Jon Stanford's "Carbon signal now firmly on the agenda" (Opinion, April 12) and the Allen Consulting report on which it is based illustrates some of the deficiencies of the debate on greenhouse economics.
The report argues that we should introduce a "price signal" (a euphemism for a tax) on the carbon content of energy.
It says we need a 60 per cent cut in emissions and that acting early will bring GDP costs at only 6 per cent rather than 13 per cent if we wait.
But the report arrives at these conclusions by assuming that there will be considerable innovation. It excludes from the analysis nuclear power, surely the only future source that can conceivably deliver without imposing exorbitant costs.
Its assumptions allow for a tax of only $10 on carbon dioxide when even the European scheme's "price signal" is $40 per tonne and this only garners the "low-hanging fruit" of a 2 per cent reduction.
To make its numbers work, the report also assumes a credibility-stretching oil price reduction of 50 per cent.
In his article, Stanford claims that a tax is needed now to discourage any business from investing in coal-powered electricity but goes on to argue that no firm would do so anyway without a government indemnity against a future tax.
It would surely be simpler to ban such investment, a measure that even governments displaying green credentials have rejected.
While gas producers may find some comfort in a carbon tax conferring an early disadvantage on coal as a competitive source of fuel, gas, too, must face reduced market shares if reductions of the order proposed by Allen and its six sponsor businesses are to take place. All this demonstrates that considerably more dispassionate analysis is required before governments embark on such economy-busting measures as those proposed by the greenhouse tax proponents.
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