After a significant hiatus to take some holidays, see a cricket test match and do some billable work, I have returned and want to announce that I am now fully against the implementation of the CPRS in favour of a straight input tax on carbon in fossil fuels. This is not to say that I have become a climate skeptic, nor have I decided that an emissions trading system would not work. However, having examined both the process and results of the Copenhagen summit on climate change, I have now joined the ranks of those who believe that an emissions trading system (ETS) will be too little, too late.
The basic premise of all of the ETS that are currently functioning in the world (and yes they are in fact proven to function) as well as that proposed for Australia under the CPRS legislation, is that you can harness economic market forces to drive emissions down more quickly and efficiently than mandated emissions cuts, or a straight input tax on carbon in fossil fuels. Essentially, all of the ETS are based on the concept of “cap-and-trade” where the government sets an overall emissions cap, and individual entities under the cap can trade amongst themselves in an independently verifiable manner, allowing some to emit more from their operations, if they pay others (through buying excess emissions credits) for the emissions reductions made at the sellers facilities. These ETS, as I have said above do work in fact, but they don’t work in reality, for a number of reasons:
• People Lie – Everywhere that I have seen the attempted introduction of an ETS, I have seen people with a vested interest in not seeing anything done about the basic issue lie about the details of the ETS, its purpose, its effect, or all three. The lies pretty much start on day one of the introduction of the legislation, as they did in my home state of Montana, where the US Congressman Reberg ( a wholly owned subsidiary of the energy lobby) penned an editorial in his local newspaper calling the legislation “Cap and Tax”, and hyping it as a new tax on everything to his base of libertarian minded constituents. That’s how the discussion started from day one. No thoughtful, logical evaluation of the pros and cons of the design, the fairness of the implementation or even the economics and outcome. Nope, it was straight to the third grade name calling, and then downhill from there. A similar welcome accompanied the introduction in Australia, albeit with less juvenile but no less significant misrepresentation from the likes of Senators, Joyce, Minchin or Fielding.
• People are lazy – People get away with the lying identified above primarily because the masses are arses and are typically either too lazy or too stupid to seek out some basic information on the subject and decide for themselves whether they are in favour of an ETS (or even doing something about climate change or not). So, they are swayed by whoever has the most money, the loudest voice, or the sexiest celebrity in forming their opinion.
• Complexity leads to corruption – Any ETS legislation gets a bit complicated, often in an effort to create fairness in implementation, but just as often to buy off enough support of moneyed constituencies, or put in loopholes for those same constituencies. Because of the complexity of these systems, they are even harder for the lazy and uninformed to support, and they often take forever to get through the legislative process and into function. Then after they do get into action, the loopholes and payoffs get exposed by the press who feed on controversy, and their support is further eroded.
Given these truths about the realities of an ETS, I believe it is far more favourable to just go with a simple carbon input tax on all fossil fuels. This will blunt the criticism of the liars who will just want to call it a tax anyway, it is real simple so we should be more easily be able to sell it to the punters who donít want to know too much (and will like the straightforward payback they will be able to see), and wit will be nearly impossible to cheat or get loopholes into the legislation since I could write it in a couple of pages.
Here’s how a simple carbon tax would work. First we figure out how much we need to tax our dirtiest fuel (coal) in order to make it the same price as the cleanest fuel (solar). Then, on that basis, we set a carbon tax for all hydrocarbon based fuels on the basis of an assay of how much carbon they contain in relation to coal. The tax on coal will be very high, oil less, gas significantly less, hydro, wind and solar nothing. All of the tax will be applied at the first point of sale of the fuel so there will be no chance to escape the tax man, and there will be no double taxing. All of the money will come in to the federal government that already has the infrastructure and resources to collect the taxes (it’s one of the only things governments are really good at, after all) so administrative costs will be low. All of the tax revenue generated will be redistributed evenly on a per-household basis (not a per person basis, so we don’t encourage overpopulation). Heavy users of energy will pay the most, and everyone will benefit on an egalitarian basis. Want to drive a Hummer and feel good about it? Go ahead, you will have paid for the fuel tax. Want to feel great about the purchase of that solar panel? You can too!
The price of virtually everything will go up, it’s true, since everything is pretty much manufactured and transported now with one fossil fuel or other. But that’s OK, since every household will also be getting a big payment every year as their portion of the return on the tax, and eventually less carbon intensive energy sources will be the norm. This will also allow every household to budget (if they want to) each year and directly see what their energy inputs are, and compare that to the amount they get back from the carbon tax. With people being able to examine the data more directly for their own household (if they choose to look), there will be great incentives for the smart to become more fuel efficient. And I always like incentivising the smart.