a Business Spectator publication

Abbott's smoke signals

In an article in The Wall Street Journal last month, Princeton University professor of economics Alan Blinder suggested the cheapest way of attracting investment into clean energy and low-carbon technologies was to introduce a carbon tax that started at zero and was gradually ramped up over time – say $25 by 2015 and $40 by 2020 – until it got to $200 by 2040.

Blinder, a former vice chairman of the Federal Reserve, said the time pattern would be more important than the exact dates and numbers.  “What's critical is that we lock in higher future costs of carbon today," he wrote. "Think about what would happen. Once America's entrepreneurs and corporate executives see lucrative opportunities from carbon-saving devices and technologies, they will start investing right away – and in ways that make the most economic sense.”

What’s more, he said, it woudn’t cost taxpayers a dime, and in its initial stages the phased in levy on CO2 emissions would deliver an infinite “bang for its buck” as the tax would be zero. But would still send an important message to industry because the future price of emissions would be locked in. Business – well, smart business at least – would be encouraged to act when the cost of carbon was low.

The call for a price signal from business and the plea for bilateral support has become so loud in recent months that it is nearly deafening. Not all business want to see a permanent escalator, but few deny that a carbon price is inevitable, and most simply want to know what the rules are so that they can get on with the business of running business.

Australia began a similar experiment with locking in a future price of CO2 last Thursday. It, too, effectively started at zero when Labor and the Greens revealed a document that had little more than an agreement to impose a carbon price and put a date on it, but with the commitment to deliver a long-term price signal.

That price signal lasted all of four days. By Monday, the experiment was over, when Opposition leader Tony Abbott decided he would repeal the tax should he get into government.

The effect of Abbott’s pronouncement was to apply an immediate discount to the expected carbon price of around 50 per cent, if that’s what you thought his chances of being elected were. An energy utility that might have been planning an investment in a baseload gas plant, assuming a price of $25 a tonne, would now have to apply a discount factor. At around $12 a tonne of CO2e, the investment doesn’t cut it.

Abbott and his cabinet made the decision in the apparent belief that no investment would be committed to in the next few years that could not easily be rolled back. And this from the party that professes to be close to business. We’re now back to the stalemate that has plagued the electricity industry for at least the last five years.

Individual corporates appeared too stunned to comment on Monday, but the industry groups made their position clear. Nathan Fabian, the CEO of the Investor Group for Climate Change, a coalition of leading asset managers that will bankroll this investment, said Abbott’s position was catastrophic. “It greatly undermines certainty for investors and the business community who want this policy,” he said.

So where does Abbott get these ideas? Mostly from people who do not accept the mainstream science of man’s influence on climate change and will stop at nothing to prevent any policies being implemented. The idea that a carbon tax was an easily disposable policy instrument has been vigorously promoted by Dick Warburton, the former chairman of Caltex, who now plays a prominent role in Abbott’s roundtable of business people giving advice on climate and carbon pricing.

Warburton wrote in The Australian Financial Review in late 2009 that he was not convinced that humans were causing climate change – he argued the science was not settled – and on this basis Australia should certainly not introduce an emissions trading scheme, because the “rent-seeking” financial markets would vigorously resist any attempt to unravel the financial instruments. “Far better, then, to take the carbon tax route which is more transparent, more direct and, importantly, more flexible,” Warburton wrote. “Should the supporters be right, you can ramp up the tax, but should they be wrong, you can diminish or eliminate the tax.”

But Abbott is not basing his decision to repeal a carbon price on the assumption that mankind’s influence on climate change will be disproven in the next 24 months. It is political opportunism, based on the belief that he can be elected by pretending that nothing needs to be done about it. The Direct Action policy of the Coalition is an absurdity, designed only to give handouts to international conglomerates and windfall trading profits to the owners of other coal-fired utilities. The impact on electricity prices will be no different, and most likely worse than having a carbon price.

A member of a UK Trade and Investment Commission, visiting Australia to attract funds into the UK’s massive investment in clean technologies that is needed over the next decade – more than £200 billion – said he was quite stunned by the political debate in Australia. “It’s like going back 10 years,” he said.

