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Apr 24, 2015

What the Gregs (Sheridan and Hunt) don't get about emissions abatement

Conservative columnists and politicians are in lockstep on Direct Action. They're also wrong, writes Canberra economist Tom Westland.

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When a particularly large star explodes, it throws off a great deal of matter into outer space. In some cases, it leaves behind a formation so heavy that protons and electrons cannot exist, leaving only neutrons. This is the only physical phenomenon that I think can provide an adequate benchmark against which to measure the denseness of Greg Sheridan.

Which is not to say his prose isn’t without its charms. Though he is unable to, say, consult basic inflation statistics without stumbling, he has a pretty talent for composing songs of praise and worship on topics as varied as Tony Abbott’s sense of loyalty and Tony Abbott’s sense of duty.

And as strong though his attachment to Abbott is — the homosocial undertones would not be out of place in a Victorian public school novel — he sometimes ventures well beyond this subject to consider the vast merits of people with whom Tony Abbott works. It is in this mood that we find him this morning, debating whether the government’s Direct Action policy is a stroke of genius or merely just a matter of outstanding and unsurpassed policy acuity.

“Greg Hunt,” Sheridan tells us, “is going to cut Australia’s carbon emissions four times more than Labor did with its carbon tax at 1 per cent of the price per tonne of emissions cut under the carbon tax.”

Hold on, sunshine. Greg Hunt has not actually cut anything yet. He’s had some people express an interest in cutting their emissions in exchange, of course, for a small taxpayer-funded consideration. But Sheridan’s most egregious mistake is to accept the numbers spooned to him by Environment Minister Hunt, who claims, not for the first time, that the cost of abatement under the previous government’s carbon tax was around $1300 per tonne.

The Gregs, pere et fils, obtain this number by dividing the total revenue collected by the carbon tax by the reduction in emissions in each year of the tax’s operation compared to the year before it came into effect.

This procedure — calling it a “calculation” would be to award Sheridan a scientific lustre that is scarcely supported by the bumbling innumeracy that he seems to bring to everything he writes — gets at least two things wrong. The first is simple: the amount of abatement that takes place is not simply last year’s emissions minus this year’s emissions. It is the amount of emissions that would have taken place this year without a carbon tax (or whatever) minus the amount that actually were emitted.

The second mistake is to consider the total revenue raised by the carbon tax as the abatement “cost”. It isn’t. In fact, the carbon tax was paid on emissions that were not reduced; the abatement cost was therefore the amount of money spent on doing things — planting trees, installing more efficient combustion engines or whatever — in order to avoid paying the tax.

The tax put an upper limit on the amount of money anyone would be willing to pay to reduce their emissions. If the price were higher than the statutory rate of the tax, it would make economic sense to simply pay the tax. We can therefore be more or less certain that, unless companies were negligent, it cost no more than $24.15 a tonne to abate emissions under the carbon tax, with the average abatement cost per tonne lower than that.

Another way of thinking about it is this: the money raised by the carbon tax wasn’t piled onto a bonfire and burned. It was used to lower other taxes, including personal income tax. If you want to count the revenue raised by the carbon tax as a “cost”, then you have to include the lowering of other taxes as a ‘”benefit” in addition to the emissions that were abated. Only if the carbon tax were more economically inefficient than the taxes it replaced would it be a net cost to the economy.

The problems with Greg Hunt’s scheme are already well known: the fixed budget means it’s unlikely that we will achieve even the unconditional cut of 5% on 2000 levels (as Ross Garnaut has pointed out, this number is irrelevant anyway: we will need to make much larger cuts based on our commitment to the UN, given that other countries have acted as well). As a market mechanism it also leaves a lot to be desired. We still don’t know exactly how the punitive “safeguard” mechanism is supposed to work, and there’s an inbuilt incentive for companies not to make emissions abatement they might have made anyway, unless or until they win the reverse auction.

