emissions trading
25 Nov 2009
Why Carbon Trading Is Losing Credibility Fast
Rudd's ETS is no different to other schemes around the world which have achieved very little except to create dubious new securities that speculators can trade, writes Brian Feeney
While plenty of people seriously doubt the ability of the Rudd Government's emissions trading scheme to make a significant difference to Australia's emissions, more evidence is emerging that casts doubt on the usefulness of ETS schemes in general for preventing dangerous climate change.Adding salt to the wound, there are also signs from existing carbon markets that any sort of carbon trading establishes another speculative industry prone to the same market flaws that were behind the recent global financial crisis.
Since the European Union's carbon market was set up in 2005, a number of European and American banks have begun to invest in carbon credits. Activity in this market is dominated by trading among banks and speculators. One of the key sectors of this market is the trade in (often highly dubious) carbon offsets from outside Europe.
Global carbon markets are projected to be worth as much as $10 trillion a year and already carbon credits are being packaged into the same types of complex and opaque financial products that precipitated the global financial crisis.
One of the major similarities between the financial derivatives market spawned during the sub-prime mortgage fiasco and the emerging carbon markets is the way risk, uncertainty and ignorance are dealt with in this type of trading.
Fundamentally, this relates to how to deal with three different types of future events. For the first type of event (a "risk" event), we know the event could occur and the probability of the event occurring is calculated based on past events. An example is a coin toss where the probability over time of a heads or tails result is known.
The second type of future event (an "uncertainty" event) is when we know the event could occur but don't know the probability. An example is the destruction of a forest by fire or insect pests.
The third type of future event (an "ignorance" event) is completely unforeseen. An example is the damage caused to the ozone layer by CFCs.
The mathematical tools that economics relies on can only legitimately incorporate the first of these future events ("risk" events). However, as US economist William Janeway observes, modern finance theory (and practice) has over the past 40 years blurred the very real distinction between uncertainty and risk.
The credit default swaps, collateralised debt obligations and other complex financial products developed during sub-prime were dressed up to look like they had a calculable level of risk. As we now know, the financial models used to design these products were unable to anticipate the major uncertainty event that occurred, namely the collapse of the US housing bubble. (Of course in standard neoclassical economic theory, there is no such thing as a price bubble — the market always correctly prices every product and service).
Unfortunately, it looks like the same financial models that came unstuck during the GFC have already been incorporated into the emerging carbon markets.
This is directly relevant to Australia's emissions trading scheme (the Carbon Pollution Reduction Scheme, or CPRS) because Treasury's 2008 modelling shows that the CPRS won't reduce Australia's domestic carbon emissions until after 2030. Instead, for the next 20 years, the CPRS will rely entirely on importing a large number of carbon offsets.
For these carbon offsets to be effective in actually reducing carbon emissions (rather than being just an accounting trick), they need to pass three main tests.
Firstly, the activity claiming the offset must be something that would not have occurred without the carbon offset payment, that goes beyond existing legal requirements and that will not be counted in any other emission reduction scheme (the "additionality" test). This immediately eliminates activities that are already occurring such as indigenous "caring for country", or retaining carbon on farming land. Similarly, trees that cannot be cleared under existing legislation cannot be counted as an offset.
In order to establish whether an activity is genuinely additional, you need to determine what would have occurred without the project (the baseline). This is a very complex process that allows manipulation by carbon traders who have a financial incentive to overestimate the amount of carbon offset achieved. There is plenty of concrete evidence of widespread rorting of the additionality principle with little or no reduction in pollution, often in ways that actually make the situation worse.
The second test of the validity of a carbon offset is assessing whether the activity in question succeeds in reducing total emissions, or if it merely moves those emissions to another place where it's not being accounted for (the "leakage" test). For example, putting limits on forest logging in one area may simply increase logging somewhere else. Again, this is a criterion that is very open to accidental and deliberate exploitation, with questionable benefits.
