Climate change & emissions trading

[dibo]

Given it's in the news, I'm pretty much opening the floor for a bit of a knock-em-down, drag-em-out barney on climate change because we haven't had any real talk about it since the Most important Car in 100 years and Earth Hour 2008 threads.

There's an interesting website called The Copenhagen Diagnosis - http://www.copenhagendiagnosis.com/ - where scientists have gathered together information basically refuting much of the bunkum going around about climate change and how it's apparently not happening.

You can download the here or just check out the executive summary:

The most significant recent climate change findings are:

Surging greenhouse gas emissions: Global carbon dioxide emissions from fossil fuels in 2008 were nearly 40% higher than those in 1990. Even if global emission rates are stabilized at present day levels, just 20 more years of emissions would give a 25% probability that warming exceeds 2oC. Even with zero emissions after 2030. Every year of delayed action increase the chances of exceeding 2oC warming.

Recent global temperatures demonstrate human-based warming: Over the past 25 years temperatures have increased at a rate of 0.190C per decade, in every good agreement with predictions based on greenhouse gas increases. Even over the past ten years, despite a decrease in solar forcing, the trend continues to be one of warming. Natural, short- term fluctuations are occurring as usual but there have been no significant changes in the underlying warming trend.

Acceleration of melting of ice-sheets, glaciers and ice-caps: A wide array of satellite and ice measurements now demonstrate beyond doubt that both the Greenland and Antarctic ice-sheets are losing mass at an increasing rate. Melting of glaciers and ice-caps in other parts of the world has also accelerated since 1990.

Rapid Arctic sea-ice decline: Summer-time melting of Arctic sea-ice has accelerated far beyond the expectations of climate models. This area of sea-ice melt during 2007-2009 was about 40% greater than the average prediction from IPCC AR4 climate models.

Current sea-level rise underestimates: Satellites show great global average sea-level rise (3.4 mm/yr over the past 15 years) to be 80% above past IPCC predictions. This acceleration in sea-level rise is consistent with a doubling in contribution from melting of glaciers, ice caps and the Greenland and West-Antarctic ice-sheets.

Sea-level prediction revised: By 2100, global sea-level is likely to rise at least twice as much as projected by Working Group 1 of the IPCC AR4, for unmitigated emissions it may well exceed 1 meter. The upper limit has been estimated as 2 meters sea-level rise by 2100. Sea-level will continue to rise for centuries after global temperature have been stabilized and several meters of sea level rise must be expected over the next few centuries.

Delay in action risks irreversible damage: Several vulnerable elements in the climate system (e.g. continental ice-sheets. Amazon rainforest, West African monsoon and others) could be pushed towards abrupt or irreversible change if warming continues in a business-as-usual way throughout this century. The risk of transgressing critical thresholds (tipping points) increase strongly with ongoing climate change. Thus waiting for higher levels of scientific certainty could mean that some tipping points will be crossed before they are recognized.

The turning point must come soon: If global warming is to be limited to a maximum of 2oC above pre-industrial values, global emissions need to peak between 2015 and 2020 and then decline rapidly. To stabilize climate, a decarbonized global society with near-zero emissions of CO2 and other long-lived greenhouse gases need to be reached well within this century. More specifically, the average annual per-capita emissions will have to shrink to well under 1 metric ton CO2 by 2050. This is 80-90% below the per-capita emissions in developed nations in 2000.

Game on.

 

[FFC Mariner]

Simple logic really:

Planet either is or isnt warming.

If it is, is man responsible?

If it is, and we are, we need to fix it.

The Science is muddled and still being tested and no one can rationally declare that one side is right or wrong (the earth is flat, earth revolves around sun debate).

However, a greener, nicer planet is a good thing so lets do something anyway.

THATS where the debate should be not with Krudd posturing on his global stage or people on both sides trying to score points.

Keep it simple, keep ideology out of it and you might just get a real solution.

(Meanwhile there is a flying pig I want to look at)

 

[dibo]

Simple logic really:

Planet either is or isnt warming.

If it is, is man responsible?

If it is, and we are, we need to fix it.

