Update I thought I’d repost this a year on, and reopen the discussion 10 September 2015
Reader ZM points me to a paper with this title, by Graham Turner of the University of Melbourne. Not only does Turner answer “Yes”, he gives a date: 2015. That’s a pretty big call to be making, given that 2015 is less than four months away.
The abstract reads:
The Limits to Growth “standard run” (or business-as-usual, BAU) scenario produced about forty years ago aligns well with historical data that has been updated in this paper. The BAU scenario results in collapse of the global economy and environment (where standards of living fall at rates faster than they have historically risen due to disruption of normal economic functions), subsequently forcing population down. Although the modelled fall in population occurs after about 2030—with death rates rising from 2020 onward, reversing contemporary trends—the general onset of collapse first appears at about 2015 when per capita industrial output begins a sharp decline. Given this imminent timing, a further issue this paper raises is whether the current economic difficulties of the global financial crisis are potentially related to mechanisms of breakdown in the Limits to Growth BAU scenario. In particular, contemporary peak oil issues and analysis of net energy, or energy return on (energy) invested, support the Limits to Growth modelling of resource constraints underlying the collapse.
A central part of the argument, citing Simmons is that critics of LtG wrongly interpeted the original model as projecting a collapse beginning in 2000, whereas the correct date is 2015.
I’ve been over this issue in all sorts of ways (see here and here for example, or search on Peak Oil). So readers won’t be surprised to learn that I don’t buy this story. I won’t bother to argue further: unless the collapse is even more rapid than Turner projects, I’ll be around to eat humble pie in 2016 when the downturn in output (and the corresponding upsurge in oil prices) should be well under way.
Given that I’m a Pollyanna compared to lots of commenters here, I’d be interested to see if anyone is willing to back Turner on this, say by projecting a decline of 5 per cent or more in world industrial output per capita in (or about) 2015, continuing with a sharply declining trend thereafter. [minor clarifications added, 5/9]
John Quiggin 
JQ:
Yes they can.
My argument has not been about the “cost of decarbonizing the economy” but about the impossibility of completely decarbonizing the economy through price signals alone, which is both considerably less sensational than your representation of my argument, and I would say very important. And as I have repeatedly said here, I don’t particularly care if you disagree with me and I would really like to be wrong, but first I would like to see an economist like you actually try and engage seriously with the issue, which is *not* the same thing as tossing in a throwaway unreferenced comment about trees.
I don’t know why *I* bother[1] if you’re going to dismiss those references as “no real response to any of my posts.”
—
fn1: Obviously I do know why; because “someone is wrong on the internet”
A strong hint that Peak Oil matters was the coinciding of the 2008 GFC with the all time record price (WTI) of nearly $150 for a barrel of oil. There was some discussion at the time that $150 may be an asymptotic limit from which economic activity bounces back into recession. However oil and liquid fuels generally are getting rapidly more expensive (some say 10% pa) to produce. I conjecture that oil will mostly hover in the $100-$150 range until it runs out and economic activity will decline in sync with oil’s diminishing net energy. That net energy might hit zero in a few decades with corn ethanol showing the way.
A rationale is that while coal and gas make stuff oil is needed to grow, move and package stuff.
It won’t be easy to replace. Declining energy from oil could drag down coal consumption with it with the biggest coal user China perhaps showing early signs of this. Therefore I think LTG is on the money and will act accordingly.
@faustusnotes
We seem to be in violent agreement, then. I don’t advocate using price signals alone, as ought to be evident from this recent post
https://johnquiggin.com/2014/08/18/the-case-for-fuel-efficiency-standards/
To repeat my view. The cost of decarbonizing the economy, with a sensible mixture of price signals, regulation, technological innovation and general encouragement of sustainable practice would be very small. Even with lots of political constraints/poor choices, the cost is easily manageable.
@Hermit
This is the worst kind of pop economics. The price of oil rose because the global economy was doing well, leading to more demand, and it fell when demand fell. The monetary policy and financial market failures that caused the collapse were only tangentially related to oil.
An obvious piece of evidence on this is the fact that the crisis began in the US, where oil imports and gasoline consumption peaked in 2005, when the economy was still growing strongly.
“as Ikonoclast mentions you like a catchy title too ”
And I expect my book to be read in that light, as a polemic against dangerous and wrong ideas. If I wanted readers to interpret me as saying “macroeconomics and finance theory are in good shape, but some adjustments are needed in the light of the GFC”, I wouldn’t have chosen the title Zombie Economics.
Maybe Quiggin should learn a bit about political economy.
The interests of capitalists ensure that decarbonizing the economy is made “impossible”.
So we need another political force to safeguard our future.
John, I’m glad that you bother.
@Ivor The interests of capitalists can change, the view across the Channel of the French Revolution saw political changes elsewhere “more possible”. I would think that once capital realises that their investment is approaching an unacceptable risk of loss politics should change. Evidence from #icac reveal just how he who pays the piper calls the tune.
@Ronald Brak Ditto
Rog, their interests will only change if they can see the threat. If they genuinely believe that global warming isn’t a threat – and we have much evidence that they do genuinely hold such stupid beliefs – then the masters of our fate are going to refuse to see the writing on the wall.
To look at your analogy differently: all the ruling class of Europe saw the need to change after the French revolution, but only because the French ruling class didn’t, and provided an object lesson to encourage the others. In the case of a global collapse (or global warming) there is only one ruling class – the global ruling class – who need to learn. If they fail to learn, there will be no other ruling class to look on and think “ooh, better change course” as there was after the French revolution.
We’re all going down with the ship. There is no one at a safe remove who can look on at the mess we’re making and say “ooh, we better learn from their mistakes.” This is the core difference between this challenge and every past challenge humanity has faced.
