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Drop the ‘direct action’, by far the best option is a carbon levy

By Geoff Carmody - posted Tuesday, 27 July 2010


The Coalition and Labor are leery of the idea of a carbon tax, interim or otherwise. They prefer the “direct action” path, which has a more positive political ring.

This is all smoke and mirrors. It delivers lousy cost-benefit results. Consider some examples.

Solar panels are widely touted as clean energy. Their economics are poor at present. So governments subsidise their installation. This puts a high price on reducing emissions. Taxpayers pay (where governments offer installation subsidies); energy users too poor to afford solar panels pay (where feed-in tariffs are financed by a surcharge on those not using them).

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These direct action measures are expensive. One way or another, consumers pay.

There's lobbying for subsidies for geothermal energy; this is also an expensive energy source, given market conditions and different energy source costs.

There's lots of ranting against dirty coal as an energy source. Trouble is, it's relatively cheap at present. How could we deal with that? Some suggest we regulate against its use. To back that up, some argue for mandated proportions of energy to be produced from renewable sources. Whether or not all renewables reduce greenhouse gas emissions, regulatory direct action mandates a shift to higher-cost energy sources. Guess who'll pay?

There are hints about more extensive and demanding regulation to improve building energy efficiency. This is probably laudable. There's large scope to reduce energy consumption (and associated emissions). But building costs will rise, and they will be passed on.

Similar points could be made about mandating fuel consumption standards for vehicles.

On the regulatory front, Australia seemingly can't take a trick.

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We seem to be good at encouraging higher-cost means to reduce emissions and preventing exploitation of possible alternative solutions. We are prepared to sell uranium to others for generating nuclear power but don't trust ourselves to use it for the same purpose. Bizarre, no?

France relies substantially on this source of energy. Others are increasing their reliance on it. Why is it off the agenda here?

There are many more examples. Overall, politicians tiptoe around the basic proposition that putting a price on greenhouse gas emissions, applied comprehensively, is what's needed.

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First published in The Australian on July 14, 2010.



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About the Author

Geoff Carmody is Director, Geoff Carmody & Associates, a former co-founder of Access Economics, and before that was a senior officer in the Commonwealth Treasury. He favours a national consumption-based climate policy, preferably using a carbon tax to put a price on carbon. He has prepared papers entitled Effective climate change policy: the seven Cs. Paper #1: Some design principles for evaluating greenhouse gas abatement policies. Paper #2: Implementing design principles for effective climate change policy. Paper #3: ETS or carbon tax?

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Creative Commons LicenseThis work is licensed under a Creative Commons License.

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