Nicholas Gruen must be psychic. He’s been spruiking in these pages for creative ideas for state government co-operative policy action. And lo and behold! The States themselves, led by longtime Kyoto advocate NSW Premier Bob Carr, come out with a proposal to introduce a State-based system of carbon taxes with domestic trading in carbon credits.
Predictably, the Howard government immediately opposed it, but with little or no attempt to develop any cogent argument against the proposal, just a predictable scare campaign that “families could face an average increase in their power bills of $239 under the premiers’ proposal“.
And, of course, the Business Council of Australia instantly condemned it too (as you’d expect given the extent to which its members have gotten away with “externalising” the environmental costs of their actions for years):
But the business lobby, especially in Victoria where much of Australia’s manufacturing sector is concentrated, is furious at the plan to cap – and cost – carbon emissions.
Victorian Employers’ Chamber of Commerce and Industry chief Neil Coulson said: “This decision sends the wrong signals to business.
“It creates great uncertainty in current and future investment, especially in manufacturing investment.”
Personally I think the Premiers’ plan is great news, although I’d like to see much more detail. Does anyone know of a well-written, accessible study on carbon taxes and emissions trading?
I wonder why the Premiers’ plan hasn’t attracted more attention in the blogosphere? Update – see Rex Ringschott here.
Of course, the main problem with state-based action in the absence of Howard government ratification of the Kyoto Protocol is that we won’t harvest the potentially large benefits (now Russia has ratified Kyoto and it’s come into force) of being able to trade carbon credits internationally, because it appears that international carbon credits trading will be limited to Kyoto participants.
Maybe John Quiggin (or Nicholas Gruen) could be persuaded to do some “back of the envelope” figuring on the costs and benefits of a carbon tax regime both with and without international emissions credits trading. Trouble is, we would need to know much more about exactly what’s proposed. It seems from the initial linked article that they’re going to set notional caps for each carbon-emitting industry, with taxes payable for emissions above those caps but with carbon credits trading allowed so that companies that can’t easily reduce their emissions would be able to buy credits from those who can. It’s potentially a neat, “market-based” solution to create price signals to modify behaviour that until now has been without any effective sanctions. But at what level would caps be set? Today’s emission rates? And how would they be allocated between individual enterprises? And at what rate/s would carbon emissions in excess of the cap be taxed?
My first question is, what happens if we ever have a State Liberal government that decides it would like to opt out? (Yes, a State Liberal government does seem implausable, but it could happen one day.) I could well imagine a situation where a poorer state like SA could opt out and attempt to attract industry to Adelaide on that basis.
Scott
It’s a good point, and a sound reason why national/federal government action would be vastly preferable, because it wouldn’t then be possible for a single state to opt out and so sabotage the scheme.
That’s a feature or a bug?
I’m not sure what to make of this yet. Still ruminating.
It’s a brilliant idea, and It’s been on the cards for a good while.
Yes, if one state opts out then that stuffs things up somewhat, but Victoria, NSW and Qld are the key drivers in this and once the Carbon Trading Marketplace gets active, then it stays active.
Most large carbon emitters have investments in more than just one state. So if one state government pulls out, that company would be still subject to carbon emmission checks in the other States its does business. It’s going to still have to comply, but it now makes it harder for these companies because there is no consistency across juristictions.
The big emitters have said that the only way they’ll accept Carbon trading is if it is a national juristiction, and now they’ll effectively get it. Without Howard.
Its a smart move by the States.
Of course the head-in-the-sanders like the dynamic Duo of the Herald Sun, Bolt and McCrann say its a disaster, but what do you expect.
This sort of thing is what is needed to change our moribund energy system. Folks like McCrann etc should be all for it because it forces innovation onto a system that is in dire need of infrastructure upgrade.
Look at the Queensland Power debacle of late. Their problem is lack of investment in equipment upgrade. Same problem in Victoria. All the privatisations have resulted in Utilities who have not invested in their own Energy assets for at least a decade, and have no real plans in the pipeline.
This will force innovation and change in the whole Energy sector. This will create thousands of new jobs and new opportunities for dynamic innovative businesses, and anyone who thinks (like McCrann) that it will bring the economy to a halt has no imagination.
It also means that there’s a chance that we won’t be left behind and have to import all our Energy Eficiency technology from overseas. It will give some Australian companies the chance to develop some indigenous technology before the foreigners take all the market share.
