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The middle ground on climate policy

August 13, 2012 2 comments

Climate change makes people angry.  The left refers to skeptics as denialists, corrupt, heartless, and stupid. The right refers to activists as traitors, fools, frauds, and socialists. Discussions about global warming and climate policy hardly live up to the word “debate” and are more likely to descend quickly into name-calling and dramatic assertions of doom.

When I wrote a monograph back in 2007 looking at some details of a carbon tax, I very intentionally side-stepped the heated debate about the science and just looked at the economics. This earned me hate mail from both sides of the isle.

Compromise seems unlikely, but it is worth at least considering our options.

The key part of the policy puzzle – that often gets ignored in the climate shouting matches – is that effective mitigation can only be achieved with a strong global binding deal. Without such a deal, everything else is smoke and mirrors.

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Australia’s carbon tax and global temperatures

July 3, 2012 2 comments

Australia now has a carbon tax , and there is now much chatter  about how this will impact on the economy. There has been less discussion about the potential impact on the environment.

Andrew Bolt has continued to ask all comers about how the Australian carbon tax will impact on global temperatures, and most people have refused to answer. So he decided to work out his own estimate. Using the calculations of Damon Matthews, who suggests that a tonne of co2-e will change temperatures by 0.0000000000015 degrees, and given that the government plans to reduce our emissions by 160 million tonnes, then Bolt estimates that our carbon tax will change the global temperature by about 0.00024 degrees. Fair enough.

From the other side of the fence, the only person I have seen willing to put their name to an estimate is John Quiggin, who thinks the carbon tax will be 100 times more effective and reduce temperatures (compared to “business-as-usual”) by 0.02 degrees. Quiggin should be congratulated for putting his name to an estimate, and it’s appropriate to note his caveat “as should be pretty obvious, it’s not meant to be precise, and claiming precision would be silly in any case”. Fair enough.

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Climate change “action”

June 22, 2012 9 comments

Some people are worried about climate change. Many of these people believe that the solution to climate change is to throw politicians and bureaucrats at the problem, and maybe have a conference about setting up the terms of reference for a steering committee that will investigate the rules for a community forum that elects a board to appoint a working group to write a discussion paper.

Take THAT you evil climate.

For the proponents of climate change “action”, I have some good news. Not only will Australia have the world’s biggest carbon “tax”, but we also have a few government programs working to save the penguins from sun-stroke. Did I say “a few”? Let’s have a closer look… Read more…

Farmers, miners & private property rights

August 14, 2011 4 comments

The debate about mining on agricultural land has long frustrated me. While one side argues to help the “farmers” and the other side wants to help the “miners” it seems everybody has abandoned the most obvious solution — clear allocation of private property rights. As nobel prize winner Ronald Coase explained, conflicts over resources can be solved by allocating private property rights and then allowing trade so that the resources end up going where they are most valuable.

So my suggested approach to the mining/farming debate has been to strengthen the private property rights of farmers so that they have the “right to say no” regarding access to their land. Miners can then deal directly with farm-owners to come to mutually beneficial deals regarding access. Unfortunately, this approach has been ignored by both sides of politics. Until now.

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A delayed response

August 13, 2011 Comments off

My carbon tax article in “the drum” in June sparked a lot of debate, with many people angry at my article and a few people saying some nice things. Most of the negative responses were quite dumb and don’t deserve a response, and it seemed that many didn’t read (or at least, didn’t understand) the article before they declared it wrong. But there was a response by “James512″ (20 June 2011, 12:39pm) which deserve a response. I’m going to go back to an old-style blogging technique and “fisk” his comment:

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A closer look at the income tax changes

July 10, 2011 5 comments

The government has announced their plans for a new carbon tax, and the related compensation payments and tax cuts. The good news is that the government is increasing the tax-free threshold and winding down the confusing and misleading “low-income tax offset” (LITO). Next year the tax-free threshold will increase to $18,839.

Unfortunately, the government continues to hide the actual marginal tax rates by reporting the LITO and medicare levy separately from the “headline” marginal tax rates. The actual marginal tax rates for 2011, 2012 and 2015 are at the bottom of this post. As you can see, they are as confusing as ever. Some points to note…

  • The government is claiming to increase the tax-free threshold from $6000 to $18,200 and have an effective tax-free threshold of $20,542. This is misleading for a number of reasons. First, the current TFT is actually $16,000 and so the increase is not as large as they say. Second, while normal income tax may not kick in until $20,542 the medicare levy kicks in at 10% for people earning over $18,839. This was a great opportunity for the government to scrap the mis-named medicare levy, or at least get rid of the regressive 10% bracket ($18,839 to $22,163). So the actual change in the TFT is from $16,000 up to $18,839. That’s the first bit of good news.

Carbon tax and evidence-based policy

June 6, 2011 3 comments

I accept what I see as the mainstream science on climate change. The world has had a warming trend in recent decades, this is partly caused by humans, and I expect it to continue into the future. I am comfortable with the IPCC range of estimates of warming, which has a mid-point estimate of 2.8 degrees over pre-industrial temperatures (ie 2.1 degrees above today). I hope the skeptical scientists are right and that warming will be lower, but I find the IPCC estimates plausible and an appropriate starting point for analysis.

But before I accept a climate policy, such as a price on carbon, I want to see that the policy has more benefits than costs.

It’s great to have good intentions. We all want to do good. But poor people can’t eat good intentions, and good intentions will not cool down the globe. If we really do care about good public policy and making the world a better place, we must not introduce policies that fail a benefit-cost analysis. And the simple truth is that a carbon tax fails under any reasonable set of assumptions.

To do an analysis of a carbon price we need five inputs to the model. We need (1) an estimate for the costs of climate change; (2) an estimate for how much of those costs will be prevented with a global binding deal; (3) an estimate for how much Australia will impact the likelihood of a global binding deal; (4) the costs of the carbon price; and (5) the discount rate. For all of these issues, if we use the most dramatic and pro-tax assumptions we can find, the policy still fails. Even the Garnaut Report admitted that “the accrued benefits [from a carbon price] were almost as large as the costs”. Almost. Amazingly, this didn’t make it into the papers. Of course, Garnaut goes on to say that if you keeping adding in extra benefits (while not adding in extra costs) then eventually you can make the policy pass, but with that approach you could make anything pass.

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