The uselessness of additional action under the CPRS

There was a bit of dispute a month ago over the claim, made here and elsewhere, that the design of the CPRS made both voluntary action to reduce CO2 emissions, and government initiatives such as the Rudd government’s home insulation scheme, have no effect except to reduce the price of permits.

The issue seems to have been settled by this Victorian government brief, leaked to the Age

, which states:

The Victorian government’s policies to cut carbon emissions will make no difference in achieving national greenhouse targets …

The leaked brief, obtained by The Age newspaper, says the government must rethink policies including subsidising solar farms and buying hybrid cars for its fleet because they will not assist in meeting targets in the proposed federal Carbon Pollution Reduction Scheme (CPRS).

The Rudd government can and should fix this.

45 thoughts on “The uselessness of additional action under the CPRS

  1. I dont have a problem with companies purchasing or planting forrests for the purpose of carbon d-emissions. At least this is accountable, one can see that a forrest is there, carbon is being absorbed and so on.

    I just dont really believe ETS will work. It seems designed to allow end-runs by various institutional subterfuges. So complicated its hard to properly account.

    Simpler to just slap a big carbon tax on everything and force people en masse to move to non-carbon energy. USe the money collected to compensate the unemployed capitalists and labourers and to invest in non-carbon energy.

    Look how behaviour changed when the oil price went up. This was much more like a tax than a price hike since it hit the consumer right in the hip pocket nerve. Straight away people started to ditch their cars, ride to work etc.

    Same principle would occur if energy bills were doubled overnight. Solar power and conservation and various alternatives would be picked up pronto.

  2. This thread should be called;

    The uselessness of the CPRS

    On a per capita basis Australians might be high carbon emitters, but in world terms the amount of carbon we put in the atmosphere is insignificant, only 1.2% of the worlds carbon emissions.

    World carbon emissions are growing at a rate of 2.5% per year.

    If Australia cut its carbon emissions to zero, it could theoretically nearly halve the 2.5% annual increase in world carbon emissions for a short time, but the reality is a 100% reduction is not going to happen and a 5% to 25% reduction is going to be useless and do nothing to stem the increase.

    Australia is going to risk a large fall in its living standards on the false premise it is ‘actually’ going to reduce carbon emissions.

    No matter what Australia does, it is laughable to suggest Australia’s actions can curb the large growth in world emissions, especially with the huge populations of China, India and other 3rd world countries ramping up living standards.

  3. “Changing to carbon tax won’t necessarily eliminate offsets since they will be claimed as carbon tax deductions. For example I believe Rio Tinto claims tree planting offsets under State based schemes. They will want some kind of quid pro quo for that outlay.”

    You are right in one sense Hermit that we MUST NOT GO THERE with any slippery slope deductions, once you have come to the logical conclusion that we need a level playing field CO2E tax at the mine and well head that is administratively simple and unavoidable. Hold that thought that there shall be NO deductions whatsoever for what is essentially a straight fossil fuel taxing regime. Just because you use the taxed product for plastics, fertiliser, chemicals, etc manufacture or whatever, there is NO deduction for that initial CO2E tax based on the most efficient technological burn to produce a kw of electricity. You pay the same rate AS IF you were going to burn it for that most efficient kw(which can be adjusted as technology permits) The next logical step is to ask yourself AT WHAT LEVEL should that be, now that the greatest threats to mankind in Bush, Howard(fill in whatever as appropriate) have been removed and there is no apparent giant asteroid on a collision path with earth. Well warmenistas have their immediate answer if they think there’s that hidden asteroid of our making. They can ask themselves if they’d like to replace ALL current taxing (short of anomalous fags and booze excise perhaps)with a carbon tax to get the maximum hypothetical price effect, before resorting to those bad old quantitative habits again.

    Well warmenistas, there’s the challenge for you to imagine you have your ultimate head. When I imagine it, I think well it has lots of plusses when you think about sweeping away all those other tax induced problems we see about us, but immediately I conclude why not tax other resources as well? Just for starters, living as I do at the end of the MDB, I can see how if it takes around 1800L of water to produce a dollars worth of rice, a resource tax on water of 4 or 5c/kl would probably finish such profligate private use. Yes general resource taxing is as important as CO2 taxing in that regard but what exactly is resource use? Natural environment is a resource more generally and that means land. How and why would we want to tax that resource was my next question to answer. Where are you guys up to?

