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Australia's Carbon Price Legislation: Climate Responsibility with Social Justice

Three weeks ago the minority Federal government in Australia passed a historic broad-based carbon pricing bill through the House Representatives. The bill is not yet law, but it is certain to pass the Senate in the near future and will then find its way into the statute books. Under the legislation the 500 biggest emitters of carbon dioxide, some sixty percent of emissions, will pay an initial permit price of $23 per tonne which then be determined by market value in the future. Much of the cost will, of course, be passed on to consumers (who respond with purchasing changes) and there is a comprehensive package to compensate low-income earners and pensioners etc, along with substantial tax-breaks and a very significant increase in the tax-free threshold. Four million households will be better off after compensation, six million will be about equal, eight million will receive partial compensation and seven hundred thousand households will receive no compensation for the price rises. Average households will pay an extra $9.90 per week while average assistance will be $10.10 per week.

The legislation was passed after several years of debate on the issue; prior to the 2010 election the preceding Labor government has attempted to introduce a Carbon Pollution Reduction Scheme, which was also an emissions trading scheme, but with some significant transitional subsidies, leading to criticism from climate advocacy groups and the plan eventually being shelved. After the passing of the current legislation, the opposition leader has made a "pledge in blood" to repeal it, a very improbable proposal. The following represents a review of the carbon pricing scheme, its relative effectiveness, its relationship to social justice issues and the political issues it has raised. Before that however a brief review of the science is required.

As a matter of logical precedence, the first question that needs to be answered is whether global warming actually exists. On this level there is almost complete certainty with the summary dataset showing a clear indication. There are genuine questions of doubt on the accuracy of such records, however recent research from the Berkeley Earth Surface Temperature (BEST) project directly addressed these concerns and found that the instrument record is correct. In particular it's notable that the project was headed by a (former) climate change skeptic and partially funded by the Koch Foundation. Further is the final nail in the coffin of the so-called "climategate" accusations that suggested that climate scientists had altered or hidden data.

Given that it is almost certain that the globe is warming the new question to be asked is whether or not this is significant. Critics of mainstream concerns point to historical and pre-historical proxy data which indicates times in the past which were warmer. Proxy data is commonly taken from astronomical sun spot records for the recent past, dendrochronology for up to ca 10,000 years ago, varve analysis for ca 13 000 years, Beryllium-10 analysis of dust in ice-cores to ca 80,000 years ago, speleothems for ca 500,000 years ago, ice core crystal layers for ca 800,000 years, and oxygen isotope analysis to ca 540,000,000 years.

The fact it has been warmer in the past does give excellent opportunities for comparison with current climatic projections. These projections, trying to take into account an enormous variety of scenarios of international co-operation, industrial development and population growth. Because of this diversity even the most likely scenarios was for a global mean temperature increase of between 1.1 and 6.4 °C. In a popular and accessible manner, Mark Lynas maps the changes degree-by-degree; the upper end of the scale is utterly catastrophic. Even with current temperature increases the World Health Organization estimates excess deaths due to global warming is already 140,000 people per annum.

Global warming is occurring and it is significant; a question arises on whether it is caused by human activity. Of this the evidence is very strongly in favour of the latter. Temperature is driven by a variety of sources, primarily solar irradiation, but also greenhouse gases, ozone, volcanic activity, sulphates etc. In the last 100 years greenhouse gases have been responsible for a temperature increase of 0.7 degrees, solar irradiation by 0.2, ozone by about 0.08, volcanics by -0.15 and sulphates by -0.25. Those greenhouse gases are not due to additional natural emissions. the net amount released into the atmosphere. Further, despite a cooling effect of the Pacific Decadal climate pattern and a slight decrease in the last thirty years of solar irradiation, temperatures are still increasing.

With human activity primarily responsible for the greenhouse gas emissions which are causing global warming, the question arises on what is the best strategy to deal with such emissions applying a standard risk analysis. In Australia three broad models have been proposed; a "Direct Action" model suggested by the Liberal-National Party coalition, the Carbon Pollution Reduction Scheme proposed by the former Rudd Labor government, and the Clean Energy Future plan established by the Multi-Party Climate Change Committee.

To summarise, the Direct Action plan involves an incentive fund for emissions reduction, subsidies for solar panels or hot water systems, and the creation of a 'Green Army' to be involved in excersises such as planting twenty million trees. In comparison the CPRS was a cap-and-trade system which involved a large number of free permits for export-orientated businesses and electricity producers. In criticism, the Direct Action scheme bases 60% of its proposed emissions reduction on a very uncertain technology, it will cost twice the amount for the same effect, and will require funding through general revenue; rather than charging polluters, it funds them. On the other the CPRS came under sustained criticism for paying emitters to continue through free permits, and for establishing a target that would have required further industry compensation when changed.

In comparison the Clean Energy Future legislation charges an emissions permit on the largest polluters. It serves as a Pigovian tax which internalises the external social cost, with the specific implementation already cited. There has been much ado about whether government representatives has breached public promise made before the election that there would be no carbon tax; a commitment made by the Prime Minister and the Treasurer. Perhaps overlooked by the more extreme, the Prime Minister and the party that she represents made it quite clear that they would introduce a market-based carbon pricing scheme; as they had done so in the election previous.

The semantics of whether the Prime Minister lied or not is no mere quibbling, indeed they are at the core of the use or meaning of words, rather like "core" and "non-core" promise or the "gospel truth", to remind the politically partisan. The most obvious and reasonable defence from the Prime Minister is that it was certainly her intention to introduce an entirely market-based carbon price from the outset, but unexpected circumstances resulted - in other words the Prime Minister had to negotiate with the Greens and Independents and a period of a fixed price (but still tradeable on the market) was the result of those negotiations. Given that lies require intentions the best argument is not that the Prime Minister lied - but was certainly mistaken about the degree that she would lead the government.

Further, whilst it is unlikely, it is also quite possible that the Prime Minister stumbled upon a core component of political economy, the distinction between landlord, capitalist and worker (as identified by Smith, Ricardo, Mill et. al), as their respective returns from the productive process (rant, profit and wages). Whether a government price is a tax isn't dependent on whether it is market-based or fixed by regulation. A tax is a compulsory acquisition of value from the property (including labour) of another owner (see Black's Law Dictionary, p. 1307, 5th ed. 1979). So unless it can be demonstrated that the emitters of greenhouse gases own the atmosphere, it remains a public good and the public, through their democratically-elected representatives or delegates, are completely entitled to establish a price at whatever level they desire (the choice of market mechanism is a particularly good one for flexibility for example). Rather than a tax, this is a quite explicitly a permit scheme, akin to leasing public land, having a radio broadcast license, or a commercial fishing license. This is also significant for the redistribution aspect of the package as well, for there is a growing trend among economists to seek to derive a higher percentage of public income from natural resource rents rather than labour and capital, for purposes of economic efficiency and social justice. It should be noted that the proposal to use an emissions price to lower effective marginal tax rates was strongly recommended by Malcolm Turnbull.

Another potential line of criticism is the relative effectiveness of a carbon price, largely based on the recognition that Australia's emission output is lower than other countries (especially the United States and China), even if our per capita output is one of the highest in the world. Of course, even taking into account the long term changes, which will see an very significant eighty percent reduction in emissions from 2000 levels (in line with recommended requirements, Australia's contribution by itself cannot prevent global warming. But the reality is that is what Australia is responsible for; we cannot dictate to China or the United States what their emissions scheme should be. We can however join other countries which have emissions trading schemes (such as twenty seven European countries, NZ, parts of the US), and establish a plan which allows international expansion in future.