Those who think decarbonisation will be easy should look at the stats
Click to access 2014-australian-energy-statistics.pdf
Table 2 shows coal, oil and gas providing 94.4% of primary energy in 2012-2013 and renewables providing 5.6%. Should be a piece of cake to turn that around.
As to $150 oil causing the GFC or vice versa my take is that traders had an episode of irrational exuberance and got an ice cream headache. In 2014 US fracking assisted domestic oil production is back to 1986 levels, hardly a revolution.
@rog
Good point, but this is probably limited and firstly their changes will be visited onto someone else – wage and salary earners.
The risk of climate catastrophe has not caused capitalists to divest from fossil fuels despite a social movement campaign and some small victories.
John, if I were you a would keep blogging but close down comments.
I think it is slowly dawning on many old and new media outlets that comments serve very little purpose and most habitual commenters have exceptionally limited insight, poor social skills and very limited talent.
Reading the jumble of ill-considered and poorly informed nonsense on this thread has almost done my head in.
This is my first and last egress from the land of lurkdom.
I am glad you bother too, I have learnt a good deal reading, but
“To repeat my view. The cost of decarbonizing the economy, with a sensible mixture of price signals, regulation, technological innovation and general encouragement of sustainable practice would be very small. Even with lots of political constraints/poor choices, the cost is easily manageable.”
Can you point us to a good economics paper that shows this convincingly?
On the climate change thread I pointed to the IPCC technical report which stated low-cost economics estimates for peaking at 450ppm co2e (too high, but nevertheless) relied on idealistic global policy settings, overly optimistic views of currently unpracticable technology, and unfair discounting, and economics theory like rationality and general equilibrium etc. If they rely on these unrealistic assumptions they are not really very good at demonstrating a low cost scenario, because just about everyone in the community thinks these premises are unfounded.
@John Quiggin
John, I respectfully submit that an ETS and a Carbon tax are NOT the same in effect. The first issue has to do with compliance and administrative simplicity. The second issue has to do with rent seeking and gaming the system. I am surprised that you don’t see these issues. They are basic aspects of government administration and public sphere / private sphere economics.
Do you not see that compliance and administrative issues are simpler with a carbon tax? All other fuel excises can be removed for the sake of simplicity and a carbon tax of an approriatte level put on fossil fuels based on quantity sold. More precisely it will based on the carbon content. Such a system can be run in tandem with the GST which already records and taxes all legitimate sales in its ambit. The black economy is another issue but this exists for all taxation measures. There will be less overheads to government and society by running the carbon tax with and through the GST system including compliance.
With an ETS the government has to set up a new compliance system for this more complex artificial trade in a “bad” (a negative externality). Any ETS will be more complex to set up, administer and run compliance on than a basic carbon tax. In addition, brokers and middlemen will set themselves up to run (that is parasitise upon) the ETS trade. This is another cost, another overhead on society. Furthermore, an ETS system is more likely to have loopholes and be the subject and masny forms of rent seeking and gaming the system.
The complete mess of every ETS system in the world and their complete failure to deal with ever-rising CO2 levels is a lay down misere case against accepting the ETS concept for discussion. The neoconservative gameplan is delay and obfuscation. An ETS proposal is just like a CCS proposal; a pie-in-the-sky scam meant to obfuscate and delay. These things are part of the neoconservative playbook. They don’t believe these things will work and they don’t intend them to work. It’s part of their con game.
I have made substantive points above. I have made them before. You have never attempted to address them.
“This is the worst kind of pop economics. The price of oil rose because the global economy was doing well, leading to more demand, and it fell when demand fell. The monetary policy and financial market failures that caused the collapse were only tangentially related to oil.”
“Whereas previous oil price shocks were primarily caused by physical disrup- tions of supply, the price run-up of 2007–08 was caused by *strong demand confronting stagnating world production*.”
James Hamilton, U of C, Causes and Consequences of the Oil Shock of 2007–08
Click to access 2009a_bpea_hamilton.PDF
@Ikonoclast
So, the scheme that was just abolished in Australia: Pigovian tax or ETS?
@Ikonoclast
I have never really followed your argument that taxing CO2 was necessarily better than trading in emissions. Certainly, if you want to white-ant a scheme you can render an ETS as a sham, essentially by giving out dodgy permits and/or having a very permissive cap. That is essentially what has happened with most ETS schemes. They were designed to impose only a trivial cost on emissions.
Of course if you impose a trivial Pigovian tax the same thing results. I can see settings where as a matter of structure one could prefer either. Politically, ‘taxes’ are often harder to ‘sell’ to right-wingers but as we saw, they just pretend trading schemes are tax and our ETS advocates go to water, so it’s probably moot.
@Ian Jones
Do you think a economic collapse is possible?
Do you think an ecological collapse is possible?
@John Quiggin
According to David Pannell, Director Centre for Environmental Economics and Policy at University of Western Australia:-
“The following description is current as of May 2013. The possibility of changes post-election later this year is not considered.
The Australian system is rolling out in two phases.
The first phase, which we are currently in, is sort of an amalgam of an ETS and a tax. Like an ETS, it is based around permits. However, unlike an ETS, the permits have a fixed price, have no cap on quantity, and cannot be traded.
Technically, it’s not a tax system, but its effect in practice is much more like a tax than like an ETS.
The second phase, starting in July 2015, is an ETS, as described above, with a floating price, a cap on local permits and trade in permits.”
Of course, Abbott has now abolished this scheme.
David Pannell goes on to say;
“Another difference between the two approaches (Tax and ETS) would be in the level of transaction costs – the costs of administering the scheme and or of participating in it. Some have argued that a carbon tax is likely to have lower transaction costs, and that does seem plausible to me.”
