Action and reaction on climate change

by zebra on 22 May 2011 · 17 comments

Regular guest contributer James Glover (@zebra) takes a closer look at the Coalitions climate change policy.

Malcolm Turnbull, an Australian MP, did a rare and risky thing last week. He actually broke away from the political spin-cycle and explained some figures underlying the cost of the Coalition’s “Real Action on Climate Change” policy. Naturally he was attacked by both the Labor government, who are having trouble selling their own Carbon Tax policy, and his own party colleagues who were horrified that he didn’t stay “on message”. The Coalition quickly bunkered down under orders from the top to avoid discussing Turnbull’s “outburst”. So what was he saying anyway and why was it so controversial?

To see why we need to explain the difference between the Labor Party and conservative Coalition’s policies. There are really only two broad differences. Both policies recognise that anthropogenic climate change is scientific fact, not speculative political fiction. Both recognise the need for action (ie. spending money) on combating climate change. But where they differ is in how global warming should be reversed and how to raise the money to do so. It is not commonly understood but the real difference between the policies is the former.

The Carbon Tax (or its close relative the CPRS) aims to reduce carbon emissions by making carbon pollution relatively more expensive than cleaner, alternate sources of power (and really it’s all about power generation). In order to do this they need to raise the price of carbon powered energy sufficiently to tip the balance in favour of wind, wave, geothermal, biofuels or solar energy (as explained in a recent post here on the Mule). Of the money raised by the Carbon Tax, about half goes back to subsidising the increased power bills of the less well-off. Of the remainder, most goes to developing cleaner sources of energy at lower cost. As explained in the earlier post, when there is no more carbon pollution then there is no more carbon tax to distribute. So ultimately, unless the cost of alternate energy comes down to the levels currently enjoyed by coal, gas or oil based power, in the long run the less well off will be much less well off.

While the Coalition’s “Real Action on Climate Change” has more than a whiff of policy-on-the-run, it can be presented as a respectable alternative. It says that we should ignore the fruitless and expensive attempt to cheapen alternative power and accept carbon pollution as a fact of life. In order to mitigate the effects of carbon pollution, though, we need to remove it from the atmosphere after the pollution has occurred, not at the source. This will cost money. A lot of money. Australia alone currently produces about 0.2 billion tonnes of carbon (not C02) each year. That’s a cubic block of carbon approximately 500m x 500m x 500m*. Each year. Anybody who thinks sequestration is the answer has to find somewhere to put all that carbon for a start. Or plant several million trees a year. The only hope for this reactive approach to reducing carbon is that some method is found which removes large amounts of carbon from the atmosphere at a relatively small cost: and much smaller than the likely Carbon Tax price of $20-40 per tonne. While such methods are conjectured, for example spreading iron filings in the ocean to increase carbon uptake by marine organisms, to say they are untested is an understatement. Equally we could allow carbon to increase in the atmosphere but mitigate the effects of global warming by using giant sunlight reflecting shields. Or paint the Sahara Desert white. Hey, stranger things have happened. But at the moment all these methods remain firmly in the province of science fiction.

So what did Malcolm Turnbull actually say that was so exciting to friend and foe alike? Well, using Treasury forecasts of population and economic growth, that 500m carbon cube will have grown to 850m wide by 2050 (650m tonnes) if we do nothing. Assuming we can mitigate the effects of carbon pollution, or pay someone else to do it for us, the cost could be as low as $15 per tonne or $18bn per year. Assuming the population has doubled by 2050 that’s about $500 per person, or an extra $50 per week on the average household tax bill. Given the extreme rubberiness (definitely not vulcanised rubber) of these figures, that’s pretty much what the Carbon Tax will cost as well. If the initial price of the Carbon Tax is set at $30 per tonne, then over time this should come down as alternate energy becomes actually cheaper due to technology improvements and economies of scale, not just relatively cheaper. Indeed if the Real Action plan involves buying permits from other countries who have set up some sort of CPRS and use alternate energy sources, then the equilibrium cost of both plans is probably pretty much the same, i.e. $15 per tonne. The real action policy really only comes out ahead if one of the fanciful ideas for removing carbon en masse, post production, pays off.

