Will Fielding stay crazy long enough?

At this point, the only chance for survival for the Liberal Party is that Steve Fielding will join them to refer the ETS to a committee (I assume Fielding’s vote is enough to pass a procedural motion, is that correct?). If this happens, the threat of an immediate DD is gone, and they have the chance to crawl back to sanity and try to pass a bill in the New Year, assuming Rudd lets them.[1] That would get the issue off the table and give them some chance of avoiding annihilation, particularly if the economy weakens over 2010. But Fielding prefers the idea of a Royal Commission. If he sticks with this, the Senate will either reject the bill or pass it as the result of a Liberal Party split.

As I’ve said previously, I hope they reject. Then we will either get the original ETS legislation or, better, a Labor-Greens deal.

fn1. Of course, it’s now open to Rudd to come back from Copenhagen (which looks certain to produce a political agreement, if not a legally binding deal) and announce that the deal he made with Turnbull is no longer on the table. Then the Abbott-Minchin Liberals would have the choice of voting for the original ETS, or fighting a double dissolution. Rudd has so many winning options now, it’s hard to describe them all.

38 thoughts on “Will Fielding stay crazy long enough?

  1. And as yet, there is no cost on CO2 from transport so you can pollute the planet with your ugly 4WD to your wallet’s content.

    There is a substantial amount of tax but it’s not enough to cover the externalities. Pr Q has written on this.

  2. Tony G :
    Fran,
    If it walks like a tax, talks like a tax and taxes like at tax as the Emisions Taxing Scheme does, then it’s a tax, no 2 ways about it.

    Actually, it escapes being a tax on the same technical grounds as Barack Obama’s mandated health insurance: although it would compel people to pay out cash just like a tax (“it walks like a tax”), it doesn’t deliver the whole or most of that to government cash collections (though some may reach the government at the margins, that’s probably classified as “fines” because ordinarily people wouldn’t be paying the government). The same applies even more so when people make burdensome behaviour changes in response or in anticipation, as then they aren’t paying out actual cash at all – just incurring opportunity cost.

    None of which avoids the essential point that it would indeed burden people, just like Barack Obama’s mandated health insurance. But it’s not a technical quibble to point out that it would not be a formal tax, because that highlights part of what is wrong with the whole ETS approach – even stipulating for the sake of argument that emissions restrictions are desirable (which they may be, even if only on prudential grounds). The winners would be politically determined and could not be wholly anticipated and properly aimed at, whether by planners or by participants; resulting behaviour change might be wrong in timing, direction and amount because of the ambiguity and lack of clarity in how incentives would work through (where direct mandates and even taxes/subsidies send clearer and less ambiguous signals – time delays and intermediate layers matter, here); and, worst of all, the international aspect and tradeability of permits would open the door to a range of loopholes in many countries flowing from any individual, isolated loopholes in a few countries just as EEC rules did in agriculture. That last is particularly why it is unwise at best, idiotic at worst, to lock in an Australian system that would interconnect to other countries’ systems before their systems were known well enough to determine the right interfaces. In the worst case, Australians would have to honour other countries’ loopholes (at a price, particularly to the balance of trade), and the only behaviour change would not be overall emissions reductions but the importing of permits generated by others’ loopholes which would have to be given full faith and credence. In the best case, there would be a horrendous bureaucratic process generating Australian equivalent permits from mismatching foreign ones, and vice versa – even if many or most of them happened to match, because they would all have to be vetted just to catch any that didn’t. It would be an analogue of having different interconnecting railway gauges on a heavy traffic system, not that anybody would ever put in those in isolation in the full knowledge of later connections. Oh, wait, we know they might because they did – so we can’t take it for granted that a local ETS locked in now would be planned well enough to fit a wider system not yet known in sufficient detail (e.g., there would be a huge cost if the wider system didn’t come in for a while after all).

    So, in the Yes, Prime Minister phrase, “if you must do this damned fool thing [using an ETS as the means to deliver emissions control], at least don’t do it in this damned fool way [locking in a detailed system up front before anyone even knows its wider systems needs, as they haven’t yet been worked on by the other implementing groups]”. Coasian solutions to externality problems are more efficient than Pigovian ones where the creating, monitoring and enforcing property rights of the former have little or no overhead as compared with the bureaucratic efforts of the latter in estimating suitable wealth transfers and then making them and/or imposing behaviour changes. That isn’t so when the new subject matter is too artificial and removed from individual involvement, as then individuals have to conduct a distinct exercise for it – even if the costs get folded in and hidden (though things like the GST get the worst of both worlds this way).

