Where is the motivation to change anything?  where is the motivation for economy wide conversion to renewable energy resources.  Where is the driver of massive changes in consumer consumption behaviour that will dramatically reduce green house gas emissions.

You can't have it both ways ... either it is big and will imapct behaviour or it is so small that it will have no impact.

If you adopt the teensy weensy extra cost view of the world, then the proposed tax is simply a total waste of time.

The price is not for the carbon, it is the cost of 'dumping' into the atmosphere, if you take carbon out of the atmosphere (permanently) by growing something, you should actually be paid! (You may have to pyrolyse your veggies though, might make them a little unpalatable)

Max Godfrey @16:37
" ... if,, I have to pay for carbon then I want it delivered.   I will be able to use it in my Greenhouse and make my vegies grow.
"
:-)
Afraid you'll only be paying for the privilege of emissions on your behalf (isn't that what we already pay pollies for?).
Bottling it & charging that my be some way down the line, when the current scam , sorry scheme, fails to deliver.

Nathan T @. 13:55
Don't worry about the Government coming up with numbers. They haven't a clue. If forced too, they'd only make them up, then you couldn't trust them anyway. This way is more honest.

@ Simon Trumble.  You and Mr Edis appear to be using different statistics.  He has used ABS "houehold" expenditure on petrol, while you have used total vehicle distances and fuel rates.  How transposable are total vehicle rates into household rates.  I would have assumed that commercial vehicles would  have:
1.  larger mileages; and

2.  higher fuel consumption;

than most private vehicles.

Is it possible that this may account for part of your different cost points to those of Mr Edis?

Yes but what impact will Australia's efforts have on limiting the global rise in temperatures to 2 degrees celsius.  Will it have 0.5% impact? a 5% impact? a 20% impact.  It makes me very angry tha the Government and the so called experts have been consistently unable to answer this simple question!

Well as far as I am concerned if, I have to pay for carbon then I want it delivered.   I will be able to use it in my Greenhouse and make my vegies grow.

Well as far as I am concerned if, I have to pay for carbon then I want it delivered.   I will be able to use it in my Greenhouse and make my vegies grow.

Very late to be posting comments on this, however the modelling used in this article appears to be incorrect. For example, the impact to households of a carbon tax (assuming $40 per tonne) in respect of petrol would at least double the $140 amount quoted.  

I make this comment based on the following. Motor vehicles registered in Australia travelled an average of 14,600 kilometres per vehicle in the 12 months ended 31 October 2007 (Source ABS). The average rate of fuel consumption for all motor vehicles in the 12 months ended 31 October 2007 was 14.0 litres per 100 kilometres (Source ABS). According to various sources the average number of motor vehicles per household in Australia is in excess of 1.5 vehicles. However we will assume the conservative figure of 1.5 vehicles.

1 vehicle = 2044 litres of fuel per annum.1.5 vehicles = 3066 litres of fuel per annum. Assume carbon cost @ $40 per tonne = 9.2 cents a litre of petrol.

9.2 cents x 3066 litres = $282.07 per annum per household

Carbon has never been an "evil" substance.  Nor has the water molecule but it does kill people by the thousands every year such as children in swimming pools, illegal immigrants on boats, people in floods and beach-goers.

Anything is a pollutant in sufficient quantities.  It is pure posturing to claim any climate scientist believes carbon is evil.

From reading the comments below I get the feeling many think the Sheriff of Nottingham is still knocking on doors demanding every penny in the house.  While it does feel this way in our overly regulated society, modern taxation is mainly about balancing the budget on the income side to provide public goods on the expenditure side (sadly Governments tend to massively overstep this mandate)... but it does have another very useful purpose.  It is the economist's most trustworthy tool in changing social behaviour.  If everyone just accepted a new tax it mostly probably would not work as a deterrent.  There has to be objection otherwise the consumer would not feel the necessary amount of pain to reduce the offending behaviour.

OK so many of us don't like being told what to do by 'Big Government with Great Big New Taxes'.  Well, we all just have to object then deal with it because last time I checked there are still people dying from ignorance via cigarettes, alcohol and most probably CO2.  So guess who has to foot the bill for ignorant, anti-social behaviour?  Everyone... and it makes me angry as a taxpayer; much more angry than taxing the individual consumers.

