Pretty quiet summer time here in Oz. Most of Australia is sizzling with temperatures into high 30’s and 40’s (no relation to climate change). Almost a perfect time to think and write about the recent developments with the Commonwealth Government’s ‘Direct Action Plan’ to deal with greenhouse gas emissions (GHGs).
Details of it have started emerging early in the New Year.
It will have two main components: 1). a funding pool – called the emissions reduction fund – comprising of some $1.55 billion within the first three years; and 2). an emissions baseline for each liable emitter set based on historical emissions: breaching this baseline will involve incurring as of yet undetermined penalty.
It is planned that the funding be distributed using auctions: emitters will bid for funding by offering certain quantity of abatement in exchange for receiving funds, which will mean that those who offer to abate more for less are going to be favorites for funding. Ultimately, this should lead to a desirable outcome that abatement is undertaken by lower abatement cost emitters.
However, this desirable design feature should not distract from the fact that it only ensures how to distribute the subsidy more effectively. That’s right: ‘the subsidy’! Because that’s exactly what the first component of the Government’s Direct Action Plan is: a big, fat subsidy to those who emit carbon dioxide and other GHGs in the atmosphere. This Government has insisted so much on using the term ‘Carbon tax’ for what previous government wanted to call ‘Carbon pricing’, that it is only fair to ask them to call their Direct Action Plan what it is: A Carbon Subsidy.
And anyone who studied a bit of economics would know that subsidies have pretty undesirable characteristics: for starters, they invite more entry into a polluting industry in the long-run, as the subsidy makes it on average less costly to operate. This is in direct contrast to a tax that increases the cost of operation for heavy polluters in the long-run and hence forces their exit from the industry. In addition, the subsidy empties state’s coffers, whereas a tax fills them.
So, no surprises here: the Direct Action Plan is as bad as the very idea of it has always been. But, please call it for what it really is: A Carbon Subsidy.
