No point complaining about it, Australia will face carbon levies unless it changes course

That’s the headline for a recent article I wrote for The Conversation. I meant to post it earlier, but didn’t get to it. Now that Trump is gone, there’s near-unanimous international support for border adjustments. But our government thinks it can bluster its way past the problem, as it does on domestic issues. And if Labor has any ideas on the issue, I haven’t heard about them.

22 thoughts on “No point complaining about it, Australia will face carbon levies unless it changes course

  1. Your article endorses a position that I have espoused for more than a decade. The appropriate carbon tax base is the consumption of carbon in an economy. Exports should be exempt from such taxes and import competition industries should be accorded a level playing field by taxing carbon-containing imports at a rate ensuring parity with taxes on local carbon consumers. It thus uses destination accounting. The measure is known to be WTO compliant – it is no different, in principle, from levying excises on imported cigarettes to ensure a level playing field with respect to local production.

    The measure has, at various times, been supported by China, the US, and Europe. with indignant and hypocritical howls from the other countries when one country proposes such a move. It has precisely the desired incentive effects that you now recognize. Individual countries have incentives to levy carbon taxes so that they get the revenue from such taxes rather than other countries. The proposal can be implemented without an international agreement – unilateral actions can drive good outcomes.

    Of course, it is the carbon content that matters not the product: Alumina produced in a country using hydropower would not be subject to a compensatory tariff.

    Limiting carbon exports which many (including you) have pursued has no such desirable incentive effects. It just gives other countries the incentives to develop substitute products. You do need an international agreement to get this “origin-based” tax base scheme to work. Moreover not including border taxes on carbon imports raises the perennial issue of an unfair playing field for local carbon users. It may be a limited argument since only a few sectors of the economy are significantly impacted by a non-level playing field but the politics have meant this is a complaint that has stopped moves towards adopting a carbon tax in Australia for two decades.

    It is so sad that foolish carbon control policies have prevented Australia from moving toward pricing when simple destination-based policies would have driven policies that were non-discriminatory with respect to local industry and which were environmentally sound.

    Yes, if China or the US introduce such policies Australia will have incentives to fall in line.

    https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1856884

  2. Amusingly I first heard about this via howls of outrage from some kiwi farmers. They want to continue to be exempt from the effects of climate change. Which is going to do them about as much good as the various covidiots who claimed legal immunity to the pandemic.

    It’s such an obvious measure that I’m still not sure why no-one has done it yet. Either the brutal “country X emits $Y worth therefore their imports get value taxed pro rata, or the far more exciting “the embodied emissions are worth $Y, so we charge you that much”.

    I suspect because it’s more politically acceptable to subsidise people inside your country than deliberately drive up the cost of imports. Especially when it’s necessarily done via an arcane set of arguments about unknowable numbers and there are lots of interested parties willing to sow FUD. And many of those parties are the one who stand to benefit from the subsidies. But I’d like to think that’s me being excessively cynical. And then I look at our governments and … too cynical doesn’t seem possible.

  3. Moz – Australian governments can subsidise clean energy all they want so long as it is constrained by “must not raise taxes” limits, a variation on the “must not raise costs or reduce profitability for businesses”. Carbon pricing has been successfully excluded as a political possibility… Labor simply won’t go there again, so unless the LNP grows some commitment to the issue it won’t happen in Australia. Not without a lot more international pressure than is apparent to me – and in one of those twists, nothing will shore up the xenophobe vote (which tends to align with opposition to climate action) better than strong international pressure on Australia. At a smaller scale watching how Qld Labor got votes out of the Premier raising a middle finger to Canberra and the other States over Covid border closures hasn’t raised my expectations that voting will reflect an enlightened public’s concerns about climate change.

    I think it is not a matter of Morrison facing down the climate science deniers and obstructors in LNP ranks, but of those “moderates” who know the issue is real and serious facing down Morrison. I mean, there must be some. Surely. But whilst the deniers are prepared to blow the party apart if they don’t get their way the moderates still prefer to keep heads down and mouths closed and let the deniers have their way.

  4. mrken, I am hopeful that at the point where the Murdoch government has the choice: pay carbon taxes to foreign governments on our exports or collect those taxes themselves it will be a no brainer. That seems to be their intellectual comfort zone (although on the “can we rape our staff” question it might be more of an aspirational goal).

    I fear we might need a bunch of moderates to cross the floor rather than just mumbling discontentedly, with a matching Green/ALP majority in the senate. Or if we can arrange to have a really bad bushfire just before a federal election that might swing the vote enough to let the ALP dump any surviving hard browns and push through some green-ish policies.

    Because we don’t *need* carbon taxes, remember, those are a compromise between the humanists and the capitalists to allow the latter to keep pretending that money is the measure. What we actually have to do is meet our carbon budget, so it’s perfectly reasonable to auction off emissions permits instead, or just have a Department Of Carbon Quotas that allocates the permits directly.

