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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. www.andrewleigh.com.

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)

7 Comments

  1. Riley Hunter says:

    Andrew

    I have a number of problems with your piece above.

    Your main point seems to be to bust the “myth” that “Australia has the world’s only economy-wide carbon price”. But you don’t offer any evidence againt this statement. So why should I not believe it? All you had to do is to state one country that has an economy wide carbon price – but you don’t. California is not the whole of the US economy. “Ten other US states are going ahead with carbon trading schemes” – well, have they yet? Even so, if they all do it’s still not the whole of the US economy. “China’s emissions trading pilots will cover 200 million people” – nup, still not there Andrew. What coutries in the EU are you refering to, and what are their schemes? OK, you mention NZ, but if it does have an economy wide carbon price why not just come out and say it? Saying we have linked our scheme to a similar scheme in NZ does not make your point. If I didn’t beleive this “myth” before, well I believe it now.

    Also, what’s the point of comparing a carbon price/tax to a scheme to deal with acid rain. Acid rain is real and not imaginary like the supposed CO2 problem.

    It doesn’t matter how much you argue for the right way to introduce a carbon price/tax, or even how many other countries have one. It is patently wrong because the problem that it is designed to address is not happening. Open your eyes and look around. There is no evidence for a problem. There has been immediate and impending doom now for 20 years and over that time temperature rise and sea-level rise have both been negligible. In fact over the past 100 years temperature and sea level rise have been negligible. How much more time do we have to wait for nothing to happen until you idiots pull your heads in and drop this nonsense? Please, drop the stupid carbon price/tax and get about focussing on things that are important and not imaginary.

    Cheers
    Riley

    • Andrew Leigh says:

      Riley, no country has an economy-wide carbon price. On climate change evidence, you should read the Garnaut and Stern Reviews.

      • Riley Hunter says:

        Ok. I think I get it. Are you saying that Australia doesn’t have one either? I think people in Australia know there are some exception. Isn’t the question whether any other country (whole economy/country) has what we have?

        I have read the Garnaut and Stern reviews. They are entirely unconvincing. I have read everything else as well. Quite simply there is no evidence. Anyone who thinks there is needs schooling in logic.

        Cheers
        Riley

  2. John Cashman says:

    Good on you.

    The Australian is living up to expectations. It publishes just enough articles recognising climate change to be able to claim that it is not in denial, while swamping them with denialist articles.

  3. Shaniqua says:

    I think the more important question is should we have one? I don’t believe the benefits gained long term by such a system come close to the costs imposed.
    The important distinction should be made between a tax and a carbon based securities trading scheme which have tended to be heavily lobbied for and go towards benefiting large banks.
    Relying on ‘ingenuity of the market’ is an economic fallacy with no basis in sound economic theory. Without intervention there are plenty of examples of these schemes under pricing carbon.
    The success of either system extends only to the extent that the costs to society can be offset with benefits gained by increased expenditure in adaption and innovation.. that’s if its purpose is truly to address environmental impacts.

  4. Of almost 40 nations with or about to price carbon, including 9 or our 10 top trading partners, which one applies their carbon price as narrowly as a mere few hundred top emitters? I did see a small one in Europe.

    In all but one case, Australia has the NARROWEST. Others tax all coal or all industry emissions or all retail electricity, all fossil fuel or at least all petrol. The original plan under John Howard included all petrol.

    How could there be a tax more narrow than ours? How much narrower than 500 companies can you get?

    As for being “big”, many pay a lot more, some pay less. Given the approaches vary, it’s hard to compare but no one can say we pay “a lot”. Tell that to those paying more or those without compensation.

    NSW was an early adopter of carbon pricing/trading back in 2003. It was limited but was essential to get everyone reporting emissions and helped support several valuable projects.

    From that early start, we’ve adopted the best elements of various approaches and it is working. Our emissions intensity is dropping and we’ve joined the global exodus to trade carbon credits on the international market. I defy someone to read all the studies into the approaches available to say we’re not doing what they all recommend or that all the studies are wrong. Many others have gone down this path and provide valuable experience. It’s hardly an uncharted map we are following.

    Pricing carbon is merely the first obvious step. It almost seems like the first basic step has stopped all discussion on all the other areas where we can cut energy, make money, develop systems, and have fun thinking about. The barrier gate to begin the race flung open and we took one step and are debating the virtues of the first step. We’ve got a race to run and this isn’t really a time to stand still. We’ve got a limited time to cover 100 more steps. Seems like we don’t even how what this is about yet. We seem to be debating the virtues of something without any focus on what the whole objective is. It’s not about a tax. It’s about using energy more efficiently, reducing costs, making money, sustaining business and the economy, protecting the coastal infrastructure, improving out lifestyle and managing resources more effectively to maximize our prosperity. Applying a price on carbon is barely chapter 1. Barely part of the story at all. It’s being used as a political red herring.