Comments on this article

re: Abbott tactic is winning

David, I wouldn't give it away just yet - Windsor is not standing for re-election, Oakeshott is a firm believer in climate action and the whole strategy is based on getting the tax in place well before the next election so that, just like the GST, people can realise the scare campaign is ridiculous and the sun will still come up in the morning - and Ian, on the double dissolution, that means the Greens only need 7% per senator, they would easily get one in every state and probably two in most. I'm afraid even people who disagree with you get a vote, old boy.

Abbott's tactic is winning

The latests polls suggest that Tony Abbott, with the help of the usual shock-jocks, and the Murdoch press, is winning the hearts and minds of voters with his opposition to a carbon tax.

 

I suspect that two of the independents will reject the legislation when it is presented to parliament.

 

As dissappointing as this is, we have to just keep plugging away.

 

 

Abbott's policy pamphlet

Hi David,

Abbott's 10 page policy, which I read with growing alarm when it came out, is unbelievably flawed as well as short and shallow.

 

1. The policy leans heavily on soil sequestration and pads the numbers to ridiculous levels.

 

2. The cost per tonne of reducing carbon will easily exceed the cost under an ETS and what is worse - Abbott's policy still won't work.

 

3. It has no incentive in it that actually drives businesses, big or small, to improve efficiencies or change to renewables.

 

 It's a complete mish-mash that was stapled together at the last minute and given a pretty green and blue front page so he had something that he could hold up and say "I do believe in climate change, that crap thing was taken out of context".

 

The Coalition's politics around this important issue absolutely disgust me. If there is anyone in the Liberals or Nationals who recognises the dangers of climate change, it would be hard to imagine how they could stay silent and still look themselves in the mirror every day.

 

The benefit of the country is running dead last in the Coalition agenda. Everything they do at the moment is a blatant power grab. I'm really, really disappointed in the level of debate in this country around climate change and the desperately needed changes in the Murray Darling Basin. I guess we will see another three decades of inaction there too.   

Another massive source of GHG emissions

Alvin

Re: your comment that trees can become net emitters of carbon under the right circumstances – another massive source of GHG emissions is on the verge of emerging as thawing Arctic permafrost begins to release its stored carbon dioxide and methane decades earlier than expected.  The two reports below deal with this.  "…One- to two-thirds of Earth’s permafrost will disappear by 2200, unleashing vast quantities of carbon into the atmosphere, says a study by researchers at the Cooperative Institute for Research in Environmental Sciences (CIRES) National Snow and Ice Data Center (NSIDC)." http://nsidc.org/news/press/20110216_permafrost.html

and/or

"…NSIDC bombshell: Thawing permafrost feedback will turn Arctic from carbon sink to source in the 2020s, releasing 100 billion tons of carbon by 2100"  http://climateprogress.org/2011/02/17/nsidc-thawing-permafrost-will-turn... but it's probably OK as Abbott doesn't believe it's happening.

Who Should Pay

 

Peter Kugelman writes that instead of taxing to encourage CO2 emission reduction we should give (from government revenue) incentives to reduce emissions.

 

I assume Peter means that carbon polluters will get incentives IF they reduce emissions rather than if they don't? Thus electricity generators, for example, in Peter's plan would switch to producing electricity from technologies that reduced CO2 emissions.

 

The government revenue that would be used for these incentives is from tax revenue. A carbon tax will lead to higher electricity charges, and Peter's suggestion leads to higher taxes? So what is the difference?

 

In any given year the government needs to set a particular total of megatonnes of CO2 to be emitted.  This has to be rationed across all CO2 emitters. This is done in rental housing stock by landlords charging "rent". The Labor/Green proposal is to use a "rent tax" to do the same.

 

If there is anyone out there who thinks that Tony Abbott intends to do anything at all about CO2 emissions, then they are sadly mistaken.  He is totally aligned with the US Republican "do nothing" position.  Any suggestions he makes about what could be done as an alternative, are just rhetoric.

 

Who should pay?

Most humans respond far better and far more quickly to a positive incentive than to any negative "don't do it".   I believe we very much need to reduce CO2 emissions (and other polluting emissions too), but I believe a "tax on polluters" is the weakest way of achieving the aim.   The so-called "tax on polluters" actually gets passed on to all of us who consume, which means that the poorer amongst us get slugged much the same as the richer.   OK so there are ways of evening out that slug to benefit the poor, but why make it such a cumbersome bureaucracy when we could use Tony Abbott's incentives which of course are paid for from tax revenues which automatically tax the rich more heavily than the poor.

I think Tony Abbott might just have this one right!

