The Greens’ Proposal
The Greens have proposed an interim two year carbon tax, as a transition to carbon trading. Starting at $23 per tonne this year, rising to $24 the following year. It would be simpler than the CPRS, and unlike the CRPS would not involve tradeable permits, or the use of offsets, but as Greens state “The scheme would operate using the proposed CPRS administrative framework to ensure a smooth start”. The proposal originally comes from the Garnaut review, the report by free market economist Ross Garnaut which led to the CPRS.
The Greens have proposed a carbon tax to deal themselves back into climate negotiations with the government, rather than fight for solutions that would actually work. Given the scale of the problem, their carbon tax proposal is remarkable for its timidity, and that is likely to be made worse by negotiations with the Labor government. However timidity is not the only problem, a carbon tax will make getting solutions that work more difficult.
Carbon taxes are market mechanisms which work on the same basic mechanism as carbon trading – price signals. The Greens are proposing exemptions for “trade exposed emissions intensive industries”, just as with the CPRS. This would include exemptions for companies like Alcoa, which has just done a deal with Loy Yang power to keep polluting for the next 26 years. This is because the Greens want to support Australian companies against international competitors. But being Australian companies, does not make their emissions any less harmful to the climate. Climate change doesn’t recognise nations.
What’s wrong with Carbon taxes?
Even if Alcoa were included in the Greens carbon tax proposal, it would not solve the problems with carbon taxes. Should the polluters pay (what amounts to a nuisance tax), or should they stop polluting? If government is serious about stopping something dangerous, it bans it. DDT was banned because of its effects on the environment. So is asbestos. Why allow companies to pay a tax and continue to destroy the planet? Companies will continue to add to greenhouse gas emissions even with a carbon tax, if it is still profitable to do so. We need to regulate absolute limits on carbon pollution.
Carbon taxes are always less effective than regulation. For instance taxing old incandescent light globes would reduce their use, but banning them stops them altogether – providing new ones free would be better still. Taxing the car industry or petrol, might lead some poor people to stop driving, but mandating electric cars run of renewable energy alongside massively expanded public transport would make a real difference. Taxing the carbon in aviation fuels, would make flights more expensive and reduce numbers flying, but replacing flights with high speed rail, would be more effective.
Carbon taxes are unfair.
The rich person in first class on a flight uses 5 times the space of someone in economy, but even if they paid five times the tax, a price rise would matter less to them. Carbon taxing, like carbon trading allows destructive behaviour to continue for those who can afford to pay. The same is true of taxes on cars, or coal-fired power. Petrol price rises can leave people stuck in the suburbs without transport. Coal-fired electricity producers will pass a carbon tax on to consumers while continuing to pollute.
You can’t build a movement based on unfairness
We need a mass movement to force our rulers to act to stop climate change. People will not join our movement if it means they will be stuck in the suburbs without transport, or if they are cut off electricity. They will not join our movement, even if they just think these things are likely to happen.
A carbon tax would be just as vulnerable as carbon trading to being labelled a “big new tax on everything”. This is already having an impact. The right will continue to use the slogan as a way of convincing ordinary people that action to stop climate change will hit them financially. A carbon tax is an unfair flat tax like the GST – we can’t build a movement on that basis.
Won’t it raise money that can be used for climate action?
The Greens say that their proposal “Results in a surplus of $2.97 billion … which could be directed towards climate mitigation and adaptation infrastructure” But not only does this not come close to the sort of money that is needed to seriously address climate change, in actual practice budgets do not work as they suggest. Governments constantly move money around from one budget to another. All taxation becomes general revenue, which can be used for anything government decides matters, at this point it is more likely to be used for the war in Afghanistan than emission reductions.
If government was serious about addressing climate change it could get far more money by raising corporate tax and the highest individual tax rate back to where they were in the 1980’s – corporate tax would go from 30% back to 40% and the highest tax rate from 45% back to 60%.
Isn’t a small carbon tax better than nothing? No. Carbon taxes can actually give government an interest in continuing emissions. This already happens with cigarettes. Cigarette taxes are high enough to stop some people smoking, but not high enough to stop everyone smoking and consequently for the government to make no money.
If people think the government is already acting with carbon taxes or carbon trading, they will be less likely to see the need to protest for real climate action. The climate movement must demand what needs to be done, rather than try to come up with “solutions” that are acceptable to those who run our world, but that will not work.
Instead of a carbon tax the Greens should be demanding “No New Coal”, a stop to the Alcoa-Loy Yang deal, and direct government investment in renewable energy and public transport.