So Pannell agrees with me that a straight tax, not a hybrid and not an ETS, would most likely have the lower transaction costs. I also hold strongly that it will have lower adminstration and compliance costs too (if the term “transaction costs does not cover these).
And finally, in answer to your question. It was a strange hybrid Tax/ETS which if kept in place and progressing as planned would have become an ETS. Of course, Labor change their minds every time they change their underpants so one never knows.
Now, let’s get right down to it. All this hedging and stupidity by Labor is what incompetent politicians do when they can’t be honest and make good, clean, simple policy. Labor made a complete hash of things. Abbott’s government, when they abolished it, published their own propaganda on the Australian Government Dept of Environment website. Every pdf they have there uses the words “carbon tax” over and over ad nauseum, So of course one knows they are being dishonest. It was ostensibly a hybrid system leading to an ETS.
But of course, you haven’t answered any of my statements with anything substantive. I have pointed out over and over that compliance and administration are simpler and cheaper with a straight carbon tax. I have pointed out that brokers and middle men would play less of a role in a straight carbon tax and thus less rent seeking would occur. I have pointed that an ETS is more open to gaming. I have pointed out the theoretical point (with practical implications) that trade in a “bad” (a negative externality) makes no sense in natural incentive terms until you incentivise it by creating an artificial trading scheme. An ETS is a “device or artifice” as the legal eagles would say.
I am still wating for substantive answers to my points.
Ikonoclast,
I am thinking that bonds are a better approach than taxes or trading permits (with or without caps).
People are much more amenable to bonds, they feel like they are contributing to a great project. As money/gold etc is taken out of the economy to go to bonds – then the government uses the bonds to employ people, but necessary materials, slightly compensate affected landholders with training and support etc
if the transition to zero emissions drive bond issuing happens to be oversubscribed (unlikely IMO) then over-subscribing communities can get special new plaques or monuments or something similar?
@Fran Barlow
My argument is simple and I believe irrefutable.
1. A straight tax has lower transaction costs including adminstration and compliance costs.
2. The compliance regime of a tax is simpler and much harder to “game”.
3. The total overhead costs to society are lower as ETS trading and broking do not have to occur although of course tax accounting does have to occur but would be cheaper and simpler.
I have also argued, as recently as my post above, that a trade in a negative externality makes no sense as it not a “natural” trade in the sense that people have no desire for “bads” whereas they do desire goods. However, on reflection, I can see pople do have a desire to be rid of “bads” and this can generate a trade e.g. waste disposal. But I think my three points above hold.
Finally, in favour of my argument about “goods” and “bads”, I have to say that where waste disposal works as a business the waste is a local nuisance and it is transported elsewhere and hopefully treated and neutralised. Air pollution is different. It transports itself away, although a smoke-stack might still be a necessary investment to aid this process. It also disperses itself and is apparently neutralised by this dispersal. This appearance of neutralisation is sometimes false as with CO2 in industrial quantities. CO2 pollution alone does not cause a local nuisance and without taxes or regulations or fines or an ETS the CO2 polluter has no incentive to pay for CO2 removal or reduce the emissions. No trade in CO2 emission permits has arisen by market forces alone although other forms of waste removal have arisen as a business by market forces though also by other forces like regulations, by-laws etc. Thus as I say it takes a complicated device or artifice (the ETS) to create a trade in (preventing) a negative externality of this kind. As a firm principle in this case we should prefer the simple, straightforward approach (tax) over the artifical, complicated approach (ETS) for reasons of lower costs and more effective outcomes.
@Ivor
Ecological collapse is not only possible, but inevitable. The effects of the steadily increasing luminosity of the sun will destroy all life on earth if nothing else does.
Aspects of our late carbon tax resembled an ETS, namely free permits and dodgy deductions. The metals industries got 94.5% c.t. exemption in the first year somewhat akin to free permits in the EU system. Brown coal generators got just under $1 bn in cash for hurt feelings as well as free permits. Now brown coal is back as big as ever. I’m not sure if international permits aka carbon credits got much of a tryout. Not only Xenophon but the Climate Institute if I recall said we should buy EU certified credits for 50c a tonne. Cultural cringe I say; aren’t our own dodgy credits good enough?
I see in theenergycollective that US certain states are watering down Obama’s federal requirement for max 1,000 lb of CO2 per Mwhe. We’re all slackers. I have to agree we’ll probably only take it seriously years too late then make desperate efforts to catch up. Fortunately even coal will be too costly to dig up at some point after 2050. I’m not sure we’ll get to that point in one piece.
@Ikonoclast
That may or may not be all true — I doubt it is necessarily true — but even if one did accept your assertions, I don’t see that this means a carbon tax approach is anything more than marginally preferable to an ETS in abatement cost.
Most of what goes under the heading of ‘gaming the system’ is, I suspect, an intended consequence of the system since the states that have introduced an ETS quite deliberately wanted it to impose as lightly as possible on emissions-related activity.
Seriously, if one wanted to design a robust ETS one could certainly do so. In theory, an ETS stands to work better across jurisdictions, given that taxes are not tradeable but permits are. If one assumes that cross-jurisdictional conformity is impossible, then a carbon tax-style system probably is more practicable tghough of course such systems are open to being whiteanted by RW populists rather more easily than permits — which are forms of property.
@Fran Barlow
The issue across jurisdictions is also very simple.
1. Implement a carbon tax at the required rate in your jurisdiction.
2. Implement a carbon tariff for imports into your jurisdicition.
3. Levy a carbon tariff on imports from countries which do not have a bona fide ETS or carbon tax.
4. Levy this carbon tariff at a pro rata rate where other countries’ ETS-es or carbon taxes are not deemed the full equivalent of the domestic carbon tax.
