Friday, November 27, 2009

Policy inversion...(or the Librals part 2)

It is very hard to figure out exactly what any of the individual Liberals who are making a racket about the CPRS think. The statement by Sophie Mirabella in The Punch only adds to this confusion.

There seem to be a number of strands. The first are the outright denialists or sceptics. This is a very small group really, but led by the very vocal Nick Minchin who went on record claiming that climate change was a giant left wing conspiracy to bring down capitalism.

The second set is the we are too small set. This is the set that uses the language in Mirabella's piece that as we are the source of only 1.5% of the world's emissions then we aren't enough to make a difference. This is usually married with the concern that we will penalise our industry and only send the issue off-shore.

The third is the this is a tax argument, which focusses on the increased costs to families. This is perhaps the weirdest of them al, becaue the scheme is ultimtely NOT a tax, and even if it were it is a "good" tax in that it is designed to increasse the cost of what economists call "bads" (the opposite of goods). If the consequence of the scheme were to increase total Government revenues, then the expectation would be to elsewhere reduce tax. Just like the GST a new tax isn't bad itself, the champions of small Government really want the lowest over all tax take (as percentage of GDP) and that tax be raised as efficiently as possible.

The implementation of the scheme as an Emissions Trading Scheme is the response to all three of these criticisms. There are some who would argue that a more direct carbon tax or a more direct emissions limitation scheme would be better - but the ETS actually delivers the outcome through the economic methods hat should in theory be most favoured by the economic rationalists we thought populated the Liberal party.

Let's go through these.

Firstly, by implementing an emissions trading scheme Australia starts on a pathway that could be a GLOBAL emissions trading scheme. That means that in the long run the locational questions would be washed out - the cost to emit would average out across the planet. The sheme itself covers this by the compensation made available to trade exposed industries.

Secondly, to get to a global system veryone has to act. Being 1.5% makes us sound small - just like being 2% of the global economy does. But in reality we are in the top twenty economies and polluters. We have an obligation to be among the leaders. Further, we have an international credibility problem created by the Howard Government. They led the Kyoto discussions in many ays and got significant concessions and still didn't sign. We need to be going to Copenhagen saying "We are acting - you need to act too."

Thirdly, the idea of creating amarket in emissions simply is that the cost of carbon should be fully embedded in the price of products as finally consumed. That is, this scheme is a market driven scheme that delivers on the full Smith/Hayek demands that the invisible hand of consumer preference should guide production choices.

Finally, to the denialists, there is a simple response. The first is that waiting for incontrovertible evidence of warming before acting will be way too late. The second is that acting to put a higher price on the consumption of fossil fuels can be no bad thing as it will encourage greater efficiency in the consumption of a limited resource. Further, global relations would be fundamentally changed if we could reduce our reliance on oil.

In his column in today's AFR John Roskam from the IPA (article not on their site yet) highlights the fact that these Liberals opposing the ETS are deviating from the wish of he business community which is saying it wants certainty over the arrangements. Roskam is trying to make some political point by also pointing out that business supported the stimulus package. Indeed his claim is;

The split between the Liberals and big business says more about big business than it does about the Liberal Party. These days the objective of the organisations that represent big business is more likely to be to maintain a working relationship with the government of the day.

This is in effect a charge that business supports a "corpoartist" state. This charge, at least on the ETS, is wrong. It is business and the Government that are pursuing the "neoliberal" agenda of using markets. The Liberal is divided - those opposing the CPRS are either excessively short sighted on the question of global resource management or re willfully objecting to a neoliberal solution to a global problem.

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