Wednesday, 13 April 2011

Re-Capping the Insanity

Out of Step With the Real World

New Zealand is now officially stagflating--arguably the worst of all possible economic scenarios. Not that you would know, since there is a deafening silence on the matter from the commentariate and officials. Stagflation is the desperate condition of an economy which is paralyzed by stagnant economic growth, on the one hand, and galloping inflation, on the other."Whatever you do, don't use the S-word!"

There is only one way out that we know of--ruthlessly cut the dead wood off the tree, let the sap bleed, and wait for fresh, non-blighted shoots to emerge. But that rarely happens because anodyne solutions are always more acceptable to the voters and government always have their eye on the next election and their prospects for holding on to power.

One cut that is needed, and needed badly is to dismantle New Zealand's Emissions Trading Scheme. it represents the "crock of all crocks", which in our Alice-in-Wonderland-World is saying something. It is an ideological tax which achieves no good whatsoever, but inflicts much economic harm.

Australia is now considering just such a tax (defined as a government imposed cost impost upon citizens and their property). Greg Sheridan, Foreign editor of The Australian recaps the inanity and madness of Julia Gillard's proposals. His eviscerating arguments apply equally to New Zealand's folly.
It's madness to sacrifice ourselves for nothing

Greg Sheridan, Foreign editor
From: The Australian
April 09, 2011

EVERY so often Australians accuse themselves of being out of step. The implication is that we should "catch up with the world". Sometimes this has been a useful spur to reform, sometimes it has been nonsense.

But the Gillard government is attempting to put Australia off-side with the practice of virtually the entire world. And it is doing so by pursuing a puritan ideological obsession that virtually no one else in the world is doing.

I refer, of course, to the proposed carbon tax. If the carbon tax goes ahead, to be replaced in due course by an emissions trading scheme with a fixed carbon emissions target, Australia will have among the most extreme climate-change policies in the world.

Gillard has shown herself to be a highly reactive politician. And it is characteristic of her that she overreacts. The ETS was unpopular before the last election, so she urged Kevin Rudd to dump it. After the election, Labor was worried about hemorrhaging votes on its left to the Greens, so every Labor right-winger who had ever bruised a ballot became a champion of gay marriage. And Gillard embraced the carbon tax.

Lately Gillard has been under pressure, not least from the Labor Right, for being too close to the Greens - so she's embraced the Bible, a newly minted life-long love of America and social conservatism.

The problem with these wild overreactions is twofold. After a time they lose their credibility. And in the meantime we're stuck with the carbon tax.

Let's have a simple rundown of what the rest of the world is doing. In Europe there has indeed been an ETS for some years. But more than 95 per cent of the carbon permits in its first years were given out for free. The scheme had little effect on reducing greenhouse emissions. It was widely regarded as a joke, although European officials who come to Australia are inevitably interviewed reverentially by uninformed ABC personalities who never hold them to account for this.

Europe says it is going to fix its ETS. But even so, the vast majority of Europe's export industries will qualify for free or highly discounted carbon permits.

Some heavy manufacturing has left Europe and gone to China. But as Graeme Kraehe of Bluestone Steel pointed out, carbon emissions attributable to European imports have risen massively. So any carbon reductions from European manufacturing have been more than matched by carbon increases from non-European manufacturers now supplying Europe's population. Out of this, there is little or no net carbon reduction for the planet.

What about China?

China is the world's biggest greenhouse gas emitter, responsible for nearly a quarter of the world's new carbon. The Gillard government's Greg Combet uses a Jesuitical form of words, which is a first cousin to rank fraud, when he talks about China. He recently spoke of an "implicit carbon price" in "certain sectors" of the Chinese economy. Gillard herself frequently talks of China decommissioning coal-fired power stations.

Let's be quite clear. China is engaged in a massive, yes massive, increase in carbon emissions. As Gary Banks from the Productivity Commission has made clear, the implicit carbon price exists only in Combet's dreams. China does not impose a carbon price across its economy. Banks has concluded that you simply cannot work out an economy-wide implicit carbon price from the carbon-reduction measures for economies that do not impose direct carbon prices.

But despite the Gillard government's propaganda, and its many slyly misleading convolutions, Beijing has never, ever promised to cut its carbon emissions. It is indeed decommissioning old coal-fired power stations and replacing them with new coal-fired power stations. These will be more efficient than the old. So China can claim it's reducing its carbon intensity, that is, the amount of carbon per unit of output. But overall it plans huge increases in greenhouse gas emissions.