Thirdly, the offsets need to be permanent (the "permanence" test). Carbon dioxide (the main greenhouse gas) is very long-lasting in the atmosphere (50 years or more) so carbon offset projects should have a similar longevity. For example, forests planted as carbon sinks should be safe from destruction by fire or insect pests for at least the next 50 years.
These are the tests which carbon offsets have to meet. Unfortunately, each type of carbon offset is, in its own way, compromised when measured against these tests.
Those types of offsets are: biological sequestration (trees and soil), renewable energy projects, energy efficiency and reduction of non-carbon dioxide greenhouse gas emissions. Biological sequestration is fatally flawed in relation to the leakage and permanence tests and is also prone to multiple counting.
Renewable energy projects are weak on the additionality test; for example, if the projects are part of achieving mandatory renewable energy targets now or in the future. (To date higher cost has drastically limited the take-up of renewable energy offset projects). Energy efficiency projects are particularly weak on the additionality test as they often provide cost savings; they tend to be weakened by "rebound effects" whereby efficiency improvements often encourage greater energy use than before. The last category (reduction of non-CO2 emissions) has been the subject of widespread rorting as it provides incentives to manufacture more of these gases than is required by end users, solely to claim carbon offsets by destroying the gases.
Leading US economist William Nordhaus believes that cheating will probably be widespread in the emissions trading schemes, noting that neither buyers nor sellers have any incentive to ensure that real reductions have been made.
Overall, carbon offsets are seriously contaminated by uncertainty and ignorance about what will happen in the future to the offset activities themselves, or what will happen to the public policy environment in which they exist. The convenient assumption that these issues don't matter is another dangerous factor this market has in common with other market theory. Nobel Prize-winning economist Joseph Stiglitz, describing the so-called "rational expectations theory" which assumes that all players in a market have the same information and also have the same understanding of how the world works, called such assumptions a "triumph of ideology over science". Carbon offset markets are fundamentally the same in this regard, and just as vulnerable to distortion and collapse.
Despite recent experience demonstrating the need for markets to reflect the real value of the things they trade, carbon traders are undeterred by the idea that carbon offset projects can't demonstrate their bona fides in reducing emissions. For example in November 2008, a major European bank began packaging up carbon credits from 25 different offset projects to create three bundles of securitised products, allegedly with different risk levels.
Where does this leave Australia's CPRS? Unfortunately, it looks very much like another "triumph of ideology over science".
Economic theory asserts that putting a price on carbon will allow the market to produce "least cost" emission reduction. This notion depends alarmingly on the same assumptions that allowed the GFC to occur, namely that all risk/uncertainty/ignorance is incorporated into the market price.
The catastrophic uncertainty/ignorance here of course is that known and unknown positive climate feedbacks (such as the release of methane from melting permafrost) will cause an escalating increase in global temperature. Scenarios like this are in the realms of uncertainty and ignorance and so cannot in principle be factored into the models that the carbon traders currently rely on.
The emerging carbon markets, based as they are on current economic theory, are therefore theoretically unsound and too fragile to provide sufficient certainty that carbon emissions will be effectively reduced. In designing a robust response to climate change, we need to put in place systems with backup components in recognition of our uncertainty and ignorance about the future.
Clearly, the internal workings of emissions trading schemes mean that they are a profoundly flawed mechanism. More fundamentally, however, there's strong evidence in recent history to suggest that we can't rely on market prices to achieve the kind of structural change needed to prevent catastrophic global warming. Effectively addressing global warming requires construction of the large-scale renewable energy infrastructure that will produce real carbon emissions reductions. As US climate activist Ted Nordhaus (nephew of William Nordhaus) puts it "we didn't get the internet and personal computers by taxing fax machines or capping typewriters. We did this with massive public investment in ... these new technologies."
The task of reducing carbon emissions requires a robust strategy able to cope with uncertainty and ignorance about the future. This task is definitely not something to leave to the traders and speculators who brought us the GFC.
