The Garnaut Climate Change Review 2011 Update may be downloaded from here. The best summary I can find is at Crikey.
One highlight is that 55% of the revenue from an initial carbon price, which Garnaut would see in the $20-30 range, would be used for compensating households, principally by raising the tax-free threshold to $25,000. For higher earners, however, this would be partially offset by changes to taxation thresholds.
Garnaut also throws in another political hand grenade by suggesting a significant reduction in transfer payment compensation to groups such as pensioners over what was proposed in the CPRS, to reflect the pension increase since then, and the fact that welfare recipients were over-compensated under the CPRS.
Emissions-intensive trade-exposed industries would receive assistance, but this would be scaled back over time on the recommendation of the independent agency he would establish. We do have to be cognisant of what other countries are doing, but Garnaut has no patience with lazy rent seekers.
The institutional framework for managing the whole scheme is considerable and worth repeating:
- a UK-style independent committee to assess “national targets and scheme caps; progress towards meeting targets; the switch to a floating price; and expanding coverage of the scheme”, with the intention that the committee makes recommendations to government — for example on strengthening the national emissions target — and government being required to explain why it will not carry out the recommendations. Its first review would be to consider what target Australia should adopt after the initial phase of the scheme is completed; until then, Garnaut says the current target of 5% by 2020 or higher, depending on international agreement, should remain in place;
- an independent economic consulting agency to assess the level of compensation for trade-exposed, emissions-intensive industry, intended to be like the Productivity Commission or form part of the PC;
- a specialised Carbon Bank to independently operate the scheme;
- an Energy Security Council (which Garnaut recommends regardless of the move to a carbon pricing scheme) to oversee the introduction of a carbon price in the electricity generation sector;
- a Low Emissions Innovation Council to oversee research, development and commercialisation of low emissions technology.
A $26 price would yield $11.5 billion initially. About 10% would be set aside for innovation and 10-15% for carbon farming. There would be a one-off cut in petrol excise to offset the impact of a carbon price on the price of petrol, but petrol would be included in the mix.
Garnaut has spoken, it’s now over to the politicians.
The Australian’s coverage is worth a read.
Paul Kelly sees the contrasting views of Labor and the LNP as “a clash of culture, economics and ideology with huge consequences for Australia” and “an ideological and political conflict of rare intensity”. He sees Garnaut’s report as “an intellectual repudiation of Tony Abbott’s position.”
Garnaut mocks the idea that Australia is moving ahead of others and brands this aspect of the current debate as “extraordinary”. He says: “When you next hear someone say that he is worried that Australia might get ahead of the rest of the world in reducing greenhouse gases, take him by the hand and reassure him that he has no reason for fear.”
Other nations are “already too far ahead” and Australia’s risk, contrary to the popular debate, is being “a drag on the global mitigation effort”. The carbon price, however, gives Australia the chance to catch up with other developed nations and reduce emissions at lower cost. He backs an initial price of $26 a tonne as consistent with Australia’s bipartisan 5 per cent reduction target at 2020 and judges that by 2015 the shift can be effected to a floating price.
The Age picks out Garnaut’s emphasis that “the political battle over a carbon tax as a fight between an old political culture of special interests and the national interest.”
We are not a pissant country without influence in the world. What we do matters.
THE climate adviser, Ross Garnaut, has lashed Australian business for playing a ”spoiler” role in the carbon price debate, saying it is putting short-sighted ”self-interest” ahead of the national interest.
He singled out the Business Council of Australia and its president, Graham Bradley, the BlueScope Steel chairman Graeme Kraehe, the BHP Billiton chairman Jacques Nasser and the LNG and coal industries, and accused the business lobby of sliding back to a pre-1980s anti-reform culture that had left Australia with ”the worst productivity in the Western world”.
Radio National’s PM had three segments.
In the third we have Abbott pathetically cherry-picking a line from page 17 of the report to support his policies. The second says that the report seeks to reclaim the economic reform mantle which began with the Hawke-Keating reforms, seeing the business lobby fighting the carbon price as a return to the anti-productive political culture that prevailed for much of the last century.
Update: Tim Colebatch at The Age.