  5. “White man behind a desk” encouraging submissions from kiwis to the “should we aim for a minimum 33% chance of climate catastrophe?” commission. Two hours later I have filled in all the boxes and managed to (mostly) avoid swearing. Links in video description.

    But look, if you are a kiwi and you don’t have time to grind through it all, you can just put “WHAT THE {quack} ARE YOU {quack}ING {quack} THINKING? FOR GODS SAKE TAKE THIS SERIOUSLY” and click the ‘nothing more to add” button.

  6. Harry, relying on the description in your post above (your paper is paywalled), the incentive argument you present is not watertight:
    1. It relies on each traded thing being produced in each country in question, which is empirically not the case.
    2. For 2 counties, “A” and “B”, which trade goods “a” and “b”, both of which involve ghg emissions in their production (including transport!) and both “A” and “B” do not have a domestic carbon price, then neither “A” or “B” would have a credible incentive to impose any tax other than zero.

    As is evident from JQ’s short article, the proposed border adjustment for ghg emission content is credible if and only if the levy imposing country has already a carbon price, preferably across all sectors.

    So, I cannot see the equivalence of the content of your post and the content of JQ’s post

    Further, as to your argument about tax collection at the border, there are already detailed policy proposals (eg by Bündniss 90/Die Grünen in Germany and probably in many other places about which I don’t know) on how to simultaneously reduce income inequality and ghg emissions via carbon pricing. So tax collection per se isn’t a strong argument in general.

  7. completely off topic

    latest from the cued “q” writhemouth never-never.

    at a place near me (personally) is a petshop,the owners of which recently lost a 90 yr old grandparent to old age… and the death was counted as covid.

    there is no petshop at the place near me (personally)

    carry on.

  8. Ernestine, I am not sure what you are on about. All carbon consumption within a country would be subject to a carbon tax under this suggestion and exports of carbon would be exempt. If there are no imports of a good then, of course, the tax is still levied. If there are imports then a border tax adjustment is applied to the imports so that both locally produced and imported goods are subject to the same tax.

    Yes, you need one country to start the ball rolling. To impose this scheme. Currently, that country seems likely to be the US. Then other countries have incentives to levy a similar tax since otherwise, the tax revenues will accrue to foreign countries imposing that tax. That is the straightforward incentive.

    Why might one country start the ball rolling? Well, it might believe the vast scientific literature on the adverse effects of climate change and be aware of the Prisoner’s Dilemma obstacles to negotiating a global agreement. Or it might act as a Kantian deontologist and behave as it would will (i.e. want) other countries to behave. Because of the incentive effects, there are reasons to suppose the other countries will fall in line. That is one implication of John’s post. If other countries move to carbon pricing with border tax adjustments then Australia will have little choice but to follow suit.

    It’s not my argument these days. Now many economists – Alan Greenspan, Gregory Mankiw etc. have adopted exactly this proposal.

  9. Regretfully I don’t think Australia will have too much trouble getting an exemption from the border adjustment tax. We will claim that the subsidies, tax concessions and regulatory measures of the State and territory and Commonwealth governments with regard to carbon pollution have the equivalent effect of a carbon price. Would be rather embarassing for the Commonwealth Government to admit that some of their measures are equivalent in effect to an evil carbon price, but they’ll do anything for a mess of pottage.
    Though on checking the carbon price, it is now up to 38 Euro per tonne, so we would likely come up short when the carbon price equivalence of our existing measures is calculated. I suppose whether we have to pay the border adjustment tax or not will depend on how close to the current European carbon price we are expected to be.

  10. Harry, I am not convinced by your argument.

    1. “All carbon consumption within a country would be subject to a carbon tax under this suggestion and exports of carbon would be exempt.”

    2. “Then other countries have incentives to levy a similar tax since otherwise, the tax revenues will accrue to foreign countries imposing that tax. That is the straightforward incentive.”

    By 1. exports are exempt. Therefore the carbon tax on these exports will always be collected by foreign countries (that impose that tax). This contradicts 2. Nothing new regarding incentives.

    There is also the question of initial condition. JQ’s article has as its initial condition the empirical fact that the named countries (or set of countries as is the case with the EU) have already a carbon tax, although it falls short of being comprehensive regarding the range of stuff, but they have a commitment to a zero net carbon emissions. Given this initial condition, the question is, what can we do to entice other countries to follow suit. Answer, levy a border adjustment (tax) on imports. In a dynamic context, this border adjustment can be used to work towards an alignment of the carbon price internationally.

    The question is not whether consumption or production accounting is used, as it seems to be the case you were interested in more than 10 years ago.