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As a sign of the times. A recent article by Ken Davidson in the online version of The Age, along much the same lines as this one, was followed by ads for three sites flogging access to carbon trading. The bait, potentially there is a lot of money to be made. F
brilliant article - it’s a tragedy that our leaders don’t seem to get this basic fact.
Friends of the Earth did a great report ("A Dangerous Distraction") warning of similar pitfalls. furrygardener.wordpress.com
One of my favourite questions is - What do you fear ?
I have a new fear ,mass delusion that creates authoritative knowledge that is absolutely perilous to society.
The validity of financial markets was one such delusion , ETS are another.
My thanks to the author for this analysis , could we gather the population together and make them keep reading it until they understand the idiocy of Rudd et al.
Fundamental fact which has been bleeding obvious for some time - Like CCS the CPRS is a scam designed to protect certain vested interests from the necessity of radical change.
At base the problem is political and nothing will change until the citizenry compel it.
Don’t hold your breath waiting.
From the moment I first read about carbon trading I thought to myself "economic pollution" and "recipe for corruption". This is not an issue that can be resolved by a dirty version of a share market. This is an issue that can be ameliorated by legislation, punishment, and reward.
And I still don’t have an answer to the question: "How is it that Mars is also experiencing global warming?"
Any scientific hypothesis can appear to have overwhelming evidence for it. However it takes only a single exception to at least warrant its critical re-examination.
Should we be spending money on ensuring our survival in the face of climate change, instead of "King Canute-like" thinking we can stem the tide of natural events?
By all means punish filth and waste, but I have a feeling people are backing ETS because it appears to pay lip service to an ideology, rather than having any hope of creating positive change.
It is true that there are problems with the way that markets deal with risk and uncertainty, and there are problems with the CDM and other offset based approaches. But to say that "carbon trading" is bad in general, and that emissions trading schemes are a deeply flawed mechanism is completely wrong.
For a start, there is nothing about cap-and-trade schemes that require them to have offsets. A cap-and-trade scheme puts a cap on emissions, permits are auctioned or handed out for free, and participants are free to trade them with each other. A cap-and-trade scheme does not have to prove additionality, or account for leakage or permanence. The CDM is not a cap-and-trade scheme and that is why it has to deal with issues of additionality.
What cap-and-trade schemes do is provide certainty to governments that they will meet a particular emission reduction target, and put a price on emissions. Ensuring target will be met is important, because it signals to other governments that they are committed to emission reductions. Project based approaches like the CDM do not effectively place a price on emissions. Putting a price on emissions is not sufficient for addressing global warming but it is necessary. Making generalities about "carbon trading" creates more confusion and does not help us to understand the problem of what we need to do about global warming.
Peter Wood climatedilemma.com
Excellent article
Many top climate scientists, climate economists and climate analysts advocate direct, transparent, revenue-neutral carbon taxes and OPPOSE cap-and-trade Emissions Trading Schemes (ETSs) as variously flawed , dishonest, ineffective and most likely leading to destructive market "bubbles" of the kind that precipitated the global financial crisis.
For an extensive, documented compilation of the view of top climate scientists, climate economists and climate analysts who reject the ETS approach see "Experts: Carbon Tax needed and NOT Cap-and-Trade Emission Trading Scheme (ETS)", provided as a public education service by the Melbourne-based Yarra Valley Climate Action Group: http://sites.google.com/site/yarravalleyclimateactiongroup/carbon-tax-ne… .
