The Gillard Government’s Clean Energy Future plan signifies that the game is up for the free rider’s polluting our planet.

The Carbon Tax of $23 per tonne of carbon for July 1 2012 – June 30 2013 sends a clear message that polluters must pay. In this age of compromise politics, the industry lobbyists who seem to have won are the steel manufacturers. The ALP’s union links have been rewarded. The coal and mining lobby have lost out. But have no fear, Gina Reinhart has no doubt flown Lord Monckton to Australia to represent their interests.

Land Locked
Of immediate interest will be to see how land prices in sun drenched locations near major power transmission lines behave. If it is anything like California’s Mojave desert land rush, land prices there will sky rocket. Land speculators will get in first, with solar operators forced to pay more for land to meet their ransom price.

Rainforest land values
How will land prices for carbon sinks in the Pacific Islands react to this announcement? One expects there to be a gold rush of land grabbing for rainforests. Reports of cashed up mining companies hedging their bets has been prevalent for a number of years.

We remind you that these precious carbon sink resources, the lungs of the world, will only get more valuable in the future. Selling carbon permits off per annum is a much more sustainable solution for tribal elders. Then when carbon prices increase to $100 – $200 per annum, they get a share of the rising prices too.

Selling rainforest lands outright should be avoided at all costs.

Pressures on Housing
The exemption of petrol form the carbon tax means that sprawling home owners won’t be penalised. Some in the housing industry are complaining:

“Competing against imports from non-CO2-e taxing countries, Australian building product manufacturers face a cost collage as the carbon tax is passed on down the line into the inputs for each production and fabrication phase,” HIA Chief Executive Graham Wolfe said.

Construction costs have largely flat-lined during this land and house price boom. However, there is next to no commentary from the HIA on the role of land speculation in holding prime locations bare and forcing the rest of us to travel further to our work, our home.

Land speculation is an issue that will increase in importance as the drive to a more sustainable future becomes intrinsic to humanity’s survival. Listen to this recent podcast where second only to energy production was the importance of living in central locations (as the surest way to reduce our carbon footprint by 70%).

Some are complaining that Negative Gearers would be hurt by the rising of the tax free threshold from $6000 – $18,200. This will deter property investment/ speculation as there will be less of a tax write off for those hard working property flippers. This is a good thing. First home owners and the market in general continue to prefer established housing in centralised communities, rather than McMansions in ‘Master Planned Communities’.

Some commentators are concerned at the $4 billion budget hole over the next four years from the Clean Energy Future package. Compare that to some $24 billion we will be giving to negative gearers to both bid up existing house prices and support the building of unwanted McMansions in unwanted areas.

The Big Sell

Now we are set for a campaign like fever of salesmanship from both PM Gillard and Opposition leader Abbot. When will anyone in politics use the golden words ‘tax switch’ as a means of describing this momentous shift?

To see Abbot in his fluro vest working amongst the people, one wonders when a government MP will hit him over the Mining Tax. Abbot wants small business in manufacturing and services to pay the same company tax rate whilst miners benefit from record price gains for their products. That does not sound like a strategy towards lowest operating costs. It sounds like the end of the eastern seaboard manufacturing industry. The Liberal Party have become little more than a protectorate for monopolists, rather than the shepherds of efficient pricing systems.

Land Value Capture
Our aim for a sustainable society will not be maximised until we adopt a Geonomics system, where the earth’s scarce values are recycled back to the community. Page 7 of today’s AFR reported the high cost structure of the proposed high speed railway as one of its biggest hurdles to competing with discount airfares. Melb – Sydney is the world’s fourth busiest air route. A high speed train emits 1/4 of the greenhouse gases per person than what air travel does.

Land values along this train route would sky-rocket, especially at linking train stations. The $32 – 59 billion infrastructure price tag could be met if landowners paid back just 6% of the windfall land price gain they receive from this new service (over 20 years). Then train ticket prices could reflect the Marginal Operating Costs, keeping their price structure low.

That would certainly continue the positives.

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!

Renegade Economists Podcast 108

As broadcast on www.3CR.org.au 30/09/09.
Subscribe to the podcast.

Free Trash of Freeport: We finish off our climate friendly policy overview, then interview Nick Chesterfield (Manukoreri) and Nicholas Taylor (Outcrop) to discuss the immense wealth and destruction flowing from West Papua’s $40bn Freeport mine. Photo – Freeport’s tailings, thanks SkyTruth.

Key Articles:
Red River: The blacklisting of Rio Tinto:
Will Australia Allow Another Balibo at Freeport

Show Notes
Carbon Trading Controversies – speculative middlemen aka the bankers bonanza implicit in Australia’s Emissions Trading System

Contraction & Convergence – Aubrey Meyer. Also his book

Carbon Tax – James Hanson (NASA) supports

Tax Upstream

We propose to tax fuels as far upstream as practicable, i.e., at the point where possession of the carbon-bearing fuel passes from the “producer” (e.g., coal mine; oil wellhead or tanker; gas wellhead) to the immediate next entity in the supply chain (e.g., coal shipper or utility; oil refiner or importer; natural gas pipeline). Presumably, each such transfer will be codified in a contract, or at least a bill of lading, specifying the attributes of the fuel.

This will minimize the number of points in the economy at which the tax would be levied. It will also simplify tax treatment of potential downstream carbon control technologies such as CCS (coal capture and sequestration), as discussed below.

Carbon Variability Requires Taxing by Btu, not by Fuel Weight or Volume
The tax rates will be stated in dollars per million Btu of heat content for each fuel. A more familiar approach based on physical
quantities of fuel isn’t tenable, due to wide natural variations in carbon content within each fuel type. These variations are most stark for coal. A ton of lignite typically contains around 40% less carbon than a typical ton of bituminous coal, for example. To tax the two respective tons at the same dollar rate would be grossly unfair since combustion of the lignite ton releases 40% less carbon into the atmosphere than for the bituminous ton.

Freeport, West Papua
Caroline Lucas (MEP – Greens) West Papua speech – October 17th 2008
Just as they have never received a penny of the massive profits turned over by Freeport, whose Indonesian subsidiary last year paid the Indonesian government over 1.8 billion dollars in tax.

Genocide by Demographics
According to Dr Elmslie, highland Papuans who allegedly have gonorrhoea are being treated in UN-funded family planning clinics — but not for gonorrhoea. They are being injected instead with long-term contraceptive drugs. As Dr Elmslie notes, this goes some way to explaining why the 1.67 percent population growth rate for Melanesian Papuans in West Papua is so much lower in than over the 2.6 percent population growth rate for Melanesian Papuans over the border in Papua New Guinea (PNG). (Meanwhile, the growth rate for the non-Papuan population in West Papua is 10.5 percent.)

Music

Songs for West Papua – Kelly Newton-Wordsworth
War is not over – Kelly Newton-Wordsworth

…
Freeport McMoran Copper & Gold annual report
Royalties totaled $113 million ($0.10 per pound of copper) in 2008, compared with $133 million
($0.12 per pound of copper) in 2007. The reduction in royalties for 2008 primarily reflects lower copper prices and lower gold sales volumes.
Implying the fixed, nominal amount of royalty payments, rather than as a percentage. This hurts both West Papuans and Indonesians in that as the value of the resource increases, the company gets to pocket the increased value rather than the people (who created the gold?).
Freeport Mine
… an industry giant. Estimates suggest that the mine has both the third largest reserves of copper, and the second largest reserves of gold, in the world.
…
Freeport, which is responsible for about 2/3 of Indonesia’s annual production of gold, is regularly amongst the largest corporate taxpayers in the country.
…
Risky Business: The Grasberg Gold Mine
Indonesia, The TNI and the USA.
Paying for Protection (linking Freeport to state sponsored security)

Will Australia allow another Balibo at Freeport? – Nick Chesterfield
..with the shooting death of Melbourne man Drew Grant at the massive and controversial Freeport mine in Timika, West Papua, a powerful spotlight has been shone on an otherwise ignored struggle that has claimed an estimated 564,126 people as of late 2008, according to analysis of demographic discrepancies by Sydney University.
…
Freeport pays TNI over US$5 million per year to guard the mine
…
Australian Federal Police officers have been in Timika assisting the Indonesian investigation. From the outset the official investigation has been far from transparent, raising significant questions.  Evidence was tampered with, and bullets in Mr Grant’s body were removed before the pathologist was able to conduct the autopsy, whilst in the custody of Australian Embassy officials.   Were these officers involved in an attempt to hide the identity of the real culprits, and if not, what have they done to ensure transparency?
…
The Indonesian Defence minister conceded the Free Papua Movement is unlikely to be responsible, indicating both the military and the police are responsible, and even went as far as suggesting that Australia itself was behind the attacks.  “What I think is don’t let Freeport be closed, because it involves global competition over natural resources there are a number of countries that have an interest in destabilising Freeport,” Sudarsono said.  He said foreign NGOs and governments had a history of backing groups that “agitate” in Papua.  Asked which countries he was referring to, Sudarsono said: “Apparently many neighbouring countries to the south.”  

