A CO2 tax is the worst option

TaxAbatementTol tmb

More than a month after her announcement that she intended to legislate a carbon tax, Ms Gillard has yet to give us any details of her plans. The vague and confusing Ministerial statements made while she was in Washington suggest that either this is another off-the-cuff plan for national economic infrastructure (like the NBN and the RSPT and the former ETS) or, worse, that the Labor government thinks we should be satisfied with standards of public policy mired in half-truths, untruths and hypocrisy.

Although Ms Gillard won’t provide details, we can nonetheless find expert evaluations of alternatives for carbon-emission taxes. A panel of Nobel Laureate economists gathered by Bjørg Lomborg’s Copenhagen Climate Consensus conference in 2009 evaluated reports of different feasible plans for emissions abatement. They considered a “carbon tax” was the worst option of those they considered, putting it at the bottom of the list of recommendations.

The critique of the carbon-tax option by Thomas Schelling, Vernon Smith, Jagdish Bhagwati, and others is devastating. They say:

“[Professor Richard] Tol [Contributing, lead, principal, and convening author for the Intergovernmental Panel on Climate Change] showed that achieving the target [of 450 ppm] would require a high, global CO2 tax starting at around $68 per ton. Based on conventional estimates, this ambitious program would avert much of the damage of global warming. However, Tol concludes that a tax at this level could reduce world GDP by a staggering 12.9% in 2100—the equivalent of $40 trillion a year. Despite the fact that we will also avoid damages from climate worth some 2-5% of GDP towards the end of the century, the costs will hit much sooner and much harder, meaning that for each dollar spent on the ‘solution’, we will avoid only about 2 cents of climate damage.
Cutting emissions now is much more expensive, because there are few, expensive alternatives to fossil fuels. Our money simply doesn’t buy as much as it will when green energy sources are more cost-efficient… To put this in the starkest of terms: drastic carbon cuts would hurt much more than climate change itself. Cutting carbon is extremely expensive, especially in the short-term, because the alternatives to fossil fuels are few and costly.” Extract fromAdvice for Polcy Makers“, The Copenhagen Climate Consensus.

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