Australia Still has Carbon Taxation

As some conservatives celebrate the repeal of Australia's carbon tax, a dose of caution is warranted: Australia still has carbon taxation on its agenda. This repealed legislation is apparently going to be replaced by the multi-billion dollar "Direct Action" climate change policy that Prime Minister Tony Abbott has long been promoting. Thus, one form of carbon pricing gets replaced by another form of carbon pricing, neither of which is acceptable.

Many critical thinkers about climate science got excited over Abbott's public statement that the "science behind climate change was 'crap'"? A little -- more accurately, a lot -- premature that enthusiasm was. Here is what Abbott's government said during the past couple days about climate change policies after the Senate finally voted to repeal the carbon tax:

"The government said it would now achieve the 5% target through its as-yet-unlegislated Direct Action competitive grants policy, which the environment minister, Greg Hunt, insisted was a 'policy for the long term.' While the prime minister hailed the demise of the 'useless, destructive [carbon] tax' and promised that the Coalition would 'never do anything that damages the economy,' he repeatedly refused to rule out ever introducing a carbon price in the future."

So Abbott repeatedly refuses to rule out carbon pricing in the future, and in the meantime his government will saddle taxpayers with government funding for emissions reduction efforts. In other words, the hated price on carbon still exists.

In April of this year, Abbott's government released its white paper on a climate change plan for Australia:

"Environment Minister Greg Hunt has unveiled the white paper on the central component of Direct Action, the Emissions Reduction Fund (ERF). Mr Hunt also revealed an extra $1 billion will be allocated to the fund in the May budget, in keeping with the initial policy costing released in the 2010 election campaign.

He says the ERF will buy the lowest-cost carbon abatement schemes to reduce emissions through reverse auctions, and encourage 'practical ways of reducing emissions where every dollar is spent on actually purchasing real means of decreasing Australia's overall emissions.'

'I want to re-affirm today the Government's clear, strong support for the science underpinning climate change, recognition of the need for both domestic and global action, and our commitment to the 5 per cent target as we go forward,' Mr Hunt said."

To be clear, Abbott's government does not in any way dispute the need for emissions reductions, and it is willing to spend massive quantities of tax dollars to do so. This is still a price on carbon, and potentially a more expensive, less efficient, and more economically damaging approach than the alternative market-based mechanism Abbott's government seems to loath.

Abbott's Environment Minister "says the ERF [which replaces the carbon tax] will focus on 'practical actions such as cleaning up waste coal mine gas, cleaning up wasteland fill gas, cleaning up methane, energy efficiency on a significant scale, whether it's industrial, commercial or residential'. But he said the price per tonne of abatement was market sensitive and would depend on the auction process." Wait a minute, "the price per tonne of abatement was market sensitive"? That sounds just like carbon pricing, and since the taxpayers are paying for the costs, it's still a carbon tax.

The details in the Abbott government's ERF white paper raise a number of red flags. The ERF says it is committed to "ensuring there is no net increase in the administrative burden on industry." Note that it is not committed to a reduction in "the administrative burden on industry," just no net increase. According to the white paper, the ERF "is a practical policy that will reduce Australia's emissions at low cost, without adding to household and business energy costs." A key point here. The new policy may not add to energy costs, but it is silent on the fact it will unavoidably add to other costs.

The ERF white paper also claims it "will help reduce Australia's greenhouse gas emissions while delivering valuable co-benefits to Australian businesses, households and the environment. For example, households and businesses will save money by improving their energy efficiency." Energy efficiency only saves money if the money spent on the energy saving device/strategy costs less than the energy saved. In general, if the energy-saving devices provided a favorable return on investment, why would households and businesses need any government financing to make the transition?

Governments get involved in these energy efficiency programs primarily because the options are not otherwise financially favorable. Thus, when we consider the total costs of these programs -- where the increased tax bill is also factored in -- they often do not save money. Instead, they cost money. If the initiative was already an off-the-shelf money winner, the private sector would be doing it. Once the argument gets trotted out that the government must be involved, you can be sure the program isn't a net money winner.