When all is said and done this is a new tax under a poorly researched (at best) hypothetical. The Royal Society are now backing out of their endorsement of carbon as the 'evil' substance. The people who rigged the temperature figures for political and economical benefit dropped the AGW tag and now use 'climate change'. Australia is being dragged into economic suicide by a government that must rely on and cultivate a few 'greenies' to remain in power. So much for democracy. The comment by Barry Hearn partly addresses the idiocy of carbon taxes. But consider where the carbon came from in the first place. We did not make it. The carbon based fuel sources exist only because plants from earlier times have been changed into new forms of carbon. With an increasing world population we need more not less carbon to be available for plants. Of course there are those in The Bilderberg group who believe the population should be culled. The ice has melted at the poles before - note the Vikings move to found America and the vines in Greenland and northern UK. Even the Germans used a route through the Antarctic that opened early last century. Oceans are rising and will continue to rise at 6 inches per century - there has been no change.

(This was posted by CS eds on behalf of Tristan Edis)

Subject: carbon price assumptions
 
I've noticed a number of comments questioning my use of $40 per tonne of CO2 and suggesting carbon prices will be higher. Let me help to clarify.
 
Firstly note the time period and the emissions target that is the basis for my analysis: a cut of emission of 5% below 2000 levels by 2020. To achieve such a target by 2020 will not require anything like the use of Solar Thermal electricity or other "technologically optimistic" abatement options. There are a range of highly conventional, technologically straightforward options for Australia to reduce its emissions. These include such unglamorous things as switching from brown coal electricity generation to black coal (a reduction in emissions per megawatt-hour of electricity of 0.4tCO2); as well as switching from coal to gas-fired power generation; greater use of combined heat and power in industrial installations; expansion in forest-based carbon sinks; replacement of high warming potential synthetic refrigerant gases; fuel switching of industrial boilers from coal to gas; improved energy efficiency in industrial processes; the list goes on. Australia's electricity emissions intensity is the highest in the developed world (double the United States) yet we have some of the cheapest natural gas in the developed world.
 
Secondly $40/tCO2 is in roughly in line with expectations from complex energy/economic modelling exercises from CSIRO; ABARE; Australian Treasury; ACIL Tasman; ROAM Consulting.
 
Thirdly it should be noted that my calculations assume 100% pass through of the carbon costs to electricity prices when in fact it is likely to be less than that because in most Australian electricity markets gas tends to be the marginal supplier and its emissions intensity is below 1kgCO2 per kWh.
 
Fourthly imagine the carbon price was actually double what I assumed. That would mean..... petrol prices would increase by 2 cents per litre per annum not 1 cent; households might spend slightly more on electricity than they currently do on alcoholic beverages; and the gas bill would be $10 higher per month in 2020. Meanwhile according to Treasury projections the average Australian household will earn several thousand dollars more per annum in real terms than they do today.
 
Yes my analysis does not take into account interactions throughout the economy, but they will not materially change the answer. The Australian Treasury did undertake such a modelling exercise and as I've noted in the last sentence, they found the inflationary impact to be between 1-1.5%.
 
Just because energy demand and economic growth are correlated, it does not automatically follow that a carbon pricing scheme will have dramatic impacts on economic welfare. You need to do a bit more thorough analysis than this. Energy costs make up a small part of the overall economy, while we couldn't do without energy, we can afford to pay more for it.  

Julia Gillard once spoke of a transition period for an ETS. Transition to what? The question is, where are we going with this and/or where will it lead? Is there not a global carbon market in existence? Are we not moving towards being a part of it? If so, what is the relevance of a small, say $20 a tonne price on carbon? What is the relevance of any figure, if the market will eventually call the shots? In markets there are sellers, buyers, traders, speculators and enterprising manipulators. Do we want to subject our economy, lifestyle and livelihoods to an international carbon casino on an invisible new commodity?

Besides, higher atmospheric levels of CO2 are beneficial to world food production and have not been proved to cause global warming. I don't see how it can cause climate change either because we've had climate change since the beginning of time. It's also worth noting we've had fraudsters since the beginning of time. Even the IPCC give themselves a 10% error margin/exit clause.

Surely it would be easy to determine how much a $20 carbon tax would generate, then redistribute this back via tax cuts and help to low income house holds to buy energy efficient goods.

If it can be shown that the overall amount of tax collected in a year remains roughly the same, then I'm all for it.

in general terms the rich will pay a large chunk of a carbon tax since they tend to generate the most.

It's a shame we have gutless politicans, and a generally scared population.  maybe without the GFC we'd not be so scared???

