Penny Wong gets it wrong.

It is a credit to ALS blogger John Humphreys and the CIS (his employer) that his recent opinion piece in the Australian prompted an almost immediate response from the Minister for Climate Change, Penny Wong.

JUST as Australia is poised to implement the reform needed to move to a low-pollution future, proposals for a carbon tax have resurfaced, from Richard Denniss, of The Australia Institute, and John Humphreys, of the Centre For Independent Studies, published in The Australian last Wednesday.

It is not true, as Denniss and Humphreys claim, that Australia has not had this debate.

However Penny Wong gets it wrong. Firstly Australia has not had this debate. A few committees and blogs have discussed the pros and cons of Carbon Taxes and the ETS however there has not been anything like a general debate in the media or the community at large. However this is a minor point. Where I think she really misses the mark is where she says;

Arguments around the merits of emissions reductions policies can be complex, but the core explanation for why emissions trading is superior to a carbon tax is simple. A carbon tax does not guarantee emissions reductions. A cap-and-trade scheme does.  

This presumes (wrongly) that reducing emissions is the only criteria that matters. It suggests that the ALP is completely indifferent to economic and political considerations. And you can of course guarantee emission reductions with either approach, the issue really coming down to a question of “at what price”? Set high enough a carbon tax will reduce emissions just like an ETS. However an ETS assumes that we must reduce emissions whatever the price, whilst a carbon tax acklowledges that above a certain price further emission mitigation isn’t sane.  In fact the ALPs ETS acknowledges this by putting a cap on the price of emission permits and in so doing actually leaves hollow the claim that an ETS guarantees reductions.

One might counter (although Penny doesn’t attempt to) that at ETS allows for a lower price. Whilst this is true at certain points in time the overall uncertaintly of the carbon emission price under an ETS means that investment in alternative energy technologies will require a higher aggragate price to achieve the same investment confidence. As such an ETS is at the end of the day a more expensive way to get the same industry response. And the certainty of revenue that would flow from a carbon tax ensures that the reduction of other taxes remains a viable position even when debating the ALP neo-socialists.  

When it comes to countering the argument of Richard Denniss she completely side steps his point.

There has also been misunderstanding of the impact voluntary action by households can have under a cap-and-trade scheme. Some argue that household action simply frees up carbon pollution permits for others to use.

In fact, individual and community action to be more energy efficient not only saves them money, it will contribute directly to Australia meeting our emissions reductions targets. Strong household action also helps make it easier for governments to set even more ambitious targets in the future.

If you read between the lines she is admitting that under an ETS individual action to reduce emissions does nothing to exceed the collective target for reductions. All it does is offset reductions that the corporate sector would otherwise need to make. As such the ETS does in fact disempower individuals from taking meaningful action.

38 thoughts on “Penny Wong gets it wrong.

  1. This is great – clearly thrown the government on the defensive. Keep the pressure up and keep pointing out the weaknesses in the scheme. I also love the way that this is a true left-right combination!

  2. The “left” part of the “left-right” is Richard Denniss, who is the head of The Australia Institute, which was started by Clive Hamilton.

    Interestingly, in an article in today’s Crikey, Clive Hamilton comes out in favour of a trading system.

    Hamilton suggests that discussion of a carbon tax could slow down climate change policy, and therefore it is a bad thing:

    Second, climate policy is hard and takes a long time. To argue that years of working towards a trading system in Australia should be ditched for a new approach is to argue for more years of delay. This is why the sceptics in the Coalition have begun to talk about a carbon tax. For those who know it is untenable to call for no action, calling for carbon tax is the next best thing.

    Strangely, Gerry Jackson and Graeme Bird agree with him that we should not even discuss the differences between a trading and tax system. 🙂

  3. Terje, I made a similar comment over at catallaxy. She doesn’t make a strong enough argument that the surety of reaching a particular quantity of reductions is more important than the general effects of the system used to create an environment in which reductions occur. And then depending how well the ETS is regulated such surety may be non-existent anyway.
    John, are you planning a public response?

  4. As Wong says, an ETS does come closer to guaranteeing an emission outcome (though it’s not perfect because it excludes many areas).

    But that’s entirely besides the point.

    The goal is not to hit any particular level of emissions in any one year. Such an approach will make no real difference.

    The only thing that matters is the speed at which we can transition to alternative technology. We speed up that transition by changing the incentives — by adding a price for carbon.

    By concentrating on the emissions year-by-year, Wong is missing the woods for the trees.

    Both trading & tax will create a price and change the incentives. But a tax does it more effectively and efficiently, and with fewer negative side-effects. It’s also easier to remove later if needs be… and it’s easier to link to offsetting tax cuts.

  5. maybe this are silly questions….

    What happens to imports that don’t originate from an ETS country like China?

    How about our exports that have to compete with ETS free countries?

    What happens to government ETS related receipts and outlaysequation if people buy cheaper credits from overseas like Europe where the price has fallen again?