5. Have the relevant Minister from time to time as required sign into regulation departmental schedule which makes deeming declarations and pro rata declarations country by country pursuant to point 4 above.
This whole thing is so simple. It could be very easily done if our major parties wanted to do it. Clearly they don’t want to do it. We know why. BAU is too lucrative for the current oligarchs who own our governments.
@Ikonoclast
That’s true, but as you point out, the problem isn’t a function of the specific pricing mechanism, but of the political will attending it. You do seem to acknowledge that there could be such a thing as a ‘bona fide ETS’ after all.
So far real world carbon pricing that we know most about ..the Australia carbon tax or European ETS… has been feeble. I’d liken it to TV wrestling where the referee looks the other way when the opponents go for dastardly moves. Now without carbon pricing it beggars belief how the Latrobe Valley brown coal generators have gone from villains to the preferred electricity suppliers. They’re not only sitting pretty now but while they were pariahs they were richly compensated for the pain they were supposed to feel but never did.
It’s up to politicians to refrain from creating stupidly generous loopholes like international permits which by chance can be as cheap as 50c. Today Rio Tinto is saying CCS will work if given the chance. Make the ETS cap tough enough and CCS gets a look in. I doubt that but let’s put it to the test. If the cap shrank just 1% a year then 2000-2020 would require a 20% emissions cut (~110 Mt) not the feeble 5% we may not even achieve.
I will point out that under an Emissions Trading Scheme if the targeted cut in emissions isn’t reached then the cost of emitting CO2 is automatically increased. This feature basically eliminates the effects of any attempts to “game the system”. And I’ll mention that while one could certainly have ethical or moral concerns about how permits are initially distributed, initial distribution has little to no effect on the effectiveness of an Emissions Trading Scheme.
While a carbon tax does appear to have some advantages over an Emissions Trading Scheme these are trival in relation to the cost of reducing emissions. That is the two options are basically the same in effectiveness. One advantage of an Emissions Trading Scheme is that it acts as an automatic stabilizer, falling in price when the economy is bad and increasing when it’s good. While this wouldn’t be a huge advantage in a sensible world, so far events have shown that we have not made this the sensible century so far.
@Fran Barlow
Yes, I believe a bona fide ETS could exist. I am also strongly of the opinion that it would be relatively inefficient financially compared to a straightforward carbon tax. An ETS will have considerably higher transaction and compliance costs than a carbon tax. The financial industry will be taking a big cut from any ETS. Why create more financialisation of the economy when it is already one of our biggest problems?
Yes, I understand both kinds of approaches are watered down if there is not the political will to implement them properly. Carbon taxes will be set too low and ETS permits will be handed out too freely.
Which scheme would be more efficient at reducing greenhouse emissions? Well, the scheme that was not watered down the most. But for a given achieved reduction, taxes would do it cheaper than an ETS.
It’s worth remembering that the problem with Pollyanna was, she was right. Not quite Cassandra, but annoyingly correct.
Ed Darrell,
Pollyanna’s ‘glad game’ was about trying to find a silver lining in every cloud. The book certainly had many clouds – hence the need for the ‘glad game’ to keep her spirits up.
“An ETS will have considerably higher transaction and compliance costs than a carbon tax”
I’m wondering how much study you have done to reach such a strong conclusion, and what expertise you have to justify it. Having followed your comments, I’ve never seen anything to suggest you are an expert on tax policy. I’m particularly sceptical because James Hansen, who is clearly ignorant and unqualified on these issues (despite his undoubted expertise in climate science) has made similar claims in similarly strong terms.
In particular, have you considered how to treat carbon-reducing activities? How about companies that go bankrupt with outstanding tax liabilities? If (as is clearly the case) some emitters are regarded as deserving of compensation, how do you go about that? In the case of tax, this involves monetary payments out of revenue, which is a high-risk activity in terms of fraud, compliance etc. The worst outcome with an ETS is a dilution of the value of rights.
Can you point me to the literature supporting your claim? I can point you to very detailed discussion of the workings of an ETS.
Of course, given that the single biggest chunk of emissions in our economy is stationary power, and we have, apparently, about 8GW of excess capacity and a whole swathe of our thermal capacity is more than 30 years old, one perfectly simple step the commonwealth could take would be to force the decommission of about 8GW of thermal capacity, beginning with the dirtiest power in the system.
That wouldn’t cost very much at all.
@John Quiggin
“I can point you to very detailed discussion of the workings of an ETS.”
Please do so. Where it favours an ETS, I find myself wondering how much of it comes out of right wing neconservative think tanks. But I will read the links you provide.
Let me get this straight. In response to market failures, privatisation failures and excessive financialisation of the economy (common events of the last 20 years or more) you want to introduce another market mechanism via an artificial device, privatise a commons via permits to pollute and further financialise the economy by creating a financial industry around the right to pollute.
First, a moral opinion from Ken Mckay;
“Just as Milton Friedman’s prescriptions for education, health or labour reform based on market forces and the profit motive are morally repugnant, so too is using market forces or the profit motive to achieve environmental outcomes.
The idea that labour is just another commodity to be traded belies all human dignity, so too is the concept that environmental pollution should be treated as a tradable commodity.”
Then he has this to say;
“There is no economic evidence that controlling the impact of externalities such as carbon emissions is more effective via price effects than direct regulation. The principle behind Pigovian taxes or emission trading schemes is that by charging a tax equivalent to the social cost of the externality the demand curve will shift to what the socially acceptable quantum of permissible damage is.