Its Copenhagen offer, on some estimates, would have seen its carbon emissions grow by 500 per cent on 1990 levels by 2020.

Take the steel industry. In the past decade, China's steel industry has more than quadrupled in size. That means it is producing one billion tonnes of extra carbon per year from that industry alone.

One can only conclude that the Gillard government is deliberately attempting to mislead the Australian people about what is happening in China.

China faces huge environmental and pollution problems, of which carbon is a part. And undoubtedly it is trying to produce goods more cleanly. But if you ever hear a government minister, or an interviewer, claim China is reducing emissions, or has a price on carbon, you know they are talking through their hat.

In the US, the administration of Barack Obama has definitively abandoned any support for an emissions trading scheme or a carbon tax. Such policies face overwhelming congressional opposition, from the Democrats as well as the Republicans.

Again Combet misleads gullible ABC interviewers by trying to claim the US's few state-based emission reduction schemes are somehow comparable to what he is planning to do to the Australian economy. In fact the state-based schemes in the US are in the process of atrophy. They are very shallow schemes, covering small portions of their economy, with low carbon prices.

The Gillard government's proposed carbon tax is meant to cover the whole of the Australian economy, with a few sectors exempt. There is hardly a country in the world that has done anything like that. Certainly the state-based systems in the US are not remotely equivalent.

In our own region, the contrast between what the Gillard government is planning to do, and what our neighbours are actually doing, is even more stark. Before the giant earthquake and tsunami that devastated Japan's northern shores and created the continuing crisis at the Fukushima nuclear power plants, the Japanese had already decided to postpone any legislation for an emissions trading scheme. The early design of the Japanese scheme that has been postponed looked as though it would be a replica of the ineffective European scheme, with most carbon permits initially issued for free.

After the tsunami, economic reconstruction will be the key. Japan will need to replace the nuclear-generated power it has lost, and probably find some other source for the nuclear power it was planning. That inevitably means a lot more carbon emissions. Japan won't hurt its economy with an ETS or a new tax.

Something like this may well affect Germany too, if, as seems likely, its nuclear power industry is scaled back. Some European nations have carbon taxes as well as the ETS, although others, such as France, have abandoned carbon taxes altogether.

South Korea had planned to start a carbon reduction scheme in 2013, although there seem to be endless delays and not much more than half the economy was to be covered. Again it seems the early permits were to be issued mostly for free. It is extremely unlikely South Korea will disadvantage itself compared with its northeast Asian neighbours.

India, which accounts for about 5 per cent of global emissions and rising, has no plans for an ETS or an economy-wide carbon price. Its voluntary offers to reduce carbon intensity - like China, India has never offered to decrease carbon emissions - according to some analysts, involve an overall 350 per cent increase of carbon emissions on 1990 levels by 2020.

Canada did sign up to the now defunct Kyoto Protocol, but never went anywhere near meeting its targets (whereas Australia, having not signed up, did meet its targets). I mistakenly wrote recently that Canada has an ETS. It does not. Nor does it have a carbon tax.

Russia, because of the collapse of the old Soviet-era industries, fell well below its 1990 level emissions. But Russia's economic development plans involve massive carbon emission increases from here onwards.

The countries that compete with us to sell resources to China, such as Indonesia and Chile, are doing close to nothing to inconvenience their economies on this score. The notable thing about the Indonesian press and political debate is that climate change never figures at all.

Part of the corruption of the European ETS was that it involved buying carbon credits from Third World countries by sponsoring anti-greenhouse schemes there. But these were mostly ineffective, if not outright rorts.

It is a nonsense to describe the imposition of a carbon tax as an economic "reform" for Australia. If the proponents of the tax were honest, they would acknowledge that it is completely implausible that a massive cost imposition on the Australian economy will benefit the Australian economy. Instead, Australians are being asked to engage in a massive act of altruism - although the benefits of that altruism are doubtful, even for the global environment, given that high-carbon activities will simply shift to other countries.

Australians, like most people in the world, want to do something to help the environment, and to reduce carbon emissions. But it must be at a reasonable cost.

Many national governments have engaged in extravagant rhetoric about climate change. All are hopeful that new and better technologies will emerge. But you can't wish these into existence. Funds for research are one of the most obvious ways to attempt to make things better.

There are some reasonable things Australia can do that would reduce emissions. But if we impose an economy-wide tax and reduce emissions by the absurd amount the government claims, we will be imposing a giant cost on the economy, with absolutely unpredictable economic consequences. And we will also, incidentally, be wholly out of step with the rest of the world.

No comments: