While there has already been some discussion on this thread of Garnaut’s latest report, updating his thoughts on emissions trading, there is merit in summarising his position separately. Go here for summary and download. The main features of his proposals are:
- An initial fixed price on carbon pollution of $20 to $30 per tonne
- An escalation factor of 4% each year
- Introduction of a trading scheme in 2015
- Establishment of an independent regulatory authority like the Reserve Bank to oversee the scheme and decide future compensation to industry
- The most trade-exposed industries would receive 90% free permits initially, with 60% for a second tier of industries. Assistance should be withdrawn once harmonised global pricing is in place
- Of the funds raised (about $11 billion) half should go on tax cuts to middle and lower income earners and to increases in welfare payments
- 27-28% of the revenue should go to emissions-intensive, trade-exposed industries
- About 15% of the revenue should be used for carbon farming to create the equivalent of a new wool industry for the rural sector in carbon offsets
- There could be a one-off increase of about five to seven cents a litre of petrol, perhaps moderated initially by a one-off reduction in petrol excise
- $2-3 billion should be spent on short- to medium-term support for innovation in low-emissions technologies, to address market failures and lower the costs of transition to a low-emissions economy
Garnaut links the tax cuts with the Henry tax reform proposals, seeing the tax cuts as improving productivity. The article in The Australian points out that if Abbott wanted to unpick the scheme he’s have to take the tax cuts off people.
Garnaut was scathing about the main alternative approach on offer. For example in the Radio National coverage:
SABRA LANE: He doesn’t mention the Coalition by name but he certainly talks about direct action methods to tackle climate change involving government regulation which is the basis of Tony Abbott’s climate change alternative.
The professor says this type of regulation is tantamount to central planning and those words are key words used by communist economies. He says quite bluntly he says this direct action wouldn’t assure the least cost abatement. It would be more expensive and therefore likely to lead to bigger taxes on households.
He also says that government regulated schemes lead to more intrusion into private decision making of companies. And he says that it would involve a regulatory mire surrounded by all the political and economic interventions that gave Australia eight decades of the lowest productivity growth of all developed nations. So he’s not sitting on the fence there Ashley.
From this article by Lenore Taylor at the SMH:
The Climate Institute said the annual increase in a carbon tax had to be far higher than the 4 per cent proposed by Professor Garnaut, more like 10 per cent, to give a sufficient signal to investors.
The Australian Industry Group said companies needed the full level of compensation offered under the final CPRS and industries such as food processing and plastics needed to be included in the compensation scheme.
This week also Dr Frank Jotzo of the ANU Centre for Climate Economics and Policy issued a report that broadly supports the Government approach.
the Government’s decision to pursue a carbon tax followed by an emissions trading scheme should keep the economic impact of introducing a carbon price manageable.
The beauty of the approach that’s on the table now is that you can start with a moderate price and demonstrate that carbon pricing doesn’t mean any kind of economic catastrophe or anything like that.
So economic impacts, business impacts, will be manageable and we can ramp up from there.
Jotzo said the price needs to reach about $60 per tonne by the end of the decade.
It seems to me that 4% per annum gives a doubling of the price over 18 years, which is well within the life span of a power station. Garnaut is carefully pitching the carbon price at a level which will drive investment decisions but be least disruptive to the economy and its competitiveness.
Elsewhere:
Initial coverage by Lenore Taylor at the SMH
Adam Morton at The Age
The remaining Garnaut update papers
PS: I meant to highlight Garnaut’s comment on the climate change debate, from the Radio National link:
ROSS GARNAUT: The evidence from the science is stronger than it was two and three years ago.
Much of the raucous discourse surrounding climate change policy in Australia today is there because quite a few Australians including some prominent Australians don’t think climate change is real.
There is no point in covering up the truth. We are living in an awful contest between knowledge and ignorance. (Emphasis added)
Brian,
Thanks for the post. Garnaut continues to impress me.