Peter Martin posts Garnaut’s speech at the Press Club.
a few typos – the price will be in the $20-30 range , the tax free threshold will be raised to $25,000.The proposed price is $26 etc.
Is this a glitch from the new format though?
Thanks, murph. Fixed, I think.
It’s just a problem of me writing stuff when I should be in bed!
Peter martin has a very long excerpt: http://www.petermartin.com.au/2011/05/garnaut-final-report.html
how do you like the Age’s headline “we’re not pissants!” Now I’m going to have to check the etymology of that word,
I do like Garnaut’s line of; “We’re not a pissant country”.
I find absolutely repugnant the line that we should do nothing because we are only responsible for about 1.4% of emissions. I think it was Garnaut, although I’m not sure, who’s pointed out that id every country in that range pulled its weight, there would be a considerable change in emissions.
Abbott was desperately dishonest in picking out one line. He absolutely refuses to debate in an honest and rational way. What a disgrace.
Now, will the government actually put forward a meaningful price, or will they squib it? My feeling is that they have to do the former because of the Greens and the Independents. If they can actually introduce a carbon price by July 2012, then a lot of the heat from the issue will have dissipated by the 2013 election, imo.
Reading the comments on the two Age articles was an exercise in depression.
Reading the first linked Australian article was an exercise in blatant denial.
@5 wilful & @6 kymbos
Not reading either of them was an exercise in good common sense. I will read the actual review and form my own conclusions.
Unless I’ve completely misunderstood it, the bit you quote from Paul Kelly is the most sensible thing he’s written in about the last 25 years. Maybe there’s some hope for him after all.
“If they can actually introduce a carbon price by July 2012, then a lot of the heat from the issue will have dissipated by the 2013 election, imo.”
Agree. If they hold their nerve, Abbott will lose this issue. Then he will discover he should have been working on plan B all along – ie, developing some policy.
Oh noes, Lefty. You can’t expect Abbott to develop policy. The PMship should just fall into his waiting arms.
Tony should have said that his quote was from page 77, not 17.
David @8,
yes, Paul Kelly’s piece was the best I’ve read from him for a long time. The other Australian piece Brian linked to was from their environment reporter and he said international reactions from France, Japan and Canada at the G8 meeting had sidelined Garnaut’s report. Not so – he was spinning madly.
Nice post, Brian.
I think what Garnaut’s review illustrates is that very little of importance to Australian public policy on this has changed since the original review – indeed, since 2005 or so. The world needs to reduce emissions substantially. Australia needs to play its part. The most sensible primary policy response is carbon pricing.
I have to admire those who manage to keep making the same points in these debates, year after year, in response to the same self-serving rubbish and deluded crap, long after any sane person would consider the questions settled and would have hoped that we could move on to the many other pressing problems the world faces.
No mention of compensation for small business.
I could happily have quoted Paul Kelly’s whole article. Many of the comments on the article are incredibly stupid, regrettably. Here’s another bit I particularly liked:
I wondered whether $4.6 billion would be enough to pay for a lift in the tax threshold from $6000 to $25,000.
It won’t, according to Brian Toohey in the AFR. Nowhere near. A senior economist who used to work for Treasury said on a non-attributable basis that it would cost about $34 billion.
The lift in the tax threshold was recommended in the Henry Review and was to be partly offset by a flat rate of 35% between $25,000 and $80,000. This would require 2 million workers between $15,000 and $37,000 to pay a marginal rate of 35% rather than 15%. (That doesn’t make sense. Those between $15,000 and $25,000 would pay nothing.)
I don’t imagine the Govt will be that brave. Certainly not outside a complete taxation review.
The Govt has yet to declare how the compensation would be paid. Toohey thinks they will probably stick to an earlier plan of increasing the Low Income Tax Offset (LITO).
It is worth asking what the effect of a top of the range $30/tonne carbon tax would be:
- the price of power would go up by an average of 3 cents/kWh
- The per capita tax take would be $15/week if all emissions were included. (@26 tonnes CO2/yr)
- In the short term the total fuel consumed by cars would drop by by 1,4% in the short term rising to 3.4% after a number of years. These figures correspond to a tax per tonne CO2 abatement of $2100 dropping to $900/tonne. The effect of this on total emissions would be negligible.