Lessons learned

Hi Doug,

Your point is well made. There are a number of reasons why the ETS didn't work as well as it should in the EU - some of them similar to the failure of the original RECs scheme in Australia.

 

Probably the most important failing was the amount of free carbon permits that were handed out, which flooded the market and kneecapped the price.

 

I, like you, hope these issues will be resolved through negotiation before the policy comes into action after the transitional carbon tax stage. After all, we now have the advantage of concrete examples that show us what worked and what didn't overseas, so we can refine our policy to a greater degree.

Troubling report on the failings of the EU carbon market

Alan Robertson wishes Alvin could show a little more patience with 'us' and admonishes me for my intemperate language suggesting that 'we' would be more inclined to pay attention if I was a bit more polite. What group are you speaking for Alan or is this the Royal plural that is being invoked?

On a more serious note with some relevance (I hope) to the original article from Giles Parkinson, a troubling report from Friends of the Earth Europe has been published setting out the inadequacy of the EU's ETS and suggesting reasons for these failings. Hopefully our Productivity Commission's investigations will uncover the same shortcomings and the MPCCC will pay attention in forming their own proposal. Otherwise Abbott may well be right when he trumpets that this Tax/ETS will do nothing to reduce emissions.

Get serious Lawrie

Clearly Lawrie you aren't a scientist. Even if they are peer reviewed by "pals", serious scientists who could disprove the papers would have responded with their own research.

So far there has been next to nothing.

As for Einstein's comment that it only takes one person to disprove a theory - that is true to a point. One person can disprove a theory but it requires plenty more scientists to actually show that the new theory is correct. 

That is how science works - everyone tries to duplicate an experiment to confirm its veracity.

You can be certain that if a genuine piece of science came out that disproved global warming it would be the lead story in the top science outlets and it would be front page news around the world.

It hasn't happened.

Which brings me to the question, why is it when the facts fail, the sceptics resort to attacking the scientific method and resort to conspiracy theories?

Oh, and who in the comments said Bob Carter was a paleontologist? I must have missed that one.

CO2isnotevil

Alvin Stone puts much store in peer review although as we have found over the years the peer review to which he refers is more like pal review. Indeed one of the peer reviewers of Phil Jones didn't bother to read the paper. he said so when questioned by one of the whitewash investigations concerning "Climategate". Besides it doesn't matter how many agree for as Einstein said it only takes one to disprove a theory. As we have seen none of the papers which Alvin and his friends rely on have been peer reviewed by someone outside the cabal. One which was done independently, MBH98, the hockey stick, was found to be flawed and wrong. Subsequently the use of tree rings as proxy data was found to be seriously inaccurate.

I also object to your disparaging remarks concerning Bob Carter who is not a palaeontologist( that's Tim Flannery) but a geologist. Geology studies rocks and their formation and composition and does give much information about past climate so Professor Carter is well qualified to comment on both past climate and speculate on future climate. Your scientists are only speculating on future climate as well. So far their predictions have been in error. The temperature increase has not correlated with the rise in CO2 emissions for over a decade.

 

Settled Or Unsettled???

Climate Science is System Science and by definition can not be settled. It’s like trying to predict tomorrow’s temperature with 100% accuracy, it’s not possible. The role of credible climate scientists is that of risk analysis. They can only speak in ranges of likelihood and that is what they have done. The language of the 4th assessment report is the language of risk management. If the scientists can tell me with even 50% certainty that I am risking a natural system like CO2 levels then it surely makes sense to mitigate. The role of Science is to provide the quantitative analysis with ranges of certainty. The role of our Government is to decide what to do with that analysis in terms of mitigation, and so far have decided to do nothing. I wonder how many of the politicians and readers here have insured their houses against fire on the 2% likelihood of that event.

It’s a shameful situation, and the politics is alarming.

Re: Re: What is pointless

Patrick - throw in a double dissolution if the Greens and Labor block passage in the Senate - Coalition would romp back in and the Greens stranglehold on the Senate be wiped away.

re: What is Pointless

Rod, you may want to let Gough Whitlam, who lost power because he couldn't get money bills through the Senate, know about this amazing new administrative taxing device you've uncovered - he'd be a bit upset I'd wager. To put it bluntly you are wrong, Abbott would have to repeal or override the legislation and to do that he'd have to get it through the Senate, which he can't, end of story.

