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What price for the carbon tax now Australia has dumped it? Part Two

What price for the carbon tax now Australia has dumped it? Part Two Anthony Harrington

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In Part One, we looked at the difficulties of both imposing and maintaining a carbon tax on industry, in the light of Australia's initial move towards the tax and its unambiguous rejection of the whole idea of putting a price on carbon. Electing a climate denier as Prime Minister is about as clear a rejection as you can get. Clearly, Australian business, and a sufficiently large slice of the Australian population, can't bring themselves to voluntarily impose additional costs on industry at a time when Australia is highly aware of the need to compete in global markets. The danger, of course, is that other countries might be tempted to follow Australia's lead. At the very least, having one major exporting nation gaining a competitive advantage by not imposing a carbon tax on itself will stand as a huge incentive to keep the price of carbon lower than it needs to be to be effective.

There are two main points up for consideration. The first is: how effective is putting a price on carbon as an abatement measure? Does it really drive down CO2 emissions on a national scale? The second point, obviously, is the difficulty of deriving and then imposing a "correct" price for carbon. In a report for LSE’s Grantham Research Institute on Climate Change and the Environment, entitled The Case for Carbon Pricing, Alex Bowen argues that, to anyone concerned about global warming, there are obvious benefits to a uniform global carbon price, delivered either through carbon taxes or carbon trading. As an aside, it should be noted that these are two very different methods of setting a price, though both require government intervention to set the ball rolling. Carbon trading, by definition, results in a market driven price, which governments could tweak by setting either a floor, or a ceiling (or both) and by coercing industry to trade! If you have to buy carbon allowances in an open market, then you have to pay whatever the price is.

Bowen himself admits – as does everyone who takes up the cudgels on the carbon pricing debate – that there are huge uncertainties about what, exactly, an appropriate price for carbon should be. He cites the UK’s Committee on Climate Change which has proposed that a price of £30 per ton of carbon-dioxide-equivalent by 2020, rising to £70 in 2030 would be consistent with the UK meeting its targets under the Kyoto agreement. While this sounds “doable”, Frank Ackerman and Elizabeth Stanton, in a report for the Stockholm Environment Institute entitled Climate Risks and Carbon Prices: revising the social cost of carbon, point out that a good argument has been made for the fact that at the margin, the so-called tipping point, if there is one, for runaway global warming, the cost of an additional ton could actually be infinite, i.e. so fantastically high as to be beyond calculation. After all, how do you price the Earth becoming uninhabitable?

They cite Martin Weitzman arguing the notion that massive damage, i.e. the loss of one half of world GDP, will only occur when global warming reaches 19 degrees centigrade above pre-industrial levels, is “a drastic understatement”:

“Weitzman [...] suggests an estimate more in keeping with recent climate science: losses due to global warming could reach half of world GDP at 6 degrees centigrade, and 99% of world GDP at 12 degrees centigrade [...] a recent study [shows] that at 12 degrees centigrade large parts of the world will, at least once a year, reach temperatures that human beings cannot survive.”

This statement, of course, just considers the direct impact of temperature. What it does not go on to sketch is the ferocity of the hurricanes that would result from that much energy being absorbed by the oceans and then being imparted to storms.

On a more actionable note, Ackerman and Stanton point out that there is quite a lot of research suggesting that projects to clean surplus carbon out of the atmosphere typically require spending between $150 and $500 per ton by 2050. Most of the calculations on the social cost of carbon see those costs reaching and exceeding $500 per ton by 2050. As Ackerman and Stanton point out, once the cost of abatement is visibly cheaper than the costs of excessive carbon production, resistance to abatement measures can be expected to vanish. Until then, however, it looks as if getting uniform global action on carbon emissions abatement is going to be exceedingly difficult to obtain.

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Further reading on climate change

Tags: Australia , carbon emissions , carbon pricing , carbon tax , climate change , CO2 , Committee on Climate Change , Elizabeth Stanton , Frank Ackerman , global warming , Grantham Research Institute , Stockholm Environment Institute , Tony Abbott
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