photo credit: backpackphotography

Today’s Age report on Carbon Cowboys Riding High

THE Australian at the heart of Papua New Guinea’s carbon trading rush is entrepreneur and racing identity Kirk Roberts, who is believed to have convinced many tribal groups to sign their rainforests up for future use as carbon credits.

Mr Roberts, who runs his carbon operations through a company called Nupan Pty Ltd, claims to have power of attorney over 90 forestry deals, giving him control over land potentially worth tens of millions of dollars as carbon sinks.

We warned on this when we first heard that Jeffrey Sachs was giving PNG carbon sink advice (back in May). Anyone who has heard Prof Michael Hudson or read Naomi Klein’s Shock Doctrine understands what we mean.

The danger in signing away your full rights as a carbon sink custodian is that over time, the value of saving the planet will become more and more important. As the lungs of the planet, these ancient forests will become increasingly valuable. Why sell the carbon rights off now in total rather than lease out their sequestering capabilities over their lifetime? With a yearly lease, where the land is valued per annum, the local PNG tribes would get a share of the ever increasing value of these living treasures.

We have warned about the speculative nature of these new eco markets on the Renegade Economists podcast for many moons. This story is the dangerous outcome to the bankers bonanza opening up in green markets. Speculative middlemen will simply sneak in and claim the lion’s share of the profiteering made possible by the creation of ‘fee simple’ property rights (rather than ‘fee annual’ – defining yearly payments).

This REDD scheme will do little to reduce overall carbon emissions. Neither will carbon trading.

Stories are being leaked on how companies are setting up bogus refrigeration companies in India that use the worst possible emitting gases, then ‘reforming’ them towards less harmful gases as the cheapest carbon ‘credit’. Why not avoid the pain of nightmares from our future grandchildren by going to a carbon tax? Sorry speculators, you will have to do something productive!

See our other commentaries on carbon trading here

The earth’s bounty should be shared amongst all to create the equality of opportunity that we are hood winked into believing democracy delivers!

photo credit: miak

The present collapse in Managed Investment Scheme’s was inevitable. The power of the tax system saw companies like Gunns planting trees around the clock in years gone by, just to meet the immense demand from tax-minimising activities. Kohler wrote in 2004 that upwards of 10 million gum trees were planted in the 10 preceding years, making then Taxation Commissioner Michael Carmody Australia’s most powerful greenie.

There was a 93% surge in money invested with MIS’s in 2003/04 (Australian Agribusiness Report 2004). Plantations could hardly keep up with the dual seller of ‘doing something good for the environment’ and engaging in ‘tax minimisation’.

Business Spectator’s David Leyonhjelm says in the Great Southern Sell-Off:

The MIS scheme was originally introduced to allow compensation for investors who otherwise would have to wait 10 years or more for their investment to mature. But many investments were made solely for the tax breaks rather than the investment itself. Some clever practices also emerged, such as non-recourse and round-robin funding, which gave the whole subject a bad name.

Beside the outrage over 10% commissions to financial investors, the big issue is the abuse of the taxation system to provide tax loopholes for tax dodgers. No wonder the social contract is under threat.

Such tax incentives saw the price of agricultural land bid upwards. Plantations were undertaken in areas where a $240 access fee could enable a company like Timbercorp to rip unlimited amounts of water from underground acquifers. I remember meeting locals in Warnambool in tears that thousands of litres of water were being wasted, running down the middle of roads due to poorly managed tree farms.

Whilst the private interests of the well-to-do were well served by such activities, the public interest was left high and dry. Many local farmers understood that mono-culture plantations were susceptible to disease. They also knew that the tight planting formations would limit the girth of trees, making them less productive in the long run.

The massive amount of cheap finance the tax loophole provided these agri-businesses gave them a competitive advantage when competing for scarce land. Farmers were bound to lose out.

