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The Price of Carbon

Monday, 11 July 2011  | Byron Smith

The minority Labor government in Australia has announced the details of a long-awaited scheme to put a price on carbon.* The basic outline is quite helpfully explained in the animation above, and summarised in greater detail
here. (I speak of a carbon price, because it is not a tax, but an emissions trading scheme with a fixed price for three years. This is not simply a matter of playing with words, as explained here.)

The scheme is modest in ambition, with only a 5% reduction in emissions by 2020,* despite Australians having the highest per capita emissions of all advanced economies and the 10th largest aggregate emissions overall (it would be interesting to see figures on aggregate per capita emissions, but I haven't been able to find them anywhere). However, unlike Kevin Rudd's defeated ETS, this target is not locked in, but can be raised by an independent Climate Commission anytime from 2015 when the carbon price shifts from being directly set by the government to being dependent upon the auction of a set number of emissions permits. Furthermore, the target for 2050 has been raised from 60% to 80%.

The price for tradable permits will start at a set price of $23 per tonne, rising slightly until 2015, when the number of permits will be capped and the price determined by the market. Only the largest five hundred or so companies will be involved, who together emit the vast majority of Australian emissions. Agriculture and petrol are excluded from the scheme. The former because monitoring of agricultural emissions are too complex; the latter because petrol prices are too politically sensitive (despite this
weakening the social, economic and ecological benefits of the scheme). Most households will receive compensation in the form of tax rebates and a raising of the minimum tax threshold will simplify matters for the tax office and for about a million Australians who will no longer need to lodge a return. Only the wealthiest households will be worse off (or rather, only the most carbon-intensive wealthy households).

Many experts see the scheme as representing a decent first step of what was politically possible with a few regrettable compromises. This piece gets into more of the details than I have time or inclination to do at the moment.

A few brief thoughts: with the vast majority of Australian households projected to be better off and the administrative burden falling on about five hundred major companies, the threat of bureauocratic and economic armageddon waved around by Tony Abbott will hopefully be quickly rejected.

Yet with all the focus (by both sides of politics) on what it will mean for the average household budget, most people don't seem to understand that the point of the system is
encourage behavioural change. If you don't want to pay more for your energy bills, then switch to renewable power and implement some basic energy efficiency and conservation measures. If you don't want to pay more for your food, then switch to eating local and organic produce. If you don't want your small business to pay more for its inputs, then consider lower-carbon alternatives for your business model. Whether the price will remain too low to encourage these changes directly through the hip pocket remains to be seen. It may be that the primary benefit of the system in the short term will be to provide some needed stability to the renewables market.

From a political perspective, the
claim that the Greens are not interested in environmental issues ought to be put decisively to rest, given the political costs Gillard has borne over the last few months during negotiations. What these demonstrate is that without the Greens pushing her, she would not be here of her own free will. This was the price the Greens and independents demanded of Gillard after the hung parliament, and it is clear that this is therefore at the heart of what the Greens hoped to achieve with their new-found political influence. Whether they were right to block Rudd's proposed scheme back in 2009 (which was superior in a couple of ways to the current proposal, though clearly inferior in many others) is a more difficult question. Hindsight offers a perspective of the enormous fallout of that earlier decision (change of leadership in both parties, an early election, a protracted chance for the opposition to pursue large swings in popular support for a carbon price), little of which was obvious at the time.

The Greens' shift from principled opposition to pragmatic support of a least worst viable option represents a difficult yet crucial debate. The proposed scheme may represent
the best that was actually available, that is, politically palatable, under current conditions (and so requiring plenty of sweeteners for some of the worst polluters), yet it is important to admit and repeat that it falls far short of what is necessary to avoid some very bad outcomes. Under such circumstances, is a small step better than nothing? Does this represent the strategic establishment of a system that can be scaled up as the political will builds over time? Or can much ado about very little ultimately prove a distraction from or substitute for more radical change, locking in assumptions about the viability of the status quo without addressing the root causes of the problem in our consumerist idolatry and myopic pursuit of further economic growth?

*From a 2000 baseline, which Australia continues to use, despite a global agreement to use 1990 as the benchmark. Therefore, Australian targets cannot be directly compared to those of most other countries. The later baseline makes them less ambitious than a similar figure from a 1990 baseline.

Reproduced with permission from http://nothing-new-under-the-sun.blogspot.com/2011/07/price-of-carbon.html


Charles Sherlock
July 12, 2011, 5:03PM
Thanks for an understandable, well-gauged piece, which should be widely circulated. Any particular theological insights, however, into the whys of this approach to reducing emissions (which I assume is a well-grounded biblical response to our corporate sin)?
Harry Cotter
July 12, 2011, 6:20PM
Probably the most balanced, clear and concise accounts of the bill that I have seen.
Great for giving to people who just don't get it.
Byron Smith
July 13, 2011, 2:24AM
Thanks for posting this and thanks Charles and Harry for your kind words.