For this to occur there must be perfect information to the market. Effectively for emission trading schemes to work there needs to be total reliance on the efficient-market hypothesis. So we accept that there is a market failure that does not recognise the social cost of pollution, yet we think we can rely on the same market which has already failed, to correctly establish a price mechanism to reduce the supply of pollutants to socially acceptable levels. Has anyone realised the inherent madness of this supposition?” End of quote.
I would like to make a couple of points. One, McKay seems to lump pigouvian taxes and ETS-es together in one paragraph as both being market mechanisms. In one technical sense he is correct. In the next paragraph he seems to attack only the ETS concept. However, as he is a strong proponent of the direct regulation approach it is clear he rejects both pigouvian taxes and ETS-es. Here, I part company with McKay as I would use both aspects of government power in this matter. I would use direct regulation and pigouvian taxes.
The second point is that McKay hits the nail on the head about the madness of attempting to use (artificially incentivised) market mechanisms in the face of market failure. I would still hold that a pigouvian tax has different effects, not least because its price is under direct government control, but I would also team it with direct regulation if that is needed. If an ETS price remains under government control rather than being traded then it is self-contradictory. It cannot be a free market mechanism in that case.
I am particularly intersted in your reply to McKay’s contention as follows. “Effectively for emission trading schemes to work there needs to be total reliance on the efficient-market hypothesis.” I know you are an opponent of the efficient-market hypothesis at least in its strong form.
McKay sums up the case very well;
“Given the recent financial turmoil created by the lack of maturity and regulatory oversight of the derivative markets, there is a real danger that creating an “innovative” trading scheme for carbon emissions could have far reaching impacts wider than dealing with that particular externality. Hybrid securities based on bricks and mortar almost sent the world into the abyss; can we trust the merchant banks to be able to manage something as esoterical as carbon derivatives?
Those of us on the broad political left spectrum need to maintain consistency. If the reliance on economic rationalist policy is wrong for social welfare, health, education or the labour market we need to reject its use to address environmental issues.
The emission trading scheme is to environment protection what the trickle down policies of the New Right is to social welfare reform: just as the invisible hand of the market cannot be relied upon to magically address inequality nor can we rely upon the invisible hand of the market to correct environmental pollution or dangers.”
That is more of a position statement (from McKay) about consistency of position as a leftist compared to the inconsistency of those who want to be a social democrats whilst promoting neoconservative market schemes.
But I will come back to your specific questions.
Fran Barlow,
“Of course, given that the single biggest chunk of emissions in our economy is stationary power”
Not true. For Australians embedded emissions from material goods and food are the highest – each are close to 30% of the per capita GHG emissions total – so together make up around 60%.
Aeroplane flights were not counted in the figure , so not sure what % transport would be including air.
Rather than point to the literature as per Prof John Quiggin’s request, Ikonoklast serves up a boring and evidence free Online Opinion piece written in 2009 by a complete non-entity with no aparent econ quals or peer reviewed publications.
This is just embarrassing.
It is a complete waste of the Professor’s time to respond to this type of thoughtless word salad.
There is absolutely no difference between this nonsense and the rubbish one sees on an Andrew Bolt thread apart from the red rather than blue badge of political allegiance.
ZM
http://www.carbonneutral.com.au/climate-change/australian-emissions.html
Clearly, we import a lot of stuff, but short of blocking imports, the biggest single chunk of emissions is in energy — largely stationary energy:
It would be a little less now, but not greatly less. In 2009-10 coal, oil and gas accounted for 96% of our energy inputs.
In 2012-13 53.8% of Australian electricity was generated by black coal and 29% from brown coal. Ergo, of the 48.4GWe nearly 14GW were in brown coal. Taking out 8GW of that would be a significant bite out of emissions, even if, improbably, all of it were replaced with black coal. It would be, effectively, like getting roughly 20TWh of electricity emissions-free. At 1.29MtCO2 e per TWhe we’d save nearly 11MTCO2e or about 2% of annual emissions right there. (I’m not sure if this is just the sent out power figure.)
Still, very much low hanging fruit.
Fran Barlow,
GHG emissions can be counted by production or consumption. Your link counts by production. Counting by consumption shows western countries emissions are higher, and developing countries with export oriented economies lower.
This is one reason the ETS in the EU was a complete failure – counting by production it would look like EU emissions dropped – count by consumption you see GHG intensive industry was offshore but including embodied emissions their emissions actually rose.
Including aero planes and emissions created by nationals when Traveling abroad is important too. Lots of GHG emissions in , say, Thailand are generated by other nationalities touristing – it is not fair to attribute this to Thailand.
Figure here http://www.acfonline.org.au/sites/default/files/resource/res_Atlas_Main_Findings.pdf
“The emissions generated from producing the food we eat and the goods we purchase are together more than four times the emissions from our own personal use of electricity. This suggests that for households to make a serious dent in greenhouse emissions, they must go well beyond merely reducing energy and petrol use.”
A bit more on Prof. J.Q’s. specific assertions and questions.
“I’m wondering how much study you have done to reach such a strong conclusion, and what expertise you have to justify it. Having followed your comments, I’ve never seen anything to suggest you are an expert on tax policy. I’m particularly sceptical because James Hansen, who is clearly ignorant and unqualified on these issues (despite his undoubted expertise in climate science) has made similar claims in similarly strong terms.”
J.Q., I feel you are engaging in ad hominem and “arguing from authority” rather than adressing any of my substantive points. But I will answer honestly.
I have done some broad but not very deep research as a layperson in these issues. Yes, I am aware of the weakness of this part of my answer but honesty compels it. I am not an expert on tax policy though I have had considerable practical, project and administrative experience in compliance issues in the government welfare sector (DSS and then Centrelink). These compliance issues were not trivial and involved both welfare recipient compliance and organisation compliance. With respect to the latter, many organisations from employers generally to Banks, Building Societies and Credit Unions, Aged Care Institutions etc. have to comply with Social Security law and policy.