The projected impact of future carbon pricing on our economy is an important topic. Whether we ought to be as sanguine as Tristan Edis suggests here and in his prior work for the Grattan Institute is arguable.

The key issues are the magnitude of a carbon price needed to drive a switch to low-carbon energy technologies and how the resulting extra energy cost would work its way through the whole economy and affect overall prosperity.

The answer to the first issue will be different for different forms of energy, e.g. liquid fuels or electricity. With electricity for example, adding the carbon price to the ‘normal’ cost will eventually, with a high enough carbon price, give a total that exceeds the cost of the more expensive low-carbon alternatives. These then become the energy sources of choice. The problem here is, in my view, that estimates of future costs for such alternative energies have consistently been underestimated. The reason is that people, especially those involved in the low-carbon business, tend to be too optimistic about future technology advances and cost reductions. That’s understandable; technology development does require an optimistic outlook. But it’s not a good idea to base crucial energy policy on optimism.

Because of such optimism, carbon prices in the range used by Tristan Edis, $20 to $40 per tonne, are likely to be much too low to bring about the required changes. For example, a carbon price several times $40 per tonne will probably be needed before solar thermal electricity, with storage, becomes competitive with present coal-fuelled baseload power.

As for the effects of carbon price on the economy, it is not sufficient to analyse, as Tristan Edis does, the impact on domestic energy bills or on individual industry sectors. What is needed is an understanding of the impact on overall prosperity, using measures such as Gross Domestic Product. Complex economic models are generally used to do this and the Australian Treasury, amongst others, has done such modelling. Like Edis, they found that the effects on prosperity were minor and manageable.

I remain sceptical. All such models depend on assumptions about future technologies and costs, and the evidence is that these assumptions are likely to be based on the kind of optimism I have already criticised.

There is one statistic that does allow an insight into the role of energy price in economic wellbeing without the need to track all the energy inputs in a complex production chain. It is the energy intensity of an economy, or the amount of energy associated with each unit of GDP. Australia, together with many other advanced economies, has an energy intensity close to the global average of 8.2 megajoules per dollar (in constant international dollars). What this means is that the mix of economic activities that comprise these various economies around the world require about the same energy input per unit value of goods and services produced. This figure, which does go down as efficiency improves, is remarkable in the way it points to the fundamental and consistent role of energy in creating the kind of prosperity we are used to. Energy is the giant lever that amplifies the productive results of human effort alone.

Given this tight dependence of prosperity on energy, it is unimaginable that major increases in energy price would barely affect our economic wellbeing, as Edis argues. My own estimate, based on the size of the US energy sector, is that doubling the price of energy will give a reduction in GDP of around 8%. Of course, in light of the traumatic impact we observe with even the smallest recession, such a fall would have a huge effect on society.

These matters do need a lot more work. The Edis article is important but not sufficient.

I should add that there is no element of climate change scepticism in the motivation for my comments. My concern is purely that the community is fully aware of the potential economic impacts of measures to switch to low-carbon energy sources.

It is disingenuous to assume we are only talking about a relatively minor 5% cut in emissions. The government's own white paper calculated that it would require a real cut in emissions of about 34%, allowing for population growth and business as usual increases.

The early cuts are the easiest and cheapest to achieve. To actually attain a 30%+ cut in only ten years time would require the price of carbon to rapidly increase on an exponential basis to possibly over $250/t to achieve this result.

This would be devestating for our economy, it would make many businesses non-competitive and unviable and this would throw thousands of people out of work.

And for what result? It would not reduce global emissions, it would have no impact on global temperatures, it would be entirely futile.

All this for a theory that has not even one piece of empirical (non-theoretical, not circumstantial) evidence that support its assumptions.

This truely is a missguided tradegy waiting to happen.

Let the market decide the price on Carbon and watch the price rise to $100 and beyond.  At least with a Tax the money would stay in Australia but with an ETS you can expect Billion$ to flow offshore - into the pockets of dodgy operators/traders/fund managers & marketeers. 

Paul,

The power station I used to work in is now approaching its 40th birthday.  Its highest ever production figures were only a few years back; in fact I drink coffee from a mug which celebrates the maximum output for Unit 4 in 1999 - 27 years after commissioning.

These are very long lasting assets, quite plausibly with 50 year life spans.  If you ban new coal burning power stations, be prepared to see a repeat of the Cuban automotive industry, where very old cars are not allowed to die, but just keep on keeping on.  Your simple plan will need to be part of a wider scheme if it is to have teeth. 

