Carbon pricing and Australia

On Sunday the Prime Minister released the details about her plan to finally cut carbon pollution. It is a bold plan, and one that has eliminated two opposition leaders, and former PM Kevin Rudd. But let us think back to 2007. Remember at the 2007 election, everyone was worried about climate change, the drought had not broken, and the warnings that our greenhouse gas emissions (GHGE) were continuing to rise out of control had everyone worried. PM Rudd was elected and everyone who voted for him revelled that we were finally going to take the first steps in reducing our emissions by signing the Kyoto Protocol (yes remember that) and introducing an Emissions Trading Scheme (ETS). In fact introducing an ETS had bi-partisan support with ex-PM Howard declaring that there would be one in place within “four years”. So what has changed? Yes ex-PM Rudd did abandon it in place of declining support and yes PM Gillard did declare that “there would be no carbon tax under the government I lead”, both regrettable actions at the time. But I would ask everyone to cast their minds back to WorkChoices which was not part of Howard’s 2004 election platform and do we remember his core and non-core promises? So the fact is politicians make promises they keep all the time, in fact even the sinless Tony Abbott has broken promises (ah the hypocrisy).

So we are here today discussing the merits of cutting carbon solution the science is in people and they tell us unless the world does not do anything to reduce greenhouse gas emissions then sea levels will rise, global temperatures with change, water supplied will be more difficult to secure, diseases more prevalent, and extreme weather events are also expected to increase. We know the science and those flat-earthers who tell you otherwise almost always have a hidden agenda (i.e. they have shares in coal companies, their employment depends on high emitting industries, or believe that climate change is a socialist conspiracy). So given that people believe that (human induced) climate change is a real problem what is to be done about it? Well many opponents to action on climate change will argue that we are going ahead of the rest of the world and we should wait until the entire world has a form of carbon reducing market mechanism in place. I would say that listen to the economists who argue that we are not ahead of the pack, Britain, New Zealand, and the European Union all have carbon prices imbedded in their economies, so clearly that argument is non-nonsensical. So why not deal with carbon pollution in the most efficient way possible? It makes sense to start with a fixed price (essentially a tax) and transition to a floating price on pollution and any economist will tell you the same.

So how does an emissions trading scheme work? Here’s a simplified version.

Link: http://farm7.static.flickr.com/6014/5926064169_4c3eb7efc6_b.jpg

So ideally you would incorporate all sectors of the economy, and provide no compensation to industry at all. This would be the most efficient way to incorporate a carbon price, high polluting industries would increase prices to reflect the true cost of carbon. The Gillard government has not chosen to take this path instead it has proposed the following system:

Link: http://farm7.static.flickr.com/6005/5926623848_262e562e7f_b.jpg

The incorporation of a carbon price is essentially a way of dealing with a concept known as market failure. For those of you who are not familiar with economics here it is explained:

Market failure - negative effects on the economy because an optimal allocation of resources is not attained (source). In other words there is an externality that is not incorporated into the cost of a good or a service. This is what the federal government is doing incorporating something that is currently not taken into account when a good/service is priced. The downside about a tax of this sort is it unfairly punishes those with less income over those with more and have more ability to pay the new tax, this results in some commentators crying out that this is socialism which will be the feature of the next part of my blog.

Whether or not we like it we live in a social democracy, the same goes for Europe and even the United States. When people say No to socialism little do they know that it exists in something as simple as our taxation system. Here are the income taxation rates in Australia:

As you can see, poorer people do not get taxed as much as wealthier people, which is in essence a form of socialism. Another form is public housing (if you earn too much you are ineligible for it), the same goes for rent assistance, youth allowance, unemployment benefits, paying the 1.5% Medicare levy, obtaining a Health Care Card, Family Benefits, and the list goes on and on. These are services that are provided for poorer people in preference to wealthier people, this is the essence of a social democracy, we look after everyone, we (mostly) do not let anyone fall down the cracks and support them where we can. So before people start to get up in arms about how we are turning into Soviet Russia think about when you used Medicare (socialism), when you used a concession card for public transport (socialism), or when you got those handy youth allowance payments (I preferred the term drinking money for the weekend) (socialism).

Look I will be frank, I enjoy the Australia we live in and I am a strong supporter of the free market and I definitely don’t hope get get a over-swelled public service Greek style where we all retire at 55 (for men and 50 for women) but let’s not pretend to be something we’re not. We are a social democracy and it is great. If however, you feel that this is not the type of society you want to live in I suggest you campaign TEA Party (really a business lobby group disguised as a grass-roots people movement) style and stay NO to ANY taxes, NO to welfare of any kind (even the stuff you like like free healthcare), NO to public schooling, NO to public housing, NO to government subsidised University education (yes that’s anyone with a CSP supported place), no to public broadcasting (ABC & SBS) and a big fat NO to pensions. After all, the market can provide all of this, I don’t want my tax dollars paying for someone else’s lifestyle.

So after all of that, what’s next? I suggest if you get chance read two really important documents: I’m about a third of the way through the government’s Carbon Pricing Plan available here. Also there’s The Critical Decade (which I’m yet to read, I’ll get to it though) available here. Because after all, how will we know who’s policy is best if we’re not informed. Oh one final thing the L-NP policy on climate change is here (I did feel a little bit dirty searching for that) all 31 pages of it, just to provide the balance. However, on glancing though it it reads more as a criticism to the federal government’s plan rather than a detailed plan to address climate change in any serious way.