    As you agree, “one country has to start the ball rolling” in your model. But surely, if the model has something to say about incentives, then how the ball get rolling has to be solved within the model; the incentive compatibility problem.

  11. Tweeted yesterday by David Spratt:

    “Confused by carbon budgets for the Paris #climate goals? So were we, so we went looking for some straight-talking answers. What we found is not what most policymakers and advocates propose. Read our carbon budgets briefing note at http://breakthroughonline.org.au/briefings
    @BreakthroughCCR”

    While there are arguments about who “starts the ball rolling” on getting GHG emissions down, the window of opportunity for effective, meaningful action continues to narrow.

    “Political reality must be grounded in physical reality or it’s completely useless” – Professor Hans Joachim Schellnhuber

  12. Geoff Miell, that’s a helpful reminder but also quite terrifying. But I’m sure by 2050 we’ll have efficient ways to permanently remove CO2 from the atmosphere on a huge scale 😬

  13. John Goss: the Biden administration has raised the “social cost of carbon” (a non-market virtual price used in project and policy analyses) to $51 per tonne. Given all the pressures on the EU to ramp up its climate ambition – including to compensate for the vaccine screwups – I’d be surprised if the bidding on carbon border adjustments opened under $50 per tonne.

    BTW, why is Cormann still a serious candidate for the SG job at the OECD? I would have thought that a long and shoddy record of climate delayism would be instantly disqualifying in today’s international climate. The rival candidate, Cecilia Malmström from Sweden, has more international experience and is a climate hawk. Can you see Harris and Kerry backing Cormann? Or Biden overruling them?

  14. “The customer is always right.” – Stockingrate.

    I assume that was ironic. It’s pretty clear from the companies and tradespeople I have been dealing with recently, that the customer is always wrong and is to be lied to, overcharged and misdirected at every opportunity, while supplying products and services that never live up to claims. Referring to the “choices” topic J.Q. posted, the panoply of products, services, contracts and deals is is so vast and often so deliberately deceptive that consumer would have to be an expert in EVERYTHING as Moz pointed out on the “choices” thread.

    I have come to the conclusion that it is simply safer and easier not to spend money except on absolute essentials. Sadly, I cannot convince the rest of my immediate family of the wisdom of this course. The desire and belief in self-actualizing by spending is simply inculcated way too deep in them by advertising, social pressure and internalized life narrative “needs” under capitalism.

    Though retired, I easily work a 40 hour week maintaining and upgrading the property and lifestyle everyone else in the family wants to enjoy. This work includes endless rectifications and repairs/improvements to professionally done work around the place that was not / is not up to scratch and the endless fight against entropy (the dilapidations of time). One of my offspring says of my attitude “first world problems dad” but then that person isn’t the one aged 66 working like a coolie in the hot sun all day without help to make the whole shebang function as intended.

    Frankly, I am almost hoping for a massive heart attack to kill me on the spot. LOL, not quite but I certainly don’t favor the idea of getting COVID-19 sooner or later.

  15. The cost of removing a tonne of carbon from the atmosphere should be equal to the cost of removing it from the atmosphere and sequestering it long term. This cost should include any externalities from the capture and sequestration process itself. (Looking at you, Iko.) Since the cost of doing this on more than a modest scale is likely to be $50 US a tonne or more, Australia is not likely to catch a break from this. But I suppose it is possible Australia could capture and sequester emissions for less than that if we’re fortunate.

    Why we aren’t aiming for a carbon credit recovery instead of as gas one, I don’t know.

  16. Replying to Ikono: No, not ironic. “The Customer is always right.” is a paraphrasing of
    “No point complaining about it, Australia will face carbon levies unless it changes course.”
    In other words it is futile for the government to tell coal customers that impose a carbon levy that they are wrong. To tell your customers they are wrong in this way is a marketing failure, from people who probably see themselves as commercially savvy.

    In terms of the customer being deceived, yes it does happen far too much. However it is not universal- I am no expert with tradespeople but some I find quite good- problem is finding them, and knowing you have found them.

  17. Moz in Oz (Re your comment at MARCH 3, 2021 AT 8:20 PM),

    You state: “But I’m sure by 2050 we’ll have efficient ways to permanently remove CO2 from the atmosphere on a huge scale”

    I’d suggest a prudent risk management strategy would be to rapidly reduce our GHG emissions ASAP – it needs to be done anyway – in case effective “negative emissions” technologies aren’t available to deploy at large scale in a timely matter, or are too dangerous to use.

    Meanwhile, published at RenewEconomy on Friday (Mar 5) was a podcast that included an interview with Australian Greens leader Adam Bandt MP, with a discussion on his party’s policies, the Coalition’s “deliberate” misinformation program, and the chances of striking a deal with Labor. On when an election is anticipated, and what is The Greens top priority, Bandt said (from the podcast from time interval 30:31):

    “We’re planning for it to happen this year, and… the… I don’t know whether that has… whether anything that’s happened over the last month, or two months is going to change that, but we are, are working on the presumption that it’s going to happen this year and we are, are getting ourselves, um, ah… ready for that.

