Garnaut’s Limitations

Karl FitzgeraldCommentary, True Cost Economics3 Comments

Following the release of this week’s Garnaut report on climate change, much has been made of the exemptions smokestack industries are lining up for. Another handy diversion is the debate over whether India and China wll be involved in any emissions trading system (ETS). Who put the carbon into the atmosphere in the first place?

Both are wedge issues that CEO’s are making the most of as they nervously await their next round of share option bonuses. “If these wedge issues continue I will be able to cash out in time and retire with some real wedge of my own!” Rational beings cannot expect all 193 countries to agree on a trading system within the next 2 – 3 years. However, decisive, unilateral action is needed immediately and PM Rudd should be commended for showing this.

It was pleasing to hear Garnaut comment that if too many industries put their hand out, then a Carbon Tax will be preferred. We strongly support a Carbon Tax over an ETS. Then no industry can pay others so they can pollute (what an ETS allows by default). No speculators can distort the market. Little delay is required to implement it.

When property rights are created, a great danger lurks within an ETS in that speculative middlemen will seep into the market, snapping up carbon permits and enforcing scarcity onto the marketplace. This will force the price of carbon, and thus of related inputs, higher and higher. This in turn will undermine the ETS and possibly return us back to square one.

We can see this occurring after just the first 12 months of the ETS, with prices jumping higher than they should and the disadvantaged screaming. Investment banks will applaud the system whilst bank rolling new ski trips to Aspen. The ALP will announce another inquiry. Economic theory will be avoided yet again in preference for another piecemeal system that favours rent seekers over the productive economy.

A number of searches through the 586 page Garnaut report, jokingly subtitled No Pain, No Rain, fails to reveal any definition on the lifespan of each permit. The longer the time frame, the greater room for speculators to extort the market.

This could be avoided. A holding charge must be placed on all carbon permits. From this we can use our knowledge of Georgism to analyse how far we take it. Should the holding charge be placed only on those permits sold during the trading period? This would act like a Mill Tax, where any increase in the re-sale value is rightly captured by the government on behalf of the people. We must remember that we are not privatising the sky for the benefit of investment bankers and their speculative clients. Carbon is part of the Global Commons we were all lucky enough to inherit as our birthright.

Should we place a holding charge on all permits, this would inflate the price of carbon but deter speculators from even thinking about it. The extra revenue raised could be used to fund the abolition of payroll tax, indirect taxes like the GST or income taxes on lower incomes. This tax shifting would assist in keeping the prices of goods steady.

Looking at the big picture, the ETS is just the beginning of the Resource Rental system we are inevitably moving towards. The ability for behaviour to change is difficult when we are still paying more than any other generation for housing. The hours spent at work to pay the mortgage make it hard to remember the green shopping bags, let alone cycle or walk to the shops. The land banking speculators are forcing the sprawl further and further into the greenfields that should be soaking up our carbon. Our worldwide infrastructure deficit (ie lack of public transport, ageing transport, lack of affordable hospitals) sees society trapped in it’s ability to adapt to the looming climate shift. A Resource Rental system can alleviate these pressures by correcting the leakages prevalent in today’s post-autistic economic framework.

It’s only a matter of time before the content of these pages becomes vital for the survival of all living beings on planet earth.

3 Comments on “Garnaut’s Limitations”

  1. Brilliant suggestion about holding charges for permits. I will take this up through my own forums with a view to making comments on the Garnaut report and detailed ETS design.

  2. Great article. My only suggestion would be to use the income from the holding charge on permits to fund research and development of renewable energies.

    As we know, there would be enough extra revenue to also begin phasing out what I call “blockage” taxes (GST, payroll, indirect taxes, etc.)

  3. wow I like the ‘blockage’ taxes term Brenda! Certainly blocks small business. R & D is certainly needed, the tax breaks the Hawke/ Keating govt’s gave seemed to create an air of optimism that the country was going forward.

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