Abbott Still Unclear on Carbon Taxation Down Under

Some Australians are getting excited with the news that "Australia's carbon tax has gone for good." The Melbourne Herald Sun is reporting that Tony Abbott now has the required Senate support for abolition.

Aussies shouldn't get too excited. Abbott still needs to ensure that any other existing carbon taxation is also removed, and that no new carbon taxation is enacted.

When in Canada last week meeting with Canadian Prime Minister Stephen Harper, Abbott made some troubling statements regarding greenhouse gas emissions that appear to contradict his otherwise hard line against carbon taxation:

"Speaking at a media conference on Tuesday from the Canadian capital Ottawa along-side the anti-carbon tax prime minister Stephen Harper, Mr. Abbott said the [sic] he was encouraged at the new US approach of requiring coal-fired power stations to cut emissions by 30 per cent by 2030, because it did not place a price on carbon but used regulation to cut pollution ...

'We think that climate change is a significant problem, it's not the only or even the most important problem the world faces but it is a significant problem and its [sic] important every country should take the action that it thinks is best to address emissions,' he said. 'I am encouraged that President Obama is taking what I would regard as direct action measure to reduce emissions, this is very similar to the action my government proposes in Australia.'"

Having Abbott praise Obama's latest climate policies is not a promising sign, especially when Abbott also states that he plans on following Obama's approach down under. And Obama is just following Harper. Stephen Harper's government long ago put a price on carbon by becoming "the first major coal user to ban the construction of traditional coal-fired electricity generation units." In other words, Obama's administration has been more conservative to date with its war on coal than Harper. Not a good sign for a purportedly "conservative" government in Canada.

Carbon taxation occurs whenever any government regulation or other action designed to reduce emissions of greenhouse gases increases the cost of a product or service by even one cent over what the cost would be in the absence of such government intervention. Consequently, Abbott is wrong when he says Obama's war on coal isn't carbon pricing. It most certainly is.

Coal-fired power plants generally produce the cheapest form of electricity in many regions, and by Obama specifically attacking these power plants because of their greenhouse gas emissions, Obama is placing a carbon tax on the American electricity system. If Obama's regulations come into force, the only options for the U.S. power grid will be to either capture and sequester carbon from upgraded coal plants, or to move to less carbon intensive sources of electricity. Both will increase the cost of electricity well above what it would be absent Obama's regulations. Ergo, we have carbon pricing.

For Abbott to play word games of this nature is just setting up the intellectual nonsense (as we have in Canada) of apparent political opposition to an explicit carbon tax, meanwhile having effective backdoor carbon taxation brought into force via all sorts of costly and economically damaging regulations whose primary intent is to reduce greenhouse gas emissions.

Abbott has also "claimed vindication for his stance on climate change by noting Canadian Prime Minister Stephen Harper also opposes a market mechanism, such as a carbon tax or emissions trading scheme, to fight carbon emissions." Actually, a market mechanism is a more economically efficient means of reducing greenhouse gas emissions -- should you want to -- compared to inefficient regulations.

It sounds like Abbott thinks the regulatory approach to reducing greenhouse gas emissions is superior to a market mechanism. Clearly, neither approach should be put into place, but if you had to choose a preferred option it would be a market mechanism. Market mechanisms are almost always far more efficient and fair than blunt regulatory instruments.

There is a fundamental lack of clarity in Abbott's discussions of late regarding carbon pricing. It sounds like Abbott is following in the footsteps of Harper's incoherent Canadian climate policies -- which still exerted a tremendous strain on the Canadian economy. Between 2007 and 2012, Canada's real per capita GDP declined by 0.3 percent, performing even worse than the U.S. over this period (a decline of 0.2 percent), and well behind Australia (an increase of 4.5 percent). Had Canada not had effective carbon taxation over this time-frame, its economy would undoubtedly have performed much better. Why would Abbott want to follow this lead?

In short, neither Abbott nor Harper is truly against carbon taxation. Harper's government has brought into force a number of regulations since 2006 that constitute effective carbon taxation, and now it looks like Abbott is about to mirror this substandard approach in Australia -- perhaps even by replacing Australia's bad, but explicit, carbon tax with an even worse suite of regulations.

The answer is to have neither an up-front carbon tax nor any regulations designed to directly or indirectly reduce greenhouse gas emissions. But this does not appear to be the carbon tax-free path Abbott is headed on.