Of course the Coalition’s policy has to be funded somehow, and herein lies the second difference between the two. The Coalition’s policy will involve raising taxes, and probably income taxes as opposed to the Carbon Tax favoured by Labor. So any claim on the Coalition’s part (a point made by Mr Turnbull) that the major benefit of their policy is that it won’t raise electricity prices is totally spurious. Both policies will lessen household discretional spending. By the same amount. That’s all voters ultimately care about. Turnbull also claimed that their policy had the advantage that if “climate change is crap” as Tony Abbot famously is purported to have said, then it can all be dismantled without much cost. For that statement alone, sending a dog-whistle to his party’s climate skeptic supporters, Mr Turnbull deserved the public flaying he got, if not for the right reason.

*Note: in the above I have assumed that 1m cubed of carbon weighs 2 tonnes which is the density of graphite. It obviously depends on the form of carbon used. It is intended as an indicative figure only. Though I wish someone would actually build a structure of that size and point out to everyone this is how much carbon a year we are producing

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{ 17 comments… read them below or add one }

1 Nathan Tankus May 23, 2011 at 12:26 am

do you really find it unlikely that governments can, through investment, significantly reduce the costs of alternative energy? a green industrial complex ala the american military industrial complex (hopefully made more efficient and less wasteful) seems to me to have huge potential for reducing costs especially with a carbon tax increasing the prices of other energies in relative terms.

2 Zebra May 23, 2011 at 6:37 am

Some back of the beer coaster calcs on carbon pollution: Australia produces about 600m tonnes of C02 a year or 200m tonnes of Carbon. That’s a cubic block of carbon (as graphite with a density of 2tonnes per cubic metre)) 500m x 500m x 500m. At 2500m^3 that’s 40,000 Olympic pools worth! Each Australian is responsible for a cube of carbon 1.6m high – about the average height of a person. On a daily basis that’s 4.5L. We are each responsible for about a bucket full of carbon a day. I find that quite revealing. Imagine if someone was chucking that out their front door onto the street each day. I can see a tv ad…

3 Stubborn Mule May 23, 2011 at 8:14 am

Nathan, in this post, Zebra is not arguing against the prospects of alternative energy (many sources of which exist today but the problem is one of relative cost) but rather against the prospect of gargantuan-scale carbon sequestration (while maintaining current sources if energy production). While that too may be possible, it seems a much less sure route out of trouble. We should really be pursuing both, but if you have to tilt the balance one way, it would be towards alternative sources rather than sequestration.

4 Zebra May 23, 2011 at 9:01 am

Nathan, what he said.

5 pfh007 May 23, 2011 at 11:45 am

Generally, I have been very sceptically of the concept of carbon sequestration simply because the cost of ‘burying’ carbon seems likely to make the concept uneconomic in practice. My gut instinct (an even less precise technique than the beer coaster) was that it would be cheaper not to burn carbon in the first place than to burn it and then capture it and stick it in a hole.

However, recently a friend made me watch a doco on biochar. He was more interested in the soil fertility benefits and the possible application of biochar in Australian but there is also some potential to use it as a method of carbon sequestration. Thus the soil improvement provides an independent and potentially profitable reason to sequester large amounts of carbon.

Having seen the film I then bought an Australian book on the topic (not available as an e-book) but I have not yet read it (yes it is not the only unread book on my shelves)

6 Zebra May 23, 2011 at 5:58 pm

pfh007 – as interesting as biochar is it appears to only use “biomass” and not the exhaust byproduct of power generation. It doesn’t seem like it would have much impact on global warming. I often wonder why there is much attention paid to such sequestration methods. Unless there is a method which sequesters at least 10% and hopefully more like 50%+ of carbon pollution it seems to me it is just diverting attention.

