The conversion of the Coalition to a national carbon market is another reason to scrutinise this free-trade solution to death on earth. Will it enrich the traders more than reduce CO2?

A spokesman from the 230 or so academic economists who last week called for action to reduce Greenhouse gases voiced his doubts about the efficacy of carbon trades. He preferred a tax because the revenue would go to the Government.

Taxes cuts are more to the Government’s liking in an election year. And that is what one carbon market already delivers. The mechanism for this transfer of revenue is explained in a new book, Voluntary Carbon Markets, by three senior staff at Ecosystem Marketplace, published by Earthscan and with a foreword by Al Gore.

They begin with the boast that “turning units of pollution into units of property” is “magic at work”. Did they mean a sleight-of-hand trick? In discussing the NSW Greenhouse Gas Abatement Scheme launched on 1 January 2003, the authors give the game away:

Under the scheme, energy producers exceeding their allotment of emissions can offset them either by surrendering NSW Greenhouse Abatement Certificates (NGACs) purchased from other producers, or by paying an $11/tonne fine. “Prices started at about A$6 a tonne when the scheme started”, says Ken Edwards, a broker at Sydney-based Next Generation Energy Solutions. Prices, say observers, are trading above the fine because operators can get tax benefits from buying GHG credits, but not from paying the fines.

So, carbon trading can reduce government revenues, not add to them. This triad of enthusiasts for carbon trading bear witness to why it is a sub-optimal solution to anything except transferring money.

Other economists support a carbon market because they believe that markets are the most efficient method for achieving every human wish. Some promoters of the market admit to its occasional failures. Here, for instance is what the godfather of the market theory, Friedrich-August von Hayek, wrote about managing environmental costs in The Road to Serfdom (1944):

Nor can certain harmful effects of deforestation, or of some methods of farming, or of the smoke and noise of factories, be confined to the owner of the property in question or to those who are willing to submit to the damage for an agreed compensation. In such instances we must find some substitute for the regulation of the price mechanism.