The Science is muddled and still being tested and no one can rationally declare that one side is right or wrong (the earth is flat, earth revolves around sun debate).

However, a greener, nicer planet is a good thing so lets do something anyway.

I'm with you to here, but with the caveat that I don't think the science being right and the science being wrong are 50/50 chances. I think there's a strong and ever-firming consensus that it's right with an increasingly vocal, frustrated and largely discredited opposing view.

THATS where the debate should be not with Krudd posturing on his global stage or people on both sides trying to score points.

Keep it simple, keep ideology out of it and you might just get a real solution.

(Meanwhile there is a flying pig I want to look at)

The problem is that without 'posturing' (which by another name is 'leading by example and bringing like-minded nations with us') we won't get the sort of drastic action we need. In the meantime people like Nick Minchin are doing their best to try to strike home some sort of political advantage where once there was a bipartisan agreement on a need to act. JWH himself endorsed an Emissions Trading Scheme when setting the platform for the 2007 election. Free marketeers can look at it as simply the Government designating CO2 emissions as a 'bad' and capping them and letting the market price them. It's a lot more Tory-friendly than simply taxing CO2 emissions.

That said, the present scheme is flawed. Probably badly flawed.

This is a result of political realities preventing us from having the scheme we should have. The Government don't have the votes in the Senate, the Opposition wanted to extract concessions and it seems now just want to oppose and the Greens will shrilly condemn all others for not being pure enough while not having the votes to make a 'greener' scheme a reality.

In the meantime the bill has been amended to hand so much money to carbon intensive industries and carved out agriculture so there's very little price signal left at all.

On the domestic front, short of going to an election and hoping the new Parliament is a bit stronger willed, the best that the pro-ETS peeps among us can hope for is that the present bill is passed and that it is amended down the track.

But for all the talk of costs and stuff like that, I keep coming back to Ross Gittins::

The widespread fear that the economic cost of limiting climate change will be prohibitive - or will demand tough changes in people's lifestyles - arises partly from well-meaning misapprehension, but also from the misrepresentations of the global warming sceptics. The pre-enlightened John Howard and his ministers did a lot to propagate this misconception.

It's easily done. Say I produce a study which estimates that limiting emissions will have a cost of 3 per cent gross domestic product or, in today's dollars, about $35 billion. Sounds pretty expensive, eh?

But it's not as bad as it's made to sound. The first thing I omitted to tell you was that the 3 per cent loss was a cumulative loss that takes 20 or 30 years to build up. In other words, the loss averages just 0.1 per cent of GDP a year.

The other thing I omitted to say was that it's not an absolute loss, just an opportunity cost. That is, it's not that GDP will fall by 0.1 per cent a year, but that it will grow by 0.1 per cent a year less than it otherwise would.

To put it another way, the economy will keep growing quite strongly despite our efforts to reduce emissions. The most recent study, conducted for the Climate Institute by the Centre of Policy Studies at Monash University and others, finds that achieving a reduction in emissions of 20 per cent by 2020 and 60 per cent or more by 2050 would involve economic growth averaging 2.8 per cent a year rather than 2.9 per cent. This is broadly in line with what other studies have found.

So it's not going to even cost us that much if we act now. If we act and we're wrong, we've lost a little bark off the top.

If we don't act and there's no problem, no biggie. But if we don't act and there is a problem, the IPCC and other predictions are catastrophic.

 

[midfielder]

My two bobs worth ... I have been left of left field on environmental issues all my life ... I want the government to do something about it...

BUT  I have NFI what the current laws are about other than a carbon tax... the ALP is on a winner ..ONLY ... if they can explain what they are doing .... and in great detail over some time...


As an aside I hate taxes when the government makes a subjective judgement about what is good and bad i.e. coal & power companies get favourable tax treatment ... but Billys milk bar does not ...

 

[FFC Mariner]

I pity the fool who goes to the electorate trying to sell an open ended new tax in a rising interest rate environment.

Hewsons Birthday cake anyone?

 

[dibo]

BUT  I have NFI what the current laws are about other than a carbon tax... the ALP is on a winner ..ONLY ... if they can explain what they are doing .... and in great detail over some time...