This isn’t the only clod-hopping error in Sheridan’s article. For example he argues, or at any rate he types, that emissions trading schemes are of “declining relevance” in the world, apparently oblivious to the fact that California introduced one several years ago and China is getting ready to start a nationwide scheme next year.

This is because schemes that place an explicit price on carbon emissions are efficient: they raise revenue and reduce socially undesirable behaviour. So maybe in the lead-up to the budget — with the underlying fiscal balance at risk from plummeting iron ore prices — we could have a new scheme: a market-based mechanism that places a price on mistakes in Greg Sheridan columns with a cap that declines with each article.

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25 comments

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25 thoughts on “What the Gregs (Sheridan and Hunt) don’t get about emissions abatement

  1. klewso

    Limited News – “The Life of Brian is a film that mocks Christ as “just a naughty boy”.

  2. Wayne Cusick

    Two other points:

    It seems that most of the projects signed up for in this auction were being delivered under the carbon tax legislation.

    And, while the $ is less for the Direct Action policy, it is an expense to the government, while the carbon tax was income.

  3. Chris Hartwell

    In short Wayne, it demonstrates that as a party championing market-based approaches, the federal LNP is woefully inadequate in realising its stated philosophy.

  4. LucyJr

    It is hard to figure out what is going on with carbon right now. Hunt serves up glossy well-spun spin while Labor grumbles murkily.

    If Greg Hunt is wrong, Mark Butler should put us right – just make it crisp and clear please!

  5. geomac62

    I found myself getting angry while watching Hunt on 7.30 last night. He was determined to push his load of rubbish but ended up looking a fool. He was actually claiming success when no results have been achieved with the contracts having just been awarded.So no need to see if the carbon is reduced or contracts completed. Apparently achievement comes before work is done rather than after according to Hunt.

  6. Bill Hilliger

    But Sheridan’s most egregious mistake is to accept the numbers spooned to him by Environment Minister Hunt. Then again its pretty easy to fool a News Corpse churnalist, …er stenographer. Nowadays it happens all the time, the LNP polies have a good laugh its so easy to fool these people. However the public are starting to wake up to the likes of Sheridan and the company he works for.

  7. Duncan Gilbey

    @geomac62
    Get with the programme…
    After the announcement, the result is irrelevant.
    The announcement is all that matters.
    The announcement IS the result.
    We have always been at war with Eurasia

  8. kakadu

    Abbott’s message before the elections was that the carbon tax was going to cost everyone money in their electricity bills etc. Now we are paying extra tax instead. Either way we pay more. The money to pay polluters has to come from somewhere.

  9. John Newton

    ‘And, while the $ is less for the Direct Action policy, it is an expense to the government, while the carbon tax was income.’

    Wayne, that expense to the government is actually our taxes at work being wasted.

  10. Sharkie

    In “selling” this policy, Hunt used the classic BS bulldozer debating tactic yesterday. This involves shovelling as many “facts” and “figures” onto an interviewer, in the shortest time as possible. I think Hunt studied this tactic from Pyne.
    The interviewer ends up swamped in crap and can’t nail the fraud selling the policy.
    The only sensible way to deal with the BS Bulldozer is to do a Sarah Fergeson and cut the minister off with a no nonsense “I’ll just stop you there”.
    And as for Henderson, who takes this bloke seriously? Nobody, He just a washed up third rate conservative hack writing for a paper with a plummeting circulation.

  11. Graeski

    The sooner Murdoch publications go to the great parrot cage in the sky, the better.

  12. Gavin Moodie

    British Columbia introduced a carbon tax in 2008, Québec introduced its cap and trade system in 2013 and linked it to California’s in 2014 and on 13 April 2015 Ontario announced it will introduce a cap and trade system linked to Québec’s and California’s.

  13. AR

    GogMagog Sheridan brings the same incisive intellect applied to his nominal position of foreign affairs editor to a topic with yer akshal numbers – not something that can be fudged as he does when he is relaying tales of the Great Game from his telex link to Langley,VA.