Further proof that Abbott's government still has a price on carbon comes from the following white paper admission: "The overriding objective of the Emissions Reduction Fund will be to reduce emissions at lowest cost... the Emissions Reduction Fund will identify and purchase emissions reductions at the lowest cost." Reduce emissions at lowest cost? By definition, that is carbon pricing. And the ERF will purchase reductions? That sounds like crony capitalism. A government program cannot identify the best value emissions reduction purchases better than the free market. How can Australian taxpayers be assured the ERF won't be purchasing emissions reductions from politically well-connected individuals at artificially high prices?

The white paper further reiterates what Abbott and Hunt have been publicly saying about their position on anthropogenic climate change, and it isn't skeptical in the least:

"The Government accepts the science of climate change. The world's leading scientific organisations, including Australia's Bureau of Meteorology, the Commonwealth Scientific and Industrial Research Organisation and the Australian Academy of Science, have found that the Earth's climate is changing as a result of human activities and that further change is projected.

Climate change can only be effectively mitigated if all major economies take coordinated action to restrain emissions.

Australia will work towards a new international agreement to be agreed in late 2015 that will establish for the first time, from 2020, a common platform for all countries to take serious, coordinated global climate action that is economically and fiscally responsible. The agreement must be one where all major economies, including Australia's key trading partners and competitors, play a real part in controlling their emissions through comparable global action."

This logic from Abbott's white paper is absolute nonsense:

"While there is a menu of approaches, their impact on societies and economies can be vastly different. For example, carbon taxes and emissions trading schemes operate by increasing costs associated with the emission of greenhouse gases. Typically these costs are reflected in prices and flow through to higher prices for households and businesses. In Australia, the Government believes that there is a better way to reduce emissions than by imposing taxes or emissions trading systems that increases energy costs for businesses and households.

For Australia, an incentive-based approach that directly purchases emissions reductions and rewards practical and positive action is a better way to achieve the 2020 emissions reduction target than an approach that raises prices for all Australians. That is why the Government is repealing the carbon tax and replacing it with the Emissions Reduction Fund. Rather than increasing prices and eroding Australia's competitive advantage, the incentive-based approach adopted through the Emissions Reduction Fund will invest in Australian businesses, reducing their energy costs and increasing our productivity as a nation."

A market mechanism for carbon pricing is bad because it increases costs for individuals and businesses, but a system whereby the government buys emissions reductions using tax dollars isn't carbon pricing and won't increase costs for individuals and businesses? Nonsense. By definition, if the government is paying for it, it uses tax dollars and will necessarily increase the costs of living and doing business.

The ERF claims that "importantly, businesses will no longer have the burden of paying and complying with the carbon tax." No, instead they will have the burden of paying taxes to the government so the government can pay for carbon emissions reductions. Wait a minute, isn't this carbon taxation via carbon pricing? Sure is, as shown by the fact that "the Clean Energy Regulator will apply a benchmark price -- which is the maximum amount it will pay for emissions reductions."

The ERF "will also provide a guarantee to businesses about the quantity and price of Australian Carbon

Credit Units that can be sold to the Government." A price guarantee for carbon credit units sold to the government of Australia? That sure sounds like a price on carbon, and since the government is buying the credits with tax dollars, we have more carbon taxation.

How about this provision from Abbott's plan?

"In order to enable an appropriate return within 5 years, it is possible larger projects with greater abatement potential will require a higher cost per ton abatement... The Government recognises that some projects may deliver large volumes of emissions reductions and the Emissions Reduction Fund should provide incentives for such projects. The Government will retain discretion to enter out-of-auction contracts for major projects which can deliver emissions reductions above 250 000 tonnes of CO2-e per year, on average, or 1.25 MtCO2-e or more over the contract period. To enable this, the Clean Energy Regulator will be given the flexibility to use different types of procurement and tendering processes."

In other words, we will bypass any semblance of a free-market approach and just use tax dollars to buy emissions reductions with government "discretion." Sounds like a recipe for otential financial disaster and corruption.

Abbott also wants to create a taxpayer-funded "green army" of 15,000 people. This will also use tax dollars, and further add to the carbon tax burden in Australia.

Overall, Tony Abbott's plan is as follows: create and maintain a government bureaucracy to use Australian tax dollars for greenhouse gas emission reductions. That is carbon pricing. That is carbon taxation. Both live on down under.