon Dioxide

    Actual publisher:
    “Journal of American Physicians and Surgeons”
    Fall 2007, v12 No. 3
    Environmental Effects of Increased Atmospheric Carbon Dioxide
    Arthur B. Robinson, Ph.D.,Noah E. Robinson, Ph.D., Willie Soon, Ph.D.

    See also p.94 in the same issue for book reviews:

    The Cure: How Capitalism Can Save American Health Care (David Gratzer)
    Reviewed by James F. Coy, M.D.

    Liberalism Is a Mental Disorder (Michael Savage)
    Reviewed by Dan E. Phillips, M.D.

    The Politically Incorrect Guide to Science (Tom Bethell)
    Reviewed by Todd B. West, M.D.


    Could political beliefs be more important than peer (not that kind of Peer) reviewed research for doctors, in deciding what to believe? Scary.

    http://scienceblogs.com/deltoid/2007/09/schulte_replies_to_oreskes.php …. cut-and-paste plagiarism from Monckton, error-filled info from Peiser’s letter. …

  26. Oddly enough, I just saw this and noted it in the Wikipedia entry for the Oregon Petition

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