  14. Aethelstan

    It appears that Greg Sheridan and his colleagues at the Australian are not journalists but simply propagandists for the Abbot government …

  15. Aethelstan

    I would definitely like to see more analysis indicating the effectiveness of the carbon tax versus the direct action policy … but one thing is clear … Direct Action sends no signal to industrial polluters to mend their behaviour … they continue to pollute and taxpayers pay to clean up their pollution … It should be a governing principle in legislation regarding pollution that companies that pollute … whether it be toxic chemicals in waterways, or carbon into the atmosphere … should clean up the pollution they cause … cleaning up pollution should be part of the cost of production …

  16. Brian Melbourne

    Leigh Sales could, at least, have pointed out to Hunt that he hadn’t actually achieved any cuts yet and only time will tell whether the, relatively small part of the economy targeted actually achieves the emissions cuts promised. Meanwhile, everybody else is increasing theirs with no penalty.

  17. Liamj

    Not just anybody can be an LNP Minister, you must be smart enough to parrot convoluted deceits and avoid answering any question honestly, but dim enough to believe that nobody can see what a shameless whore you are.

  18. MJPC

    I believe Greg Hunts scheme will be swept aside by the reality of energy consumption, and it’s declining. I just visited North NSW coast, I have never seen such wide usage of solar panels and not 4 or 8, it is 20 and 30 plus on some buildings.
    The revolution to cut carbon is happening at the grass roots, not in the boardrooms (at least in Australia).
    While Hunt pays for polluters to continue to pollute, we are seeing the fruits of carbon change in extreme weather events, and its not going to be pretty if it gets worse as predicted by climatologists.

  19. Roger Monk

    I’m with Brian Melbourne – Leigh is lovely but Henderson is hard core. Henderson cutting through the rapid rate PR babble of the Hunt’s and the Pyne’s demands a truth they don’t want to admit and presents a pov they are unwilling to entertain. Reality is not LNP environmental policy and if Hunt is good at anything it is spinning like a top.

  20. GideonPolya

    Some key points in refutation of the latest COALition and Murdoch media spin about “Direct Action”:

    1. Using taxpayer money to pay terracidal climate criminal polluters not to pollute is like paying criminals not to commit crimes – indeed it is far, far worse than paying conventionally criminal rapists, paedophiles, murderers and armed robbers to desist because these latter conventional criminals have strictly limited objectives and don’t also want to destroy ecosystems, Humanity and the Biosphere in the process.

    2. Australia pollutes the planet with about 2,000 million tonnes of Domestic plus Exported CO2-e each year so the 47 million tonnes CO2-e foregone in the auction (forgetting about the no doubt dodgy basis of this estimate) is a mere 2.4% of Australia’s annual Domestic plus Exported GHG pollution of 2,000 million tonnes CO2-e (see section G, “2011 climate change course”: https://sites.google.com/site/300orgsite/2011-climate-change-course ).

    3. The COALition’s Emissions Reduction Fund (ERF) totals $2.55 billion, so at the current rate it will pay for $2.35 billion x (47 million tonnes CO2-e/$660 million) = 167 million tonnes CO2-e or a mere 8.4% of Australia’s annual Domestic plus Exported GHG pollution.

    4. The Carbon Price is /$660 million/47 million tonnes CO2-e = $14 per tonne CO2-e which is more than twice Labor’s election commitment in 2013 ($6 per tonne CO2-e), more than the present (EU) value of Labor’s election commitment ($10 per tonne CO2-e) and 11-18 times less than the expertly-determined damage-related Carbon Price from 90-BNonel-Laureate Cambridge University of $150-$250 per tonne CO2-e (see Dr Chris Hope, “How high should climate change taxes be?”, Working Paper Series, Judge Business School, University of Cambridge, 9.2011: http://www.jbs.cam.ac.uk/fileadmin/user_upload/research/workingpapers/wp1109.pdf and “2011 climate change course”: https://sites.google.com/site/300orgsite/2011-climate-change-course ).

