Whatever the merits of Australia's proposed carbon tax in terms of CO2 emissions reduction in the long term, in the short term it is - quite simply - a consumption tax.
The lion's share of the direct tax will be borne by electricity producers and suppliers who rely almost entirely on coal fired generating plants. Australia's coal, cheap and abundant as it is even given the high wages - by world standards - paid to our miners, is brown coal, high in sulphur and not particularly clean burning by comparison with quality black coking coal. Be that as it may, faced with a choice between absorbing the tax and passing it on to consumers, there is little doubt that the net effect of the carbon tax will be higher prices for ordinary households across the entire range of household expenditure, not least of which will be an inflated electricity bill.
Shops open until late seven days a week in air-conditioned malls, the proliferation of household appliances and electronic gadgetry, office workers putting in unconscionable hours in heated, air-conditioned, brightly lit buildings which never close as cleaners and maintenance workers move in overnight; as a nation we use electricity prolifically. A tax on electricity consumption is, ultimately, a tax on almost everything Australians do, use, buy and sell.
Without entering into the detail of the controversial climate debate, one fundamental question must be asked of this new tax.
Will Australia's carbon tax succeed in reducing CO2 emissions, assuming other nations adopt equally effective measures, in time to arrest climate change before the Earth's atmosphere reaches the hypothetical tipping point where human activity becomes, as it was perhaps in the distant past, irrelevant to the natural course of events? The threat presented by this is that, once nature reasserts itself, it will do so in a manner inimical to life on Earth as we know it. Even now every natural disaster, or incidence of extreme weather, is singled out by some as further evidence of human induced global warming and the dire consequences thereof if unchecked.
A carbon consumption tax carries with it the expectation that, in the long term, energy producers will move away from fossil fuelled generators in an attempt to avoid the tax. In the short term coal burners will not be able to do this, so the cost will be passed on to consumers who can do one or both of two things: try to use less electricity - which is a challenge for most - or spend less on other things such as food, clothing, travel & entertainment to keep the household budget balanced. The government says that some of the proceeds from the tax will be used to compensate lower income households, but where is the incentive for both households and energy producers to invest in clean energy?
Other than forcing up the cost of living for all Australians, and marginally adding to the government's tax coffers when net of hefty administration and compliance costs along with compensation payments, it is difficult to envisage any short term impact on the volume of CO2 emissions. Producers cannot alter their mode of production overnight. Consumers may choose to reduce spending in other areas without moderating electricity consumption. Households may actually use more electricity if people with less disposable income, thanks to increased costs, choose to spend more time at home.
A blanket consumption tax of this nature may motivate people to rethink the manner in which they both source and consume electricity, but where is the incentive for both consumers and producers to make the switch to clean, green energy sooner rather than later? Only those companies and individuals with a surplus available for investment in new technology will be in a position to act. Everyone else will be playing catch up as the cost of living increases. People living and working in rented premises may not be in a position to substantially modify their energy environment. Those wealthy enough to absorb higher costs without changing their lifestyle may choose to carry on as usual without any substantial leverage for change.
Economists who, rather than scientists, are behind this tax believe in the power of the market to change individual behaviour. It may be asking a little too much of the market to expect a simple, but nevertheless all encompassing, tax to force people to make the necessary changes in time to avoid irreversible climate change.
If the scientists are right, only immediate, dramatic and far-reaching modifications to our lifestyle can avert a looming catastrophe. At this point the political will to make such changes is lacking almost entirely. Short-termism is the disease of the modern world. We lack both foresight and hindsight. For the me generation, now is everything. Few of our leaders are immune from this moral and intellectual myopia, be they politicians, economists, or business moguls. Elsewhere carbon taxes and emissions trading schemes have been distorted and perverted in the name of financial gain for banks and financial institutions. As a species we seem incapable of right thinking and meaningful action even when our very survival is at stake. According to the Mayans, human beings have destroyed the world before now. Will we do it again?
Returning to the everyday, the question arises whether anyone has seriously contemplated the manner in which a carbon tax will operate and its likely impact on our lives. So far the political debate has revolved around the real or imaginary perils of climate change and the fear of being left behind in the race to reduce emissions. The Gillard Government appears to be asking for a blank cheque from the electorate to deal with the problem in its own time and as it sees fit. Details have yet to be announced.
In the absence of informed debate it was refreshing to find an article, aptly titled "Carbon Omissions" by Canberra Times reporter Rosslyn Beeby in the June 4th edition. Although she devotes considerable space to rhetoric from our own Ross Garnaut, material which has been widely mentioned in all sectors of the Australian media, the meat of the article is derived from United States sources. It is these which I found most convincing and from which I have no hesitation in borrowing, placing my trust in Beeby's rendition.
