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.

I am sure that the demand of a carbon tax, will not reduce Co2 and will not create anything except taxes and will not reduce anything except ability of political parties to be intelligent, and have integrity, because they have shown over the last fourty years that they are missing what most people have naturally. For goodness , let us get rid of these gang of unmentionals, and get people in parliament who are intelligent and have integrity. These type of people have over the last fourty years have driven our country down into a recession five or six times, and they are so corrupt that they continue to blame "global" yes we do have a global problem, but it is because all countries have a similar group in their politicial parties.

jm "I hope that it generates some fruitful discussion and is not just another catalyst for the "outraged minority" to exercise their spleens."

over 50% of Australians are now against the tax .. there will be protests in cities for the next few weeks, just the start of the backlash

an "outraged majority" is what you have now ..

the government is about to waste yet more money on advertising to convince the populace that more taxing is what we need, which is sure to fail

this on top of paying various "experts", like Tim Flannery and various others to educate the populace till we understand .. sounds like Russia in the 50's doesn't it

this isn't going to work,

berating people and employing marketing,messaging and various climate standover intellectual pompous types to instill in the stupid public how they are right and they should do as the government says, is just arrogance and a folly for a political party.

it is still a democracy and you can only do the scare tactics, practiced today by senator Milne oh so well, so far before people get fed up with it and rightly or wrongly, turn off and change the government

but, we still have the usual delusion among the alarmists that people WANT to be taxed they want to live with less, when the human condition is to try to improve your standard of living and to give your offspring what you did not have or could not afford

honestly I wonder at the alarmists attitude sometimes, do you have zero understanding of human nature?

Jedimaster - Good to see that you are aware of some of the difficulties, but you drag in points that destroy your own argument, namely China. Oh sure they have a policy but its straight window dressing. See the article by Colleen Ryan in the Australian Financial Review color magazine. Its wild. Apparently the Chinese have a policy that all generators have to have one third of their capacity or some such in wind, so they've got all these wind generators but none of them are hooked up. The grids (the power networks that deliver power to homes and businesses) aren't obliged to take the wind energy (the legal obligation is on the generators) so they don't. So much for China leading the way. They don't mean a word of it.

The bit about PV array manufacturers is certainly true. They are cheap manufacturers exporting the arrays to the west, where they are of limited use at best.

As for the bit about insulation. I'm glad you realise the effect exists, but I forgot a vital point. Whatever marginal (read tiny) effect the carbon tax will have will be lost in general increases in electricity prices. A 50 per cent increase in three years already which has nothing to do with carbon, and more on the way. All the carbon tax will do on top of that is annoy voters for no real change.

What a waste of time.

RPG and Curmudgeon swallow your pride here for a sec and tell what you would do to reduce our carbon foot print? It's very easy to play chicken little and say the world will end if this new tax comes in, much harder to come up with a different plan.

onlookers now watch them both not answer the challenge. I'll bet they'll either say Global warming isn't happening or we shouldn't do anything anyway....so predictable.

Curmudgeon

I'm glad to see that you're starting to get into the swing of referencing your assertions- baby steps at first- "the Financial Review Colour magazine". At least it wasn't the Australian colour magazine. Next, try some source that is peer reviewed or at least researched by someone with expertise.

China is chaotic- sure. But an energy -hungry and resourceful place like that won't leave their wind generators idle for long.

I suppose that you have another colour mag that says that China's 150 million sq metres of solar water heaters aren't connected to their bathrooms either. They are in evidence wherever you go in China.

Cheap Chinese PVs -yes, cheap, but not nasty- their top people were trained by our top people. And their exports are becoming part of their "soft power". I was recently in Myanmar where Chinese PV panels are proliferating in the villages.

As to the Jevons effect of home insulation- thank you for your condescension- I was writing about this 30 years ago.

