The theoretical advantages of an ETS, namely no technology preference, a flexible carbon price and a bullseye target, seem to have been irrevocably undermined. I expect the same bugbears to come back under a straight carbon tax. For example alumina producers who plant a few hectares of trees will want an inflated carbon tax deduction in lieu of an ETS offset. Maintaining a simultaneous renewables target (RET) will further confuse the issue. For example gas fired electricity is lower CO2 than coal but not renewable so no doubt there will be a fudge as is done with the 'solar multiplier'.

Someone needs to explain why residential PV deserves a generous feed-in tariff (say 60c per kwh) and commercial windpower gets Renewable Energy Certificates worth 4-5c a kwh. Yet both need expensive gas fired electricity to cut in when the sun goes down or the wind stops blowing. All nuclear wants is a carbon price and loan guarantees, both too much for the governments of the UK and Germany. It also appears that the Chinese and the Koreans can build the AP series of nuclear plants in less than half the time and cost of the rest of the world. So in the West unreliable energy sources get subsidies while a reliable source gets red tape and hindrance.

Therefore a carbon levy might be the way to go, starting at say $10 per tonne of CO2. Make it revenue neutral and cut out offsets/deductions and special exemptions. Add the levy to coal and LNG exports. Meanwhile cut subsidies to uneconomic sources of power.

A carbon tax with no exemptions makes good economic sense and would be the best means of delivering the intended outcome - ie reduced carbon emissions. Indeed, a carbon tax could easily be tweaked up or down to meet target outcomes that might change as the science of greenhouse gas and climate develops further. Problem is, many of the people who say they want a price on carbon also say they wanty somebody else to pay that. That's why the ETS has been more attractive politicially - it's smoke and mirrors that creates the illusion that the big end of town will pay. An ETS is, as the author says, an absolute dog of an idea in terms of its likely success.

The idea of a price on carbon only works if we all pay it - and do so in a way that we know we are paying it. Otherwise we won't change our ways. So, an increase in fossil-fuelled energy prices for everyone - no exemptions.

If a tax on carbon is the answer, it must have been a stupid question. Can Geoff Carmody spell out the question? Just what is a punitive new tax on carbon dioxide intended to fix? Carbon Dioxide is a trace gas in the atmosphere, and there is abundant evidence that man-made carbon dioxide is a drop in the ocean compared to natural cataclysms such as the recent Icelandic volcanic eruption in changing the climate of the planet. Solar cycles are the principle cause of climate change, and we need access to cheap power to enable mankind to live with these natural cycles. Modern coal-fired power stations use scrubbers to remove particulate matter and other nasties from the stacks, and allow a wonderful plant nutrient called carbon dioxide to increase plant growth (including crops) in the vicinity (carbon dioxide is heavier than air). Trees in plantations near Tarong Power Station grow twice as fast as trees 20 km away. I am in favour of penalties for real pollution, but life-giving carbon dioxide is not a pollutant.

We need a carbon tax to reduce the squandering of fossil fuels.
It is so easy to do.
For a start increase the tax on petrol.
It is already taxed so just change the numbers.
No unproductive extra government workers needed.
So that the average worker does not suffer ,ALL the extra tax can
be returned as a carbon allowance on their income tax bill.

Print "CARBON TAX ALLOWANCE $1000 " on the tax bill.
Each year tax more carbon sources and increase the allowance.
We already have a tax bill so just change the numbers.
No unproductive extra government workers needed.

Individuals who reduce their carbon pay less carbon tax but get to
keep the allowance.
Save some fossil fuels for our grandchildren.

Dear Mr. Carmody, your resume is stunning and your experience in economics is unquestionable and well respected.

So why am I so disappointed with your article?

One of the key principles of managing any business is to fully understand the causes (situation analysis) before attempting to apply a solution. I cite the Kepner/Tregoe methodology as just one example.

There are, as you would well know, a number of key elements in every “situation”. These are the key factors, their causes, their effects, their weightings and their interrelationships that “describe” any situation.

What these processes do is to ensure that any solution does indeed fit the problem. With respect I would like to offer a perspective that is based upon internationally recognized business analysis and invite you to challenge this thinking.

The key elements:
We have the key elements comprising but not limited to; consumer energy costs (industrial/domestic), energy security, energy production capacity, national economic impacts, carbon based energy production, non-carbon based energy production, renewable energy production, alternative technology readiness/cost, carbon efficiency (Carbon Capture), transition planning (Bell Curve), future technologies and carbon emissions.

The Energy Situation:
For perhaps the past twenty years and in the past ten years in particular, the specter of some sort of carbon “penalty” (on carbon emissions) has increased risk of and choked investment in traditional carbon based energy production. This is reducing supply against increasing demand, directly increasing consumer costs, created production “outsourcing” which has reduced energy security (as evidenced in Europe).

This situation then brings into play the issues of possible solutions which are non-carbon based energy production (nuclear), carbon efficiency and renewable energy production. (I omit consumer demand reduction as I cannot imagine majority public approval of such regressive austerity, although this may be forced up on us).

The Economic Situation:
Due to the risk aversion for investment in traditional energy production, developed nations are now facing a production capacity deficit, a significant catch up. The economic impact of today’s “catch up” build costs (coal/gas or nuclear) when compared with the missing progressive capacity build over the past twenty years is stark.

Continued;

Continued;

The result is that very large funding is now required in “something” to meet demand. Public funded subsidies, rapid technology development in clean coal, renewables and catch up on existing production capacity. Add to this the soaring energy costs for domestic and commercial consumers and we evidence that our economies are already taking multiple hits.

The Technology Situation:

We have existing coal/gas and nuclear production capabilities, we also have renewable energy sources and we have potential future technologies. This brings me to transition planning. The life cycle of any product/service mix is described by the “Bell Curve”. This describes the point at which the “previous” reaches maturity and is ready to be replaced by the “next”.

One fundamental and overriding principle of transition planning is that the “next” is ready to take over without a gap. The readiness of “next” is determined by its ability to both “replace” and “improve on” the previous. If the “next” cannot meet these criteria then there is a gap and disaster is imminent.

Do our renewable options “replace and improve on” the previous? The on-shore wind farms in the UK deliver a cost per Megawatt at twenty times the cost of coal, average efficiency is 25% and still needs base load backup from “previous” which is coal. As many in the UK are beginning to realize, disaster is imminent.

That “business needs certainty” draws us to the cause of the uncertainty, which has always been the prospect of carbon pricing, your mitigation options only deal with the symptoms.

A Tax to cut emissions offers a solution to 1.5% of the global emissions. This is pure advocacy with no economic case. As an economist I would prefer you to tell Australians how much tax needs to be raised to pay for catch up on existing base load production, fund an effective transition to a “ready” product, invest in future technologies and reduce energy bills.

I think it is fundamentally dishonest to dress up as “carbon reduction” the price we must pay for energy rather than recognize systemic failure of our energy policies.