I pity though that it didn’t happen for Pacific Hydro. A good Australian company soon to be owned by the Spanish because the Howard government wouldn’t create regulatory certainly for innovative alternative Energy companies.
http://rexinthecity.blogspot.com/2005/03/greenhouse-states-fight-back.html
Would the scheme necessitate any kind of national administration? I’m just thinking about problems that occurred with the old corporations law, when the states cooperated to get a particular outcome, but the fact that for instance, ASIC was created by it posed a large constitutional problem.
I know we’re in a different situation here, but I’m wondering whether there are any practical legal problems? I spose there are lots of other cooperative schemes between the states?
However, I think it’s a great plan so far. It would be good to see the states cooperating more while they’re all one voice, so to speak, especially with August and a new Senate looming – I think it’s a useful way to take the edge off the Howard machine.
And it’s about time someone started paying attention to the environment. It’s so frustrating to think that people/businesses are more concerned about the bottom dollar – when at the end of the day, there’ll be no healthy environment left soon. Don’t people understand that our current attitude has to stop?!
Carita
I don’t see any constitutional problems with the proposal. The problems with the corporations law regime occurred because of limitations on the scope of the Commonwealth’s corporations power section 51(xx) and then because of the High Court’s decision on cross-vesting in the Wakim case. But that too was a limitation on Commonwealth power (to receive vested state judicial power).
There is no problem with States passing co-operative legislation introducing identical carbon tax regimes and agreeing to reciprocally recognise carbon credits earned in another State. It would even be possible to set up a joint enforcement authority if that was considered necessary, although I don’t really foresee a need for it. Once the initial emissions caps and tax and credits legislation are in place in all States and Territories, the market should pretty much take care of things.
Actually, thinking about it a bit further, there might be a potential problem with Constitution section 90, which gives the Commonwealth exclusive power to levy duties of excise. The High Court has defined excise as an inland tax on any stage of the production, distribution or sale of goods. I suppose the Commonwealth (or affected industries) might argue that a tax on the emission of carbon, to the extent that it is a by-product of the production of goods, is an excise. Whether that argument would succeed is another matter, but you could bet it would be argued.
Hmm. . .
Very interesting. Very interesting indeed. To put it another way, “I’ll be buggered”. I have always imagined this as a ‘nice idea’ that would not go anywhere. My reason for saying so is that there are issues of interstate distribution of gains and losses and I would have thought it very difficult to sort that out without the heavy hand of the Federal Government.
I still think this, but I can think of alternatives. In fact blood rushes to my head as I do so. Some thoughts:
1. The states could auction off the permits
Nicholas, I wouldn’t disagree that its hard, but what did JFK say?
“We choose to go to the moon in this decade and do the other things, not because they are easy, but because they are hard, because that goal will serve to organize and measure the best of our energies and skills, because that challenge is one that we are willing to accept, one we are unwilling to postpone, and one which we intend to win, and the others, too.”
It’s interesting to note that the naysayers like McCrann point to the USA not participating as a reason for us not to bother. But within the US itself the NorthEast states have banded together, just like our States, and are commencing implementation of a Carbon Emmissions Trading system.
http://www.rggi.org/goals.htm
Interestingly, the majrority of these US states look like Blue States. So once again Greenhouse politics divides on party lines.
Rex,
I’m not opposing what the States are doing or arguing they won’t do it for the reasons you mention. I just think its too politically and technically hard to do without the Fed’s involvement. But lets hope I’m wrong wrong.
As for JFK’s rhetoric, well, I quote it myself if it suits my purposes, but I reckon its pretty overrated. As for going to the moon because it is hard. Well it doesn’t quite cut it as stirring rhetoric for me – just sounds silly. Why not go there in a bathtub? Maybe a rocket made of blue cheese? That would be even more difficult.
Most of the power generation facilities, which I believe are the predominant source of carbon emissions in Australia, have been under the control of the States; until the comparitively recent sell offs of power generation facilities in the Eastern States. In WA, the predominant sources of carbon emission are still those of the State owned power generation company. It is slated to be broken up and sold off to private industry, power generation being one of the “bits”. Having sold off the power generation utilities, and taken the money into CRF, it seems somewhat rich for the States to then turn round and up the ante with the utilties in terms of their costs, whilst seeking to maintain low utility costs for their electorates.
I cannot see the States achieving a real diminution of carbon emissions, by seeking to trade fictional carbon credits. They had real opportunities when they owned the utilities to reduce carbon emissions and yet did nothing.
