Letter to The Australian

Tim Curtin

(published 24 March 2008; The Australian's deletions are in red)

The Garnaut Review's Discussion paper on the Emission Trading System (ETS) to be set up by 2010 is an amazing document, bereft as it is of all common sense, let alone economics, but is full of some very astute politics. For example, the caps needed to achieve the Rudd Government's target for an overall reduction in greenhouse gases (GHG) to 40% of the 2000 level by 2050 could be either straight-line for 40 years to 2050, with annual reductions of 1.5% p.a. from 2010, or on a rising scale, with as little as 0.1% to start with, building up to say 2% by the time Nelson gets in around 2030. One does not need to be a politician to see which of these options the present lot will prefer!

The only other substantive point in the Paper is the proposal for a Carbon Bank that it proposes should be set up to manage the ETS. The most reasonable expectation is that the Rudd Government will adopt Garnaut's least cost-effective ETS, namely one directed at end-users of GHG (that is, you and me), as only that will maximize the number of customers of the Bank. For if the ETS were limited to the producers of GHG, then the only buyers in Garnaut's Auction of emission allowances would be the coal miners and producers/importers of oil and gas. With 75% of all electricity currently produced by coal from 118 mines, and 16% from gas and oil, which like virtually 100% of transport fuel is produced from just seven refineries, none of which will easily earn credits by reducing the CO2 content of their coal, oil, and gas, who are the non-miners/refiners that will earn the credits for sale to the miners and refiners should they wish to maintain/expand production in excess of their caps? There is no scope for a new Snowy to qualify, and nuclear is disallowed, so that with few players in the ETS, the level of the implicit carbon tax emerging from any trading is likely to be too low to attract many new entrants to the renewable energy scene.

Thus, if GHG are attacked at source, with just miners, refiners and the odd windmiller as players, there will be few trades, and the Garnaut Bank's emporium in Treasury Place will be strangely silent. How much more endearing if instead we end-users are all required to buy allowances in the Auction, and then vie with each other in bidding for extra whenever we buy that second car or investment property or air tickets. Think of all the jobs for commissars to monitor our usage with regular door-knocks, while the Bank would need a branch in every High Street across the land.

If Rudd and Wong are more sensible than Garnaut, they will settle for a greenhouse gas tax that is effectively just an add-on to the GST. This would require little more administrative effort than is currently entailed by the GST - but would obviate any need for the Carbon Bank and its bountiful employment of friends and relations of the ALP including Ross Garnaut and his Review Team.

Tim Curtin was formerly adviser in the Treasury, Papua New Guinea, 1988-1999

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