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Howard's climate task force gets economics wrong (Read 3180 times)
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Howard's climate task force gets economics wrong
May 25th, 2007 at 11:29am
 
Howard's climate change 'task force' released an interim report in February which claimed that emissions trading is a "more flexible, market-based policy tool than imposing a carbon tax on industry." It also pointed out: "Market-based approaches will generally reduce emissions at a lower cost than other interventions". Any trading scheme was likely to take about five years to establish.

From the productivity commission report which was submitted to the task force:

http://www.pc.gov.au/research/submission/emissionstrading/emissionstrading.pdf

Productivity Commission Submission to the Prime Ministerial Task Group on Emissions Trading

A national approach should be based on GHG pricing — through an emissions tax
or an emissions trading scheme. Due to its administrative simplicity, a tax has some
merit as a transitional tool and could be introduced in a revenue neutral way.

… if we don’t act, the overall costs and risks of climate change will be equivalent to
losing at least 5 per cent of global GDP each year, now and forever. If a wider range of
risks and impacts is taken into account, the estimates of damage could rise to 20 per
cent of GDP or more. In contrast, the costs of action — reducing greenhouse gas
emissions to avoid the worst impacts of climate change — can be limited to around
1 per cent of global GDP each year. … So prompt and strong action is clearly
warranted. (Stern 2007, p. xv)



Under normal circumstances the report's claim that "Market-based approaches will generally reduce emissions at a lower cost than other interventions" would apply. However, market based trading schemes do not 'generally' require the government to actually monitor the quantity being traded to make sure that people don't consume more than what they pay for. If the government has to monitor the emissions under both a trading and a tax scheme, then the tax scheme is no more costly than a trading scheme. By raising revenue, reducing other taxes and therefor reducing the combined burden of carbon prices and taxes, it is far less costly to society than trading schemes.
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The reasonable man adapts himself to the world; the unreasonable one persists in trying to adapt the world to himself. Therefore, all progress depends on the unreasonable man - George Bernard Shaw
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