Carbon taxes are useless without a technological breakthrough

Raising the cost of using a particular fuel will shift consumption to another fuel, but only if all other things are equal. Unfortunately for climate change hysterics, when it comes to CO2 emissions, all other things aren’t equal.

This is a relevant issue now Australia effectively has a CO2 tax.

Under Australia’s ‘Safeguard Mechanism’, an invention of the previous Coalition government now being ‘refined’ by Labor, Australia’s 215 largest CO2 emitting facilities will face a virtual carbon tax.

They’ve been told they need to reduce their emissions on average by 4.9 per cent a year, and if they can’t manage this, they may buy carbon credits, but only if the credits cost less than an inflation-adjusted $75 a tonne.

This is effectively a tax that cuts in at the average mandated level of emissions per type of facility, and which is determined by the number of facilities that can’t meet those benchmarks and the amount of emissions they emit.

The more emissions, the higher the price, until $75 a tonne. And if the demand exceeds the supply? Well, perhaps some of those polluters will wish their industry organisations hadn’t lobbied for a price cap. They may already even be thinking that, looking at the mess a cap is making of the gas market. Those that can stay in business at those tax levels, that is.

To make this hang together in some way that keeps the Greens happy, the government needed to prove the carbon offsets market was effective. Carbon markets are susceptible to fraud, with double-dipping, poor governance, and imprecise science.

The answer to these problems, raised in an ANU critique about the Australian carbon credit market, was to appoint former Chief Scientist Professor Ian Chubb to do a review. Chubb gave the scheme the all-clear, subject to 16 recommendations.

Inquiries are only as good as their terms of reference and their personnel. At no stage was Chubb asked what the total carbon credit capacity of Australia is, which would determine the depth of the market and the price that should be charged. If he had, he may have discovered that Australia absorbs more than twice as much CO2 as it emits.

But this wouldn’t suit the narrative which is to see emissions management as a result purely of fuel-type, rather than also a function of volume. The size of the continent, which contributes to Australia’s high per capita emissions, is also the solution to them, as long as we don’t grow the population too much.

There is also another side to the use of carbon credits which points to the absurdity of carbon taxes. The fact that they need to be available at all, means the government tacitly acknowledges there are no substitutes for fossil fuels for particular uses.

Which is the whole weakness in the idea of carbon taxes. While superficially ‘efficient’ they cannot meet their aim of fuel substitution because the suitable fuels do not exist, or if they do, are banned from consideration by this government.

There are a number of results from this. One is that rather than substituting one fuel type for another they end up substituting one highly-taxed location for a lower-taxed one.

Much of Australia’s emissions under the various regimes in place under previous and current governments have merely been exported to China, South-East Asia more generally, and more recently South Asia, rather than reduced. Ditto for most of the rest of the hyperventilating carbonphobic world, like the EU and the balance of the Anglosphere.

Because only the 215 largest installations will have to adapt, this also represents a boost for smaller businesses. The 216th largest installation will be laughing all the way to the bank, at least in comparison to the 215th (which raises another issue, what happens if one of the 215 goes out of business?).

That’s why since 1990, when the IPCC at the Second World Conference called for a treaty on climate change, global emissions have risen over 53 per cent despite the expenditure of trillions trying to stop them rising.

There are no substitutes and carbon taxes are therefore, in effect, a subsidy to manufacturing in China and the developing world, not a mitigation strategy at all.

Carbon taxes do cause some substitution, such as from coal to gas. This has happened in a perverse way in Australia. As renewables continue to penetrate the power generation mix, there is an increased need for on-demand rapid deployment sources of power, like Open Cycle Gas Generators. In a state like South Australia they make up around 30 per cent of electricity supply.

Unfortunately for Australia the carbonphobics hate natural gas too and have made it difficult to prospect for new fields and bring them online, making gas more expensive than coal, unlike the US where it is generally cheaper. This results in a further ‘tax’ on consumers as gas, being the marginal producer, sets the price for the whole of the electricity network.

Yet even this substitution is to be banned as the governments of Australia declare that gas cannot be part of any ‘capacity mechanism’ (even though gas makes up a substantial part of AEMO’s Infrastructure Plan in 2050, the year we plan to be Net Zero).

Which is where the lack of substitutes will really cut in. Metal refineries need to operate 24/7 – you can’t ever let the metal cool in the pots. And some of them consume vast quantities of electricity. For example, Rio’s three smelters in Queensland consume about 17 per cent of state power generation, the Tomago smelter in NSW around 12 per cent.

The technologies don’t currently exist at all, or where they might exist, in the quantities required, to make these large installations viable using renewables (despite what management says). The tax squeeze is going to send them to the wall, but the world will still need their output, so it will come from somewhere else.

Bear in mind that the businesses we are talking about include power generators, steel and cement manufacturers, fertiliser and plastics manufacturers, oil refineries, and rail operators. The bulk of emissions from some of these has little to do with fuel supply, but is a by-product of their manufacturing process. For example, the coking coal used in steel manufacture cannot be replaced at the moment.

It turns out that carbon taxes are very efficient taxes, but only when it comes to putting industries out of business.

The tax wouldn’t be so dire if all existing technologies were on the table, but alongside gas, nuclear power has been ruled out by this government. Nuclear is the only viable 24/7 non-emitting source of electricity. If it were available the smelters might be safe even if the plastics, fertiliser, steel, and cement manufacturers still faced existential problems.

Bjorn Lomborg has long argued that we need to invest in researching and developing alternative technologies, rather than taxing existing technologies. To date, Australia has more or less avoided this trap, but under enthusiastic Labor, no longer. Their virtual carbon tax guarantees Australia will have an impoverishing collision with the physical limits of reality. And all for no return in global emissions.