Thus, for example, Dr James Hansen (top US climate scientist; director, NASA’s Goddard Institute for Space Studies; member, US National Academy of Sciences): "The worst thing about cap-and-trade [ETS], from a climate standpoint, is that it will surely be inadequate to achieve the sharp reduction of emissions that is needed. Thus cap-and-trade would practically guarantee disastrous climate change for our children and grandchildren. The only solution to the climate problem is to leave much of the fossil fuels in the ground. That requires a high enough carbon price that we move on to our energy future beyond fossil fuels. Summary. The honest approach, the effective approach, for solving the global warming problem would be a tax with 100% dividend. The public is not stupid. They will understand that the hooks and eyes of a less comprehensive more dissembling approach will be put there for some reason other than saving the future for their children. One of the biggest advantages of the Tax and Dividend approach is its simplicity, which would allow it to be introduced quickly. The Kyoto-like Cap & Trade is notoriously slow to negotiate and implement, as well as being ineffective in the end " (see Dr James Hansen, “Carbon Tax and 100% Dividend vs. Tax and Trade”, Committee on Ways & Means, US House of Representatives, February 2009: http://www.cleanenergy-project.de/2009/02/25/carbon-tax-100-dividend-vs-… ; http://www.columbia.edu/~jeh1/mailings/2009/20090226_WaysAndMeans.pdf ).
Peace is the only way but Silence kills and Silence is complicity.
I think you’ve raised a heap of implementation/regulatory design issues rather than fundamental problems with cap and trade mechanisms themselves. You can be sure that DCC and the Australian Climate Change Regulatory Authority (ACCRA) are well aware of the issues you raise in relation to the environmental credibility of offsets. Clearly, the use of international offsets is a big leap of faith (which i am not comfortable with).
Cap and trade mechanisms are simply a policy tool, they are not and end in themselves. Putting a price on carbon will create incentives for the private sector to pursue "least cost" emission reductions - this is a fact. There are hundreds of private renewable energy projects waiting for the establishment of carbon price to make them economic. We need massive amounts of BOTH public and private investment to get us out of this mess.
A cap and trade mechanism doesn’t evaluate risk, its not meant too. All it does is establish a market price according to the level of scarcity imposed on it! It is up to our politicians to assess the risk, clearly they don’t get it. If they don’t get it, it doesn’t matter what policy tool you use, it will never be sufficient - carbon taxes and public investment will never be large enough either.
The initial problems with the European carbon market were political - their political leaders, like ours, baulked at the idea truly implementing the polluter pays principle, and they grossly over allocated permits as a result. If it was a carbon tax, you can be they would have set it too low as well.
I think you are throwing the baby out with the bath water. We need every policy tool we have - taxes, public investment, direct regulation and trading mechanisms.
I agree with Nigel E. here; the problem is with the mechanism not with cap and trade mechanisms themselves. It is certainly justifiable to say that the mechanism has been corrupted by the realities of political compromise, but as one of several mechanisms to reduce the motivation to release greenhouse gases of various forms, it certainly should be encouraged.
For Christine Sutherland, I would like to point out that the parts of Mars are having regional temperature change. There is no global warming as such on the red planet.
c.f., http://www.realclimate.org/index.php/archives/2005/10/global-warming-on-…
An excellent article by Brian Feeney.
I cannot believe that the Federal Cabinet is so naive as to not be aware of the potential rorting opportunities which are built into emissions trading schemes. However, the only alternative is carbon taxation: difficult if not impossible to rort, a relative breeze to administer, far more likely to achieve any desired national CO2 emission reduction objective, but a massive political deadweight to carry into an electoral contest with the largely denialist Coalition.
One recalls the 1992 election, which saw the then Coalition opposition leader Dr John Hewson centre his campaign on introducing a GST. Paul Keating and Simon Crean really tore into him over that. Keating’s successors now happily administer that same GST, and would not get rid of it for all the tea in China. But they know if they try introducing a new carbon tax, the present opposition will be as unprincipled over it as their party was over Hewson’s GST. Apparently they think there are enough short-sighted and hip-pocket nerve fixated voters out there to bring them down if they try it on.
So they want to make their climate change policy as politically painless as possible. But it will be a total dud for the reasons Brian Feeney has outlined, rorted at every turn, and probably not pull a single net molecule of CO2 out of the planet’s atmosphere. But in the international carbon politics, Australia is a complete mouse. If the scheme works or it doesn’t, it will hardly make any difference. This I think gives great comfort to the denialists. If the planet enters runaway greenhouse, they will only at most be 1.5% responsible; in their own minds and to their own way of thinking.
http://noahsarc.wordpress.com/439/
Harry MortonIn 1965 executives at Shell wanted to know what the world would look like in the year 2000.