By Chris Breen
Thanks for the article. I am strongly in support of the Greens’ carbon tax proposal. Before responding to some of the points that you make, let me describe why I am strongly in favour of their proposal. We will not achieve anything like the sort of emission reductions that are needed without some sort of price on carbon. In order to minimise the risk of dangerous or catastrophic climate change, we need to get emissions down as quickly as possible. This requires that as many low cost ways of getting emissions down as possible are introduced ASAP.
Why is cost-effectiveness important? Because the cheaper the emission reductions, the more that can be achieved for a given amount invested. When a firm has to pay a $23 carbon price, that firm will want to pay for any emission reductions that are cheaper than $23 a tonne. If there is an expectation that the carbon price will rise over time, then this will transform the way that investments are made – people will invest in aluminium recycling instead of aluminium smelters, solar thermal plants instead of coal plants. A carbon price is required to transform our economy into a low-emissions economy.
The other reason I support the Greens’ proposal is that it is less vulnerable to rent-seeking that other approaches to a carbon price. What happened with the CPRS was that the government was trying to set everything (including the targets) in place without knowing exactly what would happen when a carbon price was introduced. Polluters took advantage of this uncertainty by bombarding the media and the government that the sky would fall in, jobs will be lost, prices will go up, etc. They had a huge incentive to do this because there were potential benefits from either reducing the carbon price (by weakening the targets) or getting more free permits. The Greens’ proposal gets around this problem by introducing a set carbon price first – that way, by the time that the government has to actually set the target, everyone will know that the impact of the $23 price would have been minimal, or even beneficial, so would not be vulnerable to scaremongering.
I will now address some of your specific points. You state that carbon taxes are always less effective than regulation, this is completely untrue. Sometimes regulations are effective, such as when markets fail, but regulations can be gamed as well – we have regulations for energy efficiency of buildings and appliances – and still continue to live in inefficient buildings and run high energy appliances. In order for regulations to bring about the same trasnsformation as a carbon price, you would have to have hordes of experts doing life cycle analysis of every single product to see which one is less emission intensive. It simply won’t happen. And there is absolutely no reason why you can’t have regulations as well as a carbon price when regulations are needed.
You state that carbon taxes are unfair. But you do not appear to realise that under this framework, a large amount of money raised from the carbon price will be transferred directly to low income households. The amount transferred to low- and middle-income households – almost half of all the money raised – is much greater than the amount transferred to emissions intensive industries. A tax that is levied on polluters and transferred to households is extremely fair – even Robin Hood couldn’t have come up with anything better. This is why you can build a movement on this proposal, and why the Liberals’ claim that it is a “great big tax on everything” is such a crock of nonsense.
You state that the Greens are proposing exemptions for trade exposed emissions intensive industries. They are not. Like the government’s proposal, trade exposed emissions intensive industries receive a certain percentage of free permits, but these firms still face the same carbon price as everybody else. They have the same incentive to reduce emissions as everybody else. The free permits are not at all ideal, but are worth less than the money transferred to households. They also do not effect the environmental effectiveness of the scheme – emissions are determined by the carbon price, and cap set (for cap-and-trade schemes), not by the amount of free permits. The fact is, there is no way that the Government would negotiate on a proposal that does not have something for emissions intensive industries, and no way that it will get through the Senate.
There is nothing wrong with demanding “new new coal”, and government investment in renewables and public transport. But there is no guarantee at all that approach would stop Australia’s emissions from increasing. The Greens’ proposal is a solution that would work. And a necessary part of what needs to be done to get emissions down.
We can see the effect that a carbon tax would have on different people using a simple example with three hypothetical people. We’ll call them lower income L, middle income M, and high income H.
L gets 20,000 a year, M gets 50,000 a year and H gets 1,000,000 a year.
Now we have a hypothetical set of goods and services that are requirements of life in the society and are produced using carbon dioxide emitting industries. The cost for all three characters is a fixed 10,000 a year that they must pay because it is a necessity of life.
In this situation L pays 50% of their income, M pays 20% of their income and H pays 1% of their income to survive.
Now, the government introduces a 20% carbon tax. The cost of survival increases by 20% to 12,000. L, M and H must each pay 12,000 to survive each year.
Now L pays 60% of their income, an increase of 20%. M now pays 24% of their income, an increase of 4%. H now pays 1.2% of their income, an increase of 0.2%.
The effect of the price increase effects the low income person, L, 100 times more than the high income person H.
