22 June 2011

Taxing CO2 in Australia now is a really bad idea

If your objective is to save the planet, then this tax will not help.

If your objective is to create prosperity, then this tax will help to impoverish us.

Though if your objective is to increase the size and power of government, then this tax would have to be a winner.

Here we are, yet again, accidentally having some easily accessible stuff that other nations are prepared to pay up for, and we decide it would be nice, in the name of helping Mother Earth, to deliberately make it more expensive for industries to set up or continue here. And we are going to make it more expensive now, before the rest of the world has done it too, to show the world how morally sophisticated we are, even when such sacrifice won't actually help the planet stay cool.

Brave? Yes. Sensible? No.

A carbon tax will inevitably cost us economically productive jobs. A carbon tax deliberately reduces our capacity to create wealth from using the most economically available resources to create goods and services. A carbon tax is specifically designed and intended to artificially increase the costs of our most economic and abundant sources of energy so that currently uneconomic and  more expensive sources of energy can compete. That is, a carbon tax  intentionally raises the cost of nearly all our productive economic activity for the purpose, apparently, of helping to prevent the Earth from getting warmer. Except that this tax will not have any effect on whether the Earth gets warmer or not.

Here's the rub, as the recent Productivity Commission report makes plain, Australia will be alone in the world in having an economy wide tax on its carbon dioxide emissions. This is from a country whose largest export is, wait for it: COAL.

We are doing the reverse of subsidising our industries. We are, with this tax, deliberately handicapping our businesses and industries against our global trade competitors. In fact Australians are subsidising our international trade competitors by exporting to them our cheap and abundant coal. You see it can be burnt overseas without being taxed. Burning our coal here would put businesses at an economic disadvantage because we will have a tax here that is actually designed to make burning it here it too expensive. This tax  will actually encourage more coal to be exported to the rest of the world. CO2 will still be emitted into the Earth's atmosphere when this coal is burnt. It will just now be burnt somewhere it is not taxed, although Australia will now no longer get the economic benefit of coal as a cheap source of energy, our competitors will.

Please someone explain how such a tax in these circumstances can work to reduce global carbon dioxide emissions.

Please someone explain to me why or how anyone can be morally sanctimonious about such a tax.

Please explain to me how fostering such outcomes could in any way be described as a sensible policy.

Please explain why a sane person who has the best interests of their fellow citizens at heart, could advocate for such a tax.

The suggestion that introducing this tax now prepares the Australian economy for the world's imminent low carbon future is based on wishful thinking or pure fiction. What world low carbon future? Where is it? Who else has one? Not who has said they'd like to have one or that they have a plan to introduce one. These are mere words. If Australia acts now on this we will be on our own in a spectacular folly.

China doesn't tax CO2. India doesn't tax CO2. The USA doesn't tax CO2. Russia doesn't tax CO2. Brazil doesn't tax CO2. Japan doesn't tax CO2. Korea doesn't tax CO2. Indonesia doesn't tax CO2. South Africa doesn't tax CO2. Not even sanctimonious and broke Europeans tax it. They have a market which prices it. Very badly, if your objective is to reduce CO2 emissions.

We Australians are about to shoot ourselves in the foot with this carbon tax. 

Suggesting that a Carbon Tax now is a truly bad idea has nothing to do with denial or scepticism about man made global warming .  Such an argument is delibrately distracting polemical fluff and a transparently irrelevant straw man. It's pretty clear that man's activities are having a climate effect. This is not the point of why this carbon tax is such a bad idea for Australia. It is also not a question of being opposed to having a world price for carbon that is determined by the market, so that long term sustainable investment decisions can be made for the betterment of humankind.. That might be a good idea when such a global market actually exists. But it doesn't.

The point is that to do this alone now, will cause Australians a self-inflicted economic harm for no climate benefit. No one else is going to follow our example in noble self sacrifice. The rest of the world needs to be actually with us, doing the same thing, when the whistle is blown and we plunge into the brave new low carbon world. They cannot just be waving us on from the officers' mess, sending us signals about our courage in going over the top for the cause. Alone. Such sacrifice would be in vain and an appalling vanity.

This tax is yet another episode in a continuous stream of spectacular intellectual misadventures that Utopian dreamers in power choose to inflict on trusting citizens, seemingly without remorse. It seems our bureaucratic elites believe the rest of us must just accept these morally superior soft headed policy idiocies, because they  mean well.

Implementing this tax now would be a middle class moral self indulgence that will cost Australians dearly for nothing.

I believe it was Frederick Hayek who said 

"The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design. "

There is great hubris in store for all the politicians, economists, scientists, journalists and bureaucrats who are proposing and advocating for the massive "reform" of our economy that the proposed carbon tax necessarily entails. I guess this could be called "reform" if you take reform to simply mean change of any sort. There will certainly be a lot of change.  But if reform is taken to mean change for the better, then this carbon tax is not reform. The Earth's climate will not change for the better because of it. Our industries will indeed now change so that they are less internationally competitive. The numbers of Australians in productive employment will change, downwards. Our national wealth will change for the worse.  And the huge structural change required will substantially increase the size and intrusiveness of central government.

It is a curious thing indeed that so many of our economists have let their imaginings about the power of their fiscal designs take such a hold that they have convinced themselves that a tax implemented in Australia alone can somehow save the planet  And then they proceed to have such grand designs imposed on their fellow citizens even whilst they know it must necessarily make us poorer.

This is truly a form of policy madness. And the Australian people implicitly understand that this is madness. Why can't our elected and taxpayer funded leaders in Canberra also see this? Is the maintenance of its power by placating the Greens so important to the Australian Labor Party and the rural independents in the Federal Government that they are prepared to persist in this self indulgent moral folly at the expense of the prosperity of their fellow Australians?

The only potential benefit in this for Australians is the tawdry and self defeating prospect of some much promised but as yet unspecified redistributive allocations to householders of large portions of the money obtained from penalising Australian industry with the carbon tax. That might feel good for some for a little while, until they lose their jobs because the tax cut or rebate they receive from the Government has come directly at the expense of making employers less competitive, and the employers have to cut back or fold as a result. 

What kind of economic folly is this? What sensible and serious person who is concerned for the well being of their fellow citizens could support it?

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