Like what you've read?

On Line Opinion is the only Australian site where you get all sides of the story. We don't
charge, but we need your support. Here�s how you can help.

  • Advertise

    We have a monthly audience of 70,000 and advertising packages from $200 a month.

  • Volunteer

    We always need commissioning editors and sub-editors.

  • Contribute

    Got something to say? Submit an essay.

 The National Forum   Donate   Your Account   On Line Opinion   Forum   Blogs   Polling   About   
On Line Opinion logo ON LINE OPINION - Australia's e-journal of social and political debate


On Line Opinion is a not-for-profit publication and relies on the generosity of its sponsors, editors and contributors. If you would like to help, contact us.


RSS 2.0

Who is really fiddling while the climate burns?

By Geoff Carmody - posted Wednesday, 18 March 2009

Ross Gittins sprayed most economists on climate change policy last weekend ("Economists fiddle while climate burns", the Sydney Morning Herald, and The Age).

Unsubstantiated assertions about motivations behind (unnamed) economists favouring a carbon tax over the emissions trading scheme (ETS) embodied in Australia’s Carbon Pollution Reduction Scheme (CPRS) dominated his piece. I can’t read other economists’ minds, but I can speak about my own motivation, and my reasons for opposing ETS in general and the CPRS in particular.

Gittins (correctly) notes a carbon tax or an ETS can deliver the same emissions reduction and price of carbon. One does so by putting a price on carbon (and forcing a reduction in emissions). The other does it by limiting the supply of permits to emit, raising the price for (scarce) permits. In principle, either approach could work.


But then Gittins asserts “most” economists favour a carbon tax because “they believe it would be easier politically”. Really? Most economists understand politicians hate new taxes. Taxes are (or can be) transparent. It’s also clear who’s to blame for them.

Most economists understand the CPRS, with permits issued mainly high up the supply chain, is easier politically. It’s less transparent. It panders to misapprehensions that nasty big polluters will pay, and blurs the reality that increased costs will flow to consumers.

Most economists also understand that the CPRS is likely to be ineffective in reducing emissions (more on this shortly) and inefficient (consuming excessive resources).

Second, most economists would agree with Gittins on political courage (i.e., there’s not a lot about). Europe’s ETS experience shows it hasn’t had the courage to limit permits enough. European Kyoto targets have been more honoured in the breach than in the observance. The carbon price has tanked as permits are flogged by cash-strapped companies during the global financial crisis. European permits are a new “sub-prime” asset (sic).

Third, Gittins claims trading in permits via the CPRS “fits in better with what other countries are doing”. What are they doing? The European ETS covers about half its CO2 emissions and 40 per cent or less of its total greenhouse gas emissions. Most other countries (so far) aren’t “on board”. In terms of new contributions to emissions, major industrialising countries almost certainly will not “come on board” at Copenhagen in December 2009. International trade in permits is just another form of “carbon leakage”.

Fourth, Gittins recycles the fallacy much favoured by Minister Penny Wong. This is that an ETS delivers certainty about emissions reductions (by controlling the supply of permits). A carbon tax (which sets the price, but not the quantity, of emissions) doesn’t.


This emissions reduction “certainty” is only true if:

  1. Australia is a closed economy, or
  2. the CPRS is adopted by all nations at the same time. Neither describes climate policy reality.

Unilateral adoption of the CPRS will deliver neither emissions reduction certainty nor price predictability. Globally, our CPRS could as likely raise emissions as lower them due to “carbon leakage” as industries at the margin shift to jurisdictions not adopting such a policy. It’s the worst possible option.

  1. Pages:
  2. Page 1
  3. 2
  4. All

An edited version of this article was first published in The Australian on March 17, 2009.

Discuss in our Forums

See what other readers are saying about this article!

Click here to read & post comments.

2 posts so far.

Share this:
reddit this reddit thisbookmark with Del.icio.usdigg thisseed newsvineSeed NewsvineStumbleUpon StumbleUponsubmit to propellerkwoff it

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?

Other articles by this Author

All articles by Geoff Carmody

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

Article Tools
Comment 2 comments
Print Printable version
Subscribe Subscribe
Email Email a friend

About Us Search Discuss Feedback Legals Privacy