Thursday, 21 April 2011

The carbon tax that ate Australia

File photo: Electricity lines (ABC News: User Submitted: Peter Driussi)

The carbon tax that ate Australia

By Anthony Cox and David Stockwell

David Stockwell
Anthony Cox The carbon tax has inflamed the old conflicts between progressives and conservatives – between those who favour government-imposed solutions, and the free-market capitalists or those who simply mistrust big government.

In an effort to win over the conservatives, Greg Combet has been busy spruiking the economic benefits of a carbon tax to everyone from householders to CEOs.

Combet boasts that “Every dollar raised by the carbon price will be dedicated to supporting households with any price impacts, and supporting businesses through the transition to a clean energy economy.”

This is impossible. Under the “Fast Start Finance” commitment from Cancun, which Combet announced, $599 million will be given to the IPCC under Australia’s combating AGW obligations. This $599 million is on top of the commitment made by Australia at Cancun to give 10% of revenue raised from a carbon tax to the IPCC. Then there will be the bureaucratic expansion to run the tax, checking compliance and eligibility criteria; these administration costs apparently run at 50% for the Australian government. All this probably explains why Combet’s boss, PM Gillard, is saying “more than 50 per cent of money raised [from the carbon pricing scheme] will go to assisting households.”

This must be part of the “certainty for investors” which Combet describes as an advantage of a carbon tax.

According to Combet, “with Australia's enormous clean energy resources, putting a price on carbon and shifting to clean energy will have big benefits for our economy.” This has not been the experience of other countries.

Spain’s experiment with a carbon tax and subsidisation of wind and solar resulted in 2.2 jobs lost for every green job bought by subsidies. Italy fared even worse with 4.8 jobs lost for every green job bought by subsidy. Similar results occurred in Germany and Denmark.

Apart from overseas experience showing a carbon tax and subsidisation of green energy costs jobs the results also show shrinkage in GDP; Spain’s economy actually contracted during the period which green energy was subsidised. This should be no surprise to Combet because in 2009 the then NSW Labour government commissioned Frontier Modelling to analyse the effect the 5% ETS proposed by the then Rudd government would have on the Australian GDP. The modelling showed a $2 trillion reduction in the Australian economy directly linked to the effect of the ETS by 2050; that’s $50 billion per annum; enough to pay for the NBN.

The shrinkage occurs because green energy is both far more expensive than conventional energy and does not meet the society’s needs. California is the classic example of this. California’s sweet ride with green energy began in 1973-4 with the first oil shock; this experiment gained momentum in the 1980s when the US government offered big tax breaks for wind power. After 40 years of massive investment and cutting edge technology in wind and solar California today obtains only 2.4% and 0.4% from those 2 sources. As for moral leadership, despite banning coal mining California still receives nearly 10% of its power from coal, all imported. California’s dominant energy source is gas.

Apart from a Treasury release saying that a $30 per tonne carbon tax will add $860 per household there have been no economic modelling to support its cheery predictions about a carbon tax. The overseas examples listed above prove they won't eventuate.

That proof that a carbon tax represents a massive shift towards big government lies in the already available details in the government’s National Greenhouse Emissions Reporting website [NGER].

NGER lists all the corporations currently obligated to report their emissions of CO2; this obligation is based on a threshold which only catches the largest of businesses; this threshold will be lowered or non-existent with the advent of a carbon tax after the Greens gain power on the 1st July 2011, so the total revenue collectable from a carbon tax will be much larger the NGER indicates at present.

But that's not all. The NGER structures the carbon tax as a DOUBLE tax applying both to the production of energy [Scope 1] and the use of that energy [Scope 2].

The figures are staggering. Scope 1 emissions are just under 341 million tonnes. Because the use in Scope 2 will approximate the emissions from Scope 1 another 341 million tonnes can be added for a total of 682 million tonnes of emissions. The Greens preferred CO2 tax rate is $45 per tonne; at that rate the carbon tax will extract $15 billion from the Australian economy per year. And that’s before agriculture and petrol are slugged.

Julia Gillard and Greg Combet are saying somewhere between 50% and 100% of the money will be returned to consumers but that is qualified by saying that only the most needy will be looked after. There are about 7.5 million residential household accounts for electricity in Australia, but obviously only about one quarter, or 2 million of those are needy if pension and low income thresholds are applied. If the government allocates half of the revenue or $7.5 billion to those 2 million households that will be $3,750 per household, well above the Treasury estimate of what it will cost the average household at $30 per tonne. Even if another $15 is added to the carbon tax price that will, according to Treasury, only cost the average household $1,290 [$860 + $430].

But this doesn’t take into account two crucial and proven consequences of the carbon tax. The first is GDP shrinkage estimated to be $50 billion per year; that will cost the average household 3 times what the direct effect of the carbon tax will, adding another $3,870 to the average household. With the $1,290 added on that now comes to $5,160. If the government gives all the collected revenue to the bottom 2 million households that will be $7,500 per household so those households will be better off. The other 5.5 million households will of course be out of pocket by $5,160.

The second problem goes beyond compensation however. Part of the GDP shrinkage will be relocating and closing business; part of that closing business will be energy providers. The Australian Energy Market Operator, the peak body for appraisal of all Australian energy providers, has already predicted energy shortages and black-outs within 2 years.

It doesn’t much matter how much compensation you are given if there is nothing to spend it on and you can’t count it in the dark. Of course with a failing economy the compensation will only last a year because after that time there will no “polluters” to collect it from.

Even if man-made global warming [AGW] were real we know that an Australian carbon tax will have no effect on rising temperature; the sums have been done, the questions have been asked and the only answers given have been odd.

With this Government's reputation for bungled schemes - the BER, the home insulation scheme, the mining tax, clean coal to name a few - even progressives should think twice about whether this government has the capacity to introduce such a complex reform as a carbon tax and trading scheme.

The risk is not that Australia will be left behind in putting in place new, better, cleaner, greener technology, but that Australia will be left with no steel industry, no aluminium industry, no refineries or smelters.

Australians are not “per person, the highest polluters in the developed world”, as Combet claims; this is wrong, we are 12th, with one of the most efficient industrial sectors in the world, a product of necessity brought on by the low population and the “tyranny of distance” which aggravates infrastructure and service provision in Australia compared with other countries. It’s a pity Combet is not spruiking that instead of a carbon tax which will send that efficiency away from Australia.

Anthony Cox is a lawyer and secretary of The Climate Sceptics.
Dr Stockwell  runs the influential science blog, Niche Modeling.