    If the answers are what I think they are, this is going to turn out to be the biggest policy disaster in decades.

  6. @jc
    I agree.
    China and India will not agree to limitations on their industries and until they do the rest of us, if you will pardon the expression, will be pissing into the wind. Their growth will absorb any carbon reductions we could possibly make.

  7. JC — there are several different ways an ETS (or carbon tax) could work. One option for an ETS is to provide free permits to trade exposed industries.

    It’s a bit different for a tax.

    An option proposed by the American Enterprise Institute (and others) is to tax goods on the basis of how much carbon went into their production. Basically it would be a small increase in the GST for some products. That would apply equally to domestic and imported goods (as with the GST). And such a tax would not go on exported goods (as with the GST).

    Such a tax would not change our relative competitive position with international firms.

    It would basically just be a GST-income tax swap.

    You are right that linking in with an international trading system is problematic and that ETS revenue would be inconsistent. Just a few of many problems that are avoided with a tax approach.

    Eric — I agree that China & India aren’t going to rush towards strict emissions controls. But as I said above — that misses the point. Nobody should be trying to reach specific emmissions goals for any one year. The purpose of policy is to change the incentives so that more people invest in alternative energy technology, to speed up the time when alternative energy is competitive with our current carbon-heavy energy options.

    I really do think that this debate has been framed badly. It’s not about emmissions in any one year. It’s about incentives to invest in alternative energy technology.

  8. The ideal form of carbon emissions tax in terms of dealing with trade issues etc is a tax on the end user consumption of the products involved. However such an approach is hopelessly complex to administer and compliance would be a nightmare. A tax on the domestic producer at the point of emission (eg tax the power station) or at the point of retail fuel sale (eg tax the service station) is by far the simplist option. Although the downside for trade exposed industries that use fuel or electricity in such an instance is that emissions may simply be exported along with the industries and jobs that cause them. Although a cut in the general level of taxes would produce jobs in other sectors and may mitigate the effect.

    No policy response is going to be perfect. A carbon tax has some merits as does an ETS. Doing nothing at all about emissions is not ideal either but it has it’s merits.

  9. IT would be impossible to manage, John. I can’t see how it wouldn’t place a good part of our industry at a disadvantage to countries that don’t have a mitigation scheme.

  10. Gah. It makes me want to tear my hair out in frustration. “Emission cuts next year at all costs!” It really is extreme rhetoric.

    Neo-socialists indeed. I really like that term, Terje. Put neo in front of anything and it sounds bad.

  11. “This presumes (wrongly) that reducing emissions is the only criteria that matters. It suggests that the ALP is completely indifferent to economic and political considerations.”

    It might suggest that to you, but it seems anything Penny Wong said would.

    Do you really think the ALP is “completely indifferent to economic considerations”? Who are you kidding? Are they going to eat our babies too?

    Get a grip.

    By the way, “criteria” is plural.

  12. Gaz – Penny Wong does not seem to me like the sort of lady that would eat babies. So until I see evidence to the contrary I’ll assume she isn’t into that. You really shouldn’t make such horrid accusations without at least some evidence.

    Shem – I’ve been meaning to test out the neo-socialist perjorative for a while. It seem that it has the required effect. Like neo-fascist you can wield it with much more free abandon than the un-neoed version. And if the victim denies that they are a socialist because of XYZ you can hand wave about neo-socialism being technically different to socialism but still really bad.

  13. @Terjep.
    Nice work. 🙂

    Of course there is a response you cannot cope with.
    In the words of Inego Montoya “You keep using that word. I do not think it means what you think it means.”

  14. Oh God, please don’t tell me that the AIS is adopting that same line used by rednecks from towns near proposed desalination plants that apparently will be swamped by salt. They may have a good argument but placards reading “Penny WRONG” are just cringe worthy.

    In any case, any publicity is good publicity, especially since so many people will be willing to side with Penny W(r)ong’s new enemies.

  15. AIS = Australian Institute of Sports. Those mob can’t be trusted. 😉

    JC — I don’t understand your question. If exports didn’t have the tax and imports had the same tax as domestic production then there is no disadvantage by definition. I’m not saying that such a tax is the best approach (I’m still open to a few different ideas) but it’s one option.

  16. I’m not talking about a carbon tax as such.

    However let’s look at both. If we have ETS or carbon tax, our exports would have a carbon component that has to be paid for which places us at a relative disadvantage to those that don’t have either.

    Our imports (from those that don’t) would also be competing with a domestic market that is pricing carbon.

  17. Gaz – Penny Wong hasn’t addressed the economic consideration sin her post at all, which she should have done if she were to fully argue against John’s article; her main argument for the ETS in this piece is the fact that an arbitrary emissions cap can be set whereas it can’t in a carbon tax environment. That’s not a strong enough argument as she doesn’t say why a specific cap is relevant. ‘Begging the question’, I think it’s called.