Whereas the States do control local EPA’s, the whole strategy with respect to emissions has to date centered on those emissions such as sulphur and nitrous oxides, and the like which have a clear ability to cause harm. Their ability to apply the same to say CO2 might be harder to apply. Most environmental controls are based on best available technology, which IMO requires a global push at the technical level, and at least at the national level in terms of economic impacts. The States remain marginal players in their ability to influence the real economic drivers, and as has already been pointed out: the arguments over what constitutes a tax or an excise will keep the matter in the courts for a decade or three.
What happens when offshore oil and gas developments like Chevron’s Gorgon Field off of the NW get going and there is a need to vent enormous amounts of carbon dioxide? In that the Federal Government receives most of the revenues from offshore oil and gas development, what will the States do as it is outside of the States area of influence, yet clearly is part of the global summation? Alternative energy sources which the States can encourage development by using solar, wind and wave power have been marginal in their application and consideration. Nuclear power is OK to export, but NIMBY; yet it offers a real chance to reduce carbon emissions, even if we might glow in the dark for a while. Given the alternatives of global warming are the comparitive risks of nuclear power unacceptable?
If the Feds do not come to the party IMO, carbon emissions will continue to increase. The States have lost their opportunity to effectively decrease them when they owned the utilities. The watchword has always been lower and lower utility costs to attract energy intensive industries and some creative pricing regimes have ensued such as that of the Portland Aluminium Smelter where energy costs where linked to the costs of aluminium. Since this is a globally traded commodity, the price was totally outside of the control of Australia, let alone within the States. Carbon reduction means higher utlity costs where ultimately the consumer or the tax payer pays. Higher utility costs are never an attractive election slogan.
John, I don’t think anyone’s expecting carbon emmission to decrease in the short term. Certainly this action by the States alone won’t do it, and you’re right some emmission will be outside state juristiction.
I agree with you that the States are responsible for the state of their infrastructure, and that they they should have done something earlier, but its really only in the last few years that the evidence has become so compelling, and the our communities have been getting more worried. That recent Lowy Instutute study put Global Warming as the second most compelling fear of Australians after International Terrorism.
I think the point is though that the Labor states have realised that something has to be done. We can’t ignore this. Australia WILL end up participating in GHG reduction plans whether we like it or not. It won’t be long before we’re caught in the middle of our desire to dig up as much coal as we can and flog it off to the Chinese, and the presure bought to bear on us by the Europeans and Japanese who are very serious about this. The Federal Government in my view is being irreponsible by not facing up to this matter now. It will leave us struggling to play in the new game, and we will be the worse for it. The states should be commended for at least giving it a go.
By far the most effective GHG emmision reduction strategy is to encourage greater energy efficiency.
A report by Allen consulting group
http://www.seav.vic.gov.au/energy_efficiency/NFEE/index.asp#Consultant_Reports
has modeled the economic impacts of energy efficiency targets. They state
“Achieving annual energy savings of one per cent beyond ‘business as usual’ (a one
per cent NEET) would deliver an increase in consumption of approximately 0.18
per cent by 2014 ($1.0 billion), while reducing electricity prices to end users and
saving 16.5 Mt CO2e of greenhouse gases. The total net present value of increased
real consumption in the economy over the life of the investments initiated by a one
per cent NEET is more than $8 billion dollars”
In other words, by becoming more Energy efficient, we not only save vast abounts of GHG. We also IMPROVE the economy. A 1% target would increase economic activity somewhat.
Rex I agree that the Federal Government has to be the vehicle, and that the issue is one of increasing urgency given the latest global warming trends. We cannot sit on the fence as a developed nation. Energy efficiency is clearly a part of the key, and I accept that ultimately it will reduce costs. Reducing consumption and looking at alternative fuel sources will also yield both economic and environmental benefits. In this regard selling North West Shelf gas overseas reaps greater environmental benefits than selling East Coast steaming coals, but clearly this is not a viable current option, and in any event would have to be viewed in terms of the overall global interest. Selling our coal to the Chinese probably helps the Chinese reduce emissions in any event, as their domestic coal, which they produce in great quantities, is higher in sulphur and ash and burns less efficently than imported coals.
I’ll check out the Allen’s article, thanks
The problem with carbon trading is that we cannot trade it off the Earth. Carbon trading to me seems like a method to allow pollution to continue. If we trade the carbon it still gets emitted somewhere.
Increasing efficiency and taxing carbon emitters to me is the only way to go. Just increasing the minimum energy standards for air-conditioners and fridges can save massive amounts of electricity.