On support to export industries, Lenore Taylor writes in the SMH:
Taylor is usually pretty good, but she has this wrong. If the “wind back” reflects industry’s disadvantage against international competitors then it will not send jobs overseas. It is designed to do precisely the opposite.
This is all economistic chewing gum policy making, really. The real game does not start until it becomes obvious that people and industry will not change their habits until there is clear guidence on what actually needs to be done.
So here is a little positive guidence starting suggestions.
1 Change the fringe benefit tax structure to encourage governemnt departments and businesses to buy fuel efficient small vehicles where the vehicles will be used predominately to transport one person.
2 Establish a programme to encourage the refurbishment of older buildings rather than “knock down and rebuild”. Discourage oversized houses.
3 Enhance the uptake all Electric Vehicles.
4 Require shopping malls to operate subsidised or free shuttle busses for their mall’s local area to encourage people to leave their cars at home. Such a shuttle service would have a call feature and a “your door” or “your street” drop off. Such a service would be in the interests of the mall tennants, and would break down the “hub and spoke” nature of public transport.
5 Run a high profile national (annual) energy efficiency innovation programme/contest. (along the lines of the Cafe Foundation Flight Efficiency competition funded by NASA and Boeing, the green flight competition coming up soon).
6 Provide tax incentives (goodness knows how to make that work but that is what innovation is all about) for car pooling.
7 Anyone else got some citizen assembly ideas?
Oh yeah,
8 I think that there should be a nominal carbon tax applied to imported goods from countries which do not have such a tax yet applied. This would reduce the advantage for countries intent on taking advantage of Australia’s new internal cost increase.
9 Commission a study to examine the barriers to “door step” commerce. There are many businesses that can operate very efficiently from the extra bay of the 3 car garage. Businesses such as tax accounting, hairdressing, mower repairs, electrical repairs, custom cake making, floristry, child minding,,,. In many cases these things do go on but quietly. In the interests of reducing the dependence on cars and centralised shopping malls a rethink of the multi function nature of property ownership might make a far more efficient community, and a more colourful one.
An example of centralised commerce providing poor performance comes from our local rail station where a vendor tried to operate an early morning coffee service for early bird travellers. The local shopping center put an end to this despite the fact that they were not open during the early morning or evening peak hour commuter flow. Bad business.
Our attitude to commerce needs a shakeup. It has become uncompromisingly rigid to the extend of being unworkable in many ways.
BilB@4,
Should Garnaut also do something about the price of milk while he’s at it?
Garnaut to replace Bitar in the ALP.
Imagine the consultancy fees saved.
I’m sure Combet and a number of others said “All the revenue raised” would go to compensating families”.
Or, were they mishandling the truth?
Razor @7,
Your memory deceives you. Nobody in the government ever said that.
Unless you include the “family” of emissions-intensive export industries, etc…
9. My lying eyes must be deceiving me because I have seen that promise made on a number of different news programs
Razor,
Yes, your eyes are deceiving you too.
Do not be alarmed. This is a common side-effect of a mild neurological disease known as “mindset” where you hear only what you want to hear and recall only what you wish to recall.
Ain’t no way to hide his Lyin’ Eyes (apologies to the Eagles)
“Every dollar that is raised by the payment of a carbon price by the companies that are emitting large amounts of pollution will be used towards supporting households, with a particular emphasis on pensioners and low-income households,” Mr Combet said.
link
I & U said:
And me too. I saw him on Lateline with Tony Jones last night, and he was impressive in the face of animus from Jones.
While I don’t agree with all of his sketched outline — I’d like to see no compensation at all to industry and have about 75% or so go towards various forms of compensation to low and middle income earners; I’d like a much higher price and of course I’d like subsidies to go — his command of his brief is strong and quotable.
I found his handling of Tony’s objection to compensation to low income householders — “they’ll be accusing you of socialist redistribution” — “if a tax cut is socialism a lot of people will favour socialism” — very snappy.
Razor and Grigory M
As far as I can make out, that 7 news report is from the press conference whose transcript includes the following excerpt:
The emphasised clause seems to have been edited out of the report (maybe he said it in a really quiet voice) and that seems to be what has confused Razor.
