Address to the Revolt Against the Carbon Tax
My focus is on the economic and political implications of the measures restraining carbon dioxide emissions.
First, the outcome on the climate, if any, as a result of Australia taking action alone is negligible. Not only do we account for a trivial 1.5% of global emissions, but if we wind-down activities that are prominent emission producers - in particular the one quarter of our electricity for smelting - the effect will be fully offset by expansions elsewhere. And we will be all the poorer as a result.
Secondly, the likelihood of international action is receding. And it is not credible to imagine that Australia taking unilateral action will prompt similar measures by others. The US is abandoning its efforts at the federal level and individual states are pulling out of previously agreed emission reduction commitments. The latest ones are New Hampshire and New Mexico.
Of other countries, China is not moving towards emission restraints. Japan stated at Cancun that it was not going to take further action towards promoting renewables and it would not introduce a carbon tax. These attitudes will have hardened now that the events in Japan are closing off, at least temporarily, the prospect of a nuclear power resurgence. Germany has temporarily closed older plants and it and other major nuclear power producers have put moratoria on new generators. And even if new nuclear power developments resume, the tsunami will mean increased plant costs, thereby increasing the price premium on fossil fuels required to promote substitution.
Nobody outside green activists believes solar/wind have a realistic role. Wind is and will remain three times as costly as coal with solar perhaps six times as costly. Moreover, in both cases the unreliability adds further expenses. And in spite of vast outlays, there is no prospect that coal power based on carbon capture and storage will get off the drawing boards.
Carbon tax or alternative action fails to pass a cost:benefit test for the world as a whole and still less for Australia.
For the world as a whole, the peer reviewed economic analyses suggests a doubling of emissions would bring costs over the course of a century in the range of +/-2.5%. The major costs are associated with the IPCC forecast 20-80 cm increase in sea levels that economic analysts take as given. Offsetting these claimed negatives are positives in the retreat of permafrost and increased growing seasons. Many areas would make unambiguous gains from warming (e.g. much of Russia, China and north America) making an international agreement impossible.
The government financed studies like Stern and Garnaut have higher costs than these independent studies but lack credibility.
And when we think of these +/-2.5 per cent in costs or benefits we need to recognise that they take place in the context of a global business-as-usual doubling of real income over this century. Measures which shut-off the cheapest forms of energy would seriously reduce this expected increase in global income levels.
For Australia, greenhouse action to ensure that global emissions are brought to a world average level entails a reduction of domestic emissions by 80 per cent. Not only does it mean a direct cost to the households - at least tripling electricity bills in the longer term - but it means an abandonment of our existing industry structure. The cost is colossal and would cut deeply into Australians' living standards.
Already we have a $3 billion drain on the economy through the budget for government agencies to promote climate change and subsidise carbon-reducing technologies. In addition we have the renewable policy which requires 20 per cent of electricity to come from high cost renewables by 2020. On conservative assumptions this will cost $2.7 billion a year. A carbon tax at $30 per tonne levied only on electricity would raise a further $6 billion and $15 billion if it is on all emissions.
Such sums would add to the vested interests and government resources to promote increased action. The Gillard Government already has a vast panoply of funding taken from the people for propaganda to persuade us that the measure is really in our interest. The funding has different prongs including:
• Science funding with the existing funds to CSIRO, the Met Office, the Universities and the CRC's supplemented by additional funds from the Department of Climate Change $20 million a year
• The activities of the DCC itself and of other government agencies, all of which have dedicated units as part of the climate change propagation industry
• Funding of so-called independent bodies like the Garnaut review, the advisers to the MultiParty Committee, Tim Flannery's Climate Commission and bodies like the Grattan Institute.
This is a flagrant extension of the role of government and overshadows all previous nanny state measures.
With the latest series of papers comprising Garnaut's review of the Garnaut Review, Ross Garnaut has proclaimed himself right all along. He is a long time servant of the ALP and an economist with impeccable credentials favouring increased government spending, higher taxes and using economic instruments to push buyers and sellers in his own preferred directions. Because, as he explained to the ABC's sympathetic Tony Jones "I can read English", he maintains that the science is all cut-and-dried.