To be clear (there has been a little discussion of this), the starting price is AUD$23/tonne CO2-e (carbon dioxide equivalent, since three other greenhouse gases are also included: methane, nitrous oxide and perfluorocarbons) in 2012, rising by 2.5% in 2013 and another 2.5% in 2014, then switching to a market in 2015.

The full plan can be downloaded here.

I think this quote from the Australia Institute summarises what I'm trying to say:
"The good news is that the modest carbon price announced yesterday will neither impoverish Australians nor bankrupt our economy. The bad news is that the modest carbon price announced yesterday won’t save the planet either."
(As long as "won't save the planet" is understood as shorthand for "won't come close to fulfilling Australia's just share of emissions reductions required to offer a reasonable chance of leaving a livable climate for the world's inhabitants in the long term".)
July 13, 2011, 9:47AM
I don't believe that the Gillard Gov. has got it right and that we will ultimately pay big time for her push in this direction. I am not convinced that we can destroy our world or ever will as God is in control. not Julia.
Byron Smith
July 13, 2011, 12:10PM
I am not convinced that we can destroy our world or ever will as God is in control.
Perhaps, perhaps not. We can sure do plenty of damage to it and to ourselves as history demonstrates time and time again. God doesn't usually prevent suicide, either individually or collectively.
Chris Dalton
July 13, 2011, 12:50PM
What is the role of the church and individual Christians in this debate, that will be with us at least until the next election?

Before reaching any conclusions about the merits or otherwise of a carbon tax, perhaps we need to think through some basic questions:

1. Does the church, and do individual Christians, have a role to play in 'the public square' by contributing to the debate? That is a whole theological debate in its own right. Some will conclude no, others yes. These comments are directed at those who conclude yes.

2. If yes, then should the church take a definitive position, or focus on helping individual Christians reach their own conclusions? These comments are directed at first assisting individuals make informed, theologically based decisions on this issue; advocating a single Christian position might follow - but informed dialogue that reflects different conclusions can be as helpful in the public square as the preparation of a single 'theologically correct' position (if that is possible on this issue).

3. Do we think carbon pollution is contributing to climate change? Some will think no, others yes and the rest maybe. These comments assume, as a minimum, that carbon pollution may be contributing to climate change.

4. Some may reach conclusions intuitively. These comments are for those who wish to think through the issue in a reasoned way.

5. Can we as Christians take the risk that carbon pollution is NOT contributing to climate change? This is where we need to make an informed judgement, and the very confusing simplistic public debate is little help here.

6. For instance, is it primarily about job losses, an increase in the cost of living, not trusting the politicians, an unpopular Government, political opportunism, big business self-interest, broken electoral promises, a future for our children, protecting the environment, a choice between ALP/Green and Coalition schemes, harming our international competitiveness, or ... ? How do we balance all these competing factors in reaching a conclusion?

We have until the next election to educate ourselves. Let's make the most of this opportunity to stimulate an informed debate rather than relying on a superficial media presentation that seeks to polarise views at a very early stage (we all know that once you make up your mind on an issue, you're very unlikely to change it later!).

Some theological/biblical perspectives to guide thinking on this issue:

A. What does a call to sacrificial living mean (eg Mat 16:24; deny oneself and take up one's cross to follow Jesus) in this context? Should an increase in living costs influence us? Can we advocate a response that causes increased living costs for others, even if we are prepared to accept increased costs for ourselves? If we do, how might we support those adversely affected?

B. Do we need to repent of our own consumer behaviour (a life style where we, as Australians, are amongst the highest per capita emitters of carbon)? Are we loving our global neighbours (Luke 16:19-31; Lazarus and Rich Man) by maintaining our high (consumer- and carbon-based) standard of living? It shouldn't need the imposition of a carbon tax to achieve this change!

C. What is the just course of action here? Reference Micah 6:8. Are we loving the earth as our neighbour? Luke 10:27. Then reflect on the parable of the Good Samaritan, casting the earth as the person robbed and left for dead.

D. Sallie McFague (Life Abundant, pp 122, 123) talks of three guiding rules with regard to the earth: (i) take only your share; (ii) clean up after yourselves; and (iii) keep the house in good repair for future occupants. This is developed further in her latest book - A new climate for theology - where she states "we have failed to see the real root of our behavioural troubles in an economic model that actually reflects distorted religious views of the person". "At its heart", she maintains, "global warming occurs because we lack an appropriate understanding of ourselves as inextricably bound to the planet and its systems".

5. Romans 12:2: “Don’t become so well-adjusted to your culture that you fit into it without even thinking. Instead, fix your attention on God. You’ll be changed from the inside out” (The Message).
Robert Coles
July 13, 2011, 5:17PM
I pose a question. The carbon tax will cause electricity to rise by 10%. If consumers can reduce their power use by 10%, will the electrical retailers then increase the price a further 10% to replace their loss of revenue? Such action would be reprehensible. Do you agree and is it a likely outcome?
Mark Edmund
July 14, 2011, 12:58PM
Byron Smith said,
"The scheme is modest in ambition, with only a 5% reduction in emissions by 2020,* despite Australians having the highest per capita emissions of all advanced economies and the 10th largest aggregate emissions overall “
Byron, I find it a bit frustrating that Australia is being called one of the "the highest per capita emitters in the world"
I cannot verify the accuracy of these wiki figures but Oz comes in at no.16 in the world and emits 1.32% of global CO2:

Oz also has about 22 million people concentrated mainly in cities and an economy highly skewed to the mining industry. I have not checked but am confident the OZ mining$ per capita figures will also be skewed.... 1.32% is nothing globally...