So the effect is to place the burden on the working class people while the lifestyle of the rich is not effected. Hardly an equitable solution to the problem of climate change.
An equitable solution would be to raise money by properly enforcing income tax laws and closing all loopholes including negative gearing. The money raised is then directly invested in the renewable energy, public transport and urban planning required to solve the problem.
I made a mistake. L’s now paying 10% more. So L’s burden is 50 times more than H’s.
1. I assume the timidity of the Greens proposal is about having a soft start to not scare anyone off and to show that a tax doesn’t have to be painful. There are pros and cons to such an approach.
2. I don’t think because Alcoa would be exempted this proves that the Green’s plan is in favour of Australian capital. The question of exporting green house emissions is a genuine one that will need to answered by the movement. We may not agree with their choice, but their model could be expanded to include all polluters.
3. Regulation clearly works in many cases. Equally taxation works quite well too. There are a range of measures to fight climate change. There is a role for taxation and subsidies as much as regulation.
4. Regualtion can hit the poor just as unfairly as taxation. ‘The law prohibits the rich from sleeping under bridges along with the poor’
5. There are all sorts of ways to link taxation to funding programs. Red Ken in London went some of the way in London with the congestion tax. The money will no more go to the War in Afghanistan than income and corporate tax necessarily need to go to funding the military.
6. I would (always) support raising corporate tax. Unfortunately there isn’t a huge movement out there looking for that as a solution to the worlds problems nor is there likely to be, but a tax that targets polluters is a credible demand of the movement.
7. What on earth is your point about cigarette taxes? Are you for them being higher or lower? How would Solidarity regulate to reduce smoking? Are you even for stoping everyone from smoking? becasue that is an interesting postion for a socialist group to take.
In your example when the Govt introduces the carbon tax the tax will not be passed along at the full 20% to each of L,M and H.
Because lower carbon intensive industries are available (like switching to Gas or Hydro etc) the carbon polluters will have their profit squeezed unless they too switch to more energy efficent production.
This is just like when workers get a pay rise. The full value of their pay rise is not passed onto other workers because of the Labour Thory of Value.
Equally if L, M and H are given a subsidy or tax cut based on their income equal to the amount of tax passed onto them then the only loser is the carbon polluting company.
From memory, according to Frontier Economics, between 30 and 60 percent of a carbon tax would in the long term be passed onto consumers.
And of course, the rich do consume more energy/carbon in absolute terms than the poor, even if these expenditures are a smaller proportion of net income. Therefore, if the proceeds of a tax were redistributed on a per-capita basis, the tax would be redistributive. One way to do this would be a rise in the tax free threshold. An even better approach would be subsidies on alternative energy efficient products and especially those at the bottom end of the market, (and of course public transport, which in many cases could be made free, removing the need for expensive and inherently inefficient ticket sales and enforcement as a means of revenue raising)
Furthermore, regulation will also increase costs, and possibly more so than taxes for a given reduction, as compliance with regulations will raise the price of production. Unless there is very careful and detailed investigation of the cost-benefits of particular regulation, there is a risk that some regulation may reduce emissions only at a very high marginal cost. Further, it is very difficult (or insanely expensive) to place blanket bans on many polluting activities which are practically essential to a modern industrial economy- such as the production of steel through the coke fired reduction of iron ore. Further, it is a very difficult economic question as to whether some less polluting alternatives should be allowed or encouraged, such as small petrol burning cars or efficient combined cycle gas plants. In the short to medium term these alternatives may actually be far more cost effective in reducing emissions in some circumstances than zero or very low polluting options such as electric cars or photovoltaic solar panels. Without a real or de-facto (shadow) price on carbon, these sorts of calculations are practically impossible.
Hi Peter, & other I’ve been busy so its taken me a while to get back to this
To simplify, the issues I have with a carbon tax are
1.Its political impact: this is all about the Greens playing a negotiating role, rather than building the climate movement. It is demobilising. I think it comes from pessimism about our ability to build a movement. I also think this is intended, as Garnaut originally proposed it, as a step towards carbon trading (at the very least it blunts our attack against the CPRS). It is an attempt to find solutions acceptable to the powers that be, rather than call for what needs to be done.
2.Its unfair – getting a price high enough to work, would have massive social justice implications, and therefore is not possible.
3.It won’t work. Norway has had a carbon tax since 1991, much higher than the Greens are proposing, and emissions there are still rising.
I will take up a few specific points:
“Why is cost-effectiveness important? Because the cheaper the emission reductions, the more that can be achieved for a given amount invested.”