It would be correct to say that this experience impressed on me the nature of compliance with regard to government legislation as a “wicked problem” both socially and administratively. It impressed on me the necessity for simplicity and humaneness in legislation and policy which lesson successive governments never learned.
Any pretence that economics and public administration can be a science ought to be jettisoned at the outset. Any pretence that detailed mathematical economic modelling can prove that an ETS is going to be better than a pigouivan tax is just that, a pretence. There are too many unknowns in what is clearly a “wicked problem” and too many players who will adjust their behaviour at each adjustment in policy. There is no algorithmic solution or proof just different heuristic solutions (regulation, pigouvian tax or ETS) based on various heuristic assessments.
Where the market has made a mess of things by market failure to cost a negative externality, my heuristic assessment is that the direct path and the direct levers of regulation and pigouvian taxes will prove more effective and very likely less costly. Complexity incurs costs and becomes the enemy of effective action at least in the matters of public administration and compliance. A mechanism should be just as complex as it needs to do the task and no more complex than that. Until economics can develop laws as reliable as the laws of physics (which it never can do of course) then it has no way to refute a position solidly based on heuristics derived from historical and administrative experience.
The Carbon Tax Centre writes;
“As for political feasibility, the political process has borne out our belief that carbon cap-and-trade was too complex, regressive, cumbersome and undemocratic to succeed. Supporters of cap-and-trade were never able to resolve this contradiction: either it wouldn’t raise fossil fuel prices, in which case it would be ineffectual; or it would raise them after all, provoking an unstoppable backlash among a citizenry that hadn’t signed off on the higher prices and wouldn’t be getting the dividends from the tax revenues, while carbon-market participants raked off huge profits. Moreover, cap-and-trade’s complexity guaranteed that it couldn’t be implemented for several years — the Northeast states’ electricity cap-and-trade system took 5 years to institute — whereas a carbon tax can be implemented within months, as British Columbia demonstrated with its 2008 carbon tax startup.”
CTC also argues;
“CTC regards carbon taxes as superior to carbon cap-and-trade systems for six fundamental reasons:
1. Carbon taxes will lend predictability to energy prices, whereas cap-and-trade systems will aggravate the price volatility that historically has discouraged investments in less carbon-intensive electricity generation, carbon-reducing energy efficiency and carbon-replacing renewable energy.
2. Carbon taxes can be implemented much sooner than complex cap-and-trade systems. Because of the urgency of the climate crisis, we do not have the luxury of waiting while the myriad details of a cap-and-trade system are resolved through lengthy negotiations.
3. Carbon taxes are transparent and easily understandable, making them more likely to elicit the necessary public support than an opaque and difficult to understand cap-and-trade system.
4. Carbon taxes can be implemented with far less opportunity for manipulation by special interests, while a cap-and-trade system’s complexity opens it to exploitation by special interests and perverse incentives that can undermine public confidence and undercut its effectiveness.
5. Carbon taxes address emissions of carbon from every sector, whereas some cap-and-trade systems discussed to date have only targeted the electricity industry, which accounts for less than 40% of emissions.
6. Carbon tax revenues would most likely be returned to the public through dividends or progressive tax-shifting, while the costs of cap-and-trade systems are likely to become a hidden tax as dollars flow to market participants, lawyers and consultants.”
I might add I figured out my position indepedently. I was not aware of Hansen’s support for a carbon tax nor of the CTC site until I went searching today. You seem to imply J.Q. that I am not capable of developing ideas myself. CTC’s six points are more comprhensive and better expressed than my attempts to do likewise to date I will stand by them as my substantive position. I wonder how you would answer those six points?
You say; “In particular, have you considered how to treat carbon-reducing activities? How about companies that go bankrupt with outstanding tax liabilities? If (as is clearly the case) some emitters are regarded as deserving of compensation, how do you go about that? In the case of tax, this involves monetary payments out of revenue, which is a high-risk activity in terms of fraud, compliance etc. The worst outcome with an ETS is a dilution of the value of rights.”
First, as a general admission, no I haven’t considered all possibilities of this or any “wicked problem”. I haven’t considered how to treat carbon-reducing activities. My first instinct would to suspect “gaming” or special pleading as soon as I heard requests for treatment of carbon-reducing activities. There are precious few if any carbon-reducing activities going on in our economy or developable that could be depended on to lock up carbon indefinitely. As soon as one set up such a scheme as a government it would like putting up a great big sign – “Here, scam this!” Amelioration is another issue. But if you are not emitting CO2 then you are not paying the tax. That is the gain right there.
How about “companies that go bankrupt with outstanding tax liabilities?” Point one, that is a general risk for all taxation. I can just as easily say how about companies that scam the ETS? How about false mitigation schemes, dodgy offsets and so on? These are all compliance issues.
“Can you point me to the literature supporting your claim?”
Yes I can point to literature supporting my claim just as you can to support yours. But as I said, in a case where only an heuristic assessment is possible concerning which path is best there can be no definitive proof of which path is actually best. The historic record however shows that dirigist action works best to attain direct national goals. The failure of all ETS schemes to date to do anything about CO2 emissions is the other piece of empirical evidence.
I will say finally, your ad hominum attacks and continued failure to address my substantive points have puzzled me. We as commentators are asked not to make personal and ad hominem attacks. I know it takes a lot of patience on your part to deal with twerps and derps. However, in a sense you have signed up for it by inviting our comments as (mostly) laypersons on economic matters. And I think I have shown I am not a derp on all occasions. I shifted position on renewabe energy based on new data. I have also modified my collapse position. It is not an absolute predicition now and is not solely based on energy limits as it was previously.