In fact I & U, (precisely because I have continuing concerns about polluter subsidies) I have listened very carefully to Gillard and Combet, and I have never heard them describe the policy without mentioning the industry assistance (and usually an “innovation fund” or some formulation in which money for direct abatement/clean energy measures comes in.)
So those advocating a carbon tariff happy to pay one when we export to Europe and NZ?
Fran,
I don’t like compensating polluters either, but I can see the argument that if you don’t, they will just relocate offshore.
The question is, how much compensation do they need to stop them doing this. Probably much less than is currently proposed (the Grattan Institute had a look at this and concluded that most industries required no compensation at all).
Hence Garnaut’s “wind-back” suggestion (see @1 upthread) which I support.
I & U said:
In practice I regard that as either unlikely or where it isn’t, desirable.
I’d favour a BTA in cases where an imported good had a higher CO2 intensity than a locally made good (and only to the extent of the differential.
“Garnaut insisted the Coalition’s Direct Action plan would be more expensive for households and less efficient in reducing emissions, a throw-back to Soviet-era central planning. He said this was in no way partisan because he (the professor) had been advocating free markets back when the Coalition had also believed in them and it was the Coalition that had changed its mind.
I laughed so hard when I read this – comparing the Coalition’s ‘direct action’ to communism/socialism would be particularly galling for them and hammer home the fact that a market mechanism ‘should’ be their preferred method.
Garnaut = impressive
Razor 7/9,
Your wrong. You’ve been wrong fro a very long time. Get used to it.
@19 – I’ve been wrong quite often, as we all are, and I am happy to be corrected by the facts, however on balane I a pretty sure I am right a hell of a lot more often than not.
[Razor - this comment got held up in automod because you had a typo in your email address - you've dropped that 't' a few times lately - just take a moment to check it and you'll get straight through as usual ~moderator]
Razor, on this one you are definitely wrong in terms of the reports on ABC radio. I’ve hears Gillard and Combet numerous times. Their story is always word perfect, mentioning three uses of funds raised, compensation to households, compensation to industry and climate change programs, usually as Fran says in the form of innovations.
It all sounds like a re-run of CPRS to me. You start with what looks like a simple idea. The program gets more and more complicated as you work through the the practicalities and try and placate noisy lobby groups. The result is going to be a complicated taxation system that will be hard to explain and easy for someone like Abbott to attack.
The problem with the homework that has been done to date is that it starts by assuming one alternative is the answer and doesn’t do the homework for the alternatives at the same time. It reminds me of a dysfunctional behaviour pattern that that I have seen in commissioning teams that aren’t getting enough sleep. Ideas are pursued sequentially instead of in parallel so, unless you are very smart or very lucky it ends up taking much longer to resolve problems.
I guess what makes me uncomfortable is that what is happening is driven by an hypothesis that it not being tested. My background says that scientific method is the way forward and that the carbon price hypotheses should be tested by comparing how well it would work compared with alternatives for specific cases.
John D, Garnaut in general is even more pro-market in his orientation than any of the economists who have attacked you over your advocacy. That’s my impression.
Elsewhere, on Friday in the AFR Laura Tingle said Windsor is the key figure in deciding what happens in the multi-party committee. Today Windsor had a very favourable reaction to Garnaut’s scheme, saying that you could see real effects on real people, advancing the argument beyond the words “lie” and “tax”.
John D,
“You start with what looks like a simple idea. The program gets more and more complicated as you work through the the practicalities and try and placate noisy lobby groups.”
Do you think experience under your direct action idea would be any different? That is the intrinsic nature of major economic reform.
Except, perhaps, with your suggestion, you start with what looks like a complicated idea.
You should realise that the hypothesis that market action is more efficient than government intervention has been tested many times in many different markets and many different economies. I have seen your government procurement ideas flounder in many different electricity supply industries. I have seen markets flounder too, of course, which shows that you must get the market design right.