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What price carbon?

By Don Aitkin - posted Friday, 19 April 2013


Among the more irritating aspects of the 'carbon tax' established by the Gillard Government is the fact that it is actually a tax on the production of carbon dioxide - a colourless, odourless gas, rather than lumps of coal, or your diamond ring, or your tennis racquet. Yes, I'm a pedant, but accuracy in what we say and write seems to me important. Lawyers and judges think so too.

So it irks me to talk of a 'carbon tax' when it is no such thing, but I'll have to stay irked for the moment. There hasn't been much about it for a week or so, but here's a refresher. The tax was introduced in July last year, and requires companies emitting more than 25,000 tonnes of carbon dioxide emissions per year to purchase emissions permits at $23 per tonne. That price goes up to $24.15 in July this year, and to $25.40 in July of the following year. Thereafter it is to be set by the market, which really means the EU's emissions trading scheme, because that's the only 'global' market.

And what's happening there, you ask. Well, the equivalent in Europe is called the 'European Emission Allowance' and was trading between $6 and $7 per tonne until very recently. Then it dropped to about $4 when the European Parliament refused a day or so ago to agree to a proposal to withdraw from sale a whole lot of emission allowances that have depressed prices. The idea was to return them to sale in a few years' time when, presumably, prices would have risen.

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In fact, the European system has not worked. The price was about $15 per tonne in 2011. The Brits have their own system as well, which has close to same price as Australia, but of course the British system is affected by the European one, which means that if nothing is done, companies that have to pay a lot for their emissions will move to Europe if they can do so. $4 per tonne is no great problem.

Why isn't the European tax working? The European Emissions Trading Scheme provides and sells allowances to factories and power stations, but emissions allowances lend themselves easily to rorts of various kinds, and to activities that make sense only because there is an emissions trading scheme. The outcome has been that there are bucket-loads of allowances about, but their value is close to that of junk bonds. Nobody wants them.

And why did the European Parliament reject the proposal? I would call it the equivalent of a back-benchers' revolt. There has been a long and very cold winter in much of the northern hemisphere (the fifth in a row for Germany), and the cost of heating is impoverishing many people. All but four of the UK Conservative MEPs (Members of the European Parliament) voted against the proposal, which tells you something about their attitudes toward what is happening in the UK.

What does it mean for Australia? Well, if the Gillard Government were returned in September, and things stay as they presently are in Europe, in 2015 the Australian carbon tax would drop to the European level, which would mean that it would be ineffective in terms both of government revenue and of greenhouse gas emissions. Something would have to be done.

You could argue that the Gillard Government won't be returned in September, and that an Abbott Government would repeal the tax. But in either case, it seems to me, the carbon tax boat is dead in the water. And the reasons are becoming clearer every day.

First, despite all the predictions, people all over the world are not experiencing an appreciably warming climate, and they have been told for twenty years that this is their fate. Indeed, winters are colder for many. There is considerable disbelief in the predictions.

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Second, no one has been able to design a taxation scheme for carbon dioxide that is effective, free of rorts and not unduly repressive in terms of jobs lost and other serious economic.

Third, governments everywhere are having second thoughts. Julia Gillard herself didn't want a carbon tax, and said so. But it was the price of support from the Greens, so she gave in. Britain's Conservative/Liberal Democratic Coalition Government seems to be continually at war over the issue. Angela Merkel in Germany is facing electoral resistance over plans to go any further with carbon dioxide taxation. President Obama seems to have no plans to introduce any similar scheme, and none would succeed while the Republicans hold power in the Senate.

The difficulty for all governments is admitting that they are ever wrong, or that their predecessors were, if from the same party. Slowly the realisation is dawning that the AGW scare was overblown, that catastrophe is not close, or even likely, and that there are more important things to do when in power than to tax the production of a gas the human contribution to which is trivial.

But how we hate to say that we were wrong!

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This article was first published on Don Aitkin.



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About the Author

Don Aitkin has been an academic and vice-chancellor. His latest book, published in 2015, is Turning Point, the second novel in The Hogarth Trilogy.

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