I think you should accept that I have a strong left bias to regulation and tax solutions and a strong suspicion (well justified after the failure of the Great Moderation and the ensuing GFC) of so-called market solutions and further financialisation of the economy as a response to negative externality problems. It is a very reasonable and justifiable position on any historical and heuristic assessment of modern economics and political economy.
In other words I think you should respect my position and cease the ad hominem approach. I will endeavour to respect your position better than I have done to date.
@Gaius X
I won’t dignify that with a reply any longer than this one.
John Quiggin and Ikonoclast,
Re: a carbon tax and bankruptcy and tax not being paid, so there is not enough revenue for implementing and assisting the transition to a GHG negative country
I think if there were so many bankruptcies thus would mean the tax/price approach was not a goer – and we would then go to our backup approach of a wartime-mobilization-style-economy,
I think this would actually be a good idea – we can have Plan A of tax/price and if that does not work and we have lots of bankruptcies and little progress on our 30 year transition plan to a GHG negative country – then if our KPIs are not met – we have our back up Plan B for a war economy waiting in the wings ready to take over.
If we had this two-plan approach I would be satisfied with starting with tax/price/bond Plan A. Plan B war economy would get lots of funding for development and planning (because we would have lots of revenue) and we would have an army reserves style program getting people trained up on weekends and holidays in case we need an emergency swap to Plan B. Training for Plan B would be devised to assist Plan A as well , so as not to compete with Plan A.
I think this would work well – and having plan a and plan b would mean our dollar would be less likely to drop during the plan a stage and the CIA would bother us less because they would be concentrating on trying to facilitate plan a and avoid plan b being implemented.
This economist Geoff Carmody who is apparently prominent thinks a Carbon Tax would be better than an ETS, and favours a consumption based approach over a production based approach
“First, is an emissions trading scheme (ETS) better than a carbon tax? I favour a carbon tax. It delivers emissions reductions with less (or no) ’wastage’ via ‘emissions shuffling’ (more politely called ‘emissions trading’). It is better at delivering predictable carbon price increases, clearly and consistently signalling the need to shift investment towards lower emissions technologies. This signal is required for a switch to a low-emissions economy.
Second, the most important debate by far is about the best national emissions base for policy.
The contenders are national emissions produc- tion and national emissions consumption. Either works under the very first policy idea leading up to the 1992 United Nations Framework Convention on Climate Change (UNFCCC): a globally applied carbon tax. Sadly, this idea didn’t survive the 1992 UNFCCC. Worse, under the 1997 Kyoto Protocol, non-harmon- ised national action was formally approved. A national emissions production base will fail under this differenti- ated approach. ‘First movers’ suffer competitiveness losses compared with ‘late movers’; effectively taxing their exports and subsidising their imports. This nega- tive protection generates activity and job losses for little or no net reduction in global emissions. That’s what the global hullabaloo about ‘trade-exposed’ industries is all about. That’s why the Kyoto Protocol has failed.”
Click to access growth61_carmody.pdf
@ZM
This is a fair objection — one that I have raised on more than one occasion. In effect, it’s possible to outsource emissions by having some other jurisdiction do your figurative dirty work.
However, it wasn’t really related to the point I was making which is about locally generated emissions — which lie within our regime’s scope to control.
In a better world, we would play an active role in helping to decarbonise other economies from whom we were importing. Alternatively, we could do as I suggested a while back and begin offsetting our total emissions through bio-sequestration of CO2.
I don’t agree that this is why it was a failure. It was a failure because far too many permits were issued, which implied a near zero target for reductions.
Arguably, but the best way to do aircraft emissions is probably to create a global system covering global aircraft emissions and attribute them “at large”. Perhaps countries like Australia could become sinks for those emissions using bio-sequestration.
I probably should have heavily edited my last two replies to John Quiggin. Here is my edited reply with some very small references to the literature (two papers).
A. John resorted to an ad hominem attack and to argument from authority.
B. John implied incorrectly my approach was derivative from Hansen and others when it was independently arrived at from my own general knowledge, analytical ability, real world experience and extensive (lay) political economy reading.
C. I have subsequently found the Carbon Tax Centre site. This elucidates six main points better than I have done to date. These points can stand as my substantive position. I wonder if John will finally reply substantively or resort again to ad hominem and argument from authority.
The six points are;
1. Carbon taxes will lend predictability to energy prices, whereas cap-and-trade systems will aggravate the price volatility that historically has discouraged investments in less carbon-intensive electricity generation, carbon-reducing energy efficiency and carbon-replacing renewable energy.
2. Carbon taxes can be implemented much sooner than complex cap-and-trade systems. Because of the urgency of the climate crisis, we do not have the luxury of waiting while the myriad details of a cap-and-trade system are resolved through lengthy negotiations.
3. Carbon taxes are transparent and easily understandable, making them more likely to elicit the necessary public support than an opaque and difficult to understand cap-and-trade system.
4. Carbon taxes can be implemented with far less opportunity for manipulation by special interests, while a cap-and-trade system’s complexity opens it to exploitation by special interests and perverse incentives that can undermine public confidence and undercut its effectiveness.
5. Carbon taxes address emissions of carbon from every sector, whereas some cap-and-trade systems discussed to date have only targeted the electricity industry, which accounts for less than 40% of emissions.
6. Carbon tax revenues would most likely be returned to the public through dividends or progressive tax-shifting, while the costs of cap-and-trade systems are likely to become a hidden tax as dollars flow to market participants, lawyers and consultants.”
