Thank you Michael for your sensible article. I hope that it generates some fruitful discussion and is not just another catalyst for the "outraged minority" to exercise their spleens.

We do, nonetheless have, what Garnaut called (in his original paper) "a diabolical problem". He went on to describe some of the issues related to games theory, particularly the "n-person prisoners' dilemma", sometimes known as the "free-rider problem". In simple terms, Australia (or at least half of them by today's polling), seem to think that because Australia produces only about 2% of the global GHGs, then our actions won't matter- we will take the free ride on other countries' efforts.

A case in point is the (Federal and State Government) support for solar panels. Michael is possibly right that the MRET cost $100/tonne, but the price of PVs is reducing at a rate that will achieve grid parity by about 2015 (see the highly respected Solarbuzz http://solarbuzz.com/facts-and-figures/retail-price-environment/module-prices). These prices don't reduce magically with time- they reduce through the learning curve created by volume production. As a free-rider, Australia could say- "well the cost curve is going down nicely, let other countries buy the expensive PVs while we wait till 2015".

That is not to say that we don't have to look carefully at how we spend our money in trying to meet this problem, but we have also got to look ahead at what technologies are going to be viable in the near future and do our bit to help- even if it is mainly by being a customer for the major PV producing countries.

And please, all you "outragers"- I know that PV isn't going to solve all the problems, but at grid parity within a few years, it can make a significant contribution.

A couple of reality checks.

Firstly it is quite ridiculous to announce that we will have a carbon tax in perhaps 18 months or so without announcing any further detail, including the likely rate of the tax. What is business to make of this?

Secondly, the tax may well have only a limited affect on carbon emissions, at least in the short term. Most of Australia's emissions are from electricity generation, and there does not seem to be anything to stop the generators from passing on the cost. At present the power industry still have to justify price increases to state authorities, although the market is deregulating. Those state authorities are not set up to consider carbon. If the tax is set high new plants will tend to be gas powered, but decommission coal plants with decades left in them to switch to gas? Doesn't sound likely to me.

Thirdly, no effective, enforceable international agreement on carbon is possible. Another poster mentions Australia "free riding" on efforts by other countries. The reality is that if Australia does go this route it will be the only country with any kind of comprehensive, national effort to reduce carbon. All other systems are partial at best, and window dressing sat worst.

It is difficult to think of any policy initiative more ludicrous.

COMPLAINING ABOUT THE WRONG TAX

Michael Hitchens warns that a carbon price "could make it harder for Australia's import competing and export industries to prosper." That objection applies most forcefully to Australia's income tax, which is levied on income earned in local production up to the point of exportation or local consumption, but not on income earned in production of competing foreign products.

Hitchens says the competitive disadvantage of Australia's carbon price must be offset "until there is a commensurate price impacting on our competitors." Why settle for avoiding disadvantage? Why not grab an advantage by abolishing income tax without waiting for our competitors (cf. http://www.onlineopinion.com.au/view.asp?article=10792 and http://blog.lvrg.org.au/2010/12/prudent-prosperity-productive-austerity.html)?

Hitchens says the CPRS would have imposed "a cost disadvantage on Australian industry of over $20 billion to 2020." Income tax imposes a cost disadvantage on Australian industry of about $200 billion every year.

Hitchens finds it ridiculous that "the Government was proposing to recognise just 42 activities as being at risk from the emissions price". The number of activities at risk from income tax is rather more than that.

Hitchens says our competitiveness requires a competitive price for electricity. I suspect that the cost of income tax is rather higher than the cost of electricity.

But Hitchens is right to say that investment requires certainty. That's an argument for a fixed carbon price -- which can be delivered by a tax but not by a cap-and-trade scheme.

To address some of the points raised by Curmudgeon,

"there does not seem to be anything to stop the generators from passing on the cost". Passing on the carbon tax cost to consumers is what would be expected. The revenue raised from the tax would be spent by the government in two ways:
1. To compensate lower income and disadvantaged people in the community by way of tax cuts or other government handouts for the increase in costs of many basic household items like electricity, petrol (if it is included), food.
2. To invest or encourage research into renewable power sources.

