Direct Action creating billion-dollar budget black hole

The thin veneer covering the Coalition government’s Direct Action policy is being rapidly stripped away, as even one of Australia’s biggest industry groups warned it would create a massive hole in the federal budget.

The Australian Industry Group said even if Australia matched the low target of the US it would be facing a bill of $19 billion if it continued with Direct Action until 2025. It could face a bill of as much as $25 billion.

The Ai Group intervention came as the federal government continued to defend its controversial funding of climate contrarian, Bjorn Lomborg.

Environment minister Greg Hunt, appearing on the TV show hosted by right wing commentator and climate denier Andrew Bolt, said Lomborg was a world renowned economist.

In fact, he is a political scientist, who has become notorious for suggesting, firstly, that climate change was not happening, then was happening but not man made, and when he did accept the science argued that the world should not be in any hurry to act on it.

This appears to be Australia’s official policy now. The first auction by the Emissions Reduction Fund contracted 47 million tonnes of abatement at an average cost of $13.95 a tonne of CO2 equivalent.

That is too high a price for Australia to meet its target of just a 5 per cent cut in emissions by 2020. Nearly half of the emissions bought will not be delivered until after 2020. And some of the abatement bought will disappear anyway. In effect, the government is buying an accounting entry, not long-term abatement.

The Ai Group submission to the government task-force looking at its Paris climate targets said Australia faced massive costs if, as the Coalition has suggested, it continues with the Direct Action policy into the future.

This table here illustrates the various scenarios that Australia may need to follow.

ai targets copyAnd this table illustrates the costs that would be associated with it.

ai costs

Importantly, Ai Group also warned that the cost to the budget – while significant and more than necessary – could pale compared to the economic cost to Australia of actions that other countries might take.

It said if these were “ambitious and realised “ they will tend to reduce prices and volumes of Australian exports, such as thermal coal, although they could lift prices and volumes of other commodities such as natural gas.

The Climate Institute takes up a similar argument. It criticises the government paper for including no discussion as to how a 2°C global warming target to be met. Instead, as we noted here, the only scenario it entertains is a world that warms by 4°C.

“Australia currently lacks a strategy to manage the risks and capitalise on the opportunities of global action to reduce emissions,” the TCI wrote.

“Major trading partners from Asia, North America and Europe are implementing measures to price carbon, limit emissions, improve energy productivity, and grow renewable energy supply.

“In this context, the government risks taking a partial and short-sighted view of national prosperity by basing it primarily on the foundation of our large fossil fuel resources, emissions intensive exports, and high proportion of coal-fired electricity generation.

“While these characteristics have contributed to national prosperity in the past, their future contribution is far from assured. A focus on these parts of the current economy to the exclusion of others prevents a full assessment of the opportunities and costs of moving to a net zero emissions world.

“Australia’s position among high income countries as a relatively large emitter in per capita and emission intensity terms is a liability that needs to be addressed, not ignored.”

Yet, this is exactly what the likes of Lomborg promote. Hunt, meanwhile, defended Lomborg, who Bolt pointed out had argued that the Kyoto Protocol, for instance, would be useless because it would only delay climate impacts by a few years at a cost of $150 billion a year.

Hunt said: “Well, Lomborg is actually an economist of international renown and this isn’t a global warming think-tank as the left portray it. It’s actually an economic analysis unit and think-tank.”

Lomborg told the Australian the same thing. But his move to WA coincides with new investigations in the US which purport to show that around two-thirds of the funds donated to his centre from 2008-13 were used to pay Lomborg, his travel and promotion of his book.

Comments

18 responses to “Direct Action creating billion-dollar budget black hole”

  1. david_fta Avatar
    david_fta

    A billion-dollar hole in the Budget? No worries, a Carbon Tax can be on the table at the next election to fill it.

    You heard it here first.

    1. david_fta Avatar
      david_fta

      If it helps at all, perhaps Dr Lomborg could get fellow political scientist Don Aitkin to help at the Consensus Centre?

    2. john Avatar
      john

      No a carbon trading scheme

      1. david_fta Avatar
        david_fta

        Sorry John, but no ETS. ETS is just too much like giving the biggest most evil greedy banksters in the world an excuse to turn the entire economy into a derivative trading scheme.

