Climate Change Mythbusters: An Economy-Wide Carbon Price

An edited version of one of my opinion pieces appears in The Australian today.

ONE of the myths in the carbon pricing debate has been the claim that "Australia has the world's only economy-wide carbon price" ("carbon" being shorthand for four greenhouse gases: carbon dioxide, methane, nitrous oxide and perfluorocarbons from aluminium smelting).

Over recent years, members of the opposition have made such a claim in parliament more than 50 times. The theme has also been picked up by many newspaper articles. Indeed, even in this newspaper it has been claimed that Australia's carbon price - uniquely in the world - covers the entire economy.

In fact, Australia's carbon price excludes agriculture, smaller emitters and household transport (although some businesses will face an effective carbon price via changes to the present fuel tax regime). Overall, it captures about 60 per cent of total carbon emissions.

One way that the opposition has "truth-proofed" it is by adding an authoritative source: the Productivity Commission. In a 2011 review of global action on climate change, the commission found that while many other countries had carbon prices, none covered all emissions. The Coalition spinners took this truth ("no country has an economy-wide carbon price"), and turned it into a falsehood ("Australia is the only country with an economy-wide carbon price").

Ideally, greater scrutiny of the Coalition might also focus on the underlying issue: whether taxes should be broad-based or narrow-based. In the debate over the goods and services tax, John Howard and Peter Costello argued strongly that narrowing the base would be distortionary, and that fairness demanded broad-based taxation. Yet today, his successors are effectively arguing the opposite: that carbon pricing should be as narrowly based as possible.

The fact is that the Australian carbon price is quite typical of international schemes. For example, the emissions trading scheme in California will cover 85 per cent of that state's emissions. Ten other US states are going ahead with carbon trading schemes. China's emissions trading pilots will cover 200 million people. Indeed, if the Australian carbon pricing scheme were internationally atypical, we would not be linking to similar schemes in the European Union and New Zealand.

Opposition to carbon pricing need not be in the DNA of conservative parties. In 1989, it was president George H. W. Bush who first proposed an emissions trading scheme to deal with acid rain. That scheme met its targets at one-third of the projected costs. In Britain and New Zealand, conservative leaders who back emissions trading schemes do so because they recognise that this approach captures the ingenuity of the market.

Under the leadership of Howard, Brendan Nelson and Malcolm Turnbull, the Liberal Party was a party that believed in emissions trading. During this era, many members of the Liberal Party articulately explained why market-based approaches were the most efficient way of cutting carbon emissions. Unfortunately, Tony Abbott has walked away from that proud legacy.It is ironic that China (a nominally communist country) is more committed to market-based approaches to reducing carbon pollution than the Liberals.

Australia's emissions trading scheme is almost boring in its adherence to standard economic wisdom on how best to design carbon markets - which is why we'd be mad to drop out and start jeering from the sidelines.

Andrew Leigh is the federal member for Fraser.

The claim has been most often repeated in The Australian, which is why I was pleasantly surprised when they agreed to run the piece. However, they didn't want to include my list of those journalists who on the pages of The Australian have either made the claim themselves, or quoted Tony Abbott as making it (without pointing out that the claim is untrue). Here's a sampling:

  • “We are the only country in the world that has put in place an economy-wide carbon tax of more than a symbolic level, and done so at a punitive level far above global levels.” (Terry McCrann, 24 March 2012)

  • “And as noted by the Productivity Commission, Australia is the only country with an economy-wide price on carbon; the efforts of other countries tend to be more selective and directed at particular industries.” (Judith Sloan, 7 July 2012)

  • “In contrast to Labor's rhetoric, [Gary Banks] cautions that no other country now imposes an economy-wide carbon tax or emissions trading scheme.” (Michael Stutchbury, 26 March 2011)

  • “Last night business groups were already calling for a new inquiry into how a carbon price in Australia would compare with key competitor countries such as Brazil and Indonesia. And Tony Abbott maintained his campaign, saying no other country was contemplating an economy-wide carbon price.” (Sid Maher, 10 June 2011)

  • “Tony Abbott said the report showed that there was "no other comparable country which is imposing an economy-wide carbon tax on itself, there is no other comparable country which is imposing an emissions trading scheme on itself'.” (Sid Maher and Joe Kelly, 10 June 2011)

  • “Tony Abbott said the report showed there was no other comparable country that was "imposing an economy-wide carbon tax on itself'.  "What that means is that any move towards a carbon tax or emissions trading scheme would be an economic own-goal. It would be an act of economic self- harm by Australia," the Opposition Leader said.” (Sid Maher, 10 June 2011)

  • “It is not all bad news for the Coalition. Abbott will seize upon and promote the statement that no other country has an economy-wide tax on greenhouse gas emissions. The report contradicts the previous week's final Garnaut review, which argued Australia was left behind by much of the world on climate change action.” (Paul Kelly, 11 June 2011)

  • “Tony Abbott said the package was "a world first" and accused Ms Gillard of using her carbon tax plan as a cover for a redistribution of wealth, describing it as "socialism masquerading as environmentalism". Noting that "no other country on the face of the earth" had an economy-wide carbon tax, the Opposition Leader said 10 per cent of households would receive no compensation, while 60 per cent would be worse off or "line ball".” (Sid Maher, 11 July 2011)

  • “Noting that "no other country on the face of the earth" had an economy-wide carbon tax, Mr Abbott said 10 per cent of house-holds would get no compensation, while 60 per cent would be worse off or "line ball". "This is a redistribution pretending to be compensation, it's a tax increase pretending to be an environment al policy," he said. "It's socialism masquerading as environmentalism."” (Matthew Franklin, 11 July 2011)

  • “Please explain why no other comparable country with resource-rich and trade-exposed industries is imposing an economy-wide carbon tax?” (Janet Albrechtsen, 13 July 2011)

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