Our carbon bubble danger  

The Business Spectator has a pair of articles on the problems with carbon trading and why a carbon tax is preferable - Our carbon trading blunder.

It’s a tragedy that the climate change debate is being used to pull the Coalition apart and to possibly bring on a double dissolution, because the political skirmish is obscuring significant events that have occurred since the current set of policies were framed.

This week the change really came home to me when I discussed the latest developments with a state environment minister who seemed tantalised by the possibilities created by the new events. But with all policies virtually locked in, and the opposition in disarray, the widened debate is left to media commentators.

In today’s commentary I am ignoring the rising number of climate change sceptics which are a hidden force bubbling below the surface. A majority of Australians want to slash our use of carbon in a way that creates the least disruption to the economy. If we are not very careful, the present track will lead us to a carbon reduction policy that does the economy great harm.

As I have explained many time before, the discovery of huge reserves of gas – which burns with much lower carbon emissions than coal – in Queensland and NSW in North West Shelf quantities, gives Australia the opportunity to combine gas and renewable energy sources to slash emissions at a manageable cost (New energy can't wait, July 15). The United States is in a similar situation and the high-profile political figure Robert Kennedy Jr has woken up to the new paradigm.

To justify the investment in low carbon fuel sources, it is necessary to make carbon emissions a cost. In essence that’s what the emissions trading scheme is all about.

The trouble is that the proposed Australian version is complex and traps people and organisations that the community does not want to trap.

Many moons ago politicians on both sides of federal parliament and in most states abandoned the idea of a carbon tax because they reckoned it would be unpalatable to voters. But in those days they had budget surpluses and did not believe they needed an extra tax. Now they desperately need additional tax revenue to cover their huge deficits and are looking around for all sorts of nasty taxes.

So why not re-visit a carbon tax at a rate set at on the basis of an international formula? This would require a rebate for all export industries and a tax on the carbon content of imports. In other words, the price of carbon is lifted no matter where in the world it comes from. It's simple and it's easy to understand a tax and with wide community acceptance it would become the new GST to reduce the deficit. Fans of carbon trading will protest that selling carbon permits can raise just as much revenue for the government if the price is set correctly – however, the way the government's carbon trading plans are already being manipulated by interest groups suggests that in practice this would not happen.

A decade ago, when the accountants were debating a new set of accounting rules, business was too busy to be active in the discussions. The result is an international mess. We could never have imagined our accountants would get it so wrong. Similarly with sub-prime, who could have imagined American bankers being so stupid?

When it comes to carbon trading, we are once again too busy running our businesses to realise what is happening. I fear that the greatest legacy of the 'ute-gate' affair will soon be a that it did not give Malcolm Turnbull and the coalition the breathing space to step back from the carbon trading issues and devise a better way to achieve the government’s objective, rather than simply raising questions.

And there is a much better way to achieve the government’s carbon reduction objective. The best place to start such an examination process is the Conversation section of Business Spectator where we have been deluged with some wonderful commentaries – including commentaries from people who question whether carbon is the issue. I urge all my readers and all politicians to be updated on how much the carbon facts have moved since the Coalition government first proposed carbon trading.

When I initially raised the issue I was tentative because I knew that I was probably too late to have an impact on the debate, but the Conversation contributions have convinced me of the virtues of a carbon tax. And two private emails have added a new dimension: one from Clunies Ross award winner and Cosmos magazine founder Alan Finkel; and a second from a Sydney merchant banker who knows just how much money his sector will make from carbon trading. This merchant banker, who has asked that his name be withheld, gives a new perspective on a carbon tax.

Finkel in the June issue of Cosmos says that of the $23 billion expected to be raised via carbon permits in the first two years in Australia, ”every dollar will be returned in handouts, with not a cent allocated to technology research or investment in building infrastructure capacity”.

“Cunning traders” will exploit the scheme’s complexity as they did with the complexity of mortgages and derivatives created over the past 10 years, wreaking havoc on the global financial system.

Finkel says: “Do we really need to create a whole new market employing hundreds of highly paid lawyers, traders, brokers, analysts, bookkeepers and others just to buy and sell permits – or hoard, speculate or profiteer from them?”

A carbon tax can raise money “simply and fairly” because governments already have agencies that collect taxes efficiently. “No matter how small the price impact, it would stimulate more behavioural change than if there were no price increase at all.

“At a modest $10 per tonne, the annual revenue in Australia would be $6 billion. This would help pay for measures such as phasing out coal-fired electricity – replacing it with lower emissions sources such as gas-fired power, or near-zero emission options such as wind, solar and nuclear.

“It could pay for research into new technologies to improve energy efficiency and behavioural change, and mitigate the coming impacts of climate change”.

But the merchant baker has a different way of using a carbon tax.

“We could ‘do something’ about reducing Australia’s greenhouse gas emissions by taxing them fairly heavily, encouraging pass-through of the costs to consumers and using the tax proceeds to compensate consumers by cutting income taxes and raising social benefits, with the net effect being revenue neutral", he says.

”This would increase the costs of energy, transport and other CO2 intensive goods and services enough to stimulate and accelerate research, development and introduction of non-polluting alternatives (by the private sector).

“It would give consumers the ability to pay the new higher prices and would reward everyone who, in the past or future, did or does something to lower their greenhouse gas emissions."