Garnaut is the Gillard Government's spear carrier on the issue. His carbon tax would raise $11.5 billion in its first year. He wants to parcel this out between bribing the poor and promoting R&D. Although he also advocates some form of cushioning effect on the most vulnerable export and import competing sectors, he seriously misunderstands the complexities this entails.
And, to soothe concerns about loss of domestic competitiveness, he and other Government spokesmen are promoting the tax on the expectation that all nations will take similar action.
Even Paul Kelly, The Australian's long-time advocate of a carbon tax, raised an eyebrow at that one.
But Mr Kelly like others continues to see the carbon tax as part of a productivity-enhancing tax reform. This discounts our experience that subsidies to bend spending in ways favoured by governments have always proven misconceived and wasteful in the past. As the example of the Future Fund shows, Australian governments will inevitably direct such funding to political objectives that yield no productivity gains.
The carbon tax advocates clearly do not subscribe to the views of Winston Churchill who said
"I contend that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle" ..
Churchill's colourful description actually understates the absurdity of a tax as a wealth generator. This is because, even without other problems a tax requires the deadweight of a bureacracy to administer it and to redistribute the funds it raises.
But in Australia's case the carbon tax is even more detrimental. That's because it falls most heavily on the sectors that are most productive given Australia's resources. It slams the competitiveness of industries like smelting that make use of the low cost energy we have in such abundance.
The ALP Green alliance now seeks to squander gains made in the past 15 years in reforms to electricity and gas that have delivered the low costs that the industries and households enjoy. These reforms have done much to raise our living standards over recent years.
Australia's proposals would require the abandonment of Victoria's valuable brown coal resources and the progressive devaluation of our black coal reserves. As well as providing cheap domestic energy, these provide one quarter of our exports.
Leaving aside a stepped fall in living standards, the claims that a tax once in place will restore the confidence of industry is Blind Faith. How can a new tax that discriminates against a particular raw material provide confidence to invest in assets with 20, 30 and more years life? A tax introduced is a tax that can be changed. It may make gas based electricity cheaper than coal but would a firm invest unless it got the investment guaranteed against subsequent tax changes? And providing such a guarentee would take us further down the role of socialist control of industry.
Hopefully, the current climate change proposals in Australia will prove a Last Hurrah. The hard-headed response of Australia's energy market operator would seem to signal that is the case. For this year's Earth Hour, the Operator has said, "Historical evidence has indicated a diminishing impact on Demand due to Earth Hour and therefore no special arrangements have been made this year to increase the lower regulation requirement during the event."
Actions by individuals speak far louder than the chanting of the zealots. A new carbon tax is being promoted by hundreds of millions of dollars in taxpayer financed government propaganda. It is people like us who need to ensure the disasterous effects of such a measure remain before the electorate as this is the only way to stop it.
Encouragingly, IPA's own polling last month showed that only 34 per cent of people thought the world was warming and that mankind is contributing to this.
And, in a survey we undertook a year ago, only 6 per cent of respondants said they would be prepared to spend $1000 a year to contribute to preventing the alleged causes of climate change. The present proposals bring Australia well on course to a $1,000 a houshold charge by 2020.
This taxpayer revolt is the reason why the Gillard Government is in serious electoral trouble and is contributing to the impending ALP defeat in NSW next Saturday.
Let's make no mistake! It is not corporate Australia that pays the costs of the carbon tax. Any such costs are passed on to the consumer or are reflected in lower levels of competitiveness of our industries and with this lower wages or fewer jobs. The costs of the carbon tax, if it proceeds, will inevitably fall squarely on ordinary Australians.
I therefore leave you with this message.
Even if the entire world were to agree on a global emission reduction program, its benefits would save at best 2.5% of global income but cost many times that in a forced shift to higher cost energy.
More pertinently for Australia, a tax cannot have any effects on climate unless it is globally applied. There is no prospect of that happening and trying to implement it in this one small country alone will seriously damage our economy and living standards.