No case for government action to cut carbon dioxide emissions
(Submitted as an article but published as letter, Business Age, 18 July 2008)
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Much disagreement exists among scientists on the causes of increased temperatures since 1975. In my view, based on assessing projections about the future related to the past, no case exists for government action to reduce CO2 emissions. Yet the Government's green paper unequivocally endorses the flawed assessments in the United Nations Intergovernmental Panel on Climate Change (IPCC) reports that early action is needed to prevent damaging increases in temperatures.
Perhaps there is some realisation the science is uncertain. This might help explain why, although the green paper sticks to a 2010 start for an emission trading scheme, it envisages an initial softly, softly approach. References to a possible initial carbon price of $20 per tonne and a "one-off" increase in consumer prices of 0.9 per cent reek of testing-the-water, as do promises of extensive compensatory measures designed to calm business and households. With only 1,000 businesses initially subjected to emission controls, the Government also hopes to avoid upsetting the wider business community. [Overall, it will be surprising if there is any significant initial reduction in Australian emissions].
In reality, the Government presents a two-handed face - courageous in tackling a difficult issue but helpful to businesses and households with likely problems. The basic strategy is to get community acceptance for reducing emissions before pursuing the really hard yards involved in a 60 percent reduction by 2050. Once the 2010 election is out of the way, the initial offsetting of any petrol price increase under the scheme by reduced excise rates can be reversed and further increases in carbon prices allowed, even though they would then have inflationary and interest rate implications.
[Another reason for the cautious start is that the largest CO2 emitters - developing countries - are not taking reducing action and, contrary to government claims, early Australian action is very unlikely to seduce them. Both China and India have (sensibly) already rejected such action and developing countries generally want faster economic growth to catch- up with developed countries' income levels. They will continue with large emission increases and a not improbable outcome would be that, even if developed countries reduced their annual CO2 emissions by 20% by 2030, total world emission rates would still then be over 20% higher than now.
As developing countries are major competitors in international trade, whether businesses accept or reject the IPCC science they should press the government to delay introducing any Australian emission reducing scheme until all major emitters accept an international agreement. Starting with the only (modest) one now in operation (in Europe) would mean that, unless exempted from reducing emissions, our exporters and import competing industries would face immediate and growing threats.
Of course, the green paper indicates 20 per cent of permits will be provided free to those vaguely defined as the "most emissions intensive trade exposed activities". But permit availability will vary from industry to industry. While this may initially limit the undermining of competitiveness, the potential for future exposure will deter investment].
In presenting his draft report, Professor Garnaut acknowledged that "we will be somewhat poorer" because of the programs. How much nobody really knows and the failure of the green paper to present Treasury modelling heightens the uncertainty. [But much uncertainty will continue because modelling itself cannot incorporate more than guesses about the reactions of individuals and businesses to the fundamental structural changes that will occur in greatly changed economic circumstances involving a much increased government role ] If the scheme pursues the stated aim of reducing emissions by 60 per cent by 2050, our living standards could grow at a considerably lower rate.
[The government's limiting of the direct reduction of emissions also involves replacing by 2020 energy derived from fossil fuels with 20 per cent of energy from renewable sources, such as clean coal, wind and solar power. But while this lesser ETS role limits the possible overall increase in prices, government subsidies for renewable energy projects will increase, resulting in higher taxes and an economy operating at a lower efficiency level. The government's refusal to include nuclear energy reflects unwarranted concerns about the safety of nuclear power].
The proposal to cap the carbon price for at least five years makes something of a mockery of claims the scheme will be market determined. True, permits to emit will be auctioned and will be tradeable but the hand of government will dominate by setting total permit levels. The forcing of 1000 businesses to buy permits they never wanted will be tantamount to a tax.
Des Moore,
former deputy secretary of Treasury, and director of the
Institute for Private Enterprise, South Yarra .