They consulted a range of experts then asked the British scientist Professor James Lovelock who said prophetically ‘that most of the things we have been told to do might make us feel better but they won’t make any difference. Global Warming (the description at the time) had past the tipping point and catastrophe is unstoppable’
‘ Carbon offsetting is just a joke, to pay money to plant trees to reduce carbon will probably make matters worse. Recycling is a waste of time and energy and a green lifestyle like turning off air conditioners and lights is just a grand gesture. Trying to get enough energy from windmills to run our society won’t work. You can cover the whole country with the blasted things, millions of them and it is waste of time’
He mistrusts all of these ethical conclusions, ‘because always, in the end it turns out to be a scam. or if it wasn’t one in the beginning it becomes one with the false promise of renewable energy.’
‘There have been seven disasters since humans came on the earth, very similar to the one that’s just about to happen.’
Apparently most scientists disagree with Professor Lovelock, with the possible exception of the Institute of Public Affairs Melbourne with their raft of scientists, who seemingly are mavericks. They are fortunate that the Inquisition is no longer fashionable or they would be forced to recant.
‘Institute of Public Affairs Melbourne with their raft of scientists, who seemingly are mavericks…’
They are not scientists, they are right-wing neoliberal economists who aren’t employable anywhere else :-)
And this is coming from an economist!!!
Christine, the supposed reason Mars is warming is because reduced solar activity allows increased Galactic Cosmic Rays to reach the planets of the solar system and that increases cloud cover and that reflects more sunlight back to space. Just check how much cloud cover on Mars has changed! Nonsense of course. It’s actually about dust and how that affects reflectivity. There’s no cause in common with changes here on Earth. Check with organisations and scientists that actually study Mars - unless, like so many do with climate change on Earth, you begin with the belief that scientists who actually study something can’t be trusted to get anything right and only those who haven’t been ‘tainted’ by actually studying the subject full time can have the ‘independence’ to do so.
I have just watched part of Malcolm Turnbull’s press conference on ABC TV news. In my opinion, he has just emerged as the only credible candidate to take his party to the next election, and has consigned the neanderthal denialists of his party to outer darkness.
Hockey? A pathetic joke.
Andrews? A dummy who’s lost his ventriloquist.
Abbott? For an election to be held in 1590 AD, the best possible Liberal candidate.
And who else is there?
Nobody. Howard saw to that, by getting rid of all the anti-Thatcherite ‘wets’ from the Liberal Party.
While they’re at it, why not an Oxygen tax.
Based on the fact that we breathe air, and air is 21% oxygen then, say the average breath is 500ml, then say breathing at say 15 breaths a minute, you breathe 7.5 litres a minute, or 450 l/hr, that is alot per capita of the world’s pop’n over a year.
Furthermore, if the world were to obtain zero pop’n growth, i.e each breeding couple only has two kids, to replace themselves.
Then a couple who only have 0 or 1 can be given an O2 credit for the reduction of O2 depletion by less people breathing.
These credits may be exchanged for real benefits other than money (or for money for that matter.)
The people buying the O2 credits can have an extra child say if they did’nt get one of each sex and wanted to try again a third time, who knows using some form of eugenics (euphemistically speaking) for a third one.
The cost of the O2 credit would have to be set very high indeed to offset all the oxygen depletion over an individual’s life of say 90 years.
But overriding this is the world’s peak population, an avoidance of wars , famine pestilence and genocidal regimes, and a sound mathematical analysis of the arithmetical and geometrical progressions involved in growth.
Remember that a pond which has an algae level that doubles each year, may take 100 years to reach 50% coverage of the pond, but one year later will have completely filled it.
In a zpg situation we have a binary progression, but in an unrestrained growth pattern we have a logarithmic hysteresis curve which keeps upgrading at astronomically high levels.
