Archive for July, 2011

Letter 7th July 2011

July 20, 2011

The Carbon Tax


Dear Sir/Madam, 

I would like to thank the readers of the Express for all the positive feedback that I have received for my comments in your paper on climate change. Obviously the readers of the Express are clever, forward thinking people because they agree with me. I might cop a bit of flak now though because if you accept the science that human activity- our activity- is having an impact on the climate, as the leader of the opposition does, then you must also reflect on what the scientists predict our impact is going to be in the future. Briefly, if we keep pumping greenhouse gases into the atmosphere at the present rate, the year we have just had will seem boring; floods, cyclones and droughts will be common place. The warming means there is more water vapour in the air and more heat which combine to produce bigger weather events. Apparently the El Nino will occur more frequently making the droughts of 2002 and 2006 more common place and perhaps more severe. These are not alarmist rantings, they are the best predictions of people who have spent their careers working in this field. 

The solution is to dramatically reduce the emission of greenhouse gases around the world. This is why world leaders keep having big conferences to try and agree on a global plan to do just that. The reason why getting an agreement is so hard is because cutting emissions will involve massive change to the economies of the world. People do not like change. There are many people who own, run and work in many industries that will contract, where costs will rise relative to other sectors. This adjustment is traumatic for those of us that have to find new jobs or whose business has to adjust. Equally, other businesses will prosper and grow, employing more people. Human nature dictates that the people who scream the loudest are those that are getting hurt not those that will benefit- especially if they have not been born yet. The world economy is always changing; just ask those involved in the music industry how the internet has affected them. A lot of people are losing jobs in the book retail industry at the moment because of structural changes in publishing. Electricity will be generated in a different way in 30 years time, steel and cement will be produced using less energy and if we still farm sheep and cattle they will burp a lot less methane. The trick is to work out the least costly way to change. 

The two options on the table inAustraliaat the moment are the Government’s carbon tax cum emissions trading scheme and the opposition’s direct action. Both schemes will be very expensive if they are to have any chance of reducing emissions. We will pay for both, one way or another. The carbon tax will be paid for by consumers of products that emit a lot of CO2, the direct action will be paid for by tax payers. I find it ironic that it is the conservative side of politics that is advocating for taxpayers to foot the bill through government trying to pick winners by paying industries to invest in emissions reducing technology. We have a long history inAustraliaof failed attempts by governments to encourage or protect various industries and the coalition parties have been the strongest advocates of getting government out of private markets. Direct action by government always seems to bring out the worst in us and I worry that all the opposition will succeed in doing is lining the pockets of those industries that lobby the best. 

A carbon tax or an emissions trading scheme (ETS) impose a price on emissions. This forces all of us to pay for something we have never paid for before and have therefore used to excess. The beauty of this system is that we decide how we handle this increased cost. Consumers can choose to change how they use energy for example. Producers can be innovative to reduce their costs or move into new areas to make money. The big advantage of an ETS is that an entrepreneur can actually earn money by innovating to reduce emissions. This provides both push and pull to reduce emissions. The push is the higher cost of carbon intensive products and services, whilst the pull is the money that can be made by generating reductions in emissions.

I do not doubt that the carbon tax and later, the ETS will increase the cost of living initially and cause considerable dislocation and change to our economy, just like reducing tariffs in the 1970s and 80s. The government has said that it will compensate individuals through reducing income tax and increasing welfare payments. If we respond to the price incentives cleverly we might actually end up better off.

I argue that the earlier we act the easier the change will be. If Australiamucks about because the old vested interests hold sway we will all be the poorer for it.  

Kind regards.

Robert Lee.