I think you're right - I think the explanatory effort has been missing. Ross Gittins makes the same point very well today in the Herald. It's well worth a read.

I pity the fool who goes to the electorate trying to sell an open ended new tax in a rising interest rate environment.

Hewsons Birthday cake anyone?

I think the basic logic you're running on is flawed. The rising price of carbon doesn't constitute an open-ended tax any more than the rising price of food over time. It's simply imposing 'scarcity' by policy rather than by another extraneous force. We're choosing the limit.

What's more, if the price of carbon is rising, either people will spend less on it or they will adjust their consumption mix of other goods. People will shift spending and businesses will shift investment to low-carbon activity.

This change in demand patterns itself has an effect on inflation. If it *is* a dampener on economic activity then it won't provide positive feedback loop to rising interest rates. You'd have to imagine that any inflationary effect will be offset by the drop in demand for other goods.

 

[midfielder]

Dibbo

Enjoyed reading the smh article and he was right when he said """scaremongering by  Barnaby Joyce..."""

I am a  Accountants and  do a lot of work in Tax and pride myself on my knowledge of various parts of the act...

I know nothing of this and have been asked by some clients how does this effect my business and I have to say I have NFI ... To explain how confussed some people are a bloke who runs a take away greasy spoon type place asked me will he have to pay more tax because he creates polution with the grease and fat ... sounds very silly until you as a professional say .. no effect at all mate other than on the price you pay for goods .... and remember you can be sued for wrong advise ... so we accountants are quite careful and if we don't ACTUALLY know the answer we say .. I don't either... It is a very silly example but it is real..

 

[dibo]

There are some things that are clear - coal-fired power, petrol and other carbon-intensive goods and activities will become more expensive. *They're meant to*!

I don't think the Government has explained what a price signal is and how it works. I think the Opposition have been too keen to either scaremonger or rush a deal through and avoid having to talk about it in case the Government takes credit.

I think the Greens have been engaging in the usual shrill bleating of those affected by relevance deprivation syndrome. Until they can get the Government up to 39 votes they can take a seat.

 

[FFC Mariner]

Trouble is that all of the carbon intensive industries will pass that cost onto the consumer (plus a bit extra of course) where they can.

Where they cant pass on the cost (exports), they will suffer losses in earnings. Any potentially negative impact on their business has already been factored in by the market (so the research papers that cross my desk tell me) so that loss (if any) has been taken up the clacker by investors (super funds included).

Govt also collects more GST to compensate for lower company taxes I assume?

Higher prices flow through to inflation which may prompt the RB to lift rates.

The groups who wont lose are the carbon intense industries themselves, the Government or overseas purchasers who dont have such a tax.

Guess who will get bent over to pay for it?

There must surely be a better way than this!

 

[dibo]

Trouble is that all of the carbon intensive industries will pass that cost onto the consumer (plus a bit extra of course) where they can.

Where they cant pass on the cost (exports), they will suffer losses in earnings. Any potentially negative impact on their business has already been factored in by the market (so the research papers that cross my desk tell me) so that loss (if any) has been taken up the clacker by investors (super funds included).

you're right up to there. there's a response over time as people can anticipate the costs in the future - they change their consumption and investment mixes to be less carbon intensive. that's a price signal at work.

if it's costing you more to run a gas guzzler, you'll shift to a more economical car next time.

Govt also collects more GST to compensate for lower company taxes I assume?

huge assumption - there's nothing to suggest that *necessarily* company tax revenues will drop, let alone that the GST will be raised to compensate.

Higher prices flow through to inflation which may prompt the RB to lift rates.

as prices move, people change their optimal mix of purchases. they adjust consumption/investment. there are own-price and cross-price demand effects. in the short term the carbon price is just one factor in the vast array of pushes and pulls on prices and demand. net effect on inflation over the long term is neutral - the equilibrium point shifts. 

The groups who wont lose are the carbon intense industries themselves, the Government or overseas purchasers who dont have such a tax.

Guess who will get bent over to pay for it?

There must surely be a better way than this!

polluting businesses *do* lose - because they pass the costs on and their prices rise, they lose business unless they shift to lower polluting activity.

the very simple argument against the proposition that polluting businesses will 'offshore' their operations is that:

a) many sectors simply don't have the option, and

b) for those that do, an international agreement is in the works. playing mexican standoff won't help - especially after we've spent 12 years refusing to ratify kyoto (and in the two years since our economy's hardly been affected - we're the strongest economy in the G20).

lastly, it's not a tax! if it were a tax you'd simply get taxed for any emissions and credited for offsets. this system is a cap and trade system - the market sets the price and conducts the trade. the government is essentially hands-off after determining the aggregate level of permits.

if you'd *prefer* the government to have direct command-and-control over prices through setting a tax rate on emissions then you're falling foul of the old rule of economics - you can control supply or prices but not both. government would have no way of limiting emissions - they'd be limited only by how much people are willing to pay.

 

[midfielder]

Dibo

As I posted above.... as a general rule I don't like tax's that are subjective meaning someone is making a value judgement about something ... playing God some might say... When you introduce a tax and then say cows and sheep farting are not counted, coal mines and power plants get rebates .......ERRRrrrrrr playing favorities, party donations, meeting, and many forms of Richo come to life saying rightly or wrongly I have the ear of @!@!@!...

This tax sounds very complex and who will do the measuring, and how they measure, can that measuring be done can it be audited, who is charges, who gets credits, if I plant a tree, do I get more for a gum tree... ? ? ?


A copmplex tax, with winners & loosers, new measurement systems, nothing I am aware of where their are definations of some of the everyday things needed to make it work..

I recall (this bit is sad Dibo but bear with me) in doing my masters of Taxation law (yes I studied tax law for three years how sad) anyhow one subject that went for a year was Economics of Taxation... in affect we studied various models of taxation and then build financial models to see the affect it was actually a brillant subject... to my point you can only tax 4 things these being..

1. Income we have an Income Tax Act

2. Expenditure we have a GST

3. Wealth .. capital gains, rates, etc

4. Movernment ... customs duty, stamp duty, levy on fuel, fags, beer etc..

I guess the carbon tax is some kind of movenment tax ... but how to measure, audit etc the movenment..

I would take a much simpler approach ... take fuel & power and apply a % levy and put all taxes collected into finding new ways of producing power... its simple, easy to measure, easy to explain,

Finally one of the key elements within this subject was taxes had to be understandable ... otherwise they where unenforceable and doomed to fail...

 

[dibo]

MF - as I said it's *not* a tax:

lastly, it's not a tax! if it were a tax you'd simply get taxed for any emissions and credited for offsets. this system is a cap and trade system - the market sets the price and conducts the trade. the government is essentially hands-off after determining the aggregate level of permits.

if you'd *prefer* the government to have direct command-and-control over prices through setting a tax rate on emissions then you're falling foul of the old rule of economics - you can control supply or prices but not both. government would have no way of limiting emissions - they'd be limited only by how much people are willing to pay.

as for it being arbitrary - we've got scientists, governments, NGOs and the rest all lining up saying that carbon emissions need to be reduced. the ETS is aimed at reducimg emissions (and thanks to the carveouts etc. from the opposition in particular is nowhere near as good at that as it should be). there's nothing arbitrary about it.

it's *complex* - for sure, nobody denies that. but that's no reason not to do it. the crimes act is complex too, but nobody argues that we'd be better off not bothering.

 

[adz]

... When you introduce a tax and then say cows and sheep farting are not counted, coal mines and power plants get rebates .......ERRRrrrrrr playing favorities

lol classic

 

[FFC Mariner]

Its a tax whether its called one or not.

Taking MF's 4 points of taxation as being:

1. Income - give tax credits for measurable reductions in emmissions. Easy, admin infrastructure exists. Cant reward vested interests.

2. Expenditure - increase GST to ETS levels being estimated at 12.5% and use the extra $$ to invest in clean energy etc. Again, easy to do.

3. Wealth .. - not really appropriate unless you tweak CGT to incentivise construction of cleaner assets. Actually, we should do that anyway, increase the CGT discount to 100% for building Green buildings etc etc.

