To my mind this idea is considerably better than a consumption tax, due to my main concern about tax being that the government can come to rely on it, thus relying on the product/s being taxed.. cigarettes being a prime example here.

I'd also like to add that at least in some states now you can request that your electricity comes from clean sources. The additional cost appears to be just under 10%. Pretty much worthwhile in and of itself. It would be great if this was subsidised by extra cost of carbon producing products or energy sources.

I agree that we should be thinking about how to finance the massive investment required in clean energy given the amounts currently frittered away on conspicuous consumption and foreign wars. Speaking of which this scheme reminds me of war bonds http://en.wikipedia.org/wiki/War_bond. I also agree as does Al Gore that green charges should be offset by cuts in other taxes or recoupment possibilities. However I'm not sure this is better than cap-and-trade. Moreover there are no guarantees that the investment will immediately cut emissions; for example when the new wind farm is built perhaps they could dynamite one of the boilers at the coal station to make sure. Also a few quibbles with numbers and assumptions such as the viability of clean coal. This proposal needs to be lined up with alternatives like carbon trading, carbon taxes and personal transferable quotas...maybe they all have flaws.

With electricity consumption Australia faces increasing demand because
- more consumers
- increasing consumption per capita
- increasing consumption because the climate is getting hotter and air conditioners are becoming more prevalent

Another problem is that demand for electricity isn't even through out the year or even through out the day. The peak time for electricity is on hot days when people get home from work and turn the airconditioner on at the hottest time of the day.

I agree that we probably need to invest in more power stations but if households contribute some of the power then less electricity will be lost in transmission.

Why can't householders install solar panels for some of their own usage and sell back the excess to the electricity grid. In the southern states this would help alleviate the peak electricity demand that the electricity system is starting to experience on really hot days when everyone turns on their domestic air conditioning units. Why doesn't Australia adopt the switching mechanism used in south australia that turns of air conditioning compressors for 10 minutes every hour to alleviate peak load.

It is an interesting idea but I'd like to see some comments from an economist.

It almost sounds like an alternative currency. If you were to buy an airline ticket with GRI's would it attract GST? In fact could we compare it frequent flyer points? If we were to consider FFs as a currency it would be second only to the US dollar as having the biggest volume "in print" and all airlines would go broke if consumers wish to spend their FFs all at once.

Overseas people have adapted a supply side target. California, a dozen or so other states and many EU members have adopted targets like 20% renewable by 2010. The idea being that creating volume in the market will bring down the cost of solar cells, wind turbines and other equipment. In many places you can sell your excess energy back to the grid. Last weeks economist has an interesting article going into much detail.

Australia with its low population and massive amounts of fossil fuels has not gone down this road yet

Billie,

You asked why households can't have solar panels on their rooves to generate part of their electrical consumption.

The answer is that renewable sources of electricity such as solar and wind power are not continuous, and in fact can be very erratic in their power delivery. Winds vary, the sun can go behind a cloud, and solar energy will definitely not be solution overnight. Electricity has to be consumed the instant it is produced, as it is very expensive to store it, and the whole art of delivering power to a distribution grid is to maintain it at 240 volts day and night despite unpredictable wild swings in consumption. Locating renewable sources at a variety of locations can help somewhat, but basically you cannot exceed having more than about 20% of your power from renewables without a severe risk of the grid becoming unstable, and having massive power blackouts. The only way to run a power grid with a lot of renewables, such as Denmark does, is to have hydro backup, which they obtain by importing hydro power from Norway. Hydro can cope with large swings, as the power station can go from 0 to 100% output in less than 60 seconds. Unfortunately, we don't have much hydro, because we have neither the rain or the high mountains for the rain to fall onto. This is why we need continuous power sources, and the only non CO2 emitting sort around at present is nuclear.

As a famous person said, life wasn't meant to be easy.

I'll tel you why people don't install solar panels.

It's because you still have to be hooked up to the grid.
It's because, while you still buy electricity at maxumum rates the electrictiy companies only pay you the bare minimum when you sell it back to them.

The only places that solar/wind is viable are country properties a good ten kays from the nearest power lines.

The SEC used to take the main power lines to them for free and then everyone alog the road hooked in.
These days under the user pays policies no power company wil do that. You want a ten kay power line to come past your place? You pay a hundred grand. Up front! This makes wind and solar cheaper.

These are stand alone units with big panels that normaly operate in surplus and waste a good 50% of the power that they collect, and a few big storage batteries.

“relying on traditional energy market forces to provide the necessary investment will not work, because the infrastructure for energy from renewable resources costs more than the infrastructure required for the burning of fossil fuel.”

That depends on how far forward the “market” looks, which in the case of energy generation should be 30 years +.

It also depends on the regulatory framework which enshrines the market in which the energy producer operates (which is the real role of government, regulating, not operating).

“Obtaining the required investment to shift to fuels that produce less greenhouse gases is a massive task.”

And I guess mankind has never been challenged by “massive tasks before”?
I know the ingenuity and innovation of man is what got us using fossil fuels in the first place.