    5. In 2009 the German WBGU estimated that the world must emit no more than 600 billion tonnes of carbon dioxide (CO2) before 2050 if it is to have a 75% chance of avoiding a catastrophic 2 degree Centigrade temperature rise. Australia ‘s annual domestic plus exported greenhouse gas (GHG) pollution is so high that it exceeded its “fair share” of this terminal GHG pollution budget (terminal Carbon Budget) in 2011. Worse still, Australia ‘s bipartisan commitment to unlimited gas, coal and iron ore exports and its huge reserves mean that it is committed to polluting the atmosphere with over THREE (3) times the world’s total terminal GHG pollution budget (see Gideon Polya, “Australia ‘s Huge Coal, Gas & Iron Ore Exports Threaten Planet”, Countercurrents, 15 May 2012: http://www.countercurrents.org/polya150512.htm and “Climate change websites created by Dr Gideon Polya”: https://sites.google.com/site/drgideonpolya/climate-change-websites ).

    6. Sensible, science-informed, numerate Australians – and especially young Australians who will inescapably have to pay for the COALition’s climate criminality – will utterly reject this latest false climate spin from the climate criminal COALition and the bottom-of-the-barrel and effective climate change denialist Murdoch media – they will utterly reject the climate criminal COALition, vote 1 Green and put the COALition last.

  21. Charles Kovess

    I find it hard to respect economists on almost any subject, because they so pretend to know what’s going to happen but get it wrong so often. Just this week, most of them couldn’t even get close to the unemployment results about to be announced. In this case, Tom Westland jumbles up criticism of Greg Sheridan’s calculations with his own, and throws in predictions of Ross Garnaut as if that was something to rely on. Australia emits a net 563 million tonnes of CO2 pa currently. The Direct Action strategy is to invest $2.55 billion. At an average cost of $13 per tonne of abatement, under the results announced, the investment will reduce emissions by close to 200 million tonnes pa. That is a 35% reduction on current numbers, not just 5% on 2000 numbers.

  22. Thomas Westland

    Charles, you’ve got a number of things very mixed up here. The number of emissions to be *abated* is not simply 5 per cent of the baseline year’s emissions, it is the difference between emissions under a counterfactual of no ERF or carbon tax and 95% of the target year’s emissions. Moreover, and more of a problem, the $2.55b ERF is not annual expenditure. It is the total amount available to reduce emissions in every year between now and 2020. Given that we need to abate a cumulative total of around 230 million tonnes of C02 equivalent emissions between now and 2020 to meet the 5 per cent target, at an average price of $14 (and bear in mind that the average price is likely to go up since successful winners of the first auction were probably at the very low end of the marginal abatement cost curve) the total budget for the ERF would need to be around $3.3 billion just to meet the unconditional target, which as Ross Garnaut correctly observes is going to be irrelevant to our UN commitments anyway given that we have in fact promised deeper cuts conditional on international action which has now materialised.

  23. Aethelstan

    We really need some spin-free information on the price of carbon reduction under the carbon tax … Professor Frank Jotzo has stated that the real price of carbon reduction under the carbon tax was $20 per tonne … and further to that, he stated that if the carbon tax had been able to develop into an emissions trading scheme, which it would have done by now, the price would have now been $10 per tonne …

  24. Aethelstan

    Mind you, under the carbon tax, the $20 per tonne was paid by the polluters … Not the tax payer …

  25. Norman Hanscombe

    It’s interesting to see a reference to Greg Sheridan’s writing skills being made by someone who appears oblivious to the fact that he’s nowhere in Greg’s class. As for the two Greg’s mental capacities, nature and nurture seem to have combined far more effectively than is the case with the usual suspect types whose only weapon appears to involve ignoring the substance while attacking the messengers.

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