A tax has been announced—contrary to earlier promises—that has no justified role in climate mitigation. It is being held up as a “correction” the carbon-intensity of our economy. But that’s not evidently a problem and even if it were, a unilateral tax could lead to an overall increasein global emissions.
Ms Gillard’s new commitment to introduce a carbon tax by July 2012 is an apparent breach of her undertaking of six months ago:
” ”There will be no carbon tax under the government I lead,” she told Network Ten. ”What we will do is we will tackle the challenge of climate change.” The Prime Minister boasted that Labor had invested ”record amounts” in solar and renewable technologies. ”Now I want to build the transmission lines that will bring that clean, green energy into the national electricity grid,” she said” Extract from Gillard rules out imposing carbon tax in the SMH
The announcement is also a travesty of evidence-based policy. The tax has been pre-determined without decisions on crucial questions such as scale and while even the idea is being hawked around in search of plausibility and public support from any quarter including, to judge from Dr Garnaut’s recent address to the Lowy Institute:
- Foreign policy—Dr Garnaut seems to have a faith shared by few others that the qualified unilateral offers made in Copenhagen (and not revised at Cancún) will be implemented. There is no sign of US Congressional action to implement their undertaking and Dr Garnaut’s reported suggestion that our actions will somehow ‘shore up’ U.S. resolve is, at best, fanciful and at worst simple vanity.
- Concerns about the energy intensity of Australian production (higher than the OECD average but lower than Canada’s or South Korea’s); a policy debate where the Prime Ministers’ own task force on energy has made a “hopeless muddle” of a green-sackcloth proposal for cuts in overall energy consumption
- The (incomprehensible-to-me) implication of Dr Garnaut’s address that there is something wrong with a high carbon-intensity of production in the only significant high-income economy that continued to grow through the past three years of global recession and that has a comparative advantage founded on carbon-based energy as one of the world’s biggest hydrocarbon producers/exporters.
We are witnessing this floundering because no new evidence on climate change and CO2 justifies this new determination to introduce a carbon tax. If anything, in the past six months, we have seen still more evidence that surface temperatures bear no relationship to man-made CO2 emissions in any historical (or pre-historical) period up to the end of the twentieth century.
See, for example this 2010 (peer-reviewed, apparently missed by Dr Garnaut) careful re-construction of the interpretation of 30 curated proxies for Northern Hemisphere data for the past two millennia, which shows that the Roman warm period (100-200 C.E.) and the medieval warm period (900-1000 C.E.) were warmer than the 1961–90 period when the proxy record stops. That is, temperatures in the pre-industrial era of negligible man-made emissions were higher (and lower) than temperatures in a recent period when emissions were about 85% of today’s level.
The government’s plans will impose an unnecessary cost on our economy and could well reduce global net welfare, too. Recent analysis by Daniel Gross (Chair in Monetary Economics at Frankfurt University) shows that it is the relative emission intensity of production abroad and at home that determines welfare outcomes, not the absolute emission intensity of the taxing country. In brief, the introduction of a carbon tax in a small country that is much less carbon intensive than the rest of the world has a high probability of being counterproductive.
As Gross explains in a brief research note, we would expect some energy-dependent parts of our production to move abroad, after the tax is introduced, to countries where energy is lower-cost even if, in the absence of the tax, Australian production would have been more competitive.
But taxing away our comparative advantage is only one part of the cost: we also share in a loss of global welfare—accepting, for arguments’ sake, the AGW hypothesis—if future production takes place in countries such as China where the carbon intensity of output is still higher (by half) than it is in Australia; global emissions could rise as a result of our carbon tax, not fall.
|Carbon intensity of energy production times energy intensity of output|
|Other non-OECD (region avg.)||823||461|
|Africa (region avg.)||386||237|
|OECD Europe (region avg.)||293||188|
|Source: US EIA estimates from here|