On the other hand the USA and China combined emit 41% of world CO2 (according to wiki). Their present annual growth in CO2 production is projected to be 100's of tonnes more than Australia's 1.32% annual figure!!!

Unfortunately, the facts I have quoted above will rarely make the mainstream press as there is a strong "climate change" fear and propaganda coming from the highest level of global money power. Also add local political sales/marketing and financial players who are salivating at the prospect of growing a global ETS by $$$billions each year. Globally governments will force businesses to buy CO2 credits and then pass the costs on to consumers (after the UN takes their cut).
The "high per capita emissions" label for Australia may be true but it’s also a deliberately? DISHONEST misrepresentation of the facts - in my opinion...
Chris Dalton
July 14, 2011, 3:29PM

I wish I knew the answer to your question!

My Economist friends tell me there is a complex quantitative relationship between cost of production, profit, price, elasticity of supply and demand, the relationship between the wholesale supply and retail of services, etc, such that an intuitively reasoned outcome such as that which you outline might not occur in reality.

For instance, with regard to electricity supply, power companies have to dimension their networks to cater for peak demand, that might only occur a few times a year; but the cost of this dimensioning could be so extraordinarily high as to exceed the revenue earned.

In other words (even for the most ardent self-interested capitalist!), profit maximisation might occur at lower demand levels! On purely commercial grounds they may not want to dimension their networks to meet peak demand, but regulation of the supply industry might force them to do so.

Put another way, if peak demand levels do reduce this might mean power companies can defer decisions to embark on capital-intensive, low profitability new power generation exercises such as building new dams. Of, course, this is just one scenario. Another related question is whether the supply industry would pass on to the retail industry any savings/increased profitability arising from reduced demand.

In addition, in our consumer society demand for power increases every year, so even if there is a reduction in demand arising from price increases, over time demand will still increase.

Having said all that, I'm not sure that the potential for a reprehensible response by people in the electricity retailing business provides a compelling case for not imposing a carbon tax.People will exploit the current tax system to their own advantage as much as any future tax system.

I'm not sure I have adequately answered your question, which nicely highlights the importance of thinking through this whole issue in more detail - calling on economic, ethical, spiritual, behavioural, etc factors to be taken into account.
Mark Edmund
July 15, 2011, 11:27AM
Byron Smith said:
"I am not convinced that we can destroy our world or ever will as God is in control. Perhaps, perhaps not. We can sure do plenty of damage to it and to ourselves as history demonstrates time and time again. God doesn't usually prevent suicide, either individually or collectively". (13 Jul 11)

But surely you would also look to the prophetic writings to see that GOD is still sovereign in HIS world?

Global cooling was feared in the 70's (Google “global cooling 1974”), ozone hole feared in the 90's, global warming followed by climate change followed by “CO2 as pollution" today. These fear based promotions garner a "political action/ reaction" and DEMAND “global cooperation" to "solve" what’s happening to GOD’S creation. Do you think a "consensus" of unbelieving men – the world leaders/ scientists / money powers – will have the collective wisdom - apart from Christ - to “solve” this? Is the IPCC capable or the UN? Led by these moneyed globalists, unbelieving humans increasingly reject the Lord as creator and controller of HIS universe and they deny HIS WORD by their “scientific consensus”. Surely human PRIDE is at stake here?

What does the Spirit of TRUTH say through the prophets about what will happen to the Lord’s creation? AND what is the believer’s and unbeliever's response to what the Lord of creation says WILL happen. It is inescapable...

Hebrews 1
“You, LORD, in the beginning laid the foundation of the earth,
And the heavens are the work of Your hands.
11 They will perish, but You remain;
And THEY WILL ALL GROW OLD like a garment;
12 Like a cloak YOU WILL FOLD THEM UP,
And they will be changed.
But You are the same,
And Your years will not fail.”

Isaiah 13,
11 “ I will punish the world for its evil,
And the wicked for their iniquity;
I will halt the arrogance of the proud,
And will lay low the haughtiness of the terrible.
12 I will make a mortal more rare than fine gold,
A man more than the golden wedge of Ophir.
13 Therefore I will shake the heavens,
And the earth will move out of her place,
In the wrath of the LORD of hosts
And in the day of His fierce anger.

see Isaiah 51:6, Isaiah 34:4; compare Psalm 102:26; Hebrews 1:11-12; 2 Peter 3:10-12) and even Revelation 8...
[1] 2 3 >

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