Carbon tax dated

Canberra's decision to shelve its greenhouse tax, the Carbon Pollution Reduction Scheme (CPRS), was a dramatic political backdown.

Ironically, though, it brought immense relief to the NSW Government.

For 2013, the NSW independent energy regulator had foreshadowed more that $700 a year extra on households' electricity bills.  Half of this was to pay for additional costs required for the state owned electricity poles and wires in urgent need of repair due to past underspending and the normal inefficiencies seen with government monopoly businesses.  The other half was to pay for Mr Rudd's CPRS greenhouse tax.  Now the Keneally Government only needs to wear voter acrimony for its own mismanagement of the electricity network.

But the $300 greenhouse tax affect on electricity bills estimated by the NSW regulator for 2013 was only a down payment.  By 2020, the foreshadowed tax at $40 per tonne of CO₂ would collect over $18 billion.  That's over $1000 a year for the average Australian household.

Mr Rudd says a re-elected federal Labor Government will re-introduce the CPRS greenhouse tax bill in 2013.

But will it?  Clearly Mr Rudd's carbon tax backflip was opinion poll driven.  Following the publication of opinion polls in the US showing electoral resistance to paying carbon taxes, we commissioned its own research through the Galaxy polling company.

This sought information into what Australians thought about global warming and how much they would be prepared to pay to prevent it.

Notwithstanding the taxpayer financed propaganda bombardment people have been subjected to from the bureaucracy and government politicians, only 35 per cent of those questioned thought that global warming was caused by human emissions.

Significantly for the Rudd Government's tax and spend aspirations, only six per cent of the total sample said they would pay over $1000 a year to reduce greenhouse gas emissions.  That is significant because $1000 a year is the price the Government's (vastly understated) estimates say would be required in 2020.  Indeed, only 12 per cent of the believers in human induced global warming said they would be prepared to pay the Government's estimated cost.  Fully 35 per cent said they were not willing to pay any form of impost.

These sorts of answers to opinion polls are being seen all over the world.  Only unelected bodies like the European Union's Environment Commission are soldiering on.  The EU Environment Commission briefly promoted an unconditional 30 per cent reduction in emissions for its member states.  This is in spite of the EU agreeing at Copenhagen to only a 20 per cent reduction and that with the proviso "that other developed countries commit themselves to comparable reductions and that developing countries contribute adequately".  Within a day, facing ridicule, the Environment Commission withdrew its proposal.

Notwithstanding the excessive ambition of the EU's Environment Commission the Rudd Government backflip is symptomatic of a world trend and there clearly will not now be any form of global carbon tax.

All this invites two questions.  First, what are the estimated costs of warming should it take place?  Secondly, how much would it cost to reduce carbon dioxide emissions on the scale said to be required?

Reputable estimates put the effects of warming as ranging between plus and minus 2.5 per cent of GDP.  While not insignificant, such a change would take place over a period of 100 years, during which the average Australian is estimated to see a threefold increase in income.

More difficult to assess are the costs involved in taking action to curb CO₂ emissions.  Australia would need to eliminate over four fifths of current emissions.  Treasury projects the costs of this at only 2-3 per cent of GDP over the course of fifty years.  The chief means of accomplishing this are the CPRS taxes.  Treasury optimistically estimates that the tax would do the trick by trebling electricity prices.

But Treasury's projections of the outcome of carbon taxes in terms of GDP are pure guesses.  They are derived from bold technological assumptions coupled with the experience of consumers' responses to minor price changes that have taken place in the past.

The only experience of the sort of substantial price changes thought to be needed has been the quadrupling of oil prices during the 1970s.  However, that event brought substitutions of oil by coal, natural gas and nuclear as well as increased oil discoveries.  Australia's CPRS tax would prevent such developments.  Trying to replace fossil fuels with renewables means unreliability as well as vast expense, while the alternative of stripping carbon emissions from coal and oil and burying them is totally unproven and even if feasible would also be very expensive.

Energy is second only to food in its importance to the economy.  As with food, unless some unknown breakthrough occurs (or we move to a nuclear power), throttling back its use by 80 per cent would impose massive costs and, contrary to the rosy Treasury scenarios, would bring drastic reductions in living standards.

The public do not see catastrophic outcomes from warming, should it be taking place, as sufficiently serious to justify real sacrifices.  Temporarily at least, Mr. Rudd is being forced to agree.

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