  4. Tony G,
    But don’t you see it’s symbolic. Symbolic rituals are a very important part of belief.

  5. Joseph Clark Says: March 24th, 2009 at 1:50 pm

    But don’t you see it’s symbolic. Symbolic rituals are a very important part of belief.

    A CPRS scheme is both symbolic and pragmatic.

    It is symbolic since it signifies that AUS cares and is prepared to be a good global citizen. Sybmols are sometimes powerful political motivators.

    The AGW problem requires concerted effort from all parties, to prevent the free-rider problem from sabotaging the social contract. So it is important that AUS comes to the Kyoto party, to signify to laggers that this is serious.

    It is pragmatic in that there is some probablity of runaway climate change ie so-called tipping points where small increments in carbon could induce massive changes in climate.

    So even though AUS’s carbon footprint is relatively small, our mititgation of it might make all the difference as the earth moves towards tipping point ie irreversible climate change.

  6. Jack,

    Getting your kids to turn the light off after they have a shower might be a cheaper way to postpone the tipping point.

  7. Jack,
    I just dont think we can ignore the fact that we export coal by the shipload so that some other nation can use it to pump CO2 into the atmosphere. Why are we susbsidising the coal industry and not subsidising more sustainable industry here? Its very very hypocritical and our effort in these carbon reduction plans is so small as to be mere tokenism. Stop the subsidies and put the tax where it counts – on coal.

  8. “Why are we susbsidising the coal industry and not subsidising more sustainable industry here?”

    It’s a very, very good point Alice and we shouldn’t be subsidising ANY particular pet project of politicians. Now notice if we tax resources generally including those various grades of coal on a CO2E basis, in lieu of all those other distorting taxes we’ve built up over the years, then it won’t matter who owns or buys the coal, they’ll all pay the same tax upon extraction and we won’t need the costs of a FIRB to boot. Next point anyone?

  9. The first premise is: Australia’s proposed cuts are not deep enough. The second premise is: we can reform the CPRS so that voluntary actions produce deeper cuts.

    But this does not yet imply that the reforms in question should be made. What needs to be demonstrated, or even just argued, is that the deeper cuts thereby produced can be “deep enough” (perhaps when combined with other measures). Otherwise this discussion is a waste of time.

  10. This discussion is based on the premise that a government will not be seen as a polluter in its own right. If governments (including local) are viewed in the light that they will need to be involved in the trading scheme then they will have great incentives to reduce their own pollution through reduction of electricity use, vehicle emissions etc. they can be part of teh answer too through plantings , solar power on buildings and other measures.

  11. There’s no point comparing a hypothetical, perfect carbon tax to the actually existing, substandard ETS.

    Tim – what you are effectively saying is that a bad policy should not be compared to a better policy because bad policy is the best that our political system can produce. On that basis we may as well never comment on anything any government ever does.

  12. Terje the perfect hypothetical carbon tax should be compared to the perfect hypothetical ETS. The realistic likely carbon tax should be compared to the sub standard ETS we have.

    Alice, I am intersted if anyone ever measured the carbon emissions reduction that would occur due to reductions in Australias carbon export (conidering the rest of the worlds ability to meet Australias short fall). Especially compared to the costs to Australia to reduce the same amount of emissions locally. As well as big coal to worry about, i suppose other countries would be adverse to Australia apprently bullying them to become green.

  13. Further to Robert Merkel’s comment, I think any serious advocacy of a voluntary action mechanisms needs to be accompanied by proposals for the institutions and mechanisms to recognize it.

    For example, are we going to have an Australian version of the Clean Development Mechanism Executive Board making judgements about what should count and what shouldn’t?

    @ Mitchell Porter: “we can reform the CPRS so that voluntary actions produce deeper cuts”

    A more pragmatic response would be that the thirst for action by organisations ranging from state governments down to community groups should be reflected on national carbon accounts and associated schemes (ETS etc.)

    Surely that’s not asking too much?

  14. I am another supporter of a carbon tax. It seems the simplest and most efficient way of putting a cost on CO2 emissions and giving alternatives a fair playing field.

