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September 21st 2011 print

John Dawson

Carbon pathway to disaster

By 2050 we will have purchased over 9,300Mt of carbon credits at a cost of more than $750 billion.

Counting the cost of the government’s pathway to a clean energy future

The Australian Government made its best sales pitch for its “carbon price package” when it distributed the pathway to a clean energy future booklet to every Australian household. A majority of those who read it, rather than returning it to sender, remain uneasy about the package that starts with a “carbon tax” next year. They sense that beneath the green canopy of assurances of “strong growth” and new jobs lies a path that leads to something at the bottom of the garden that doesn’t smell right. Can the forced replacement of a cheap and efficient energy supply with a more expensive and less efficient energy supply really be so good for everybody except a few “big polluters”? 

The government blames the public’s suspicions on misinformation spread by “denialists” and the “negativity” of Tony Abbott (is he supposed to find something positive to say about this government’s policies?). And it employs its gurus to lead the country down the path of righteousness to a future that’s “on the right side of history” as the Prime Minister puts it (as like minded gurus tried to lead us down the dialectic march of history last century). The more that is understood about the path to that deceptively named “clean energy future”, however, the more negative the public’s reaction will be. The government knows this; that’s why it covers the pathway with such a prolific overgrowth of propaganda. But let us try to find our way through the undergrowth and discover where the pathway leads and what it will cost our lucky country.

On page five of the pathway booklet we read that we are committed to “cut its carbon pollution by at least 5 per cent compared with 2000 levels by 2020” and that the government “has set a further target of cutting pollution to 80 per cent below 2000 levels by 2050”. The booklet doesn’t quantify the “carbon pollution” it is talking about, but from the cleanenergyfuture website and a treasury document titled Strong Growth, Low Pollution; Modelling a Carbon Price we can extract some figures about emissions of the alleged pollutant: carbon dioxide (CO2). 

Australia “polluted” the atmosphere with about 555 megatonnes (Mt) of CO2 in 2000, 578Mt in 2010, and its emissions of CO2 are expected to rise to 679Mt by 2020. So the commitment to reduce emissions to 5% below 2000 levels means a reduction of 152Mt in order to reduce our emissions to 527Mt per annum (pa) by 2020. (cefw  2.2.1, Modelling Overview 18 , Modelling Chart Data 5.2 – not all figures match exactly as they vary from place to place, for instance the 152Mt above is shown in places as 159Mt.) 

How is the government going to reduce our emissions? Starting next July 500 “big polluters” will be taxed $23 per tonne of CO2 that they emit. In the years that follow the tax will rise to $29 or more per tonne and be applied to many more “polluters”. After nine years of this “carbon price package”, what will be the reduction in Australia’s emissions? According to the treasury’s Modelling, there will be no reduction at all – Australia will emit about 621Mt in 2020, which is about 43Mt more than in 2010 and 66Mt more than in 2000 (Modelling Overview 18 ).  What, then, of the commitment to reduce Australia’s “carbon pollution by at least 5% compared with 2000 levels by 2020” (527Mt pa)?

Tucked away in the middle of the Modelling Summary Report we find this explanation: “national emission trajectories and targets define Australia’s contribution to the global mitigation effort rather than Australia’s actual emissions”. How’s that? How do we meet our contribution to a reduction in global emissions without an equal reduction of our actual emissions? 

To make up the shortfall in our reduction of actual emissions we buy “carbon credits” from overseas. A reduction in Australia’s actual emissions is called our “domestic abatement” and the buying of carbon credits from overseas is called our “international abatement”. In 2020 our international abatement will be about 94Mt worth of carbon credits. When this is added to our domestic abatement of 58Mt, we credit ourselves with a total abatement of 152Mt, which is deemed to be the equivalent of reducing our emissions to 527Mt. (679-58=621-94=527).

Put another way, our “contribution to the global mitigation effort” in 2020 consists of holding our emissions increase to 621Mt, instead of letting it increase to 679Mt, and paying another country to reduce its emissions by 94Mt. Before that country reduces its emissions on our behalf it is supposed to have reduced emissions on its own account! So the combination of holding back the extent of our increased emissions and paying other countries to massively reduce theirs is what the Prime Minister is talking about when she refers to: “the equivalent of taking 45 million cars off the road” (pathway p3, cefw  2.2.1).

But this takes us only nine steps down the pathway; there are 30 more yearly steps to get us to the bottom of the garden. To reduce our “pollution to 80% bellow 2000 levels by 2050” we have to reduce our “carbon footprint” from 555Mt in 2000 to 111Mt in 2050. According to treasury Modelling this is 898Mt below the 1008Mt we would be emitting in 2050 without the government’s “carbon price package”. To achieve this reduction the tax or ETS is to be ratcheted up until it costs us “polluters” $131 per tonne of CO2 emitted. This “domestic abatement” is expected to reduce Australia’s annual emissions by 463Mt, to 545Mt pa, which is about 2 percent below our 2000 emissions. The other 78 percent reduction below 2000 levels is to be achieved by buying 434Mt of carbon credits from overseas (1008-463=545-434=111)(Modelling 5.2.1 and Chart Data 5.2). How much will this forced march down this righteous pathway cost us?

By 2050 we will have purchased over 9,300Mt of carbon credits at a cost of more than $750 billion. (Modelling Chart Data 5.1& 5.2). This is a lot of money – if we could have put a million dollars in a piggybank every day from the day Jesus was born until today we would not have accumulated that much. No Australian receives anything in exchange for this $750,000,000,000, except permission to emit CO2 into the atmosphere.

To the cost of this “international abatement” must be added the even more wasteful cost of the “domestic abatement”. Most of this cost will be hidden and incalculable, but to get an idea of the immediate and direct cost involved, we can consider the implication of the treasuries assumption that “a country will source abatement from others if this provides a cheaper option than reducing emissions … domestically” and the government’s insistence that “the most efficient way for Australia to meet the target will be to source additional abatement from overseas” (Modelling Report 3.2 ) What this recognizes is that the calculable cost of our “domestic abatement” approaches then exceeds the cost of the “international abatement”. This suggests that the calculable “domestic abatement” half of the plan will cost as much as the “international abatement” half, which makes the total direct cost of the plan at least $1,500 billion. That $1.5 trillion is well above any Gross National Product Australia is likely to produce any year soon.

The above figures are taken from the government’s own modelling of its pathway; in fact from its most modest pathway (or “core scenario”). Figures taken from its more ambitious pathways produce higher costs. For example, the “core scenario” shows the cost of carbon credits to 2020 as $10 billion, whereas the “high price scenario” shows that cost as $26 billion.

The above figures are not going to be rendered less consequential by inflation because they are calculated in 2010 dollars; so the actual dollars will rise to much higher figures due to inflation. This means, for instance, that the $57 billion scheduled for the purchase of carbon credits in 2050 will rise to an amount that will be as hard to find in 2050 as it would be to find $57 billion in 2010! We could hope that our grandchildren will be more prosperous in 2050, but if the carbon price package is implemented, that can be no more than a forlorn hope. The generational rise in prosperity that we have come to expect over the last two hundred years is not a law of nature; it requires certain conditions, conditions that Green socialism is designed to eliminate. The modelling of “strong growth” can be no more than the wishful thinking of the Labor half of the Labor/Green alliance – the Green half doesn’t care for growth of any strength.

The above figures reflect the direct costs only, e.g. the cost of purchasing carbon credits for the international abatement component and the extra cost of wind-powered electricity compared with coal-powered electricity for the domestic abatement component. They do not include the hidden and incalculable costs of lost productivity and lost opportunity; of business inhibited by the increased cost of electricity and transport, of mines that will not be dug, of investment that will not be made, of consumer goods and services that will not be affordable, etcetera. Neither do they include the cost of the carbon policing bureaucracy the package requires, nor the corruption it will inevitably encourage. Above all they do not include the insidious cost of the loss of economic independence and freedom that is part and parcel of the package.

The above figures depend on unpredictable assumptions that are as optimistic about the “clean energy future” as climate alarmism is pessimistic about the effects of CO2 emissions. To take just one example: the figures assume that carbon credits will be purchased for less than the marginal cost of domestic abatement (which itself is calculated optimistically) – but where are the carbon credits to come from? For the pathway to have the slightest effect on global emissions of CO2, carbon credits have to come from countries that have for a start done twice as well as we have to reduce their domestic emissions then have been able to reduce them still further to accumulate the credits. The government hopes we will be able to purchase carbon credits, via carbon traders, from Asia, particularly from ex Soviet Union countries! But how will we know that these countries have in fact made the massive reductions in emissions we are paying them to achieve? Don’t ask! According to Climate Change Minister Greg Combet that question betrays "economic xenophobia" and "white carbon policy" racism (ABC News).

But let us suppose that ex Soviet block countries can firstly reduce their domestic emissions for their own contribution then secondly reduce them for half of our contribution. Will they then thirdly be able to reduce their emissions still further to help every other country that needs to purchase carbon credits for the same reason we do? If our carbon price package is to achieve anything more than economic self-flagellation the rest of the world has to follow our lead. Of course it won’t, but even in a fantasy world in which it tried to, would China, India, America and the rest be able to do twice as well as Australia in reducing their domestic emissions? If not, where would they go to buy their carbon credits? Venus?

The USSR used to predict strong growth and prosperity according to five year plans; plans that depended on no economic forces beyond its absolute control – except for the weather. The Australian government predicts strong growth and prosperity according to a thirty-nine year plan; a plan that depends on the economic forces of the whole world, which it has no control over whatsoever – the purpose of the plan being control of the weather. The Soviets were not smart enough to make their plans work. But our government is smart enough to make its plan work for our future and for the world’s weather?

”The market” is not “a mechanism” to be used to command an economy; it is the absence of economic commands. CO2 is not a pollutant; and our emissions are not, as one of our alarmists implies, the equivalent of Hitler’s war. Whatever effect humanities emissions of CO2 may or may not have on the climate, the government’s carbon price package will have no measurable effect on those emissions, let alone the weather. What it will have a profound effect on is our ability build the wealth we may require to deal with climatic and many other hazards. The carbon price package will not drain CO2 and bad weather from the sky, but it will drain productivity and prosperity from the earth; it will jam a faucet into the economy and siphon an accelerating flow of funds – half to be poured down the long drop at the bottom of Bob and Julia’s garden, the other half to be channeled to where they and their political progeny direct it.

There will be a lot of favored voters to be compensated for a lot of increased costs, favored researchers to be funded for favored climate projects, favored entrepreneurs to be given grants for favored green businesses, favored energy companies to be subsidized for favored green energy supplies, favored green organisations to be aided for favored environmental public relations exercises; and there will be the policing of the revenue stream and the administration of its distribution to be funded. There will be a lot of favors to be dispensed and penalties to be applied by a lot of politicians, academics, scientists, agents, chairmen, consultants and bureaucrats. How could a couple of self justifying social planners in search of a noble cause on the anointed sides of history to attest to their moral superiority and vision resist?