This article on sequestration suggests there is the potential in the US to store up to 200 years of CO2 emissions. Parts of the article are plainly written by people with an interest in the commercial development of sequestration technology. What is clear is that the development is still in its infancy.

One advantage is it will raise the price of carbon based energy and make alternate energy sources more economically viable. So it does the job of a carbon tax while cleaning emissions!

7 Pfh007 May 23, 2011 at 7:02 pm

I share the scepticism re biochar as a method of sequestration though it may be worth doing from the perspective of soil remediation.

Though insofar as the fast growing plants used for the biomass suck up CO2 they are using the exhaust products of power generation.

As for the amounts of carbon biochar could lock up I agree it is hard to imagine it coming anywhere near the volumes of black and brown coal that are being dredged out of the eastern seaboard.

None of the above should be understood in anyway as disagreement with the key point that if we are trying to decarbonise the economy a carbon tax is the best approach.

While i remain sceptical that moving the world away from carbon will be successful I do see merit in being able to say we tried.

8 Marc Lehmann May 27, 2011 at 8:22 am

Great post James, love your work :)

May take is that the income tax idea is just lazy problem solving. Almost as lazy as the flood tax. The tax system is massively complex already and then you get these idiots in government adding taxes all over the place.

If your a business and you sell stuff that kills people or kills the environment you should just pay your penalty to the marketplace which needs to be as open as is safely possible. The government should use 100% of any fund source to fix the problem so it achieves maximum affect. Subsidising electricity just does not make sense to me, it feels self deprecating.

We just need some people with brains in government. I vote we lunch a takeover bid for NZ’s John Key and form a social capitalist party.

9 Zebra May 27, 2011 at 5:53 pm

Right back at ya Marc,
I guess the reasoning behind things like the flood tax is political rather than economic. The Coalition will hardly do the government any favours if they fail to deliver the much promised surplus in 2013 regardless of how much it is out of their control. And there are enough people who don’t understand economics to believe them, on both sides. Equally disaster insurance is a totally spurious idea. Insurance is for cases where you couldn’t afford to pay the costs yourself. This just doesn’t apply in the case of a AAA rated government that can raise debt cheaper than the cost of the insurance to a private provider.

10 Indulis July 10, 2011 at 9:54 pm

The other reason to avoid the idea of insurance for mass disasters is that:
a) In the good years the insurance company is taking the taxpayer’s money
b) In the case of a large disaster it is unlikely that the company would pay out
c) If they do pay out, where do they get the money from- thats right, by raising insurance premiums (a tax by another name)

The “disaster insurance” idea is another weird economic falsehood, like the false government revenue forwarding that comes from selling of monopoly resources (e.g. taxi plates, mobile phone spectrum), where revenue is recognised to the government this year, but is being paid for as a “hidden tax” on future users of that resources. For example, if the government sells off a mobile phone license/spectrum for $1B, and over the lifetime of the license there are 100B minutes of phone call time used, the customers (taxpayers, citizens) will pay the government 1c per minute. If the license was sold for $2B, the customers/taxpayers/citizens will, over time, effectively pay the govt 2x per minute “phone tax”. All for the privilege of having a government balance its books using the sale. So in effect the revenue recognised in the government budget from a sale is a tax on future users of the resource. An undercover tax as it is buried in higher costs of goods and services. Has anyone else looked at this in such a way? I think economists are too stuck in econo-think and private industry accounting practices to think that we should look at governments in a different way.

11 Magpie July 14, 2011 at 9:57 am

On a somewhat related note, that I hope Zebra would approve:

The Great Debate: Lord Monckton vs. Lady Gaga!

At one hand, Lady Gaga is humbler and makes more sense.

At the other hand, she tries too hard to look outrageous… This comes much more naturally to Lord Monckton.