When the bulk of Australia's electricity generators were sold off, investors bought the assets based on published projections.  There could be massive lawsuits if these new owners decide they were misled at time of purchase.

All governemtn has to do is ban new/additional/replacement coal fired generating capacity (that doesn't capture 90% of GHG's on day 1 of operation, if you like).

Then let the market do its work. As existing generating capacity reaches the end of its useful life it will shut down and emissions will decrease.

No subsidies, no taxes, no trading schemes, no offsets, no compensation; just one simple announcement relying on the corporations power and foreign affairs power (Australia being a Kyoto ratifier) that no coal fired plant not already under physical construction is allowed after today, legislation to be introduced in due course.

The simplicity of what can be done exposes both major parties as gutless or sceptics on climate change.

Chris, a carbon price (tax or ETS) creates an economic signal ... you can avoid paying tax if you reduce your emissions and you pay more if you emit more. This is unlike a standard tax like income or GST. Businesses paying a price on carbon have a very sharp incentive to reduce emissions and factor this price into all decisions including allocation of capital for new investments as well as day-to-day operations. Regardless of whether it's a tax or an ETS, businesses will attempt to pass on the market price of carbon; the incentive still remains to abate if your internal cost of abatement is less than the prevailing carbon price.

Michel, as per Tristan's piece, a carbon tax of say $40/t will have same effect as an ETS with a -5% target by 2020. It's the same incentive to reduce, just that with ETS you have certainty of reductions (and unknown price) but with tax you have certainty of price (and unknown quantum of emission reductions). But there's broadly no difference in economic efficiency.

Mike, go and look at the actual concentrations of CO2 in the atmosphere. You can't really sensibly describe the recent increase to above 380ppm as "small".

Tristan, make sure you also cover the indirect costs passed on by transporters, food processors, housing, manufacturers of high energy goods (steel, cement), etc.  These are likely to be minor (and hard to calculate on the back of an envelope) but will all add to those direct costs you've identified and estimated.

I must be slow or something. So I get that the new tax is not a huge impost. But how does a tax, that will just go into consolidated revenue, reduce our carbon output? And if the worst polluters will have their profitabilty reduced, where are they going to get the money to make their business more efficient? They pass the tax increase onto the consumer and status quo results.

Why is this so difficult?

Maybe because deep down few people actually believe that there is any kind of problem that needs  "solving".

The hangers on and carpet baggers still pushing this whole scam are either evil, deluded or simply bats**t insane.

The question isn't whether CO2 is an infra red absorbing gas (it is) but whether small increases in concentration  has any noticeable effect in an atmosphere that already holds far more of a very effective infra red absorbing gas - water vapour and clouds. As we are still arguing about fractions of a degree warming which is most likely natural variability from cycles which are hundreds of years long, the effect appears to be so small as to be unmeasurable and inconsequential.

Under a carbon tax there is no incentive to CHANGE.

An Emissions Trading Scheme (ETS) is a system whereby a cap is placed on the overall emissions permitted by Australia as a whole. The emissions cap will be gradually decreased over time until emissions fall below the accepted levels, while at the same time providing incentive for large emitters to improve efficiency.

For the larger emitters, those that wish to retrofit their facility and improve efficiency will therefore generate less emission than their previous year’s baseline. Those that reduce emissions will be credited for their reduction, and these credits therefore represent a monetary value or added revenue stream as they can be traded.

For those large emitters that continue business as normal practices and do not attempt to reduce their emissions as the cap is reduced over time will therefore be obliged to purchase RECs from those that hold RECs due to their emission cuts.

Large emitters that do not improve efficiency will have added costs as a result of an emission trading scheme and those large emitters that do improve efficiency can generate added revenue. Therefore as a market based system, an emission trading system is the most efficient and regardless of the current political climate the introduction of an ETS is inevitable whether a carbon tax is enforced first or not.

Between fuel excise and GST aren't we already paying about 45% tax on petrol? And your hypothesis is that we wouldn't notice a bit more?

First: why should we pay this additional tax? What are we getting for our money?

I'm not going to clutter up this with a repeated response, it's already here: http://www.climatespectator.com.au/commentary/carbon-emissions-electrict... -- the IPCC's own numbers say any effect we can achieve through carbon constraint will be far too small to measure so you need to justify why we should pay more tax.

What bang will we get for our buck? Why should consumers pay one cent more?