Talk about bubbles.
The population time bomb is still the greatest danger to our kids futures, and we forget that at our peril.
Top climate scientists (including most recently those of the Coral Working Party of the prestigious, umpteen Nobel Laureate UK Royal Society) are saying that we must urgently return atmospheric carbon dioxide (CO2) from the current 390 parts per million (ppm) to a safe and sustainable level about 300-350 ppm (see "300.org - return atmosphere CO2 to 300 ppm": http://sites.google.com/site/300orgsite/300-org–return-atmosphere-co2-…).
That means immediate large-scale installation of renewable energy and geothermal energy and draw-down of atmospheric CO2 through re-afforestation and biochar generation coupled with cessation of population growth, of fossil fuel burning, of deforestation and of methanogenic livestock production (the latter recently estimated by World Bank analysts to contribute over 51% of annual man-made greenhouse gas (GHG) pollution) (see "Livestock and climate change": http://www.worldwatch.org/node/6294 ).
Unfortunately the pro-coal, pro-pollution Rudd Labor Government is NOT doing these things and indeed is moving in the OPPOSITE direction - it has crippled the renewable energy industry (e.g. Australian world-leader in Concentrated Solar PV, Solar Systems, is in the hands of the receiver), supports temperate rainforest destruction (notwiththstanding the reality that SE Australia temperate rainforests are the best per hectare forest carbon traps in the world), supports expanded coal and LNG exports, supports disastrous population growth and supports expanded coal burning and methanogenic livestock production.
The immense FALSEHOOD promulgated by the climate criminal Labor Government and its Turnbull Liberal supporters is that they are "tackling climate change" by current policies and the pro-coal burning and pro-carbon polluting ETS.
The Rudd Labor-Turnbull Liberal ETS is flawed, ineffective, dishonest, counterproductive and fraudulent as simply demonstrated by the permanent exclusion of agriculture from a GHG cap - this committing Australia, the developed world’s worst annual per capita GHG polluter, to over 50% of its current GHG pollution FOREVER.
Turnbull’s ETS rhetoric is hollow indeed - adoption of a counterproductive ETS is even WORSE than Government not doing anything - it simply locks Australia into MORE GHG pollution under the guise of doing something and delays adoption of rational, effective policies as summarized above.
Peace is the only way but Silence kills and Silence is complicity.
Unfortunately, this well-meant piece could not be better timed to give aid and comfort to the nay-sayers in the coalition, surely the intention neither of the author nor of New Matilda.
Of course ETS’s have imperfections in principle and in practice, and the same can be said about carbon taxes.
Ross Garnaut is right that the Rudd Govt has allowed the proposed ETS system (which he recommended and which is supported by the Parliamentary Greens) to be rorted by deals with the polluters. And that has now been made worse by Malcolm Turnbull’s (again) well-meant and praiseworthy efforts.
However, as Nicholas Stern and Garnaut both make clear in their logical, evidence-based and world-recognised reports, the required cuts in global emissions are so deep that they must be made cost-effectively. Hence, they both argue strongly that this goal can best be approached mainly by means that make use of ‘market instruments’ that price emissions (whether taxes, ETS or some mix thereof).
This New Matilda article errs by not sufficiently underlining this necessary principle. The article cites William Nordhaus’s nephew on the need for ‘massive public investment in … these new technologies’. But that sort of vague commitment (by itself) is open to far more damaging rorting. Each proponent of a ‘technical fix’ or panacea (including especially nuclear power!) will push his own barrow and horse-trade, leaving the public debate and the policy-making process to become more and more chaotic and ‘compromised’ as a consequence.
If you don’t like the ETS and prefer carbon taxes then blame (then) Vice-President Al Gore and the US negotiating team at Kyoto in 1997. The EU and other OECD countries were then left with this option (with its strengths and weaknesses) rather than the EU’s preferred option of carbon taxes while (as we all know) the US walked away for 12 years.
