Home > Economics, Environment > Why I oppose the ETS proposal

Why I oppose the ETS proposal

February 8, 2010

Yesterday, Malcolm Turnbull explained his reasons for supporting the ETS legislation. The ALP has jumped on the opportunity to attack the Liberals, while some Liberals have jumped on the opportunity to attack Turnbull. Just to be different, I thought I’d actually engage the ideas.

I’ll start with some points of agreement with Turnbull. I agree that the world has gotten warmer over the last 100 years (specifically between 1910-40 and 1970-2000) and that some of the latter warming is due to human emissions of greenhouse gases. I agree that if we continue to emit greenhouse gases then we can expect some continued warming into the future. And I agree that this will cause costs in some areas.

Where I disagree with Turnbull is (1) I don’t think we should exaggerate the expected net cost of global warming; (2) I do not agree that an ETS is the most market-friendly policy available; (3) I believe the long-term solution must be production-based (new technology) not consumption based (lower energy use); and (4) I don’t believe that an ETS will pass a benefit-cost analysis and therefore it shouldn’t be introduced.

The government has not provided a benefit-cost analysis of their ETS legislation. Despite some rough early economic modeling, they haven’t even modelled the gross benefits or the gross costs. Indeed, they haven’t even outlined what the benefit is supposed to be. If Australia acts without being joined by America, China & India (among others) then our actions will be entirely useless. If the benefit of a policy is zero, then it is very unlikely that it will pass a benefit-cost analysis.

Consequently, I have previously suggested that climate change policy needs to be “no regret” policy that achieves other goals besides potential emissions reductions. In a policy monograph for the Centre for Independent Studies I suggested that any carbon price (and it would be more efficient, effective and simple to have a straight carbon tax instead of an ETS) needs to be linked to substantive tax cuts & real tax reform. In another article for the Sydney Morning Herald I suggested an avenue for civil society to introduce an effective carbon price without the economic costs. Others have suggested reducing so-called “perverse” subsidies, which would provide an economic (as well as greenhouse) benefit, or perhaps allow more camel hunting.

The “direct action plan” of Tony Abbott also tries to achieve other goals besides potential emissions reductions, such as greening our cities and improving soil quality. The other virtue of the Abbott plan is that it will cost about $1 billion per year while the ETS will cost about $15 billion per year.

I don’t think the “direct action plan” is perfect, but I think it as least 15 times better than the ETS.

Turnbull was right to worry about excessive bureaucracy, politicians picking winners, and handing out taxpayer money. I think we already have too much of these things. Unfortunately, the ETS is only going to make it worse. If Turnbull (or anybody else) really thinks that an ETS is good policy, then they shouldn’t be afraid to show us clearly how the potential benefits exceed the costs. Until that time, I will continue to oppose the ETS.

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