Category Archives: Carbon tax

Tim Flannery’s ‘Millennium Bug’ – what he tried to say

Professor Tim Flannery caused a stir last week when he told Macquarie Radio’s Andrew Bolt that cutting emissions will not reduce world temperatures for 1000 years [partial transcript here]:

If the world as a whole cut all emissions tomorrow the average temperature of the planet is not going to drop in several hundred years, perhaps as much as a thousand years because the system is overburdened with CO2 that has to be absorbed and that only happens slowly.

Here’s a summary of what Professor Flannery meant by this remark. Later in the post I’ll talk about where these predictions come from.

  • Yes, temperatures probably will not drop for 1000 years;
  • However, due to human carbon emissions, if we do nothing, temperatures will rise by a best estimate for 4.0 degrees celsius;
  • Therefore, if no action is taken, we will be stuck with 4.0 degree celsius higher temperatures for hundreds of years.

Later in the interview, Professor Flannery tries to give some context to his remarks:

Bolt: That doesn’t seem a good deal. If we spend trillions of dollars to cut world’s emissions that we won’t notice the difference, well our great-great-great-great-great-grandchildren won’t even notice the difference.

Flannery: It will just keep getting worse if we don’t. That’s the problem.

Background: Andrew Bolt is a conservative columnist who is opposed to the mainstream consensus on climate change, and Professor Tim Flannery is the Chief Climate Commissioner selected by the current Labor government.

What does the science say about the effect of reducing emissions? According to the IPCC Fourth Assessment Report, the choice is between a 1.8 degrees celsius temperature rise – achieved by cutting carbon emissions – and a 4 degrees celsius temperature rise.

A study by NOAA (National Oceanic and Atmospheric Administration) predicts that climate change caused by human created carbon dioxide is largely irreversible for 1000 years. This is presumably what Professor Flannery was talking about.

27 March 2011: Australian carbon politics news

Here’s some of the recent news relating to the climate tax debate.

The Coalition has won a landslide victory in the NSW State Election, with a record 16% swing against Labor. The Coalition is likely to have 68 of the 93 seats in the state.

O’Farrell vows to tackle PM on carbon tax

NSW Premier-elect Barry O’Farrell today signalled turbulent waters ahead for the Gillard government, vowing to take up the fight on the proposed carbon tax.

[…]

On the carbon tax, [NSW Premier Elect] Mr O’Farrell revealed that he felt the mood of the election campaign switched on the day Ms Gillard announced the carbon tax, undercutting NSW leader Kristina Keneally’s argument that Labor would be better able to manage cost of living pressures.

Meanwhile, in Victoria:

Baillieu sticks to emission targets

[Liberal] Premier Ted Baillieu says he stands by targets to cut Victoria’s greenhouse gas emissions by a fifth over the next decade, placing him under growing pressure from business and industry ahead of his first budget.

As the debate over a carbon price intensifies in Canberra, Mr Baillieu said he was committed to the policy adopted by the Coalition and Labor last year to reduce emissions by 20 per cent beyond year 2000 levels by 2020.

[…]

Mr Baillieu has asked the Commonwealth to provide further details of its carbon scheme – namely the impact on Victorian jobs, household energy bills, and compensation – so the government could work on further initiatives.

In Canberra, the battle continues:

Abbott calls for new election on carbon tax

Opposition Leader Tony Abbott has called for a fresh election to test the federal government’s plan for a carbon tax.

Mr Abbott today addressed an anti-carbon tax rally outside Parliament House in Canberra, which organisers say attracted 3000 protesters.

The Liberal leader told the crowd that Prime Minister Julia Gillard did not have a mandate for the carbon tax, which the government wants to introduce on July 1, 2012.

This piece from Prime Minister Gillard appeared:

Reject the climate extremists

Small groups with loud voices shouldn’t be allowed to derail the action we need to take.

As the world moves to a lower carbon future, now is the right time for Australia to decide how we secure a clean energy future.

