I believe that a stringent cap-and-trade scheme is the best policy instrument because unlike a carbon tax it should hit the target every time. It is also less regressive because in tough economic times the CO2 price will diminish unlike a carbon tax. Moreover by gradually reducing the cap productivity increases in carbon intensity should be relatively painless. I agree that existing ETS like that of Europe have been mal-administered due to free permits (grandfathering) and excessive use of questionable 'clean development' offsets. I suggest those same dodgy offsets would end up as dodgy deductions in a carbon tax. To their credit the Europeans don't want a bar of tree planting schemes.

As a compromise perhaps the CO2 auction could run in tranches at a set price eg $25, $30. $35 a tonne. As with all auctions there are risks and benefits of buying early or late. The revenue should be handed back immediately to eligible cleantech projects. I guess one advantage of a stepped carbon tax is that it would give legitimacy to slapping a carbon tariff on energy intense imports from greenhouse rogue nations. It would be somewhat bizarre for Chinese manufacturing to enjoy a no-penalty carbon advantage while Australia is supplying them with coal. I believe Australia will be the only country left in a decade with spare coal to export.

Finally I don't know how a straight-faced Rudd delegation can go to Copenhagen with a 5% reduction target. I recall that musical number 'the Bali high-fives'. Here's my suggestion; make the ETS target 25% cuts by 2020 and carbon tax either coal exports or imports from those same countries.

I am here to learn, not to pontificate. If some blogger could help me out I would be grateful. When a policy is proposed which seems to me to be total insanity, a rational explanation would seem the means of restoring sanity.

I do not understand why people are pressing for a tax on the PRODUCTION of greenhouse energy sources, instead of the CONSUMPTION of the same. If we mine coal, which is exported to another country, and they burn it, they should cop the blame, not us. If you tax production, you just encourage consumers to import their energy from untaxed overseas sources, instead of using local taxed sources. What is the huge benefit in taxing PRODUCTION?

Or is it just another manifestation of the Konrad Henlein principle, which is:

"We must make demands which cannot be satisfied"

I await a reply with great interest.

Is it possible to have a split system where we use whatever system we adopt to bring about the required (much more than 5%) reduction in Australia and a Tax on imports from countries that do not meet the same standards we apply? This way the taxes from 'dirty' sources could be applied to pay for our internal costs.
We could decide what needs to be done world wide as a minimum and apply that internally and then tax imports to bring the imports up to the same standard. A country with no standards would pay the price whilst countries that did meet the same or greater standards would be tax free.
Could we find a balance where import taxes balance the cost of our manufacturers going green? We might even end up in front by making heavy reductions on carbon emissions.
China and other developing countries need to reduce emissions considerable, and giving a clear message that if they don't their exports will be highly taxed might push them into action.
If we export coal to China (as an example) it is our responsibility to ensure that whatever scheme is adopted it is applied to the supply side. Just exporting the problem goes nowhere.
This post is just exploring possibilities for discussion.

Does it matter much what system we use while we have massive subsidies on pollution? The Queensland government is spending of the order of $2-billion dollars a year to expand coal capacity. Why not just stop subsidising coal?

The return is not all that spectacular to the government as an investment anyway. Currently Queensland coal royalties are running at about $1-billion a year. Even if they triple production (as they claim they can), it will take 20 years on any reasonably estimation of speed of ramping up production to recover the investment they are putting in.

Tell me please, now. How can it possibly make sense to invest all this money to ramp up coal production in the face of a trend towards worldwide tax or carbon trading schemes designed to cut pollution?

The only way it makes any sense is if you are in the industry, because you don't have to recover all the costs before production gets shut down. Not if the government is stumping up most of the investment.

Where are the economic rationalists when we want them?

PhilipM:
Bravo - a voice of reason.

Geoff Carmody:
Are you sure you’re not barking up the wrong tree?

1. Carbon is not a pollutant
2. The globe is not warming
3. The observed temperature variations, both positive and negative, in the last hundred years are all in the normal range
4. “Now that Gore has admitted that including the slide based on CRED data was a mistake, it raises a more fundamental question: How could it be that Al Gore presented obviously misleading information before a large audience of the world’s best scientists, which was then amplified in a press release by AAAS, and none of these scientists spoke up?” --Roger Pielke, Jr., Prometheus, 23 February 2009
5. even if the globe were warming, which it’s not, there is no evidence or reason to think that the disadvantages will outweigh the advantages: many areas will be made more fertile and better for many species especially forests – that’s why they’re called ‘greenhouse gases’ remember – greenhouses?
6. computer models are not evidence.
7. Even if Australia exterminated its entire human population, it wouldn’t make any significant difference to the world’s climate.
8. Rudd’s expensive and ineffectual lemon simply taxes people for using carbon and then pays the money back as compensation to the biggest carbon-users – a complete waste of time in terms of addressing the supposed problem, while simultaneously trumpeting a charge of swine to the public trough, surprise surprise
9. China, India, Russia and Indonesia have no intention of committing economic suicide so as to pamper a few deluded western wankres living in luxury.

Perhaps you should just gabble the rosary beads instead?

"2. The globe is not warming"

I'd assume that by warming you mean gaining heat? This question is very complicated as you would have to measure the temperature of all parts of the globe and consider things like latent heat to be precise. A less precise but robust method is to measure sea level change. A rising sea level results from melting land ice and the thermal expansion of oceans, and is indicative of a warming earth. Likewise, falling sea levels would be indicative of a cooling earth.

The complexity of measuring sea level means that you can really only consider the trend. The trend is for a rise of over 3 mm per year,

http://sealevel.colorado.edu/

compared with a rise of about 0.1 mm per year for the last ~3 thousand years.

I would be far more sceptical of AGW if sea level changes supported claims of the Medieval Warm Period and the Little Ice Age being global events like the observed warming over the last few decades. As far as I am aware, they dont.