        World needs complete cessation of fossil fuel use, and it needs it before atmospheric CO2 rises to 350 ppm. Trouble is, atmospheric CO2 is well past 350 ppm already.

        Therefore what we need is Fossil Fuel Consumption Tax (FFCT), with revenue used to cut other taxes to allow each taxpayer (fossil fuel consumer) to choose their own optimal cessation of fossil fuel consumption.

        Each year, rate of FFCT is increased a bit, and this process continues until fossil fuel consumption is driven out of the Australian economy – which means if you want to import goods to Australia, you’ve got to import them on a ship which doesn’t burn oil.

        Check out what Oxford Energy Policy Professor Dieter Helm thinks of ETS’s at http://e360.yale.edu/feature/forget_kyoto_putting_a_tax_on_carbon_consumption/2590/
        Check out what Reagan Secretary of State George Schultz thinks of ETS’s at http://www.wsj.com/articles/SB10001424127887323611604578396401965799658

        Check out what Committee for the Economic Development of Australia thinks of ETS’s at http://www.environment.gov.au/submissions/emissions-reduction/green-paper/95-david-arthur-attachment5.pdf

        1. Coley Avatar
          Coley

          Your link, http://e360.yale.edu/feature/forget_kyoto_putting_a_tax_on_carbon_consumption/2590/
          Very interesting but he is so out of date with his forecasts for renewables, and that’s just in three years!

          1. david_fta Avatar
            david_fta

            Thanks Coley. Predictions are hard, especially about the future.

          2. Coley Avatar
            Coley

            It was a good article, I agree that gas should cover the transitionary period, it just highlighted how fast things have moved on the RE front in a relatively small time.
            And he’s right about an international carbon tax,though I think it will be a nightmare to agree concensus.
            But if it can be done, Abbot & friends will be needing to change their underware 😉

          3. david_fta Avatar
            david_fta

            “And he’s right about an international carbon tax,though I think it will be a nightmare to agree concensus.”

            With respect, I disagree that any carbon tax need be international in scope; it”s perfectly straightforward for each jurisdiction eg Australia to impose its own Consumption Tax on Fossil Fuel (FFCT), then increase the rate of that tax (using the additional revenue to offset other taxes) until fossil fuel consumption has ceased in that jurisdiction.

            In Australia’s case, it would be imposed on the overseas manufacture of imported goods AND ON THE FUEL USED TO BRING THOSE GOODS TO AUSTRALIA – which would definitely boost the idea of re-opening factories in Australia (jobs).

            That Helm is out-of-date with his predictions about progress in renewable technology is completely irrelevant to the fact that FFCT is the optimal carbon-pricing technique.

            To see how it would be applied in Australia, have a look at the published submission of “Arthur, David” to the RET Review: https://retreview.dpmc.gov.au/published-submissions

          4. Coley Avatar
            Coley

            I read your link and though most of it is ‘preaching to the converted’ ( at least on this site) the summary just reinforces my belief that getting international concensus on carbon tax will be a nightmare and the authors expectation that any problems will be sorted out by arrangements set up by the WTO is optimistic in the extreme.

          5. david_fta Avatar
            david_fta

            Err, you’ve completely missed the point, which is that a Fossil Fuel Consumption Tax, like all Consumption Taxes, is completely UNILATERAL and requires absolutely NO multilateral agreement.

            What the term “WTO-compliant” means is that any nation can implement the measure unilaterally WITHOUT BREACHING WTO RULES.

            I hope this clarifies the issue.

          6. Coley Avatar
            Coley

            So there would be no possibility of countries imposing tariffs on imports and disguising them as ‘carbon taxes’?

          7. david_fta Avatar
            david_fta

            A Consumption Tax is a Consumption Tax, NOT a tariff. It applies equally to domestically-produced goods as it does to imports – so the fuel used to truck stuff from Melbourne to Broome or Cairns would be subject to the tax just the same as would imports.

            Proof of this is that importers are entirely free to ship goods WITHOUT burning fossil fuel – and if they can’t find a way to do this, then globalisation will just have to proceed without shipping vast quantities of stuff around the world.