Impact would be twofold:
1. People can reduce expenditure by being more careful with their use of energy while still keeping the tax cut or handout thus encouraging energy conservation and reducing overall demand.
2. Financiers and industry power generators over time will see that renewable energy power generation becomes more and more financially attractive versus fossil fuel power generation (because there is no carbon tax payable if you are not generating carbon), thus encouraging investment in renewable energy and ultimately the shutting down of carbon generating power stations.

The point to bear in mind is that the carbon tax or price will increase over time, possibly substantially. The extent to which it will increase will be impacted by many things including the size of the cuts in carbon generation the Government wants to make, and the size of the price differential between renewable energy and non renewable carbon generating energy.

Decommissioning coal plants with decades left in them will make perfect financial sense if the price of carbon pollution is set at the appropriate level, or driven there by market forces.

Finally to suggest that Australia would "be the only country with any kind of comprehensive, national effort to reduce carbon" is just plain wrong. If this were a marathon race then Australia would be right at the back of the field about 50 metres from the start line, dawdling, and occassionally walking backwards, while the smart countries are 10 kms ahead jogging steadily......

Rich2 - after reading your post I now know the idea of a carbon tax is not just ridiculous but plain lunacy.

I'm not sure where Aus is now as far as carbon abatement efforts but the proposed carbon tax puts it right out in front by several light years. Activists have stretched this or that point in deluding themselves there are equivalent carbon taxes overseas but there is nothing of the kind. There was even a suggestion that China has a carbon tax - it doesn't, just some concessions which encourage a shift towards larger coal stations.

Not even Denmark or Germany have anything like a full carbon tax, or even Britain, which has proved particularly insane in this area. Aus will be right out there.

As for your comments on electricity consumption have the carbon tax people completely lost their minds? What bizarre reasoning. One of the features of the energy market is that it is price inelastic - prices don't matter, people still use the same amount. Will higher prices make consumers, say, buy an LCD rather than a plasma TV? Nope. Will it make them buy insulation for the roof? Yep, but for various reasons that will make no difference to energy consumption (yes, there is research on that point). Houses still have to be heated, incidentally.

Hot water systems and PV installations may foster the illusion of energy saving, but they aren't likely to make much difference to overall consumption. May even make things worse..

So on the scenario you sketch people will pay more money for their electricity while consuming the same amount as they would done anyway and, hopefully, will get some of the money they have spent back from the government. Right!

But I don't think there is any need to be truely concerned over this lunacy. Opinion polls indicate the government might have to drop the proposal - just as the CPRS bit the dust - or face disaster at the polls. We can only hope

Alas! Curmudgeon has dashed the hopes that I expressed in my last post.

While the price-elasticity of electricity and other energy sources may be lower than we might like, they aren't completely inelastic. Otherwise, why would marketers promote the virtues of "energy saving" of cars, light bulbs and PVs- to mention a few. Most people never found out that plasmas used a lot more energy than LCDs- now the 13G plasmas are comparable.

Yes- there is a "Jevons Effect/paradox" in home insulation (http://en.wikipedia.org/wiki/Jevons_paradox)- but only to a point. Comfort demands tend to increase with affluence, but you can only be so comfortable. Except in a minority of odd cases, insulation will ultimately head off comfort energy demands.

And if China has no policies, how come Chinese and Taiwanese manufacturers hold 8 out of the top 12 PV cell manufacturer positions in global shipments? (http://solarbuzz.com/facts-and-figures/market-facts/global-pv-market).

As for political wishes and the Jevons Effect, perhaps Curmudgeon would like to explain Barry O'Farrell's announcement today to spend $350Million extending the M5 motorway.(http://www.abc.net.au/news/stories/2011/03/08/3157689.htm?site=sydney).I'd be surprised if that doesn't encourage energy consumption.

Curmudgeon- this topic is too important for over-generalised rhetoric and slagfesting.