Whilst I did not experience it first hand, I am assured the reason for the use of coal and development of coking coal as a fuel source was directly related to the unavailability of wood as a source (the British Navy wanted all the good stuff to build ships with).

In terms of “massive task” that was simply one which previous generations faced and overcame, and it was all done without a single tax on the populous.

We have all seen the abuse of power when some vested interest group gets their nose into the publics pocket. Government businesses and monopolies which could not stand on their own two feet become icons of labor endeavour, Telstra, CBA and Qantas to name but three. “Two airline agreements” and other monopoly and oligopoly structures administered not for the benefit of the voting and consuming electorate but for some special class of individuals (often as not card carrying unionist more interested in feathering their own nest viewing the consumer as a victim to be bled as much as possible.

Better “market economics”, commonsense and practical regulation shape the “environment” for all energies, than consumers being fleeced by additional taxes deployed to feather the nest of a favoured few.

Gusi I have passed this by economists and the main objection is that they think it unnecessary. They say if we increase the price with a tax then the system will sort itself out. Unfortunately I believe we have to do better than that and we have to build a system that will guarantee that the money is allocated efficiently to greenhouse gas reduction measures. This proposal is designed to do that through a market in investment funds. This solves the problem of the efficient distribution of taxes by creating a market to distribute the tax.

You are correct in that it is a new currency and there are practical issues about to treat the currency but we can do it and are doing it all the time (think frequent flyer points)

I believe this hasn't happened before for three main reasons. The first is that it determines how the tax is distributed and that is not seen as a good idea by government officials. The second reason is companies in the energy business would like to keep the investment money themselves and this stops that as it gives it to the general population.

The final more important reason is that until recently it has been impractical. It has become practical because we now have electronic money and that is inexpensive. Through the Internet and phone system we are able to distribute the currency to the general population.

A similar idea was promoted for water at http://www.onlineopinion.com.au/view.asp?article=4253. We are making progress on persuading a water authority to take up the idea. My hope is that we will be able to "prove" it with water then we can use it on the one that really matters - greenhouse gases.

Col Rouge,

I suspect you think you are critiquing the article but I read it as very strong support for the arguments. Yes it is a massive task and yes it can be done and yes we do not yet another tax to make the market work. Because the proposal does NOT involve a tax it has a chance of working. If we make the cost of carbon a surcharge instead of a tax and if you let the purchaser retain control and ownership of the surcharge then we have a method of financing "Public Goods" and of alleviating "Public Bads". It takes little to imagine how the same process cannot be applied to most economic activities involving factors where there are Public requirements outside the immediate value of the goods or services. Food and obesity, public education, public health care, police protection, elimination of poverty, building social capital, all spring to mind.

Getting even a little more philosophical the approach should be music to the ears to Liberals and to Labor as it works by including most members of society and giving them a way to participate as well as providing choice and market mechanisms. It should appeal to the Greens as it gives a way for their environmental concerns to be resourced. Who loses?

To give you a "taste" of where this is heading let us invent another currency and let us call it votes. Let us now issue votes each year you live in a country and let people be able to spend their votes to help decide important issues like electing people to the board of the ABC.

The trick is to realise that electronic money is essentially a mechanism to make choices. Think now of lots of different sorts of money we can now use to make choices and think of money as being "smart" money that knows the areas it has to be spent.

The head of the Insurance Council of Australia has asked for the Carbon Tax regime in 2016 to be planned and published now so that businesses can make investment decisions to fit in with the business environment in 2016. At the moment businesses are aware of global warming and the expected increases in oil price as we pass peak oil but they have no framework to plan within.

I abhor waste but unlike Col_Rouge I don’t believe that incompetence is the exclusive preserve of government departments. I have seen some very inefficient subsidiaries of british companies operating in Australia without making a profit on the Australian operation ever. Something to do with writing off the loss on their Australian subsidiary against the parent company’s profit – and shipping in overpriced sealed beam headlights from Canada. When we are discussing the coal industry the big difference is that in Australia the coal mines are privately owned and in the UK they are nationalized.

Perhaps Col can tell us why its more efficient to have broken up the SEC and replaced it
- with Texas Utilities operating the coal powered station
- With AGL providing hydroelectricity
- With Citipower maintaining the copper wire
- And the choice of Origin, Victoria Elec, 3 other electricity retailers who each wrote their owning billing software and have a high paid CEO
Could Col pay particular attention to highlighting the economies of scale that occur in a market of 4 million customers and outlining whose responsibility it is to train electrical apprentices. Would Col recommend an electrical subbie to put on an apprentice?

Pierdsus I am promoting solar power as part of the solution because 1/3 electricity is lost in transmission, we can’t store much electricity, in SA and Vic when its 40 there are no clouds in the sky. Our peak electricity consumption occurs on hot afternoons when everyone returns from work and turns their airconditioning on. Sparticusss The SEC now allows households with solar power to connect to the grid and sell back their excess energy.