This is an important policy debate that should not be distracted by extreme views. People should have their say but their contribution should be judged by its quality, not its volume. Australia must reject the extremes of the debate, no matter from where on the political spectrum they emerge.

She also gave a speech to the Don Dunstan Foundation on the topic (it’s a bit old – March 16 – but it succinctly describes her position):

Speech to the Don Dunstan Foundation

Australians of the future will look back on [opposition leader Tony] Abbott’s campaign with pity and shame. The pity and shame posterity reserves for leaders who miss the wave of history and misjudge the big calls […]

We will cut carbon pollution. We will not leave our nation stranded by history. We will not live at the expense of future generations. We will get this call right and get this job done: For our nation. For our people. For our future.

Climate legislation humour

This post on DenialDepot popped up in my regular reading cycle today: Climate legislation: I can’t find anything good to say about it.

Quote:

[…] Carbon legislation will disproportionately hit the poor in society and the money will just end up in the pocket of rich bankers.

At the same time climate legislation is not really about the climate at all. The true motive is socialist wealth redistribution – a transfer of money from rich to poor. […]

Funny.

More carbon tax – a quick note on the effect of compensation

I’ve heard a lot of rubbish about how compensation for individuals will remove the incentive for companies to reduce their carbon emissions. Now, I’m no economist, but I just want to call out this transparently false argument: customers will still seek lower prices as can be offered by energy companies that can reduce their carbon emissions, provided the compensation scheme is anything short of braindead. It works like this:

Effect of compensation on emissions: a net reduction.

In words:

  1. John Smith purchases electricity from Company A
  2. The government compensates John Smith for a portion of his energy bill
  3. Company B offers cleaner energy, which is cheaper for them to produce because of the carbon tax burden, so Company B can offer lower prices than Company A
  4. John Smith switches to Company B, lowering his net carbon footprint and his energy bill, while still enjoying the government compensation.

The net result of this is a lowering of carbon emissions.

Carbon tax and the climate change solutions on offer

Note: if you just want a quick, visual summary, scroll down and check out the diagrams.

I’ve been following the debate on the carbon tax in Australia very closely lately, and there hasn’t been much focus in the media on the actually policies presented by the Coalition, beyond that it is a ‘direct action’ approach. So I’m going to take a look at the more sober coverage (no ‘great big tax on everything’ rubbish) around the place and see if I can get a handle on it. Try not to get distracted by the climate skeptics you see around the place; they are entitled to their opinions, but when making policy, governments must go with the scientific consensus, or you risk another South Africa.

Background reading, if you want it. Here are the countries who are legislating action on climate change. This is Wikipedia on Emissions Trading Schemes, of which there are a few forms. Here’s some background on carbon taxes as they compare to ETS.

First, the red: Labor’s policy. If you prefer it in pictures, skip to the diagram below. Here’s an article on the carbon tax by Greg Combet (Labor, Minister for Climate Change and Energy Efficiency) that was in The Australian four days ago. Here’s a ‘dummies’ summary from Adelaide Now. And here’s my summary:

  • A fixed, to-be-announced, price on carbon will begin on July 1, 2012;
  • Initially, this will work like a tax, but the intention is to move to a full ETS no sooner than three years later;
  • The money raised by the tax will go to support low-income households (income tax rebates?) and to support businesses in transitioning to cleaner energy.

Additionally, Labor is pursuing research into improving long-distance transmission lines to make renewable energy more practical, tighter vehicle emission standards, and tax breaks for green buildings. No amount has been provided for emissions reductions, but it is likely to be between 5% of 2011 levels as proposed by Labor previously, and 20% as advocated by the Greens.

I still have lots of questions about this policy. Implementation is the key: how will the price be set, will this be used for revenue raising by the government (or will it truly be budget neutral, as they claim), how will the compensation work, how soon do we actually reach an ETS, and how will the ETS itself be structured?

Here is a diagram describing way money would flow under the carbon tax strategy. I haven’t made a diagram for how the ETS might work eventually.