- In the short term power consumption would drop by 4.5% in the short term rising to 9% after a number of years. These figures correspond to a tax per tonne CO2 abatement of $444 dropping to $222/tonne. The effect on total emissions would be half the reduction in power consumption.
In theory, the tax would be high enough to spur the replacement of coal fired power with gas fired (CCGT) power. However, potential investors in gas would be concerned that Abbott might drop the tax or the tax (or ETS permit price) may rise to levels that are high enough to drive the replacement of gas with renewables long before their investment has paid for itself – probable outcome is little serious investment above what is already being achieved by the MRET system.
Can anyone identify tangible, significant action that may result from the Garnaut plan?
As things look at the moment, Gillard will go into the next election with less tangible climate action for two terms of Labor government compared with what the coalition achieved in the last two terms of the Howard government.
The irony is that lifting the MRET target to 50% would go close to achieving the 2020 target with no tax and power prices ramping up by about 2 cents/kWh by 2020. But I guess the government would prefer all the pain of the Garnaut system to using a Howard initiative?
John D,
Didn’t the Rudd government implement the MRET 2020 target (raising the target for renewables from 10% to 20%)? So that, by itself, would be pretty similar in magnitude to what the Howard government achieved?
How are you working out the cost of moving from a 20% to a 50% MRET target? I would have thought 50% renewables by 2020 would be all but unachievable. Certainly, it would be very expensive.
Brian,
“Garnaut rejects the political view that Gillard Labor is “weak and lacks long time horizons” and finds instead that it is cast in heroic mode and “has taken on the most difficult and long-dated policy reform that has ever been attempted”.
That accords with my view that Gillard is more strategic than people (notably on this blog) give her credit for. Not just on carbon pricing but also on education and (to give her the benefit of the doubt) on welfare reform.
Gillard’s comments at the Minerals Council do yesterday were cringeworthy. Moments like these remind me how happy I am that I declined to preference either party.
Incurious and Unread:
Exactly. If you add the NBN, health etc a picture very different from the MSM meme emerges.
The way I see it, Kevin 07 set a three-term agenda of reform which we are in the middle of. There is no need for Gillard to dream up separate and new visionary schemes. She’s got plenty on her plate to go on with, and I think that she for one realises that.
Incurious and unread: it’s at the very edge of technical feasibility, let alone political.
Brian,
Agreed. It’s gonna take 3 terms, so she has to win the next election.
So, Fran, cringe all you like. It’s not about you. It’s not about the mining plutocrats or even about Gillard. It’s about Labor staying in power and seeing the policies through.
I&U said:
I’m not sure that it contributes to that. It simply emboldens them to fight harder. It cost them just $22 million to remove Rudd and he had more authority than Gillard.
Fran,
An iron fist in a velvet glove.
It is not about how the miners perceive Gillard (which I don’t think will be changed by a bit of insincere fawning anyway); it is how the voters perceive the miners and Gillard’s treatment of the miners. The miners cannot buy votes; all that they can seek to buy is persuasion.
Notwithstanding the merits of the RSPT, Rudd’s treatment of the miners was pretty shabby: springing a new tax on them with no consultation in the hope of diverting attention from his other failures (ie CPRS) and gaining some cheap popularity by attacking rich foreigners. I think the electorate saw through this opportunism which was why the tactic backfired (of course, the $22m helped too).
Rudd vs Gillard: tactics vs strategy. I know which I would back.
@25 – the sum of the outcomes of the tactics make the strategic outcome.
I have a long term strategy of being a billionaire – haven’t quite got the tactics working yet.
Razor @26,
I don’t think you have a strategy. You might have an objective or goal, but those are not at all the same thing.
Your wording gives you away: one does not have a strategy of being something, one has a strategy for becoming something.
I’m aware of Sun Tzu’s dictum, I&U:
Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before defeat.
I don’t see Rudd or Gillard as possessed of anything but tactics, more’s the pity.