Will the public interest be served with the looming policy conundrum that various Senate Inquiries will undertake?

Would an environmental trust type body be willing to buy the plantations back with the aim of creating carbon sinks? Some selective culling and replacement with a diversity of understories could ensure the few short years some have been growing for are not lost.

These potential carbon sinks and the carbon credits they will deliver in years to come will be very valuable. Let’s hope that entities with the public’s best interest gain access to these sites rather than aluminium smelters buying in at bargain prices as carbon minimisation strategies.

The tax system must be used to both reward private endeavour and the public interest in a clean, equitable society.

photo credit: corvidmagic

The world of pass-the-buck hit home with Rudd’s cop out yesterday. It’s too hard for us, let’s ‘leave it to Obama to sort it out in Copenhagen’. Perhaps Obama has given the ALP a get out of jail card with the Democrat’s Waxman-Markey Bill beginning it’s long path through Congress. The US seems to be moving towards cap and dividend at worst, at best a carbon tax. That’s a long way from the unlimited importation of international Kyoto permits via the loophole ridden CPRS.

Smoke and Mirrors:

Meanwhile, the Government has thrown more compensation at big-polluting industry: more free carbon permits for the first five years, a low fixed permit price of $10 for the first year, and a 12-month delay to the entire scheme.

One of the side effects to the $10 carbon cap and the yearly delay is that is gives major emitters another year to buy carbon sinks (the carbon sequestration rights that forests enable). The $10 cap and the doubt the carbon reduction scheme raises will undermine the value of carbon sinks. Local dealings for carbon sequestration rights will put downward pressure on land prices in PNG’s forests (carbon sinks). With this doubt in mind, mining companies and the like will be hoping to fudge the true value of the massive carbon sinks in PNG, using this to wedge downwards the asking price of indigenous chiefs for their sacred forests.

This is a clear message to those tribal chiefs. DO NOT SELL YOUR LAND OUTRIGHT!

Only sell the carbon sink lease on a percentage basis. The mining company can claim the carbon credits if they pay you 25% of the value of those carbon permits, for example. The land does not need to be sold outright. Fishing, hunting and other customary rights can still be maintained.

Over time the value of these forests will dramatically increase as the speed of climate change increases. The PNG community must get a share in this resource scarcity and the resultant profits. Carbon sinks will be more valuable than oil wells in the near future. If the carbon sequestration rights are to the forest are leased, then every year that the carbon permits go up in value, the PNG crew get a share of this bounty. This can help fund the health and education that such countries need.

Back to the west, it seems that Handout Politics is the only way to get a policy passed. That is the advantage of the cap-and-dividend policy that Obama could be inching towards. The public gets a regular handout so that the future Bush Mark3 can’t easily remove climate friendly policy.

Unfortunately, it seems that not only do we have the world of lobbyocracy distorting the political process from the corporate end, but unless the public are given a handout in return, legislation gets bounced via opinion polls. Weak politics will lead to a weakened planet.

Trading systems set up buy and sell resource permits, whether they be water or carbon, are set to struggle. Even Jeffrey Sachs agrees with our long term view. A Carbon Tax paid at source by the major polluters (numbering in the 100′s) is much more efficient than a Trading System requiring thousands of trades to achieve the same goals. Says Sachs:

It’s hard to monitor, it’s non-transparent, it’s highly political, highly manipulative, which is why the banks love it, the banks all want to trade, this is an investment banking dream.

The health of the Murray River was again the topic of discussion by journalist Kenneth Davidson in Trading Scheme Just Does Not Hold Water

There is money in water allocation trading without water. One of the main risks in water trading is the threat of rain (or a pipe with real water from Tasmania). It is understandable that the Victorian Government wants to control the Victorian water market.

When allocating property rights in natural resources, governments must be aware that the property created will be worth millions of dollars. If the public interest is not represented within the allocation of these rights in the first place, this leaves a massive hole for vested interests to step in and distort the decision making process.

If a Resource Rental system was incorporated in both water and carbon markets, the property rights of water traders would not be so affected by piping water from Tasmania (as the economic rent will be collected one way or the other). Similarly, if a Carbon Tax is in place, its simplicity would see a speedy adaptation by Aluminium and other power hungry industries, primarily because they know they can’t escape the charge by paying others to allow them to pollute (as an ETS does).