    BUT, what do we do about international trade? Do we tax export coal? Do we impose tarrifs on imports from countries that tax lower than us.

    Does this put a tax scheme in Rudd’s too hard basket?

  15. Here are three things that can be done address the issue that additional action does not make a difference.

    1) We can have decent targets

    2) We can have a price floor in the ETS — it has many of the advantages of a carbon tax, but many of the advantages of an ETS, such as the fact that countries can credibly meet their targets, remain.

    3) We can have a more flexible approach to setting scheme caps into the future. With the CPRS approach, the scheme cap is set five years into the future, and then gateways of upper and lower bounds for the cap are set for as long as the minister wants afterwards. Instead we could have just have five years of gateways. That way, if there is a lot of voluntary action, the cap could be reduced in the following year.

  16. 1. What is being discussed here as a ‘design feature’ is really one of the most basic properties of a cap and trade ETS. An ETS is a quantity control – you set a target and that’s what you get.
    2. Under an ETS all emission reductions are voluntary and so ‘voluntariness’ can not be used to select some subset of reductions that go beyond the target.
    3. Unless a safety valve permit price comes in to play people can act to reduce Australia’s emissions below the target by buying permits and not using them.

  17. The proposed CPRS raises an issue that has not been widely considered in the economcis literature – namely – what are the implications of having an ETS with a clearly suboptimal target?

    Under such a scenario the alleged advantage of ‘quantitative certainty’ becomes an obvious weakness in that you lock yourself into failure.

    Arguments that this is a ‘design feature’ rather than a new problm to be solved seem surprising to me.

    Why not take the strength of an ETS, in the form of quantitative certainty, and combine it with some downward flexibility?

    Doing this would not be as hard as some argue. At the macro level you could just take the projected, post CPRS, emissions from the household sector and use them as a baseline. If household emissions were lower than that then you simply issue fewer permits in the following year. There are better ways of doing this, but given how far down the track we are the options are a bit limited.

    For those who say voluntary is small beer it is important to remember that voluntary does not just mean individual action, but can include policies such as the $4billion insualtion package, the Victorian governments$100 million solar farm and Anna Blighs proposed investment in solar hot water.

    A simple question for those who think voluntary isnt worth worrying about – why is the government so determined not to fix it? The only explanation that makes any sense is that the big polluters are banking on a lot of voluntary action on the part of governments to help reduce the cost of the abatement task.

    But why should the taxpayer fund such investment if the beneficiary is the polluters rather than the atmosphere?

  18. The proposed CPRS raises an issue that has not been widely considered in the economcis literature – namely – what are the implications of having an ETS with a clearly suboptimal target?

    This issue is at the core of the problem. It also has implications for sectors not covered by the ETS. For example, there is quite a bit of uncertainty about how much emissions could be reduced from land use change. If emission reductions were treated as an ‘offset’, then the emissions reductions lead to no extra public goods. If emission reductions outside covered sectors are additional to the CPRS, then the public goods are realised, and “net welfare” is increased.

  19. JQ. I don’t understand what you are saying in 17 as to how the CPRS should be changed. How can the CPRS “allow scope for voluntary action to improve on the mandatory targets”.
    Also I’m still having trouble seeing why the current CPRS is a problem (apart from the targets for reduction not being aggressive enough). If there is significant voluntary action, then the price power stations pay for the permits is reduced, so the amount they increase the power bills is reduced, so my income after power bills is increased. Surely a good thing. And I can choose to spend the money saved on reducing greenhouse gases. There are still bargains around where I can pay less than $20 per tonne of CO2 reduced(tax deductible so the cost to me less than $10/tonne).

  20. El Mono @ 37,

    Looking at the 2008 ABARE commodity statistics: we export just over 60% (w/w) of coal produced in Australia, all of it black. The remaining 40% is approximately 50/50 black and brown, for domestic end-uses, predominantly electricity generation.

    But to answer your question, the indirect emissions from the use of our export coal overseas are about the same as our whole domestic direct emissions (both are somewhere around 550-600 Mt CO2-e) — ref: article by Chris McGrath “Regulating GHG emissions from Australian coal mines” from Env. & Planning Law Journal.

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