12 Zebra July 23, 2011 at 4:32 pm

@indulis – there are two reasons why Govts might charge an upfront tax as well as an ongoing tax on thing like spectrum.
1. if they charge nothing upfront then they will need to raise the same amount of money down the track so the specific user-pays tax would be higher or other taxes will be higher. It’s a fundamental law of taxation that govts next to raise $X – if they raise less through taxing A then they need to raise more through taxing B.
2. if the don’t charge upfront then how will they allocate the spectrum? Picking winners? If you aren’t a believer in socialism and planned economics how would you do it? Since investors usually borrow money they can transfer the upfront cost to an ongoing interest cost which is passed onto consumers anyway. Even nominally socialist govts like the labor govt accept this principal these days.

13 Zebra July 23, 2011 at 4:36 pm

@magpie – I am actually listening to Ms Gaga as I write. I admit I’m a fan. My collection of “The Wit and Wisdom of Lord Monckton” seems to have gone astray. She seems to actually be quite witty and self-effacing in interviews. Unlike Lord M.

14 Stubborn Mule July 24, 2011 at 7:47 am

@zebra – music commentator Bob Lefsetz has been quite critical of Gaga in the past, characterising her as all fake celebrity, but he has recently changed his tune (pardon the pun).

15 Zebra July 24, 2011 at 11:49 am

@mule – if you don’t like performance art then you are not going to like that aspect of Gaga. But performance art (mostly done by women for some reason) is a legitimate art form – look at Yoko Ono who is now seen as the godmother of NY performance art that didn’t really take off till the 70s. What I do find interesting is that Gaga’s outre performance art is combined with a fairly mainstream pop sensibility on the slightly, but not very, edgy end. More Pat Benatar than Patti Smith. If she is really not interested in making money then she could use her considerable musical talents to produce some great music. And I say that as someone who has bought and listened through Ono’s 15 minute 1970 classic “Don’t worry Kyoko mummy’s only looking for a hand in the snow”. But only once.

16 Indulis July 24, 2011 at 3:55 pm

It is just the principle of false accounting that I think stinks. Bringing forward revenue from future taxpayers and pretending that you’ve “balanced the budget” when in reality all you’ve done is to increase the hidden tax burden on the future economy- company borrows money, govt gets money from company, customers pay later = hidden tax as citizens are indirectly paying the govt

And if you get down to it, maybe picking the winner up front is a better way to get stable infrastructure than simply thinking that the company with the biggest wallet wins (and hence tries to charge the most to citizens later to recoup). There are many areas where winners are picked on merit, which result in reasonable outcomes. For example, science research grants. I don’t have to be a communist to recognise that lassez faire capitalism provable does not work in many cases and is not always the answer.

Think of how well the internet would have worked if the same “auction it off” mentality had been used for domain names and IP addresses. Or if every home had to buy a license to use a chunk of WiFi, because the WiFi spectrum had been auctioned off to the biggest bidder. Not a very good outcome. You are using something that is based on NOT auctioning off the “license to use”, and its success is based on this model and easy/free access as the driver of innovation.

Who is to say that if the govt had not just given away licenses to the mobile phone spectrum that there wouldn’t be similar innovation.

17 Alex Davies August 7, 2011 at 9:12 pm

Zebra, unless I’m very much mistaken you’ve missed probably the biggest oversight in the Coalition’s policy.

Rather than being paid for by the emitters, it’s being paid indirectly. ie, it’s not user pays.

This greatly reduces the efficiency of the policy – as much pollution will have to be sequestered that would have been cheaper to not emit in the first place. If the Coalition was serious about sequestration, indeed the only way it can work with any reasonable efficiency (unless I’m very much mistaken) – is to charge emitters for the costs incurred. ie, a via a carbon tax fixed at the price it costs to sequester a tonne of carbon (for carbon neutrality) or at the least, the price it costs to sequester the first ~160 million tonnes required for our 2020 emissions target.

Of course.. once you put a price on carbon emissions, you’ll find they become less of a problem in the first place.,

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