I think the focus on ‘cost-effectiveness’ or efficiency, (which is more often put as an argument for carbon trading), is mistaken. Given the scale of the crisis and the time we have what we have to be most concerned about is effectiveness. The cheapest emissions reductions are not always the most effective, and can sometimes put off the larger but more important changes such as the massive investment we need in large scale solar energy.
Peter also says
“everyone will know that the impact of the $23 price would have been minimal, or even beneficial, so would not be vulnerable to scaremongering.”
The $23 price has been set at a level which the Green’s hope won’t scare workers or business, its also at a level which would be ineffective. It would be passed on as much as possible to consumers, anything that was not fully passed on would be absorbed as a small production cost. If you are proposing pricing mechanisms as the method for dealing with climate change, where can you go but higher? People understand this logic. How do you win support for that? Tim Hollo from the Greens admitted at the climate summit, that setting a price high enough to make the emissions cuts we need solely through a carbon tax is a political impossibility.
I do realise that the Greens intend to compensate, low & middle income earners as was also intended with the CPRS, but given the Greens give no data on this I can only assume that they are using the same compensation scheme as with the CPRS, which is inadequate and leaves many workers worse off – for instance on the government’s own figures, a single person with no children, will be worse off if they earn more than $40,000, a fairly low wage
(Electricty price rises would also flow through to price rises of other goods, the modelling ignores this).
That means it is vunerable to scare mongering, and hardly something we can win active support for.
So for instance Barnaby Joyce said
“The ETS is a massive new tax,” he said. “The Greens coming out and calling this a carbon tax, well I’ll give them 10 out of 10 for honesty.”
Why should workers sacrifice anything? They haven’t caused the problem, those who have caused the problem, continue to reap massive profits – we should be taking this money from them to pay for the massive investment in renewables we need, but a carbon tax will not do that.
Peter says, trade exposed emissions intensive industries, don’t get exemptions, but “free permits” – “free permits” is still an effective exemption, but more interestingly “free permits” is using the language of carbon trading and the CPRS – do these become property rights as they do under the CPRS?
Peter says “There is nothing wrong with demanding “new new coal”, and government investment in renewables and public transport. But there is no guarantee at all that approach would stop Australia’s emissions from increasing “
Australia’s emissions are not just down to coal, so we need to do more than stop coal, but unlike the Green’s carbon tax, legislation to ban new coal-fired power would actually stop new coal-fired power.
In reply to whoever wrote
“I think this article is rather simplistic”
Yes you are right, that you can have bad regulation, and good taxation, but that doesn’t deal with the specifics here. What we are talking about is bad taxation, much like a GST – politically it is backing away from demanding what actually needs to be done. We aren’t in the position to win everything we want, but demands for “no new coal”, and for renewable energy including concrete projects like the Mildura solar power plant, will help build the movement, demanding a carbon tax takes us nowhere.
Norway has had a carbon tax since 1991, its $65 per tonne of carbon, and emissions have risen by 15% (& some reports say as high as 43%).
Even the “good effects” of the carbon tax in that article amount todesign changes to fossil fuel industries, rather than forcing the wholesale switch to renewables and electrified public transport based on renewable energy, that we need.
I have heard various people refer to the Greens proposal as a ‘circuit breaker’ or a way to “take the heat out” of the politics, but if we are going to get solutions we need to turn up the political heat, not turn it down. The problem of getting real solutions to climate change is the power of corporations who don’t want to act, doing deals or proposing things that may be acceptable to them won’t work – there is no way around building a movement that challenges their power, either we do it or we fail.
Did the tax Carbon tax impinge on worker’s living standards in Norway? Because it looks to me like you are having a bob each way with your argument. You argue that the Green’s carbon price will do nothing because in Norway a higher price has done ver little. Yet at the same time you argue that the price will impinge on Worker’s living standards. So did the price impinge on worker’s living standards in Norway or not?
As for the argument about a tax campaign being vulnerable to a right wing critique I think this is an odd thing argument to be coming from a Socialist Group.
We have just seen a huge camapign in the US against Obama’s (weak and lousy) Health Reforms. Part of this argument has been that it will cost (tax) workers more.
Now we all know that this is untrue, but clearly a lot of workers in the US have accepted this argument. In Australia a scheme to have a medicare type levy for dental care has been floated. This too is being attacked as a tax on workers. Are Socialists going to oppose these types of schemes because the right will critique them? Will we be unable to get support for this scheme because of Barnaby Joyce and Tony Abbott?