  18. Rowan,

    I’m sorry that you’re hung up on my cheap headline. It probably doesn’t help but if she had been on the money with her argument then my headline would have been “Penny Wong sings the right Song”. And if her existing article had been written by the PM the headline would have been “Kevin has lost his Rudder”. If a certain National Party senator came out in support of the ETS (he hasn’t) it would be “Barnaby joins the Circus”. However I can’t rival the comic genius that was “Pauline Pantsdown”.

    Regards,
    Terje.

  19. p.s. Why does opposing a desalination plant make you a redneck? I thought those that wanted to build them were the rednecks. The whole redneck thing confuses my tiny brain.

  20. Get ready to live those heady days again as she announced running for office in the Queensland election as an independent.

  21. Greego (@18) What do you mean Penny Wong hasn’t addressed the economic condiderations?

    Read the Garnuat reports, the Green Paper and the White Paper, not to mention the Treasury paper on the economics of climate change mitigation. There’s virtually NOTHING BUT economic considerations in them. If you want more there are the consultants’ reports listed in the Treasury paper.

    As for this issue of the ETS negating the effect of voluntary reductions in GHG emissions, it’s irrelevant, and it’s irrelevant because voluntary (let’s be accurate and call them call them non-economic) individual actions are insignificant.

    If anyone really, really, wants to boost their green self-esteem they could always shun products from ruminant animals – agriculture won’t be included in the scheme for another few years.

    And I suppose there may be some way of buying an emissions permit and not using it, if anyone wants to put their money where their non-ruminant-eating mouth is.

  22. Gaz: I said that Wong *in her piece* didn’t address the economic considerations *raised in John’s piece*, specifically why tariffs are preferable to cap-and-trade schemes. She’s avoided them completely by saying that as a carbon tax doesn’t guarantee a specific reduction, it’s not an option. She needs to show why the ability to hit a specific target outweighs the negative economic consequences.

  23. Redneck was more or less in reference to their making fun of her Asian surname. However, your excuse is acceptable.

  24. Rednecks and sceptics – Is it not wonderful how the supposed highly educated people of the world attack those with a new idea they do not understand, even Freud (?) was wrong, but the learned would not admit it as those teachings were all they knew and wanted to know, ridicule the non-believers.
    Expand your minds.

  25. Rednecks and sceptics. – Is it not wonderful how the supposed highly educated people of the world attack those with a new idea they do not understand, even Freud (?) was wrong, but the learned would not admit it as those teachings were all they knew and wanted to know, ridicule the non-believers.
    Expand your minds.

  26. Stephen,

    You enlightened soul, can you please criticise my questioning of Wong?

    “Does Wong believe a $5 a litre tax on petrol will not affect consumption?”

    You can go to town on that assertion. I’d be interested to see your response.

  27. The Liberals under Abbott now have promises on the table:-

    1. They will oppose Labors ETS.
    2. They will by the next election have a policy to reduce carbon emissions.

    A carbon tax is a logical alternative to an ETS but they seem to be ruling that out as well presumably because it would somewhat neutralise their ability to run a GST style scare campaign against the ALP. However if they did run with a carbon tax and linked it clearly to significant cuts in income taxes then they would have a simpler package with far less uncertainty that the ETS. Less uncertainty for tax payers, consumers, and both renewable and fossil based energy producers.

    Without some sort of price based mechanism it is hard to imagine how they might cut emissions in an economically efficient manner. They could back nuclear but that would seem like political suicide in the short term. They could buy out some of the brown coal power plants in Victoria but that would be a one off. Perhaps they could promise to improve the carbon uptake of Australian soils but that amounts to picking winners and is still a pipe dream.

    This will be an interesting space to watch. I’d suggest that the Liberals keep their mouths closed for a while and not rule anything in or out whilst they canvas widely for ideas.

  28. Abbott has indicated he’ll have an alternative policy. He’s been paying close attention to the carbon tax idea, so if he can bring the Nats with him I suspect that’s where he’ll try to end up.

    Inevitably he’ll want to make it revenue neutral. That makes me curious as to which taxes they will nominate to reduce. The devil is always in the detail.

    But to get the Nats on board he’ll need to address the question of why do anything, short of the prospect of green trade barriers. That won’t be easy.

  29. He’s also brave enough to introduce nuclear into the mix.

    We now seem to be about to get competing policies. It get more interesting as we go along.

    Rudd’s popularity is brittle and will become more so if Abbott is able to get decent policies going.

  30. He seems to be ruling out a carbon tax of any sort but is leaving nuclear on the table. Both are good economic ideas but nuclear may be a tough political sell. It is still the right solution however if carbon emissions must be cut.

    If they scrap the NBN they can fund some one off projects such as converting the brown coal power plants and building extra interconnect between the states. Not sure this is such a good approach economically but it might work politically.

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