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Media Release
February 18, 2009,
Economists speak out against flawed
Carbon Trading Scheme
A group of ten Australian economists today slammed the Rudd government’s
proposed carbon emissions trading scheme, and called for a science-based policy to
achieve 25%-40% cuts in emissions by 2020.
Statement
The Australian government is to be congratulated for its decision to take part in the
global effort to reduce greenhouse gas emissions. However, the proposed Carbon
Pollution Reduction Scheme cannot be regarded as consistent with the government's
expressed goal of a global agreement to stabilize the climate. Among a number of
serious flaws, the proposed target of a 5 per cent reduction in emissions (with a 15 per
cent reduction conditional on a global agreement) is simply inadequate to deal with
the problem.
In our view the CPRS fails on the following criteria:
First, while there can be no doubt that a high carbon price will result in a significant
transformation of the Australian economy, it must be remembered that such
transformation is the actual goal of an emissions trading scheme. It is ironic that while
the usual purpose of compensation packages is to ease the pain of such
transformation, in the case of the Rudd Government's package compensation is being
used to prevent such a transformation. The CPRS actually rewards the major
corporate emitters for failing to act despite having been on notice since at least 1997
that the emission reduction targets would be adopted.
Second, the most significant consequence of the global financial crisis is to increase
uncertainty and, in turn, reduce new investment. The creation of more ambitious
emission targets would provide certainty that would stimulate major investment in
renewable energy infrastructure. The consensus scientific and economic opinion is
that the consequences of failing to address climate change will dwarf the costs of the
current financial unrest.
Third, the Rudd scheme structures the compensation opportunities for energy-
intensive, trade-exposed corporations in such a way as to provide an incentive for
these corporations to expand production and emissions. This will effect further
restructuring of Australian industry that consolidates its energy-intensive character to
the disadvantage of low-energy, energy-efficient industries.
Fourth, the proposed compensation of trade-exposed energy-intensive industries is
underpinned by the implicit notion that government should ensure a level, and thus
competitive, playing field. Yet the proposed compensation package will benefit
industry sectors dominated by international corporations which hold considerable
market power. The proposed compensation package will further enhance that market
power not create competitive markets.
Fifth, the Rudd government has designed a scheme in which every tonne of emissions
saved by households frees up an extra permit for the aluminium or steel industry to
expand their pollution. In addition to destroying the moral incentive for households to
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'do their bit' to reduce emissions, this design feature renders all other policies aimed at
reducing emissions pointless. For example, households who spend $7,000 installing
photovoltaic solar panels might believe that they are helping to reduce emissions but
in fact the only impact of such investment will be to slightly lower the demand, and in
turn the price, of the fixed number of pollution permits issued by the government.
Sixth, the Rudd scheme fails to cost the complex administrative arrangements that
will be required in order to effect the auctioning, the free allocations and the
redistribution of permit revenues across the economy.
The CPRS is based on neither sound economics nor sound science. We call on the
Government, or the Senate, to make major improvements to the proposed 'solution' to
Australia's rapidly rising greenhouse gas emissions.
These improvements should include:
Lifting the targets to 25-40% by 2020 based on the latest scientific evidence
Abolishing the free permits granted to the biggest polluters
Ensuring that individual action results in lower emissions, not lower carbon
prices
Unless these major flaws in the CPRS can be fixed the government should introduce a
carbon tax as a matter of urgency.
In the meantime, we would strongly urge all Australian governments to immediately
introduce incentives to maximise investment in the development and use of renewable
and low-emissions technologies.
Dr James Arvanitakis
University of Western Sydney
Dr Lynne Chester
Curtin University of Technology
Dr Richard Denniss
Executive Director of The Australia Institute,
Adj Associate Professor ANU
Assoc Prof Steve Keen
University of Western Sydney
Dr Andrew Mack
Macquarie University
Prof Barbara Pocock
University of South Australia
Prof John Quiggin
University of Queensland
Dr Stuart Rosewarne
University of Sydney
Dr Ben Spies-Butcher
Macquarie University
Prof Frank Stilwell
University of Sydney
For further comment: Prof Frank Stilwell
02 9351 3063
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