    What’s going to be our top priority? Our top priority is going to be climate action, and we want… we think if we can get agreement to working towards a one-and-a-half degree goal, then things flow backwards from there. Things like targets. Things like the changes that we need to make. Things like the assistance that we need to give to our industry, ah… to transition. All of those things flow backwards from there.”
    https://reneweconomy.com.au/energy-insiders-podcast-adam-bandts-climate-and-energy-action-plan/

    It’s apparent to me even the Greens are still publicly saying a +1.5 °C goal is achievable, but that’s entirely inconsistent with the latest climate science I see.

    Global mean warming was already over +1.2 °C in 2020.
    See graph included in the tweet by climate scientist Zeke Hausfather on Jan 9 at: https://twitter.com/hausfath/status/1347632817799274496

    The Briefing Note by David Spratt and Ian Dunlop titled “Carbon Budgets For 1.5 & 2°C” includes in the Summary:

    • IPCC carbon budgets underestimate current and future warming, omit important climate system feedback mechanisms, and make dangerous assumptions about risk-management.
    • 1.5°C of warming is likely by 2030 or earlier, a product of past emissions.
    • There is no carbon budget for the 1.5°C goal; such “budgets” rely on overshoot, with unrealistic reliance on speculative technologies.
    • The current level of greenhouse gases is enough for around 2°C of warming, or more.
    • 2°C of warming is far from safe, and may trigger the “Hothouse Earth” scenario.
    • There is no carbon budget for 2°C if a sensible risk-management approach is taken.
    • Even accepting the IPCC carbon budget for 2°C at face value, emissions need to be zero before 2030 for developed countries with higher per capita emissions.

    Clearly there is still a profound ignorance of the problem. David Spratt said at the RESET.21 forum 1 (Feb 2) that there is not a single federal MP, a single ASX200 company director or a single person at APS executive level who acknowledges the full reality of the climate crisis.

  18. We’re not doing prudent risk management, and capitalism is working in Australia – assorted billionaires are willing to pay to get an extractive, denialist government and the magic of the market means one is always available. Interestingly New Scientist has been “inviting” subscribers to look at The Spectator Australia, which seems to be aimed at making the Murdoch press look sane and reasonable by comparison. Not sure why New Scientist think their subscribers would be interested… perhaps they just see it as money for nothing since the overlap between science and Spectator is roughly zero.

    The problem in Australia is the Overton Window for climate action goes from new state-owned coal plants all the way to not having a carbon price. Meanwhile the number of people in polls saying it’s time to act keeps growing. I’m actually more annoyed at the various centrist commentators who focus on the horse race and distractions like fascists, forget climate.

    Last summer’s bushfires seem to have passed into memory, but I’m betting the next federal election will be early November at the latest because it’s due to be another dry summer and the (de)nihilist vote could well plummet if there’s smoke in the air. It will be interesting to see who’s leading the various factions of the Coalition at that stage, it’s not looking good for Scotty from Marketing right now. And what’s-is-name from the Agrarian Socialists doesn’t seem to be able to sit on Barnaby very well.

    Also, the 1.5°C claim long since stopped being “never to exceed” and is now a “long term stabilisation” sort of thing, where it’s accepted that we’re going well past it and only once we stabilise at ~350ppm will the overshoot start to cool back down to target (over … milennia?) Or the claim is carefully footnoted to “from 1900” or “from the Paris agreement” or whatever, anything as long as it’s recent enough to downplay the numbers.

  19. The problem is that a majority of our politicians see theirs jobs as just that: they go to work, they try to keep their job, and blah blah whatever after that. It’s not a new thought, and it has scary explanatory power.

    “Is rape bad?” … the correct answer is whatever lets you keep your job. The end.

  20. Stockingrate,

    So true. And I broke the rule in the title of this thread “No point in complaining…” I was complaining and off topic. Mea culpa. Oh, and caveat emptor of course.

  21. Europe may have carbon border taxes by 2023. It’s a bit complicated since they will use an ETS (emissions trading scheme) to determine the carbon price to be applied to imports not being taxed (or otherwise equivalently made carbon compliant) in source countries and will grandfather a lot of the initial carbon quotas to high polluting industries locally.

    The US is obviously looking at the EU moves.

    If the US follows suit my expectation is that China will have to fall in line and then countries like Australia. The threat to tax our exports will quickly motivate us to tax our outputs as well as our carbon consumption.

    There is better coverage of this issue in today’s AFR (on page 14) but it is paywalled.

    https://thenewdaily.com.au/finance/finance-news/2021/03/11/carbon-border-tax-eu-parliament/

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