ETS useless and dangerous

Why people are getting the picture but we are still waiting for the ABC to catch up

An outstandingly lucid explanation of what an emission trading system is, how it works, and why it will be useless and ineffective, but also positively dangerous and corrupting, is contained in an article in the latest Quadrant, and rerun in this weekend’s Australian.

It should make the government very nervous, but still we see the likes of Barrie Cassidy on Insiders this morning not tackling Penny Wong on any of the fundamental flaws and futility of an ETS. However, the mood is swinging so quickly both in the media and with the public, that it will soon be undeniable common knowledge that the ETS can’t work.

Simply put:

It is perverse to create a reward for otherwise uneconomic activities.

As for corruption:

In December 2009 Europol, the European criminal intelligence agency, warned that ETS fraud had resulted in around €5 billion in lost revenues and as much as 90 per cent of the entire market volume on emissions exchanges was caused by fraudulent activity. In late April 2010 there were twenty-five arrests in the UK and Germany for ETS fraud, involving more than a hundred suspects employed by banks and energy traders. A Europol official, Rafael Rondelez, has described the ETS as “an incredibly lucrative target for criminals”. This is because a carbon credit is “an intangible good … With this, it’s just the click of a mouse.”

On certainty for business:

The claim that business needs an ETS to “obtain certainty” is spurious. Europe has an ETS, but the price of carbon has been volatile and the market has crashed three times since it began in 2005. A carbon tax can provide certainty during periods when governments do not adjust the rules. But an ETS is inherently volatile and adds extra uncertainty into business decisions.

Why even a straight carbon tax won’t work:

Energy demand is “pretty inelastic” because people will not choose other goods or services to substitute for energy that keeps them warm or cool, cooks their food and provides transportation. Mechanisms such as a carbon tax are intended to send a price signal to consumers that they should consume less energy that is carbon intensive. But if alternative energy sources are limited, people will still choose to consume carbon-intensive energy, unless the price is set at a prohibitive level. In Western democracies an ETS or carbon tax would normally be accompanied by a proposal to compensate poorer voters for the higher price, so they do not have to change their behaviour.Neither the rich not the poor will turn off their radiators and the price signal will be ineffective.

Read the full article The Intelligent Voter’s Guide to Global Warming (Part II) by Geoffrey Lehmann, Peter Farrell & Dick Warburton in the April edition of Quadrant at any newsagent.

This article has now been made available on-line here.

UPDATE

In the meantime, Greg Sheridan gives us an account about exactly what countries around the world are doing with their carbon tax efforts. He explains that Julia Gillard is wanting to bring in a harsher regime than almost anywhere else.

EVERY so often Australians accuse themselves of being out of step. The implication is that we should “catch up with the world”. Sometimes this has been a useful spur to reform, sometimes it has been nonsense.

But the Gillard government is attempting to put Australia off-side with the practice of virtually the entire world. And it is doing so by pursuing a puritan ideological obsession that virtually no one else in the world is doing.

I refer, of course, to the proposed carbon tax. If the carbon tax goes ahead, to be replaced in due course by an emissions trading scheme with a fixed carbon emissions target, Australia will have among the most extreme climate-change policies in the world.

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