The existence of global warming is now well-established, and it constitutes an extremely significant concern for the future of the species. It is almost certain that this warming is overwhelmingly the result of human activity. Economically, it is best addressed by establishing a price on emissions, investing and implementing renewable technologies and allowing for internationalisation of such a carbon price. This is most effectively conducted by a trading permit scheme. As a package that moves the public revenue from low-income earners to emitters has significant social justice elements as well. This is, of course, a political issue involved as well which demands clarity in language. For example an opinion poll conducted by Essential Media shows a majority oppose a carbon pricing scheme, however when the same question is asked with recognition of compensation and investment in renewable energy sources, the majority supports the scheme.

Which brings the debate to whether the emissions price scheme could be reversed. If for example, Australia's opposition leader won the 2013 election with his blood oath to repeal what he deceptively calls a "carbon tax" (as does a large section of the media). Assuming success in this election, any change in the legislation would have to be carried in the House of Representatives and the Senate. But as Australia usually conducts half-Senate elections there is no chance that the latter will occur, with both Labor and the Greens stating that they will block such attempts. If changes to the legislation is rejected twice, then a double dissolution trigger would be available, which would certainly be challenged in the High Court as it would involve dissolving Senators before they had taken their seats. Assuming a victory in this challenge, an Abbott government would have to win the double dissolution election and have sufficient numbers to at least amend legislation in a join sitting. Even if all this succeeded, there would then be the enormous compliance costs and especially compensation as the emissions permits constitute personal property.

Regardless of this, with sufficient political partisanship, it seems that people are not just likely to reject facts when they are provided but are - surprisingly - more likely to defend the erroneous propositions that they hold.

Facts don’t necessarily have the power to change our minds. In fact, quite the opposite. In a series of studies in 2005 and 2006, researchers at the University of Michigan found that when misinformed people, particularly political partisans, were exposed to corrected facts in news stories, they rarely changed their minds. In fact, they often became even more strongly set in their beliefs. Facts, they found, were not curing misinformation. Like an underpowered antibiotic, facts could actually make misinformation even stronger.

"The general idea is that it’s absolutely threatening to admit you’re wrong," says political scientist Brendan Nyhan, the lead researcher on the Michigan study. The phenomenon — known as “backfire” — is “a natural defense mechanism to avoid that cognitive dissonance.”

There are many dangers to the human species; the presence of nuclear weapons still capable of destroying hundreds of millions, the dangers of overpopulation and resource depletion, the prospect of systematically-induced economic collapses. All of these are very real and worthy of detailed prescriptive consideration. But perhaps the species greatest danger is the attachment of artificial loyalties over and above real considerations. Whether it is religion or ideology, church or political party, the propensity of the human ape towards irrational partisanship can threaten the species itself. In this particular context examination has been made that shows that the earth is indeed warming, that this warming is significant, that human action is the cause, and that the best method to resolve the problem is to establish a price on emissions as part of a general policy of social justice that shifts the public revenue base from the work that we do to the resources that are used. As a contribution to reasoned discussion on a critical issue, it is up to others to find genuine error in this assessment.

Commenting on this Story will be automatically closed on January 1, 2012.


In their usual fashion, cracked gives some answers on that last point.

Good article as usual Lev.

Via Andy Revkin's dot earth blog I came across a piece by Guy Pearse arguing that it's crucial that Australia also address our large coal export industry :- ideally with a planned major drawing-down of the industry over 10 years or so.

This speech presents the issues well - including taking on the idea that an Australian supply reduction would just be taken up by others exporting more :- no one else really has the leverage we do apparently.

It is not the easiest situation. We would have to ensure that it is use that we address rather than export (after all, our export markets sometimes do stockpile a natural resource when the prices are down), which would be difficult to administrate. If we engaged in an act of including an "export tariff" we may come afoul with other international obligations.

I readily admit I have no easy answer for this conundrum, except for the international pressure for other countries to also adopt an international emissions price.

In a more detailed comment, I would love to go over some of the reasoning behind our choices. Tremendous information here. I really benefit from reading your posts. I've learned a vast amount from them.