Dick Warburton On Carbon Tax vs ETS

HAS there been a community discussion/debate on the merits of a Carbon Tax versus the cap and trade Emissions Trading Scheme (ETS)?

Dick Warburton, former company director and former Reserve Bank board member who chairs an advisory committee on aid to industries affected by carbon trading, thinks NOT.

In an ABC interview this week he said he believes the Government’s ETS is compromised and that he would like to see a carbon tax introduced.

The Carbon Tax Position

Dick says there are two issues, the cause of climate change and the solution to it:

“On the cause there’s huge debate about whether carbon dioxide is the main cause. We’ve had no debate, virtually no debate on the ETS versus the carbon tax. There have been individuals putting their point of view but no debate…

There’s been a huge change from when Howard introduced… a pure ETS system. We haven’t got a pure system now. It is a completely compromised system.

The educational aspects of the public have been so poor that the people just don’t understand what it is…

One of the things that you want to have with a scheme like this is that people do suffer a bit of pain and that sounds a bit grim but that’s how you get inducement to change and come up with better solutions…

Because the science is not settled, then I don’t believe we should be going into a scheme which is virtually irreversible once it starts…you better go to a scheme that can be changed if the science moves one way or the another, and the carbon tax would do that.

The carbon tax is a much more transparent, much more direct, much more flexible type of system and with the completely compromised ETS I believe it’s now turned out a better solution.

Business is quite happy to go ahead with a more certain scheme as I’ve heard. It’s far better to get certainty of a good process than to get certainty of a bad process, and that’s what I think we’re looking for to get the debate going.”

Carbon Trading Losing Credibility Fast?

Brian Feeney writing for New Matilda argues this is so. Brian is a Queensland urban planner and writer with interests in sustainability and economics. He says the Government’s ETS is

“no different to other schemes around the world which have achieved very little except to create dubious new securities that speculators can trade…more evidence is emerging that casts doubt on the usefulness of ETS schemes in general for preventing dangerous climate change…

The task of reducing carbon emissions requires a robust strategy able to cope with uncertainty and ignorance about the future. This task is definitely not something to leave to the traders and speculators who brought us the GFC..

One of the major similarities between the financial derivatives market spawned during the sub-prime mortgage fiasco and the emerging carbon markets is the way risk, uncertainty and ignorance are dealt with in this type of trading..

This is directly relevant to Australia’s emissions trading scheme (the Carbon Pollution Reduction Scheme, or CPRS) because Treasury’s 2008 modelling shows that the CPRS won’t reduce Australia’s domestic carbon emissions until after 2030. Instead, for the next 20 years, the CPRS will rely entirely on importing a large number of carbon offsets..

Economic theory asserts that putting a price on carbon will allow the market to produce “least cost” emission reduction. This notion depends alarmingly on the same assumptions that allowed the GFC to occur, namely that all risk/uncertainty/ignorance is incorporated into the market price.

In designing a robust response to climate change, we need to put in place systems with backup components in recognition of our uncertainty and ignorance about the future.

There’s strong evidence in recent history to suggest that we can’t rely on market prices to achieve the kind of structural change needed to prevent catastrophic global warming. Effectively addressing global warming requires construction of the large-scale renewable energy infrastructure that will produce real carbon emissions reductions. As US climate activist Ted Nordhaus (nephew of William Nordhaus) puts it “we didn’t get the internet and personal computers by taxing fax machines or capping typewriters. We did this with massive public investment in … these new technologies.””

Bring on the debate..