We need a great big tax on carbon  

Posted by Big Gav in ,

The ABC has a column on why we need a carbon tax - We need a great big tax on carbon.

Our brand new Prime Minister has nominated "putting a price on carbon" as one of the goals of her government. Re-badging the ETS as "putting a price on carbon" is a deceptive piece of political spin.

Julia Gillard didn't invent this new expression for the pre-Global Financial Crisis drive by the financial sector for a great big global derivatives scheme that many people thought would become the largest derivatives trading market in the world.

For the most obvious of reasons (lots of money) there were and are very powerful people (mostly accountants and lawyers) that desperately argued that rejecting the ETS is the same as being a climate change sceptic. They are still conceptually, joined at the hip in most of the propaganda about how to combat climate change.

If climate change is the greatest moral challenge of our times then maybe we should stop people making a fortune out of it. They will if they sell a lot more derivatives than need to be sold at prices that are either a lot higher or lower than they should be to achieve the purpose of putting a price on carbon emissions.

Are governments going to allow shorting the markets to sell emission derivatives that aren't owned by the seller? Will market systems be created that permit huge bundles of derivatives to be sold at any given moment to arbitrage minute price differences from market to market? Will there be a global market (that will be a first that will take half a century to achieve)? And after all that, why is an ETS more efficient or equitable than a tax?

This is, simply put, a complete perversion of the social policy imperative.

A consumption tax puts a wholesale price on carbon. It doesn't allow a retail price that can be doubled by managers and manipulators of an emissions derivatives trading market. No proponent of the ETS has denied that the system is a derivative which will enable the global derivatives punters to expand the ETS to a size that is far beyond its original worthy purpose.

Any sceptic should have a look at what has happened in the past 20 years in the market for foreign currencies, which is essential for the sale of exports and the purchase of imports. In Australia 2010, the market for the Aussie dollar is more than 300 times the market volume needed to enable international traders to sell Australian dollars and obtain the foreign currency they need to pay for imports of goods and services.

An ETS is better for some - the operators and the traders. It will also hugely benefit the accountants who will measure how many ETS derivatives are needed to reduce a company's carbon footprint to the determined policy level at any point in time. They will then have the life time job of auditing emissions. Audits are the continuing source of income for accounting firms. They love them.

Some are already profiting from the idea. I wonder what airlines do with the money they receive when passengers opt to pay a charge to remove their carbon footprint?

Back to first principles. What are we trying to do? Reduce carbon emissions. How do we do that? Tax carbon emissions so heavily that the emitters - you and I - start to watch our emissions because they cost too much. Sounds boring but it is just like taxing tobacco, alcohol and petrol. They are taxes intended to reduce the consumption of goods that are regarded as anti-social. The cost to our society from their consumption massively outweighs any GST or other conventional tax. So we put a great big tax on them and every body pays at a rate equal to their consumption of the anti-social goods.


The article has one thing wrong. An emission unit (the right to emit a tonne of carbon) is not a derivative, it is a new kind of property, one which the government proposes to just give to certain companies. Options on emissions units are derivatives. But I'd agree with the prediction of massive speculation in units and derivatives, so long as there is no transaction tax.

There's a problem with taxing carbon emissions, too. If the government starts to depend on the tax revenue, it has a perverse incentive to ensure there is carbon to tax, as with petrol, tobacco and liquor.

So, tax and give the money to citizens. The government never sees the money so it won't care--in fact, it will want to get rid of the administration cost. Same problem--once citizens get the income, they have an incentive to preserve it. But this is better.

Tax and use the money for constructing clean energy? This is better still, if the government chooses wisely and does it directly. As subsidies, the tax risks being captured by boondoggles like carbon capture and storage; and subsidies benefit producers, not consumers, who will still pay a high price for energy.

It's not as simple as just "tax it!" Australia needs to think about how to use the tax, and how to stop it being misused.

Greg is right, the tax should be put through a cap and dividend system, sort of similar to how Alaska taxes their oil industry and sends it back to citizens in dividends (though obviously not through that framework, since Alaskans have an incentive to keep the oil industry jugging over there). It's been proposed here in California, among other states, and I think it'd work great.


The "Great Big New Tax" is an obvious point of attack for the fossil fuel lobby and their bought politicians.

The best counter to this in my view is the "Citizens Dividend", ie that the revenue raised by the carbon tax is returned in a per capita dividend to each citizen.

Personally I would prefer that at least 50% of the carbon tax revenue was hypothecated to renewable energy development and generation - but if it takes more to "bribe" the electorate, so be it.

The ETS is a Wall Street scam and should be dumped by everyone concerned.

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