Now internationally as well as nationally, we are stuck with the ETS. It can be made to work and it will have to be made to work. The Parliamentary Greens now seem to recognise that reality in principle while at the same time lending comfort to the denialists by letting the ‘best’ (but for now unachievable) drive out the (in some respects) mediocre but necessary.
The emphasis should now be on the stringency of the targets and on the Rudd Govt being held to (at least) 25 % cuts by 2025 and not allowed to weasel out on the grounds that insufficient international support is not yet in place, or that our population growth rate is too high, etc.
Now even the US has at least a Presidential commitment to 17 % reduction. That may be poor by EU standards (with its static population) but it is streets ahead of the Rudd Government’s 5% reduction in its ‘unconditional’ option.
One other point in favour of the ETS is evident here (apart from its promotion of cost-effectiveness in abating emissions). An ETS necessarily focusses attention where it should be, on the reduction targets. It is these targets (or ‘caps’) that connect directly and logically with the evolving climate science.
Indeed, we all have a duty to keep the public debate, and hence the public policy making, as logical and orderly as possible. The emerging chaos in the public debate is disturbing and plays into the hands of the ‘denialists’, both the ‘ideological’ ones and opportunists of the Tony Abbott type. By all means though let’s keep the debate as open and spontaneous as possible. These are complex and potentially confusing issues and New Matilda since its inception deserves high praise for promoting quality debate and mutual respect among the contributors.
In my view, the issue of corruption is perhaps the most significant flaw of the ETS model - so thanks for raising it here in your article.
Some further points below:
1. The potential for corruption. ETS creates a property right which can be vulnerable to corruption. E.g. with the SO2 trading scheme in the USA, even in this nation of strong governance, there were permit scandals. What about those nations with serious and entrenched corruption issues?
NB. Global warming is a global problem and any solution must include the developing nations too, especially given many developing nations will be a major source of future emissions.
2. The ETS dominant focus on short-term targets obfuscates the fact that our real objective is to manage cumulative emissions over the long-term, and to ultimately achieve real and permanent structural change.
3. Economists appear to be in general agreement that a more stable economy promotes greater investment into research by the private sector. NB. Research showing that a carbon tax (CT) creates a more stable economic environment than an ETS. NB. Plus general agreement that neither the CT or ETS will be fully effective to address emissions in the absence of considerable injection of funding into research.
So why not harness the private sector as much as possible?
4. The CT is more politically sensitive than an ETS - the electorate dislikes the imposition of a tax (NB. The consequences of the proposed CT for elected representatives in the USA in the 1990s). However, a tax creates government revenue which can be both reimbursed to the poorer citizens (NB. CT is a regressive tax) and utilised to fund research in cleaner energy options.
Not to mention the potential to attract the poorer nations into global cooperation via the creation, hence redistribution of funds from the richer to the poorer nations. Further, research suggests a CT can be far more easily implemented in developing nations as administratively far simpler to manage.
5. Arguably, CT can be implemented to cover all carbon emission sources from fossil fuels. E.g. by imposing on creation, import or export points.
6. And, a most distinct advantage is that the CT operates to change consumer behaviour with respect to energy usage at all levels of human activity.
And I could go on and on… All the above is supported by considerable research; e.g. by the OECD, IPCC and respected economists - e.g. W.D Nordhaus. This is not to say that the ETs cannot be very useful in some, limited scenarios, but that the CT (and harmonised CT) should be properly considered the primary and most effective economic instrument for tackling climate change on a global and domestic levels.
This website contains a lot of excellent material about the merits of a CT: http://www.carbontax.org/
I think the main point is that we can’t rely primarily on economic instruments as they can’t deal effectively with uncertainty or ignorance about the future. We need major public investment in renewable energy infrastructure to address the climate emergency.
