CPRS – Good Riddance

Coal or burnt wood on beach
Creative Commons License photo credit: Martyn Hutchby

I wrote this awhile back and never sent it into the ether. Now that Rudd has put the CPRS on the backburner until 2013 (pls bring in the Carbon Tax asap), let’s have a look at why so many were against it.

CPRS= Corporate Polluters Runaway Subsidy

With the heat on the CPRS we shine the spotlight on a hidden side to the debate – the unlimited importation of international carbon permits and the role exchange rates will play.

Unlimited importation (CPRS white paper – Chapter 11, p10) implies a reliance on stable economies with a steady exchange rate. However, if a country has a hot property market and raises interest rates, this will bump up the exchange rate, subsidising the value of imported carbon permits.

If a developing country pushes interest rates down to stimulate a depressed economy, this leads to cheaper exports and thus cheap carbon due to the resultant low exchange rate. This pushes down carbon prices in Australia, rewarding polluters over green industry.

Reports of miners buying up forests in remote corners of the globe for these purposes are growing. Lets say a prayer for the traditional owners of PNG and other Pacific Island forests. Don’t sell out to speculative planet f-c*ers!

Another case in point is a poor administration in a developing country. If their economic policy does little to inspire confidence, foreign investors will sell out and push down the exchange rate. Readers of John Perkin’s ‘The Economic Hitman’ will be joining the dots towards the incentive for companies to aid and abet this process. Should polluters be encouraged with this sort of opportunity to undermine a nation’s sovereignty?

The big picture danger is that sacrosanct speculators in the housing industry will in effect reward polluters. How? Under current economic policy, the next housing bubble will see interest rates rise, pushing up exchange rates and thus subsidising imports. Land speculation will thus make carbon prices more volatile, which in return will make carbon speculators wealthier.

With the US the world’s reserve currency, every time we buy something with US dollars, we will in effect be subsidising US polluters. The high value of the US dollar will mean that they can purchase carbon at discount rates. In effect, this means that yet again the US, the world’s biggest historic polluter, has a massive advantage.

The weakness of government policy that allows a boom-bust two dimensional economic framework to continue unabated will undermine the CPRS. Current economic winds see that we are set for at least 5 years of low growth/ recessionary forces, meaning low demand for goods, lower demand for permits and thus low carbon prices.

These problems overlook the role merchant banks will play as the middlemen in many of these trades. The commissions they will earn automatically buys their support for the ETS over a loophole free carbon tax. What is to stop polluters playing the market, buying carbon permits off the vulnerable early in the period, then selling them high and using this profit to offset any carbon costs the CPRS claims?

A holding charge within the secondary carbon market would deter such activity. A holding charge on all natural resources would stymie the speculative largesse that has dug this GFC rabbit hole and give us the economic flexibility to make the best of Paul Gilmour’s scream crash boom.

A carbon tax please!

4 thoughts on “CPRS – Good Riddance”

  1. What I don’t understand is: how do firms initially obtain these emission permits. Is the government just giving them away for free? The cap will increase scarcity and effectively increase prices of polluting products… that is good; but who is walking away with that ‘rent’? If the government would sell the permits to the highest bidder, it would be a good system. But that’s not what’s happening, right? Some explanation, please =)

  2. Some of the biggest polluters WERE to receive the majority of their emissions as a give away. Ridiculous I agree. It was meant to be a tradeoff. Lesser polluters with no such lobbyists were to buy them off the market. However, this discussion is now academic as the system isn’t going tohappen – i doubt ever.
    A carbon tax must be implemented.

  3. Why not, as I suggested, create emission permits that are limited in time and sell them to the highest bidder, and forbid trading. Or alternatively, allow trading but charge the full rental value of the permits to the owner at any given time. This way you have the benefits of a cap: there is guaranteed limitation and the market defines the prices; however the economic rent goes to the community. Seems to me like the perfect georgist solution: you are not taxing production but a limited natural resource of which everyone gets his share.

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