4. Movenment  - Leave alone.


Any govt with the will to move to a cleaner,greener Australia will utilise existing mechanisms and resources (like Uranuim) but the political game playing just makes the whole thing a pointless wast of time.

 

[dibo]

how is it a tax? it's creating a freely tradeable commodity, not taxing income, expenditure, wealth or movement! it is a regulation limiting activity for sure, and requiring the acquisition of permits to continue certain actions, so in that sense it is *closest* to being a tax on movement, but the permits are allocated and then are freely tradeable. it's not a permanent revenue source, it's an arrangement to ensure that carbon emissions are integrated into all other prices.

what's more if the carbon trade goes international through a post-kyoto agreement then governments are right out of it beyond multilaterally setting the caps.

instead you're suggesting we create a boondoggle of new *stictly domestic* tax loopholes and concessions. this beats the entire point of having an international agreement - how would you then integrate into the international trade?

we'd be preserving an island of domestically controlled emissions policy where you can emit as much as you please provided you fork over the cash. it wouldn't reduce emissions unless you jack up the tax rates sufficiently to squash demand, and by raising the GST rather than taxing specifically you take a hammer to all activity, clean or not. it's performing surgery with a baseball bat.

 

[FFC Mariner]

Freely tradeable commodity?

Price would be controlled by the Institutional trading desks of the major banks who are madly developing trading strategies, derivatives etc in readiness for the biggest free kick since CDO's.

Frankly, our main trading partners couldnt give a flying about carbon reduction so their interests are irrelevant.

I heart Andrew Fisher

 

[dibo]

the fact that banks will likely find a way to make money from something is no reason to not do something, and japan, india, usa and china are all in the tent at the moment. if we sign on we help to convince them.

but of course, someone might make money from it, and the whole world hasn't signed on before us and there are still some scientists running around saying it's not happening, so of course we should pretend it's just business as usual.

 

[midfielder]

For debate purposes...

There are two .... maybe three if you combine 1 & 2 ... but 3 ways to fix the current problems..

1. To put cost controls on existing people causing pollution (carbon is but one so subjective judgement) and hoping that a rise in the cost of doing certain businesses will increase they will be forced to change or go broke... Issue if not everyone is in the carbon scheme then capital will flow with profits to those that don't comply...

2. Find new ways, cheaper, makes heaps of coin for those that can find answers... For me this is the answer that is why I put the thread up about the 100 year car... What happens is funds raised from easily understandable levies can be allocated to various groups ... subjective judgement again to a degree ... however you can also give tax credits to R & D in greening areas... things like sunk cost can be 100% written off rather than the 20% per year now... This opens it up to small guys with bright ideas and big corps wanting to make another Zillion Zillion plus..

3. Use both, how I am unsure

Finally I refer to a point I made in an earlier post .. to be enforceable and thereby enable lawyers to sue in the courts,  It needs to be easily understood otherwise it is ignored cheated and puts you in a worst position than you were before you started...

Me I trust in the human race to solve the problem by offering huge rewards for finding solutions ... not by putting a tax on existing operations... (it looks like a tax, it smells like a tax, it operates like a tax, ... but it is a Trading Scheme) .. Apply the KISS principle .. Keep it simple stupid.

 

[FFC Mariner]

Go and find a person running a small business and ask them to explain the Carbon Tax proposals (they cant).

Explain it and watch their reaction.

I meet with approx 10 SME owners a week and now use the "so how will the ETS affect your business" as an ice breaker.

Anyone who thinks that its saleable when explained, please let me know and they are hired.

 

[dibo]

Go and find a person running a small business and ask them to explain the Carbon Tax proposals (they cant).

Explain it and watch their reaction.

I meet with approx 10 SME owners a week and now use the "so how will the ETS affect your business" as an ice breaker.

Anyone who thinks that its saleable when explained, please let me know and they are hired.

Why don't we let that be the test of every public policy decision we make?

Try explaining progressive income tax while you're there?

Small business is neither the font nor the receptacle of all knowledge - them not knowing how something works is not a great test of whether it's a good idea.