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The Forum > Article Comments > It's possible to be both right and wrong > Comments

It's possible to be both right and wrong : Comments

By Saul Eslake, published 25/7/2011

A Ďprice on carboní may be a Good Thing, but that doesnít mean the Governmentís whole package is.

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Convincing arguments demonstrating how Australia has managed to elect an economically illiterate and incompetent government.

However one argument against the Labor-Green scheme has been missed out. If the "hypothesis" of man-made global warming is proved wrong, reversing an ETS will prove horrendous. We have seen how Farrell was unable to reverse the economically insane solar feed-in tariff. Trying to reverse the ETS with all its derivative markets created by the Finance industry will be much worse.
Posted by EQ, Monday, 25 July 2011 9:43:58 AM
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Another excellent article, thank you. I'm also less than ecstatic about the proposal.

Firstly, the overcompensation of self-funded retirees and low-income earners is clever because it undermines the potential complaints of some of the most vocalpotential opposition through simple self-interest. Further, it gives the Govt an easy concession should there be trouble in getting the bill up, which can always be blamed on the libnats. Clever, no?

Second, the increase in marginal rates for women returning to the workforce, as you so lucidly put it, can be specifically compensated later as a "gender equality" matter, allowing the govt to buy a few more votes with a big announcement of how they've "made Australia a fairer place for women" or some such guff.

One thing that you obviously like and I don't is that it will also create a large market for yet another nebulous derivative product that has no inherent value beyond the legislated one. Given the nature of markets, I can't see how this can avoid leading to some artifical skewing of industry based not on the genuine reduction in greenhouse, but rather on the carbon trading opportunities presented.

Moreover, unless some cost-effective, permanent means of sequestration of greenhouse gases (not just CO2)can be put into practice, I can't see any of this doing much to reduce the overall atmospheric load of them. Woody plants, in a world that will triple the human population over the next 40 years on best projections can only be a buffer at best. There is some promise in polymerisation using CO2 and NOx as feedstock, I understand

http://www.newscientist.com/article/dn18387-co2-in-the-air-could-be-green-fuel-feedstock.html

http://www.chemicalprocessing.com/articles/2010/133.html

As you say, it's hardly good policy, but then Australian politics stopped being about good management years ago.
Posted by Antiseptic, Monday, 25 July 2011 9:53:53 AM
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The sentiments in Saul Eslakeís piece are sound but, as befits the thinking of an economist, he falls short when it comes to technology. The problem is all about where future energy will come from, not the economic strategies for getting there. As well, I think his global political projections are too optimistic and that too is tied up with the problem of future energy sources.

Eslakeís whole argument rests on other nations eventually embracing the need to reduce emissions, so it makes sense for Australia, dependent as it is on fossil fuels, to Ďstart earlier and move more graduallyí. Fair enough, but to what? Thatís the question both Australia and the really big emitters face. And thereís no credible answer, which is a huge stumbling block that will trip us all up.

Iím not talking about the switch from coal to gas. Thatís the easy bit. Itís the next stage, technologies to get down to below, say, 100 kg carbon dioxide per megawatt-hour for electricity, non-fossil liquid fuels for transport, substitutes for carbon in steelmaking and cement making, etc. Thatís where the unknowns lie. As Eslake says, the Productivity Commission and the Grattan Institute have already found wanting the subsidies handed out to renewables like solar and wind. What they have really found wanting is the technologies themselves. The politics of CCS will probably kill it. Of course thereís still nuclear, but that wonít be a panacea, even after Australians come to their senses.

The premise for a carbon price is totally different from the GST. The GST was a way to restructure the tax base from income to consumption. Carbon pricing is all about driving us away from the energy sources that actually created the wealth of the industrialised world. This is not meant to romanticise fossil fuels. Itís just a fact. What is consistently being romanticised, of course, is the future role of renewable energy.

I wish I was wrong.
Posted by Tombee, Monday, 25 July 2011 10:11:38 AM
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Its a little scary that this article is based on the incorrect pre-suppositions that:

1.Carbon Dioxide emitted by man is a 'cost' which must somehow must be factored into cost structures. This is convenient myth which serves sectional interest groups. There is no 'cost' in Greenhouse gases. This idea is being used to create a new false economy through which a legion of people, including dodgy Carbon Traders, will benefit and we, the public, will lose. Its a Ponzi scheme which will receive continuous funding from the public.

2. The second problem here is that Mr Eslake is taking his Economic advice from Scientists.

Quote:"However, if the majority of scientists are right, as I BELIEVE they are, the largest greenhouse gas emitters will eventually embrace the need to reduce greenhouse gas emissions." Why?

There is no convincing evidence that US or China will ever make significant efforts to do so. Reducing Greenhouse gases is an Economic strategy not an Environmental one, which is why Gillard continues to push it depsite the fact that no environmental improvement will occur. A prominent Economist should not take advice on international Economic strategy from 'Scientists' who he implies are unanimous yet does not name a single one.

Unfortunately, the idea underlying this whole article is that the globe is warming, we are causing it and we will all have to do something about it. Somehow giving our money to Al Gore will solve all our problems. Don't think so.
Posted by Atman, Monday, 25 July 2011 10:40:34 AM
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Saul Eslake shows at least more sense than most activists in acknowledging that the Australian carbon tax by itself will do nothing, even if it does succeed in reducing local emissions.. This remains to be seen, incidentally. It is difficult to point to any economy to date where any action by a government has reduced emissions.

If you look at the figures for Kyoto or the European ETS, the bulk of those reductions are due to the way the base line has been chosen (former Eastern Bloc countries), or because the economy has switched its power generation from coal to gas (UK).

This state of affairs may change. Other nations may impose a carbon tax and then discriminate against others which do not have one, as Eslake suggests. If that is the case, why not wait until it happens? Why must we be the first?
Posted by Curmudgeon, Monday, 25 July 2011 11:28:30 AM
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Surely the first requirement for an economist costing a policy is to make sure the policy is founded in fact? If Mr Eastlake is called in to audit a policy which involves raising dragons from eggs, one would hope that he checks whether dragon eggs are, in fact, available. But our economists have become so enthralled with the prospect of seeing large sums of money moving from place to place (the economist's equivalent of Trooping the Colour at Buckingham Palace) that they have neglected to check whether the money NEEDS to go anywhere, and what effect, if any, it is likely to have when it gets there.

Go back and try again, Mr Eastlake, and this time try to focus on the results rather than the process.
Posted by Jon J, Monday, 25 July 2011 2:17:24 PM
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