Emissions Trading Scheme Does Not Make Economic Sense

CPRS and You Booklet
CPRS and You Booklet

The Australian Treasury prepared a paper called Australia’s Low Pollution Future – The Economics of Climate Change Mitigation which was launched by the Treasurer on 30 October 2008.

This paper presents Treasury’s view that a switch to active measures to reduce Australia’s carbon emissions by 5%-15% from 2000 levels will have a net cost to Australians of only about 5% GDP in real terms. This aligns with IPCC’s economic forecasts which show that developed countries like Australia will mitigate the costs of adapting to reduced CO2 emissions by implementing an emissions trading scheme.

However there is one fundamental difference in the two calculations. Australian Treasury states the 5% reduction in GDP will commence almost from day 1 and continue past the date proposed for Australia to enter the international emissions trading market in the year 2020. IPCC’s economic forecasts show much greater reductions in GDP without engagement in the international emissions trading scheme and mitigation to a few percent if developed countries join in the international emissions trading scheme from the UN’s target date for implementation of 2010 – ten years before Australian Treasury proposes Australia join the international market.

One obvious problem with IPCC’s forecasts is that for the effect on GDP for developed counties to be mitigated by an emissions trading scheme, the developed countries must be getting a cash inflow from somewhere as a result of the trading scheme. From where? The developing countries? Do they think China and India are going to pay other countries for the right to continue to burn fossil fuels?

The problem with the Australian Treasury forecast is that although they state there will be a negative effect on the production of some industries, including coal, alumina and cattle, this will be compensated for by Australia developing greenhouse gas friendly industries. And what might these be? Australian Treasury shows only one industry with significant increasing contribution to GDP – forestry. As Treasury states that their forecast is based on “existing land area” this increase must be made up of a big jump in the value of carbon credits as well as the value of harvested timber. Will we be allowed to harvest the trees we grow?

Forestry is not a significant employer. Once the trees are established there is little activity in maintaining them. Therefore there will be very little economic input into the Australian economy from this industry. I suspect the flow on effects of changed employment levels and the resulting change in mix of economic multiplier effects have not been fully factored into the Australian Treasury forecasts.

Australia’s highest export earners are the resources sector. Australia’s economy is very heavily dependent upon primary industry – mining and agriculture. Take away coal, alumina and cattle and we have very little productive sector left!

Australian Exports
To sell an emissions trading scheme as morally correct and thus reduce the level of backlash for this new tax, the Australian Government has spun up a nice fuzzy name – Carbon Pollution Reduction Scheme.
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One Response

  1. The style of writing is very familiar to me. Did you write guest posts for other bloggers?

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