Having been feted as the Great Moral Challenge and been the key factor behind the demise of Malcolm Turnbull, climate change policies are nearly invisible in the present election campaign. Aside from the ''cash for clunkers'' gimmick, both major parties have so far steered clear of giving the matter prominence.
Differences are however present. The Government has said ''Putting a price on carbon'' is essential to efficiently reduce carbon emissions. A ''price on carbon'' is code for a carbon tax. The repetition of its claimed requirement is already creating financial risk for new investment in electricity generation, inevitably bringing dearer power irrespective of any price actually imposed.
Many voices advocating putting a price on carbon lament that the great majority of economists favour that approach but, because they are divided on its detailed execution, the majority position fails.
It is a moot point whether economists are so united. Activists who sign petitions tend to exaggerate both their own influence and the ability of price signals to bring about the goal they favour without simultaneously generating adverse side effects.
Supporters of imposing a price on carbon point to economic modelling that estimates a benign overall effect of a carbon tax. But this felicitous outcome is driven by two assumptions that embody great uncertainties. The first is technological forecasts, about which economists are inexpert. In addition, the modelling extrapolates business and consumer responses to minor price shocks in energy to fundamental cost increases bringing epochal changes in the structure of the economy and the intensity of energy use.
There are two fundamental means of forcing people to reduce their consumption of carbon based energy. The first is the use of economic instruments -- the price signal. The second is to target particular uses and reduce their emissions by employing regulatory measures. Almost all economists would argue in favour of the economic instruments approach.
The forms of economic instrument are a cap-and-trade quantitative measure and a straight out tax. These are really only different sides of the same coin. Cap-and-trade sets quantity limits to emissions based on estimates of what the price outcome would be. A tax is set to produce a price sufficient to bring about the targeted emission levels.
Though a tax is claimed to be superior in allowing for rebates of exports, this presents administrative difficulties no less complex than those of its cap-and-trade counterpart. Garnaut's version of cap-and-trade involved allocations of free permits for exporters and a government agency estimating the carbon content of imports from areas not imposing a tax and placing countervailing import duties on them.
The Liberals and Labor have the same target emission reductions -- 5 per cent by 2020 (which is a 40 per cent cut in business-as-usual levels).
The Liberal Party's goal is however stigmatised as relying on a regulatory approach. Its design follows work that consultants have undertaken showing costs of different approaches (cropland nutrient measures, waste recycling, nuclear, hybrid cars etc.) allowing a curve to be fitted from low cost (often said to be negative cost) to high cost.
Economists may agree that such findings offer indications where the best bang per buck lies. But even those convinced of the need for early abatement action usually oppose the regulatory approach. This is because circumstances are so dissimilar that one place's low cost approach may be exorbitantly expensive in another.
The merits of uncritically applying particular estimated costs and benefits to general policy approaches is illustrated by the Australian experience with a subsidised retrofit of pink batts. Drawing off theoretical calculations, this was originally estimated to make CO2 savings at a cost of $50 per tonne. In fact, on top of deaths and house fires, the CO2 savings are now estimated to be bought at a price of some $200 per tonne.
Unfortunately, those economists most vocal in urging a carbon price be adopted, seldom castigate governments for the plethora of regulatory measures in place -- subsidies for certain installations, requirement for wind generation, ''5 Star energy requirements'' on new houses and so on.
These regulatory measures constitute naked winner-picking and seriously undermine the ''elegance'' of a carbon price. Any of their supporters who also promote a carbon price either misunderstand the issues or are promoting the dual program approach for reasons other than seeking emission reductions.
Collectively government outlays on the measures in place today come to over $3 billion a year.
Other regulatory measures come on top of this. Thus, the ''20 per cent renewable'' target by 2020 will bring a 45,000 GWh annual increase in renewables. The cost of these is at least $60 per MWh, adding $12 per MWh to the average electricity price.
The cap-and-trade proposals would increase this further. The lowest of the Government's many price estimates is a highly optimistic $23 per tonne of CO2, or about $30 per MWh.
At $42 per MWh, these two measures would double the wholesale price of electricity, presently $37 per MWh, increasing domestic consumers' bills by 50 per cent. Other regulatory measures and the dearth of capital investment already evident will actually raise the wholesale price higher. The overall effect of prices and subsidies would be an effective doubling of the cost of households' bills.
Doubling electricity bills means $1000 a year to the average household. In a survey we undertook in April of this year, only six per cent of respondents said they would be willing to pay that much in increased utility charges.
Politics aside, this gives economists a further dilemma since at the heart of all taxes developed for the greater good is the notion of willingness-to-pay. If people are unwilling to pay it means they do not see the value of doing so. This removes the veneer of legitimacy behind which a tax can be formulated.
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