Coalition might ditch Tony - but the leopard's spots will remain

 

The Liberal party has flirted with allowing a "wet" to lead the party.

 

John Gorton and Billy McMahon were "wets".  I guess Turnbull is the closest they've come since.  Malcolm Fraser seems to have become a "wet", but he certainly wasn't as Prime Minister.  He seemed to believe in letting titled public servants stifle any kind of change - ala Menzies.

 

Fraser was more an old style Tory, rather than a "Thatcherite" like John Howard and Tony Abbott.

 

If Tony Abbott loses the next election he will stand down, and the party will appoint another "wet" for a few months until someone else from the Liberal Right gets the numbers up.

 

My guess is that he will win the next election, and he will be our next Prime Minister.

 

The year I went from Honours student to junior academic is the year Tony won the SRC presidency at Sydney University.  Lets hope I "graduate" to an overseas job when he becomes Prime Minister :-)

Man made CO2 production is significant

Russel Spinks writes:

 

"CO2 originating from nature is between 96% - 98% depending on the source you choose".

 

This is correct, but extremely misleading.

 

CO2 is produced and it is absorbed in carbon sinks.  It is held in the atmosphere and the oceans until it is absorbed by a carbon "sink".

 

Burning fossil fuels produces 31.8 Gigatonnes of CO2, whilst decaying plant matter produces 220 Gigatonnes. But decaying plant matter provides food (and space) for new plant matter.  Forests that are not being logged, are in stasis, ie they produce as much CO2 from decay as they consume by growth.  Forests are a carbon sink.

 

Similarly, plants photsynthesise during the day, consuming CO2, then transpire at night producing CO2.  A mature plant is in stasis.

 

Fossil fuels though release carbon that was laid down 300 million years ago.  There is no balance to this activity.

 

The net result is that if we have the same ability of carbon sinks to consume CO2, but more CO2 production, then the amount held in the atmosphere and ocean increases.

 

The reality is that we are producing CO2 from deforestation, as well as burning fossil fuels.  The annual CO2 emissions from the latter far exceeds that caused by deforestation, but they are both significant.

CO2 - the healthy food

Too much of a good thing Russell.

 

CO2 is recycled by nature and becomes oxygen when there is a stasis. Unfortunately more CO2 is coming out than is going back into the system because we are releasing it through industrial activities, chopping down forests and a host of other sources related to our civilisation.

 

It doesn't require much additional CO2 to heat the earth because the additional CO2 rises into the upper atmosphere where it acts as a cap that prevents infrared light and heat from escaping back into space. This is what warms the atmosphere and the planet.

 

Yes, CO2 is colorless odorless and tasteless and if you have ever gone caving you would also know it is deadly in large enought quantities. Too much of a good thing again.

 

Life does benefit when CO2 is in the right amounts.

 

However, as the current drought in the Amazon is showing trees can be a net emitter of carbon under the right circumstances - adding to our carbon problems.

 

At the same time we are having increases in night time temperatures around the world at a time when the variations in our orbit mean the world should be cooling.

 

You are right, cut out dairy food and we could get osteo.

 

Equally you could say, cut out fat and we might not die of a heart attack.

Broken bones

Robert and Alvin -   It's not just volcanoes and bushfires. It is CO2 recycled by nature, specifically the oceans, terrestrial plant and animal life etc.  CO2 originating from nature is between 96% - 98% depending on the source you choose leaving 2%-4% resulting from human activity. We should also remind ourselves that this evil pollutant CO2 is colorless odorless and tasteless, is a nutrient to all plant life and in turn human life.  Life benefits from more of it. It is a crucial ingredient in photosynthesis to produce Oxygen for us to breath.  This argument is a lot like cutting out dairy food to loose weight only to find we now have an onset of osteo.

 

Fair Enough Alan

Alvin , I don't hold a clear view of what is going on that is why I come to Publications like this to try and form a view. I take on board all that is contributed and hopefully in time will come to an intelligent understanding of how things are.

Reality Plus

Firstly, I am not an actuary.

Secondly, our US/Canadian business in forecasting the effects of climate are going so well we are picking up unsolicited European business.

I almost regret writing the original note here as it attracts personal insults as opposed to analysis and I do not want to draw alarmist attention to what is a very good and growing business.