Harry Morton Like ethanol from the sugar industry using cane which grows yearly, stores carbon in thousands of stalks per hectare far more than trees and is carbon neutral in making ethanol. Brazil is the world’s largest producer of ethanol and sells huge amounts to USA and Japan. Brazil begs Australia to join with them and will share all their technology but Howard would not give the sugar industry a cent to kick it off. He did give a wheat producer who made ethanol as a by product big bucks a fact that the then Federal ALP opposition had a field day with in parliament. Now CSR want to get on the ethanol band wagon with their new $360 million float. It will be interesting if the Feds give them funding while ignoring Queenslands farmer owned mills.
But, will public investment be sufficient on its own to generate the very high levels of research funding required?
Many believe it won’t; thus in reality, economic stimulus of the private sector remains critical to the challenge of ultimately reducing carbon emissions. Further, the factors of uncertainty and ignorance are unavoidable realities vis-a-vis addressing the climate change challenge. Hence, why many commentators advocate that a flexible approach, that permits constant tinkering - or trial and error - is required, irrespective of the nature of the tools utilised - economic, legal or otherwise.
Not to mention a whole new, and far more humble attitude on behalf of our politicians…
**A wonderful BBC programme broadcast about 6 months ago on Radio 4 dealt with the issues of uncertainty etc most beautifully. Unfortunately, I am unable to locate the programme’s link now - but will post if I later find.
Incidentally, a carbon tax is inherently flexible and adaptable, thus can readily accommodate uncertainty. e.g. via yearly adjustments. And at least the CT doesn’t give the false impression of uncertainty by pretending to directly address the level of emissions as does the ETS - yet never actually achieved in reality. Further, I believe, the apparent focus on emission targets tends to help lull unobservant voters into a sense of false security.
But most of all, it is important to realise that the imposition of a CT is not in any way mutually-exclusive to the operation of other tools. The pricing of carbon per se - or harnessing the forces of the private sector - whether via the ETS or the CT - is NOT an inherently flawed option in itself. It all comes down to how it’s done!
Apologies - made an error in my post immediately above - had meant to type in post above - ‘And at least the CT doesn’t give the false impression of CERTAINTY by pretending to directly address the level of emissions as does the ETS… Cheers,
I think I get it … Aging synapse activity seem to indicate that I pump out a couple of tonnes of emissions that will add to global warming, THEN I go outside where the media await, THEN I plant a hydrangea bush, AND stop of flock of sheep from farting, THEN everyone applauds in a relieved sort of way, AND ALL IS SWEET… ? And somebody with a brave smile hands me a carbon credit … ???? No, I don’t get it at all.
Aging synapses say twaddle. Rob
It’s ironic how Kevin Rudd (the dudd) is allowing for upping the production of coal for export & keeps calling for a CPRS. The man is a great big fake & the public are just as pretentious to ignore it’s happening.
Where does the $10 trillion come from? I’ve heard $2 to $3 trillion by 2020 more typically, if the US passes its own cap and trade bill. Even at this scale, however, speculation on carbon could be a massive problem - in particular, it has the capacity to cause havoc in food markets - and with no real world commodity underlying it, "carbon" has fluctuated wildly and proven prone to collapse. On the performance of dodgy offsets and the EU ETS, you might also be interested in our new book: http://carbontradewatch.org/carbon-trade-fails
Christine
"Should we be spending money on ensuring our survival in the face of climate change, instead of "King Canute-like" thinking we can stem the tide of natural events?"
The answer is obviously "yes", But I have found few in agreement with us. If only economics was a manadatory matriculation subject!
Expect the distraction of massive calls on the Public Purse for compensation for shoreline erosion.
Our political system has to be changed before "common sense" can prevail.
I can’t help but see this as an emissions trading scam, devised by untrustworthy politicians/profit motivated corporations, based on fraudulent and bogus scientific data.
I very much agree with Christine Sutherland & I hate to tell you this EarnestLee but the government are already finding ways to put the onus onto the land owners for tidal erosion. The shore lines that are crown land, are being maintained anyway & come out of the GST the public already pay. It will be the insurance companies that will charge like wounded bull’s in the long run.
One doesn’t need an economics course to be able to count, even though it is handy to have.