In the United States the Centre for American Progress, the American Enterprise Institute, the Bipartisan Policy Centre and the Economic Policy Institute all argue that a carbon tax will help to reduce the national debt. That in itself should be enough to convince the likes of Tony Abbott and Joe Hockey that Malcolm Turnbull and Kevin Rudd are right about the carbon tax. If the tax does nothing else, reducing a nation's debt in these uncertain times is a laudable objective.
The Centre for American Progress takes it further by arguing that a necessary component of a CO2 reduction package must be an import tax on oil from other parts of the world. So, presumably, the aim is not only to burn less oil but to make sure that its our own and that we are the only beneficiaries from its extraction, refining and consumption. Low and middle income earners would be compensated not by direct payments but by reduced income taxes, the short fall in revenue met by the carbon tax and the energy import duty.
To this point the American proposals have much in common with our own. They are fiscal and rely on making the use of fossil fuels more expensive as an incentive to cut consumption and reliance on imports. There is no direct encouragement for people and organisations to embrace renewable energy other than an understanding that common sense will prevail and individuals will seek to meet their energy needs in the most cost effective ways accessible to them.
An impressive departure from what may loosely be termed mainstream thinking on emissions reduction is the proposal by the Brookings Institution for a direct, rather than indirect, approach by targeting the Big Polluters directly. This would take the form of a National Clean Energy Standard as an alternative to carbon pricing. Clean up the energy industry, and there is no need for anyone else to reduce their electricity consumption with all that that entails for the individual and the economy as a whole. The choice between an all encompassing, expensive to administer tax which may hurt people more than its helps the environment, and cutting emissions at source, seems to be a no brainer.
According to Harvard University economist Michael Greenstone, the weakness of a carbon tax is that it would "raise energy prices in a visible way, even though the money goes back in [some] consumers' pockets through tax credits". Greenstone proposes legislating a 'technology neutral' clean energy standard forcing all United States electricity generators to cut carbon dioxide emissions. The standard would become more rigorous over time aiming for a 50-percent reduction in emissions per megawatt hour by 2035. He goes on to mention a number of ways in which emissions cuts could be achieved.
Greenstone is one of the few commentators to factor in the real cost of emissions from fossil fuels. Carbon dioxide is 'clean' and relatively inert at normal atmospheric pressures, harmless to animals and beneficial to plant life. It is this quality of CO2 as much as anything else which attracts the attention of those who downplay its role in climate change. For the past half-century or more, however, we have been aware that fossil fuel emissions are harmful to human beings and to the environment in ways almost too numerous to mention. Of all the products of fossil fuel combustion, CO2 is arguably the least harmful in the short term.
A reliance on fossil fuels in general, and imported fuels in particular, is seen as impacting both on national health and national security. In time to come the wars in the Middle East may be seen as less about human rights, freedom and democracy than about oil security. It is scarcely reassuring that so much of the world's oil is found under the sands of the planet's least evolved and most unstable oligarchies and that the revenue from the sale of this oil to Western nations is used to fund international terrorism and Islamic radicalism.
Closer to home, the United States Academy of Sciences recently estimated the "total non-climate change related damages associated with energy consumption and use at more than $120-billion ... nearly all of which resulted from the effects of air pollution on our health and wellness".
Greenstone: "We estimate it costs about 3.2-cents for an existing coal plant to produce a kilowatt hour of electricity. This appears to be a bargain but the reality is that this kilowatt hour causes 5.6-cents of damages to our well being". Our energy sources, says Greenstone, "Only appear cheap because their costs to our health, the climate and national security are obscured or indirect". Take climate change out of the equation, and we still face the deadly impact of pollution on human and other life forms, and the irreparable environmental impact of certain types of mining.
In Australia we can look forward to a future where satellites may be used to monitor emissions on a global scale, leaving nowhere for polluters to hide, and our trading partners may raise barriers against imports from non-carbon-regulating regions. We must tackle emissions, but is this best done by curbing emissions at source, a direct approach as outlined by Greenstone and others, or an across the board carbon 'consumption' tax, an indirect approach with unforeseeable consequences.
Ross Garnaut has argued that even a $26 a ton carbon price will achieve only a 15-percent reduction in emissions by 2020, and that with the proviso that the balance after compensating households is directly invested in renewable energy. This is the weakness of the indirect approach where a substantial proportion of the revenue raised is swallowed up in administration costs and compensation payments. There is no guarantee that any part of the compensation to households will be applied constructively to reduce energy use and/or embrace renewables.
It is time for Australians to turn off the political noise and turn on to thinkers like Michael Greenstone. We can choose to tinker with the economy, possibly to the detriment of all with no benefit to the environment, or we can take direct action to change the way in which we live and work. The Federal Government could make a start by pressuring New South Wales to get behind the solar panel subsidy, and to look for ways to encourage landlords to enable their tenants to embrace green energy. While politicians posture for the cameras and pander to the likes of Murdoch, precious hours of sunlight are being wasted.
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