Finally, two papers of interest are;
(a) “An Interim Evaluation of Sulfur Dioxide Emissions Trading” – by Richard Schmalansee et. al.
This paper on balance supports John’s apparent position in favour of an ETS and given this paper’s place in the timeline of developing emissions trading it might be a paper of some early importance in the literature. The paper does note that success in curbing SO2 emissions appeared to owe part of its result to fortuitous changes in rail freight charges and conditions such that low sulphur content coal become economically available to a wider generating area at or about the time of the introduction of sulfur dioxide emissions trading.
(b) “Carbon Taxes Versus Cap and Trade” : A Critical Review by Goulder and Schein.
This paper on balance slightly supports my view in favour of taxes but in a nuanced way. It refers to the carbon tax approach, the hybrid cap and trade with floor and and maybe ceiling prices and the cap and free trade approach. They find that any well designed system will work and that the design of the system is more important than the choice of system. Equally, any poor system will not work. They find that “… it is noteworthy that the carbon tax or hybrid system seems to score better along the dimensions where the advantages and disadvantages are unambiguous.”
They go on to say “Many advantages of the carbon tax and the hybrid (when the hybrid’s floor or ceiling is engaged) stem from the exogeneity of the allowance prices. Exogeneously conferred prices special attractions. They prevent emission price volatility (assuming that the specified prices themselves do not display a volatile pattern). In addition, they may imply smaller expected policy errors in the face of uncertainties about the marginal benefits and marginal costs of emissions reductions. These attractions are fairly well known.”
The above would indicate considerable debate in the economic fraternity and areas of both general agreement and of nuanced or relative disagreement on certain points. So there is no justification per se for ad hominem attacks on one who favours the carbon tax approach.
I still expect substantive replies to the substantive six points above. It is clear I need to modify my purely economic views in the light of even these papers. Fran is right, IIRC, as she too said the issue of a good scheme was more important than the issue of which scheme. From a purely economic point of view I agree. But from a political and political economy point of view (and with a view to the deceptions continually and egregiously practised by financial capitalists so far as they can get away with them), I consider a carbon tax the wiser, more effective, less expensive, less gameable and more transparent course. I think I am fully justified in holding this considered opinion and in not accepting attempted intellectual belittlement and ad hominem attacks.
@Ikonoclast On your point B my understanding was that the position as stated by Hansen was of an area outside of his expertise and should be viewed as unqualified.
By extension this applies to all those who speak of areas in which they have no real qualifications. I think that the Chinese have a saying about this.
@Ikonoclast
A couple of things Ikono …
There’s nothing wrong in principle with ad hominem attacks — if by this one challenges (plausibly) someone’s standing to make a claim about the world (rather than some more generic incivility). If, as you seem to acknowledge, you lack any specific expertise in the complexities of emissions trading schemes and their attendant costs, constraints, and equally, in the taxation of “bads” in a setting such as this one, then making a claim that one approach is necessarily more fruitful than another merely as a function of the system’s target — prices in the case of taxation and emissions volumes in the case of trading seems unsupported. The ad hominem challenge would seem to be enitrely apt, much as it would be if anyone made claims in a highly technical area with thich they had little direct familiarity.
Your claim, as I understand it, was that outside of the broader system issues — essentially the want of political will of the owners of fossil HC assets and their political playthings to permit substantial and rapid decarbonisation — carbon taxation was radically preferable to emissions trading. That’s a claim that would require not merely the kinds of general claim you offer above, but some specific data and an argument about why the particular failures were inevitable within any similar system. You’d also need to be able to quantify these costs to the system — and in the case of program failure to show that these differences would likely prove decisive — predisposing failure in one and success in the other.
Now I’m no expert in the quality and seriousness of the likely system flaws in a well conceived ETS or Carbon tax either, but I’m yet to read anyone who says that the differences would in practice be as great as you seem to argue. I also wonder, if it were true that a carbon tax would succeed where and ETS would fail why the same people who rorted an ETS wouldn’t simply rort the carbon tax. Surely, that’s the point? Carbon pricing, if we are to resort to it, must be won in the teeth of the opposition of those who perceive themselves as losing from it. We should adopt the combination of measures that makes it hardest for them politically to whiteant, and disrupts the unity of the anti-pricing coalition. I’d be willing to accept some inefficiency if I could get that outcome.
Creating a tradeable security — an emissions permit — seems more likely to me to do this latter job than any other specific instrument under capitalism. In a property-based system it’s politically much easier to abolish taxes than property. Those that have acquired property want to protect its value. That’s a wedge.
I don’t agree we should put all our eggs in one basket though. I’m for regulation (of pollution) and direct investment in clean energy infrastrucuture and effectively, taxation (by limiting business deductions on dirty energy) and a trading scheme, so that no matter where they turn, the system will be pressing forward in the direction of decarbonisation. Let’s have a full court press on this.
@Ikonoclast
Bingo. As I recall, I pointed this out to you last time this interminable debate was had on this blog, and you admitted that it was probably correct, but that you just ‘see red’ whenever someone mentions an ETS. As for the Carbon Tax Centre’s six points you cite (which are similar to the issues discussed in the last iteration of this debate), it ought to be obvious that whether any of them are true in a given circumstance will depend on the design of the particular carbon tax or ETS policy under consideration. Points 2 through 6, in particular, are entirely dependent on how a scheme is designed.
The more salient point is that there is also no justification for your insistence that a carbon tax is necessarily better than an ETS. Given the situation in the economics community as you have stated it, a more rational position for the informed layman to take would be that it is most probable that “any well designed system will work and that the design of the system is more important than the choice of system.”
Given that this point has been made on this blog many times before, I can understand Prof Q’s frustration.
@Gaius X
Who rattled your chain.