Now, the blue: the Coalition position; again, skip to the diagram for the visual summary. Caveat: the Labor policy has been announced recently, whereas the Coalition policy I’m describing here is largely drawn from the policy documents they released during the last election. So I might have missed new details given by Opposition spokespersons during the recent coverage; tell me in the comments if you notice.

Anyway, the policy. Here’s a blog post about a third way to cut emissions, posted by Greg Hunt, the [Liberal] Shadow Minister for Climate Action, Environment, and Heritage. The media generally refers to this as the Liberal’s ‘direct action plan’, which implies that it is not market based. The reality is a little more complex and is described in this document (pdf). Here’s my summary:

  • Establish a ‘Emissions Reduction Fund’ and call for tenders for projects that reduce CO2 emissions below historic baselines or ‘business-as-usual’ levels. This is basically the government paying firms according to the reductions they achieve;
  • Firms that emit above business-as-usual levels will be penalized by an undetermined amount. I’ve bolded this item because it has not received much attention in the press at all.
  • Encourage ‘soil carbons’ as the primary reduction mechanism. This involves farming procedures that capture and retain carbon inside agricultural soil.

Additionally, the Coalition is proposing direct infrastructure investment in the form of increased home solar installations, placing solar on schools, adding geothermal and tidal energy to small towns and communities, and many other initiatives. We don’t know any details about precisely how this would be funded, but if it is to be budget neutral it will require either a tax increase or spending cuts.

The goal is a 5% reduction in carbon from 2011 levels by 2020, which is in line with the old Labor government target; the new Labor target is unknown and TBA. Here’s a diagram, which is incomplete because I haven’t included all the direct initiatives suggested by the Coalition policy document:

How the Plans Differ

Here is a short summary of the similarities of the plans as far as I can determine. I haven’t analysed how the ETS might work or how it compares, so this is just a direct comparison between the Carbon Tax and the Emissions Reduction Fund.

  • High emissions will be costly, as both plans will penalize emissions;
  • There will be a business incentive for many firms to cut carbon emissions;
  • The tax payer will wear some or all of the cost;
  • The Government will increase its administrative burden, either by requiring the selection and investigation of tenders under the Coalition, or by managing a new tax and compensation payouts.

And here are the differences:

  • The carbon tax does not require the Government to ‘pick-the-winners’, but they will try to anyway;
  • There is no proposed compensation scheme under the Coalition scheme, but there is also no proposed increase in the cost-of-living;
  • Firms are not guaranteed of receiving the abatement under the Coalition scheme even if they do reduce emissions;
  • The Emissions Reduction Fund would achieve 5% reductions if all goes well, whereas the Carbon Tax and ETS could potentially achieve even greater reductions if the fundamental economics of energy change.

The administrative burden of both schemes are hard to guess. Emissions reporting is already happening either way, and taxes are nothing new for government. Details on the compensation for the Labor scheme would be great. The Coalition’s scheme would see a centrally managed tender process that will have to be sizable to support the proposed reductions.

Since this is politics, there is a fairly high risk that the government would break its promise and use the revenue from the carbon tax to fund unrelated projects, or to throw parties.

The Labor scheme will theoretically (tell me if I’m right in the comments) give incentives for investment in both large and small (long-tail) emissions reduction. The Coalition scheme will do so only if the tender process is managed carefully and the tender fund is large enough to support it, and the scheme does not directly penalize the business-as-usual emissions that are actually the problem.

Which is Better?

It’s impossible to tell at this stage. The debate at this stage is largely political while we await further policy details, but, ironically, the Labor plan is relatively market-based, while the Coalition plan is relatively left-wing. Also ironically, the Liberal plan has a carbon tax element. The better plan depends on the unannounced details and the successful implementation of either system, but, looking back, I seem to have made the Labor scheme appear more attractive, which was not what I planned!

We are likely to receive more details about the Labor plan first – they are in government, after all – so we probably won’t learn more about the Coalition plan unless they get elected. I’ll post more updates as I get them.

Michael