Monday, July 11, 2011

Carbon Tax

The ideological argument for the carbon tax, is that we need it for the sake of global politics, to be seen to making an effort and for the sake of the planet, to be doing something albeit only a little. This could be labelled 'the per-capita argument'. On the other-hand the sobering reality of 'the share of the total emissions argument' is that a carbon tax will do little if anything to change the actual environmental reality.  This is demonstrated by this graph from the ABC.

Let's assume the science of human induced global warming is roughly true, that there's a correlation between increased carbon and increased global temperatures and we need to do something sensible to manage it. The current Australian government has decided to introduce a carbon tax, it's personal effects can be roughly measured here

My difficulty is with human nature and while I acknowledge the difficulties of governing in a fallen world surely there are schemes that could be created to reduce greenhouse gas emissions that didn't require a clumsy tax?  (What about a radically comprehensive train system and targeting the three dirtiest power stations?) Speaking broadly, some nations, even lovely ones like Russia may simply say "yes we have a carbon tax" while not making any changes.  Other nations like say China may say "at this point a carbon tax isn't in our national interest for the next ten years."  Australia instead of leading a global revolution is left to hang out to dry economically. Then on a national level a large bureaucratic system is open to fraud and mismanagement.  Practically the ideological aim of the carbon tax is negated by it's implementation both globally and locally. 

[My prediction is that the carbon tax is here to stay.  There'll be some token global scheme and some future global crisis; such as a war or a disaster that reduces emissions and people will assume the scheme has caused the reduction.  Then a future conservative government facing a rising cost of living and whatever unpleasantness is on the horizon will nationalise the carbon trading market and reduce the price of carbon.]

4 comments: said...

G'day Luke, thanks for that, it was very helpful.

Chris said...

Hey Luke, can you provide a different example of a situation in which 'the share of the total impact argument' excuses inaction?

Taking the assumptions about correlation and causation to be true, even if our share is tiny, shouldn't we be taking responsibility for it? For example, lead paint production: if everyone was still manufacturing lead paint, would it be any excuse for Taspaints to argue that, because they're not Dulux, they're not obliged to mitigate lead deposits in the environment because their individual contribution is so small? And what if the amount of lead in Taspaints products was higher than most other companies? I don't think it excuses at all. I think Taspaints (Australia) would still have an obligation to do its part by removing lead from its paints (reducing carbon emissions).

As for the tax itself, I don't think the idea of a price on carbon is clumsy at all. This particular version of the tax, having made it through the parliamentary sausage machine, is bound to be messy, but the principle of a price on carbon makes sense, because it zeroes in on the very externality we are trying to limit and monetizes it. If the core issue is increased carbon in the atmosphere, let's directly attack the emission of greeenhouse gases by making them more expensive.

A radically comprehensive rail system would be prohibitively expensive and inefficient, and without a price on carbon there wouldn't be enough incentive to use it, and it's indirect, targeting only one of the contributors to emissions rather than the emissions themselves. Targeting dirty power stations would be state interference in private enterprise, and would distort the market. Better to force the market to account for the externality (carbon emission) by including the cost in the transaction that emits the carbon. What's clumsy about that?

Luke Isham said...

Thanks James.

Hi Chris,

I aree that my argument isn't universally applicable, as your paint example demonstrates. But the argument of weighing up if something is worth doing still stands. In principle I agree that if there is a correlation between carbon and increasing temp then we should make an effort to reduce carbon. However the correlation between carbon and temp is broader and looser than the correlation between lead paint and bad medical outcomes. Therefore we need to make our analysis broader, taking other factors into account.

A carbon tax is clumsy because humans are sinful. The idea may be elegant but the implementation is unavoidably clumsy. The activity of people both locally and globally will weaken (to a certain degree) any environmental impact. Now this can be said about any collective human behaviour but as the scale increases the risk of human sinfulness damaging the outcomes increases.

Secondly it's also clumsy because it's so broadly targeted. You suggest narrowing in on carbon emissions, given that electrical generation is the largest source of emissions it makes sense to zero in the very largest emitting power plants and replace then nuclear power while offering a serious prizes for renewable energy, thus getting the best of what a market and a government has to offer while narrowing the scope of mismanagement etc. The carbon tax is by definition a form of state interference, which could be said of almost any suggestion! By narrowing the focus to few power plants it limits the political pain and hopefully reduces the chance of human short-sightedness.

Lastly, a narrower and clearer set of goals such as a rail tax, a couple of nuclear plants and some serious cash prizes could actually be a better way to reduce green house gas emissions.

Thanks for your clear thinking, hopefully you can make sense of my rambling.

Marion said...
An excellent article.