Evidence shows carbon tax was worse than useless

The carbon tax is now history. But there is nothing to mourn in its passing. This was a climate change policy for which it was impossible to win broad public support, since it made working class people pay the costs of taking action. This meant it played into Tony Abbott’s hands, and has helped him present climate action as a threat to ordinary people’s living standards.

Abbott now has his own problem: his promises that ending the carbon tax will cut the price of power and groceries will never eventuate. Although he claims the ACCC will enforce this, it can only monitor power companies, not the supermarket giants like Coles and Woolworths. Abbott’s hyperbole will come back to bite him.

Yet it has become common sense on the left to claim that the carbon tax worked to reduce emissions. John Connor of the Climate Institute, for instance, said its axing meant the end of “two years…of carbon laws that have worked reducing pollution”, calling the repeal “an historic act of irresponsibility and recklessness”. But the facts show otherwise.

Carbon pricing was only ever going to bring about small reductions in carbon emissions, mainly as a result of replacing coal with gas, another fossil fuel. Serious action on climate change will require forcing polluters to pay—by taxing the big mining and power companies to fund renewable energy. NSW Greens’ research shows we build the first three large-scale solar plants here for $5 billion. But the carbon tax was never intended to hurt big polluters—simply allowing them to pass on price rises to consumers.

Drop in emissions

The two years since the carbon tax was introduced have seen electricity emissions in the National Electricity Market (NEM) fall by between 8.2 and 10.4 per cent. This, however, needs to be qualified by the fact the NEM does not include Western Australia or “off grid” generation by industrial users, where power use has increased. No more than a small fraction of the decrease is the result of the carbon tax.

The most detailed effort to make the case for the carbon tax’s impact is a recent paper from two academics at ANU. It claims the tax was responsible for between 38 and 60 per cent of the emissions cuts. But this is an extremely generous estimate compared to other studies, for instance those by energy consultancy pitt&sherry, who monitor electricity statistics on a monthly basis.

There were two major drivers of the emissions reductions: falling demand for electricity and fuel switching from coal.

In the first year of the carbon tax pitt&sherry estimates falling demand was responsible for 40 per cent of the emissions reductions. The ANU paper tries to attribute this to price increases caused by the carbon tax. But price increases caused by network costs were much greater over the years prior to the carbon tax. Electricity prices rose 72 per cent over the ten years to June 2013, only 14 per cent of which was a result of the carbon tax.

There were a number of other important factors at play. Pitt&sherry estimate that one third of the demand reduction in the carbon tax’s first year was caused by the growth in solar panels. These were largely installed through a range of state government subsidy programs.

Another major reason for falling demand was the closure of manufacturing operations. Pitt&sherry’s September 2013 report states that, “major industrial loads, such as the Kurri Kurri aluminium smelter, have accounted for just over a third of the total fall”. Finally there is also the impact of energy efficiency programs, which were also substantial.

The other major reason for reduced emissions is the switch in energy sources from coal to wind power, hydro and gas. The contribution of each fuel is relatively easy to determine, through working out how much of the drop in coal use was replaced by each energy source, on top of the drop in total demand. Pitt&sherry have calculated that since demand peaked in 2008, 37 per cent each was due to increase use of wind and hydro power and 18 per cent to increased use of gas.

The growth in wind power is due to the Renewable Energy Target (RET), not the carbon tax. The RET mandated that power companies source 10.65 per cent renewable energy in 2013.

The carbon tax did likely cause some shift from coal to gas, and part of the growth in hydro power. But this could only have accounted for a fraction of the decline in emissions—even a third seems generous.

Addressing the scale of the challenge of climate change requires a radical reduction in emissions—and direct government investment to transition to 100 per cent renewable energy as quickly as possible.

By James Supple


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