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Doing nothing is preferable to this

By Geoff Carmody - posted Thursday, 3 March 2011


Remember the joke about the shipwrecked economist on an island with a can of beans?

When asked how to open the can, he says: "Assume a can opener."

Australia's official analysis of greenhouse gas mitigation policies assumes away the most insuperable problem, getting a global deal, rather than assessing why we've failed.

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This is poor risk management. Alternative policies are available but not tested. Scenarios where major emitters do not act to reduce emissions are plausible but not evaluated. If anything, history suggests such scenarios are more likely. What if all major emitters don't take effective action to reduce their emissions? "Moral suasion", references to Australians as the largest per capita emitters and asserting Australian action is needed to save the Great Barrier Reef (and the Sydney Opera House) are irrelevant.

Australia accounts for just over 1 per cent of global emissions, and falling. If we shut down completely tomorrow, global man-made emissions would be barely affected. Australian action means almost nothing by itself. If we are to act, we should push for a policy minimising current man-made impediments preventing a global deal. Only that will deliver significant mitigation. We're doing just the opposite.

The government seems determined to adopt an emissions policy that taxes our exports (when our major competitors do not), and taxes our import-competing producers (but not the imports with which they compete). Bluescope Steel chief executive Paul O'Malley eloquently argued the stupidity of this for trade-exposed manufactures in an interview on the ABC's Inside Business last Sunday.

This is like saying we'll unilaterally introduce a GST that taxes our exports and zero-rates our imports. No country does that. Even our production taxes (excises on petroleum, tobacco and alcohol) have border tax adjustments (so-called revenue customs duties) to provide trade competitiveness neutrality.

This policy design madness has two downsides.

First, across very many industries, our trade competitiveness is reduced. One response will be to reduce output and shift to competitor countries not imposing a carbon price. This includes agriculture, due to carbon pricing of its inputs, despite its proposed exemption. Australia loses activity and jobs. Emissions reductions here are partly offset by increases overseas.

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This does not mean Australian consumption of greenhouse gas emissions declines relative to business as usual.

Our consumption of emissions will increase. We'll buy more imports from countries to which our economic activity shifted. We'll be economic losers and environmental hypocrites.

This seemingly is the European story. Last Sunday O'Malley noted that, since 1990, European Union consumption of emissions was up 47 per cent, even though emissions production was flat.

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This article was first published in The Australian on March 2, 2011.



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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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