            It would help if you read the references I gave you above to start to understand the concept of a Consumption Tax. Mind you, the ALP don’t want you to realise that there’s such a simple, fair way to price carbon, because they’d rather win the support of the world’s banksters by trussing up the economy into a giant derivative trading scheme – so they’re doing their damnedest to pretend that Consumption Taxation doesn’t even exist – let alone present the optimal solution.

          8. Coley Avatar
            Coley

            I did read the references you provided and the author seems to think that a balancing act on levying a carbon tax on imported goods can be achieved by the WTO

            “To ensure a ‘level playing field’, consumption taxes are imposed on imports to a tax jurisdiction through WTO-compliant “border adjustment” charges. This has the benefit of maintaining competitiveness of domestic industries against imported rivals through a WTO-compliant mechanism”

            This is where I feel the difficulty lies, not with a consumption tax on internal produce.

          9. david_fta Avatar
            david_fta

            “This is where I feel the difficulty lies, not with a consumption tax on internal produce.”

            Err, this is not a difficulty, this is what’s so great about consumption taxes: imports are treated exactly the same as domestic production.

            I don’t know how taxation’s going in your country, but Hhere in Australia, we’ve had no problems with the GST, which is exactly the sort of Consumption Tax I’ve got in mind; the only difference is GST is charged at “10% of value”, whatever “value” is, whereas FFCT would be charged at “$X per tonne fossil carbon combusted”.

            The upshot is, what you see as a difficulty is actually one of the features that makes FFCT better.

            IF other nations want their exports to Australia to be treated more favourably by Australia than Australia’s own domestic production, they’re welcome to send their exports somewhere else – and they certainly don’t have a case to take to the WTO.

          10. Coley Avatar
            Coley

            F other nations want their exports to Australia to be treated more favourably by Australia than Australia’s own domestic production, they’re welcome to send their exports somewhere else – and they certainly don’t have a case to take to the WTO.
            I’m trying to understand where your coming from, but a TV produced in Australia from recycled materials using completely RE energy sources ( fat hope with Abbot running things) and transported using only EVS would theoretically not be subject to any carbon tax?
            Cost? Say 1000 Aus$?
            Chinese import, same quality TV but produced with high end FF use in both materials and energy usage,but coming into stores at 500 Aus$
            What ‘carbon tax ‘ would be, in your estimates, slapped on it?

          11. david_fta Avatar
            david_fta

            “What ‘carbon tax ‘ would be, in your estimates, slapped on it?” No idea, Coley, and nor does it matter: the FFCT slapped on any item is based on the total amount of fossil carbon consumed (emitted to atmosphere) in the course of bringing that item to market.

            Where I’m coming from is, over time, the burden of taxation is increasingly transferred onto fossil fuel consumption (the “bad”). It’s a variation of Pigovian taxation (Pigovian taxes are consumption taxes imposed to meet the incurred cost of ameliorating negative externalities; http://www.investopedia.com/terms/p/pigoviantax.asp); because the negative externality from fossil fuel consumption cannot be ameliorated, instead the tax is applied to providing the price signal to guide and inform each taxpayer’s decisions about investing in alternative technologies eg solar panels, electric cars, biofuels.

            Regarding the particular hypothetical you pose, that ain’t how it works: each TV maker is equally liable to FFCT, which may affect their cost price in getting their TV’s into your local Harvey Norman; obviously, if the supply chain for one of the TV’s has no FFCT liability, then with ongoing increase in rate at which FFCT. FFCT will become an ever-larger cost burden for its competitor.

  2. john Avatar
    john

    Only Australia
    could do such a stupid thing as allow this person to be paid by our government how on earth did this happen.
    I await to see the cost benefit study or that is correct we do not do any of those studies here because we are perhaps stupid.
    Explain to me please how my tax dollars are being paid to a charlatan ?
    Does this follow the stupid does as stupid says idea perhaps.
    The longer I live the more disgusted I am about this country I live in.

  3. phred01 Avatar
    phred01

    Yep Dirty Coal is getting a Social safety net @ the expensive of pensioners that have to access their equity in their homes to live and the sign over the balance if anything is left to pay for aged care entry. So Abbot is going to saddle us poor tax payers with a debt that our great great children will have no hope of paying off ie if the Earth survives global warming

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