  3. Donald Oats:

    he (Bob Brown)extended another opportunity to Labor to talk with the Greens.

    That’s OK but the Greens don’t hold the balance of power, yet.

    BTW, the Greens should try to get first preference votes of Labor voters in the Senate by saying that this will make sure that their preference won’t go astray in any crazy preference deal done by the Labor party as happened with Steve Fielding and which still happens with the DLP.

  4. Tony G :
    This statement by Mike is utter bs;
    “and that an ETS simply re-allocates these costs to those who bring them into being”
    The fact is KRudd’s eTs tranfers the costs across social stratas with no regard as to the emission levels.

    No, you are wrong, there is an involved system of compensation by social strata and by emission quantum, in fact, since heavy polluters are heavily compensated.

    At least in the current version of the trading scheme.

  5. @boconnor

    Glad you liked it! Another advantage a properly structured ETS has over a sumptuary tax system is that while emissions can be fully monetised, the ETS allows for spatial and temporal flexibility within the system, so that operations where the cost of avoiding emissions would be technically difficult and highly costly can choose to purchase emissions at a rate determined by the success of the other players in the system in avoiding emissions. They can invest in new technology and if they over-achieve they can sell off their surplus, so they take less longterm risk and may tend to act more aggressively to reduce emissions than in the case of a PAYG sumptuary system.

    Similarly, since the instruments are property, there is a structural constraint on the rules being fiddled with to suit sectional interests in the way that a tax system would be.

  6. @Rogerrocks
    I don’t think that the others have to cover for those industries with free permits. I’d guess Australian domestic annual emissions are now about 600 million tonnes of CO2 equivalent, about the same as exported coal. I haven’t seen supporting data but the ETS might only cover say 200 Mt in the initial years due to all the free permits, largely undeserved in my opinion. It could be even less, I’d like to see a sector by sector analysis.

    It will get really interesting when for example brown coal generation has to pony up in full when their free permits expire. That is 2015 I think. By then all Victorian households should have both insulation and smart meters to painlessly reduce their consumption. Paid for by permit sales not strictly a tax. I suggest if aluminium smelters in several States still feel genuine pain we should consider a small tariff on aluminium imports if other countries don’t have their own ETS by then.

  7. I suggest if aluminium smelters in several States still feel genuine pain we should consider a small tariff on aluminium imports if other countries don’t have their own ETS by then.

    The problem is some Aluminium is produced from burning coal and some is produced without much carbon emissions, principally hydro. A carbon-rational world would give a big cost advantage to hydro-Aluminium over coal-Aluminium that doesn’t presently exist. A real test for emission reduction schemes is to see if they create this advantage. I would expect that this advantage, if properly set up, should wipe out coal-Aluminium and shift it to hydro-Aluminium. Australia dips out here because it doesn’t have much opportunity to shift from coal to hydro.

  8. Tony G :Fran,
    If it walks like a tax, talks like a tax and taxes like at tax as the Emisions Taxing Scheme does, then it’s a tax, no 2 ways about it.

    if it sounds like an idiot, writes like an idiot and misrepresents (‘Emisions Taxing Scheme’) like an idiot…

  9. Looks like I get at least part of my wish: Julia Gillard, Penny Wong and Greg Combet announced that the first sitting day in Feb 2010 they will introduce a new ETS bill. Yay!
    Since it will be post-Copenhagen, there will most likely be increased pressure on Rudd et al to set a significantly higher target and to ensure that anyone named “Tony G” is as heavily taxed as possible. That may with a bit of negotiation get the Greens and an independent onside. They may also – I hope – avoid compensation towards big polluters, letting them participate in a primary market for permits, and then off to the races we go. Both Tonys probably won’t like a more focussed ETS such as CPRS II, which is a nice extra benefit 😛

    Hi Taxin’ guvvimnt, ah, so sweet, isn’t Tony G?

  10. the Greens should try to get first preference votes of Labor voters in the Senate by saying that this will make sure that their preference won’t go astray in any crazy preference deal done by the Labor party as happened with Steve Fielding and which still happens with the DLP.

    Also, even if you vote below the line to make sure your preference flows direct to the Greens from the Labor party, I think you still lose some of the value of your vote, compared with a Greens first preference, if other Labor voters preference reactionary parties (Family First, DLP) ahead of the Greens.

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