I’ll concede the substantive point, without shedding a tear for the mining thugs, who have no claim at all on fair dealing. It would have been far better for Rudd to have released Henry as “food for thought” in December, and foreshadowed “a dialog with all the stakeholders with a view to establishing a framework for all Australians to share the anomalous and windfall revenues associated with the drawdown of Australia’s limited reserves of mineral wealth“. That, he could have specified as a 2nd term project (when the senate would have been friendlier). Without a clear object to fire at, and everyone tied up in complex negotiation, the broader issue could have faded to grey, punctuated only by motherhood-style statements.
Rudd’s tactics sandbagged the government and handed these voracious parasites an ill-deserved victory –$60bn over a decade, and they actually went within a few votes of total rout and $100bn down the tubes.
This is the repulsive coterie to which Gillard is sidling up as supplicant in the run up to negotiation over a CO2 price. Now there is whispering over a price $8 below Garnaut.
There are worse things than this wretched government being defeated in 2013. There’s always the possibility that good policy could be sandbagged a second time. It would have been better if she’d been plain and simply made clear that while the government would evaluate their “input” in the light of wider policy, they, no more than any other privileged sector of Australian society, could not expect favourable treatment. In the end, it was, after all, the government, rather than organisations such as theirs, who were responsible for ensuring that policy served the Australian people.
A couple of accounts of Ross Garnaut in Adelaide last night, both from the same source.
The first is from a (sane) parallel Earth
http://adelaideclimatenews.wordpress.com/2011/06/01/garnaut-sparks-riot-on-parallel-earth/
The second is a more straightforward what-was-said.
http://adelaideclimatenews.wordpress.com/2011/06/02/garnaut-in-adelaide-the-straight-dope/
Comments and questions welcome
i like garnaut. seems to have a sense of humour and is always happy.
to the business industries offer of $10/tonne, he should have replied: “tell ‘em they’re dreamin’”
i’m not sure the gov will go with his suggested $26/tonne, i’ve heard rumblings of $17-$23, so maybe they also won’t go the full $25k tax free threshold either… something like $16k?
According to the AFR state-owned generators are insisting on compensation for scaling back electricity production from coal-fired power stations. Qld and NSW say this is non-negotiable. Qld, for example, owns $5 billion worth of such assets.
Private generators are talking of losses of hundreds of millions of dollars to the bottom line and possible bankruptcy.
Garnaut leaves them out in the cold. The Greens traditionally have had little sympathy with owners of such “stranded assets”.
It will be unsurprising if final deal from the multi-party committee makes concessions in this area. Personally, I have no opinion.
I dunno – I reckon the real cultural clash between the government and opposition is between those whose culture demands that they do something in the hopes of retaining government, and those whose culture demands that they try to stop that something – whatever it is – in the hope of becoming government. Both are united in a common ideology of “whatever it takes to get/keep our bums on the Treasury benches”.
As it happens the “something” in this case is a Good Thing. But it is not always so.
Brian @16, that $34b is about right for the GROSS cost to revenue of lifting the tax free threshold by another $19000 (the rule of thumb is roughly $2b per thousand).
But as the lift would replace the Low Income Tax Offset and would massively reduce expenditure on other tax
lurkscredits available for low-to-middle income taxpayers (Senior Australians Tax Offset, Beneficiary Tax Offset, superannuation co-contribution, etc) the NET cost will be far less than that (sorry, I haven’t got the info to hand that would let me guesstimate how much less). Plus you will get some behavioural effects (ie people not being so keen to minimise their income) that will further reduce the net cost.I&U @18: I used the 1/6 LREC credit price ($40/tonne) to estimate the MRET price. May actually be on the pessimistic side given the speed at which the cost of renewables is dropping. I can see no reason at all why 50% renewables could not be reached by 2020 if we got off our butts and got on with it.
The point I was really trying to make that the MRET is an emission trading scheme that is just as effective as the CPRS at driving investment in clean electricity while requiring much much lower price increases. (This doesn’t mean I dont think contracts for the supply of clean electricity make even more sense.)
If we had a vaguely competent opposition they would be crying the advantages of MRET (or a more direct approach) over the carbon price for driving investment in clean elecrticty.
