Still in shock at the ALP’s audacious handout to the nation’s biggest polluters, we thought it time to broach a few of the details hidden within the 824 page Carbon Pollution Reduction Scheme (CPRS) White Paper.

Billions of dollars of the commons is proposed to be given away by the climate scheme. Permanent and inalienable carbon permits will be handed over to the biggest polluters if it passes both houses of parliament. These do not expire. Five year windows have been announced where ‘4 year vintages’ of the proceeding trading period permits are sold, presumably in tranches.

If the rapidly melting permafrost demands a drastic reduction in carbon permits, the taxpayer will have to compensate the polluters in buying those permits back. However, even then a case could be mounted in the courts to delay this.

Pricing Undermined

The CPRS relies on the pricing system to reduce outputs. However, the pricing system will be undermined by the ability to import carbon permits from international markets.

The international market will be flooded with permits, as world wide the development of carbon sinks has been growing but the purchasers are yet to come online. Australia will be one of the first carbon markets with a viable demand for carbon permits.

This will ensure that the carbon price will be low, threatening the viability of the system and risking the need for buybacks from polluters.

Tohm Curtis continues his slightly sarcastic journey into the underpinnings of economics

Okay in Lesson 1, I concluded with the not so startling revelation that the economy was ultimately limited by the external environment or reality. Economics is a science because it’s constrained by reality, and hence people use observations to make predictions on how the natural environment will behave.

But so too is physics, mathematics etc. Lets go further now and look at economics as the study of decisions and what makes a good or bad decision. What is the result of a good decision?

Profits - Doing More with Less:

I’m from a business school and thus naturally in my mind, the result of a good decision is profit. Don’t let that turn you off as an activist though. Hopefully you would agree that profit occurs as a result of a decision where our return exceeds the cost of making that decision. The cost - benefit analysis.

So the recipe for profit is efficiency, in every manifestation in the corporate world, the business world, in trade, in economics, profit is derived from doing more with less. Sometimes it is getting more of the customers’ money, for the same product, then you are using your customers efficiently. Or it is from selling the same product to new customers, instead of developing new products which are expensive. Or it is from reducing your product and selling it at the same price.

photo credit: mhalon
as according to Tohm Curtis
a new series outlining why Economic Rehab is crucial

What does ‘Economics’ mean…there’s some confusion as to whether it is a science or a philosophy? Wikipedia can provide some insight into the history of economics. I think though that maybe the simple starting point is:

Economics is the study of reality.

Okay so what do I mean when I say Economics is a study of reality? What I mean is that this is really what makes it a science. I would say the exact same thing of Physics, I would say the exact same thing of Mathematics. Bertrand Russell incidentally said ‘Pure mathematics consists entirely of assertions to the effect that, if such and such a proposition is true of anything, then such and such another proposition is true of that thing.’

In Physics this means Isaac Newton’s description of gravity as any two masses exerting a constantly attracting force on each other is true. That is what happens in reality. For Physics to work, you can’t have a law of gravity that has exceptions. A theoretical world where some people fall towards the earth and other people float up into the sky would not hold as science. The laws have to conform to reality. They must be based on observations of things that happen.

Economics supposedly represents a scientific reality. Just we seem to get surprised in Economics much more regularly than we do in Physics or Mathematics.

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.

Hear Peter Barnes deliver the details on his Cap and Dividend policy alternative to Cap and Trade. Peter was recently written up as the go-to man in a Time Magazine article entitled How to Win the War on Global Warming. We have his must read book ‘Capitalism 3.0′ in …