One point of agreement- power costs are increasing due to energy cost increases and the recapitalising crisis caused by successive governments trying to ignore the energy sector, followed by private companies running down assets they bought for a discount. These cost increases at the consumer end will be much greater than the carbon tax, but I bet that the carbon tax will be blaimed for all of the cost increases by the outraged ones.

cornonacob .. I don't deny that man has changed the world and that climate is affected by man, look at land clearing for a start, but do not agree that taxing carbon is the answer, let alone doing something to reduce CO2.

Why do we need to reduce our carbon footprint .. why not CO2? Have you swallowed hook line and sinker the government's propaganda line, do you know anything about the purported science? It's CO2 they are talking about, but our moronic government thinks it's carbon because that sounds better to focus groups, easier to recognize.

So you're a carbon alarmist huh, so how much will this big new tax reduce the temperature?

Come on, swallow your pride and tell us,

Where will the money go .. you don't even know how much it is or how it works .. but I need to swallow my pride and just accept it?

onlookers now watch cornonacob not answer the challenge. I'll bet cornonacob'll either say Global warming is about to destroy us if we don't act NOW and per capita we're a big polluter or it won't affect us personally because the tax is only on polluters....so predictable, like you're not a polluter.

so the stupid word games and challenges aside.

Where do you stand on nuclear power, CO2 free energy? Do tell.. or are you one of the "green jobs are coming and we'll all be rich because of green technologies, any minute now, just wait on there" zealots?

cornonacob, you could easily have called yourself chickenlittle, since you appear to be the governnment's perfect little alarmist, world is ending, must tax for the look of it .. and that's all it is .. the look of it, the tax will do nothing, will not reduce anyone's "carbon footprint" .. I'll pay the tax, but not reduce my lifestyle .. how about you?

Jedimaster - oh come now, surely you can think of a more plausible pretext for dismissing inconvenient facts. What qualifications do you require to know when something is connected or not, or what is your reason for doubting when senior officials say, on the record to a highly-respected journalist in a publication that has never bothered with the global warming debate one way or the other, that the wind farms aren't connected?

One of the problems with this debate is the global warmers fasten on any piece of nonsense, no matter how unlikely, that supports their viewpoint but then dismiss anything that disagrees with their viewpoint on the slightest of pretexts.

Then they accuse others of being shallow and condescending. Dear, dear! If you're so experienced in the debate, you cna do better than that.

Why can’t we just set up a “pilot scheme” or a “proof of concept” for CO2 reduction?

We could make the whole of Tasmania a low carbon dioxide economy. The rest of Australia could then observe progress at no cost.

We could measure just how much the cost of living goes up if at all, how many green jobs are created, how much pollution is reduced, how they transform their economy, how they avoid being disadvantaged, how they manage incentives for business to reduce CO2, how they demonstrate the big benefits through pricing CO2, how every dollar raised is dedicated to supporting households, how certainty is provided for investors, what economic reforms result from pricing CO2, what long term interests are served and how the most vulnerable will be protected.

Tasmanians are noted for their green credentials and could save the Greens and the ALP by simply showing the rest of Australia how easy it is. I think they should be given every opportunity and encouragement.

>> One of the problems with this debate is the global warmers fasten on any piece of nonsense, no matter how unlikely, that supports their viewpoint but then dismiss anything that disagrees with their viewpoint on the slightest of pretexts. <<

One of the problems with this debate is the global warming denialists fasten on any piece of nonsense, no matter how unlikely, that supports their viewpoint but then dismiss anything that disagrees with their viewpoint on the slightest of pretexts.

Fixed.

bonmot .. lol, it wasn't broken!

spindoc: A pilot scheme in Tasmania, if imposed by Canberra, would violate s.51(ii) and s.99 of the Constitution, which forbid the Commonwealth from discriminating between States in matters of taxation. But there's nothing in the Constitution to stop the Commonwealth from using a Territory (e.g. the NT and/or the ACT) as a testing ground for new tax policies. :-D