Brian @31: Part of the problem with using clumsy systems such as carbon taxes and emission trading schemes to drive changes to the power industry is that they do not provide the mechanisms required to manage the transitions. As the market for dirty power decreases there will be a price war that may force some power companies to bankruptcy before there is enough clean power available to take over the lost capacity. There is an additional risk that the generators that go out of business will be the ones with the best response to rapid changes in demand while the slow response base power generators remain viable.
Contracts for the supply of dirty electricity and standby may be required to help manage some of the transitions. Most of all we need a transition plan in areas as complex as power generation.
Garnaut said that no manufacturing jobs would be lost as a result of his recommendations on a carbon price. But he also said this:
Scary!
And this is the 21st Century, Brian.
Can you imagine how products would turn out if engineering and technology was performed with the same logic as politics and commerce.
We would have cars that went backwards rather than forward, accelerators that operated the brakes at the same time, speedos that required a complex calculation to determine what the indicator actually meant, products that the consumer would get the components for over a 5 or 10 year period, and same products where different brands had to be the exact opposite of the others…just because.
Gregory on carbon pricing/ETS job losses, SMH this day
“THE impact of the carbon tax on the mining industry will be “trivial” – so small that for practical purposes it will be “invisible,” according to one of Australia’s leading labour market economists.
Professor Bruce Chapman is president of the Economics Society of Australia and director of policy at the Australian National University’s Crawford school of government.
In a report released this morning entitled How Many Jobs is 23,510 Really? he attempts to put into perspective a claim by the Minerals Council that a carbon trading system would cut by about 24,000 people the number who would be employed in the mining industry.
“Something like 370,000 people every month go from not having a job to having a job, and something like 365,000 people every month do the opposite,” he said. “That’s the change every month. The Minerals Council has projected its change over a period of 10 years.
“The additional outflow would be five people for every 10,000 who would have left in the month anyway. I am happy to call that invisible. I was going to draw it for the report but I couldn’t – you can’t draw a graph because the effect is too tiny.
“What it says is the carbon price debate should have nothing to do with job-loss figures. The labour market issue should be seen to be irrelevant. It is not interesting, it is not something we should spend any further effort analysing.”
http://www.smh.com.au/environment/energy-smart/only-tiny-carbon-tax-effect-on-mining-jobs-20110605-1fnj5.html#ixzz1OR8FVj2D
John D @34,
If you assume that 50% renewables can be delivered for $40/tonne, then surely a carbon price need be no higher than $40/tonne also, implying an electricity price increase of just 4c/kWh (versus your 2c/kWh). So neither mechanism causes substantial electricity price increases (and, remember, there will also be compensation payable under a carbon price).
In practice, your assumption is ridiculous. If a 50% 2020 MRET target were announced tomorrow, I would expect REC prices to increase to $100/tonne at least.
John D @35,
This is a furphy that Garnaut addresses and dismisses in his electricity paper. I wish you would read Garnaut, so you could avoid making such silly, fallacious statements, or at least intelligently critique Garnaut’s dismissal of them.
“Bankrupt” means taken over by the banks who lent to the company. So, the generating capacity of a bankrupt company doesn’t just disappear. Control of it is simply handed to the banks, who will continue to operate it so long as it generates cashflow. And if there is the threat of blackouts, there will be plenty of cashflow.
Is anybody alarmed by these comments in the Garnaut Review 2011 Update?:
I think Garnaut is being hopelessly optimistic about the impact of a growing population. A recent report in the New York Times notes that the world population is expected to pass 7 billion in late October, only a dozen years after it surpassed 6 billion. The UN forecasts 10.1 billion by the end of the century: http://www.nytimes.com/2011/05/04/world/04population.html?_r=1
The NYT articles notes that “fertility is not declining as rapidly as expected in some poor countries”. The population projections for countries in Africa are mind-boggling. While the developed world has to work on decreasing emissions, we’re still not really facing up to how the world is going to adapt to the elephant in the room…
Elizabeth, I’m not so worried about this issue, at least in terms of CO2 emissions.
High birth rates are very strongly associated with being very poor. Secondly, very poor people are responsible for SFA greenhouse emissions.