Finally, as for my guess as to what will happen in the future in the polictcal world 2-3 years out my guess is worth what you paid for it. I was simply pointing out that Labor has done a 180 degree about face on this issue in recent times and with pressure on the back-benchers and eventually the leader anything is possible and we should not necessarily spend all our efforts concentrating on the greens.

What is Pointless?

What is clear from the responses, the article, Kyoto, etc is that anything that requires long term commitments won't come from politicians with short electoral cycles.

The exception of course is when there is a fuel crisis or pollution gets so bad that politician's children get sore eyes.  So we see fossil fuel starved Europe doing things and China doing more than most other western nations put together in the area of renewable and low emission power plants.

In Australia with plenty of cheap coal generating electricity away from urban population centres and a cobbled together minority government, the chances of getting something really effective in place that was not compromised from the outset is just about zero.  

And the debate and discussion to date highlights simply that.

Tax bills give governments the option of collecting tax.  To stop doing this requires an administrative instruction not a new bill in parliament.  So Abbot can and will roll it all back immediately he has the administrative reins.

The Greens will not be part of forming Government after the next election and it looks increasingly likely that the other minors will also get swept away.

 

 

Fair enough Alan

I admit it I'm grumpy but I'm not playing, I'm just tired of people who are sceptical and can't even marshall the correct facts.

And please, Alan, do contribute something from your point of view.

My position: An ETS is part of the solution solution. AGW is occurring and quicker than we think.

Where do you stand and why?

 

Reality & Rewhatthe?

I think Graham has shown the quality of his forecasting abilities by predicting the Labor Party will go to the next election promising to repeal their own law...I don't think reality has visited you for quite a while big fella...

Can you read

Alvin if we are wasting your time there is an obvious solution...don't involve yourself and don't ply us with the schoolmasterish approach you are taking. Be a little more patient and try and understand others don't all think like you and discussion no matter how simple and silly it may appear to you all contributes to finding a solution...and isn't that the whole idea ?

Volcanoes again - David please

Go back and do the maths - CO2 emissions from coal-fired power plants are around 28 times higher than those emitted annually from volcanoes.

You are a bunch of old men trying to justify your lack of action with fallacious figures and unwilling to do something decent for the next generation.

Re Reality & Repeal

 

I'm not sure what Graham Bartholomew is saying is his profession.

 

He gives the impression that he is some kind of actuary?

 

Actuaries are the people who assess risk.  They seem to be saying with a clear voice that climate change is real, and all major insurance companies are gearing themselves for it.  They have to.

 

I would advise any of Mr Bartholomew's clients, assuming they exist, to ignore his advice and take it from proper professional actuaries.

Graham - weather, climate or making it up?

Graham, I can't find any Graham Bartholomew out there who does weather forecasting or climate research. So, who are you really and what is the name of your company. i'm intrigued.  

ETS has already worked

Richard - have a look at sulfur dioxide emissions and how they were reduced significantly at very little cost back in the 80s by - guess what - an ETS.

Please, do a bit of research.

Volcanic Outgassing, Bushfires, vs Fossil Fuels

 

Volcanic Outgassing contributes around 130-230 megatonnes per year of CO2.

 

The large bushfires in Victoria a couple of years ago output around 105 megatonnes of CO2.

 

Burning fossil fuels contributes around 31,800 megatonnes of CO2.

 

Bushfires and volcanoes - pah!

Two things Robert .

1. Bushfires and volcanoes have been spouting pretty much consistently for millions of years. Not so the industrial complex.

2. Go do a quick Google search - don't even worry about a hardcore science paper. Coal-fired power stations in the US alone produce more carbon emissions in a year than bushfires or volcanoes. Once you factor in the rest of the world, it is not even worth counting.

Reality and Repeal

I make 100% of my income forecasting the effects of climate in North America. Currently US companies bet in excess of $15bn of their revenues on our forecasts. We do not get paid if our forecasts are wrong and we find this a much better method of testing our forecasts than the peer review process. Put simply there is no signal in North American cliamte indicating AGW. There is not signal other than a linear increase of 0.6c over the last 150 years. Do not forget if I am wrong I do not get paid and these companies lose a lot of money.

In terms of the possible repeal of the carbon tax. It will happen after the next election. The tax is already so unpopular with Labor back-benchers that Labor will go to the next election with a policy of repealing the tax just as they went to the last election with a similar policy. Never assume a steady state in politics. The greens are a marginal group.