In reaction may I suggest that a workable system might look like:

A tax on carbon content, the accruals for which are held in an insurance stuctured fund. The rate of the tax is variable over time to allow for a changing environment. This is a 2 way variability.

An insurance fund has a number of advantages. Firstly it is separated from government general revenue. Secondly it becomes a pool of funds that would be investment managed but specifically for environmental outcomes such as bio fuel production, solar energy production, reseach and development of environment solutions. Thirdly it would be the basic fund for disaster relief.

Properly managed such a fund would eventually achieve a balanced national carbon cycle which should in the longer term minimise environmental damage, and eventually eliminate itself.

This would allow government to concentrate on policy free from political tourmoil driven by competing views. It would also guarantee availability of funds for projects aimed at reducing carbon emission impacts. Such a scheme would still allow limited exemptions for public interest critical situations.

Such pathways are more an artefact of how they are modelled than what may occur in the real world. As many have said, the McKibbin-Wilcoxen blueprint is totally based on the cost of abatement/offset with non-market and future generations absorbing the risk of being wrong (a risk with a very high probability with a scheme based on short-term pricing hoping to solve a long-term problem).

All schemes need to factor in the benefits of avoided damages. We have shown that a full risk assessment taking in the range of plausible outcomes, factors in higher damages costs/avoided benefits than single, monotonic cost-benefit assessments. If triple bottom line damages are assessed, allowing for social and environmental damages that cannot easily be costed, then that suggests an upfront investment that is higher than the direct economic damages cost is warranted. This is consistent with Stern, but the model structure and line of reasoning was somewhat different.

The really hard to cost aspect of climate change damage are the costs of climate variability and extremes, and of singularities like the potential irreversible meting of the Greenland Ice Sheet. If more of those damages, combined with better knowledge of the rate and magnitude of climate change and its impacts come about, then the price of CO2 and other greenhouse gases will turn from a push price to a pull price. Demand for abatement would come from sectors now and in the future from regions and sectors that anticipate their limits of adaptation may be exceeded. Anticipation of such future demand requires insurance.

My hunch is that the pull price (demand) for mitigation services will exceed the push price (perceived cost) within a decade. A hybrid scheme combining tax with permits might be useful. Permits designed to foster technological learning and innovation could manage a discretionary proportion of the market, whereas a tax could act as an energy consumptions tax. Some of the recent rate hikes might have been better as carbon consumption taxes, which would serve to limit demand in an overheating economy. Proposed tax cuts could target the vulnerable who would lose out as higher prices flow through to consumers, as an equity measure.

Tax revenue so gained could also be used to fund public good adaptation to climate change such as in the environment (The Social and Environmental Future Fund!!!), whereas permits, properly designed could help drive technology as it seeks to make mitigation cheaper.

Politically, much of this is totally non-viable, because new taxes are anathema. Government revenue is also seen as a trough to be dipped into at election time. Despite this, any viable scheme needs to be able to manage both supply and demand, while anticipating a steeply rising carbon price based on perceived damages in future (much more likely than us suddenly finding that climate will be benign and of little consequence â?? the evidence is increasingly pointing the other way). Abatement that is cheaper than demand for reduced damages can ratchet up to meet such demand. I think this is a likely scenarios and should be explored to determine its viability as rapidly as possible. Successful implementation of such ideas in a few countries would spread very widely, very rapidly.

How hybrid schemes (tax and permit) could avoid free rider problems and significant leakage Iâ??m not sure. They do involve linking both market and non-market values into a larger risk management framework, instead of a three way collision between economic, environmentally and socially constructed frames of reference. For “bank and borrow” to work it would have to anticipate the dynamic above.

I think that’s as far as I’ll try to go with my rusty Deutsch.

I’m not entirely sure what this is supposed to mean, but my supposition is that Esperanto is perceived as incapable of rendering an adequate translation and/or that the result is still only gobbledygook. If this is so, then ‘Quel hogwash!’ – as the French might say (if they knew enough English)! I wish your very own Australian Esperanto-speaking diplomat Ralph Harry could rise from the dead and come back to haunt you for such a statement:
http://www.smh.com.au/articles/2002/10/23/1034561547232.html
He seemed to think that Esperanto was perfectly adequate for international treaties, and even once proposed it be used as the sole documentary language at the UN, thus saving enormous amounts on translations.

The council abandoned the scheme and quietly bought 1500 parking meters from overseas. My electronic engineering friend went on to make regulated power supplies for Telstra (2000 amps per phase) and at the peak was turning over 100 million dollars a year employing 470 people (that is by way of saying that our ability to design and build the meters was proveable).

The moral of the story is that, in general, people will only buy what they need when they need it. The notion that average businesses are going to buy carbon release futures is typical politician BS. And the idea of a carbon stocks exchange….well. Trading in sharre is such a natural thing for the administrators of successful enterprises to participate in, but it is not Bill on the street stuff. Most people are struggling to pay their mortgage and their cell phone bill in the same month let alone plan their future carbon useage. The only way that carbon useage deterent will work is to apply a tax to it that is included in the cost of the carbon containing goods. You want to park? put the coin in the meter, you cannot afford $2 per hour, move a little further out to $1 per minute. That is a deterent at work. That is what will work. There is only one currency.

Churn. It’s probably a waste of money and effort that could better be used elsewhere.

Huh? Why is it churn? I think you misunderstood what I meant. I didn’t mean tax with one hand and give back with the other. I meant the government could afford income tax cuts (preferably at the bottom end) if it had a new revenue stream, namely a carbon tax.

So? If it doesn’t produce the desired result, then raise the tax, and give the proceeds back as income tax cuts at the bottom end.

Churn. It’s probably a waste of money and effort that could better be used elsewhere.

However, it seems most emissions trading schemes are full of holes, begin with over generous allocations, and only include the electricity generation sector. In short they don’t work, and if John Howard has any say in designing an emissions trading scheme, you can be damn sure it won’t work.

Sure, but remember, Howard doesn’t think climate change is happening. Nothing he proposes will work. A complete package of caps – an absolute maximum of all emissions – needs to be determined. This is because the results of doing nothing are not just economic results. This isn’t like raising interest rates to stop inflation. If you get that wrong, the worst that happens is that you get a recession – which is important, and should be avoided, and nowhere near as serious as what appears to be the results of letting too much carbon dioxide (and methane) into the atmosphere.

BTW, living in a big house with a big car in the outer suburbs is probably an unsustainable lifestyle choice. A carbon tax would put a price on this lifestyle that is currently borne by the environment.

True, but as progressive types (and I’ll out myself here as a member of the Greens) it’s incumbent on us to consider the people who are living in the outer suburbs (I’ll leave aside the big house/car for a moment). Look at the income spreads – the further away from the city you live, the less wealthy you are. Carbon taxes mean that the richer people (who, more or less by definition can look after themselves) aren’t required to change their way of life, but the poor are screwed.

I’m not opposed to taxing carbon, by the way. I think it’s an essential part of the need to reduce emissions of carbon dioxide. The problem is that taxation, by itself, doesn’t automatically mean that emissions are reduced. An absolute limit needs to be set too.