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Green illusions and the carbon tax

By Tim Anderson

April 30, 2011 -- The proposal for a carbon tax raises the issues of tax equity and political strategy. Yet despite their inter-relatedness, we need to disentangle these issues to focus on the original question. As a mean of addressing climate change, the carbon tax proposal comes in the context of difficult global negotiations, where almost any proposal has been seen as a breakthrough, and where (after the last financial derivatives bubble) there is justified suspicion of emissions trading schemes.

In Australia the political context includes a narrow, two-party debate which has reverted to tax incidence, with both major parties basically captured by the major investor groups and Labor having recently been humiliated over a failed proposal for a new mining tax. Into this mix we have the Greens, presenting as an alternative, yet signing an accord with the Labor government over its carbon tax.

I would like to briefly touch on the tax equity issue, before moving to the carbon tax and then to the question of political strategies.

Tax equity

Back in the 1970s Labor MP Jim Cairns commented that the question was not how much tax big companies paid, but whether they paid any tax at all. The situation is hardly better today. Underlying this is a failure of political will on the part of successive governments. Neither major party wants a confrontation with the big investment groups.

Yet there is natural, popular resentment at the incidence of new taxes on wage earners and consumers, and it is similarly natural that themes like "make the polluters/companies pay" are raised.

However it is hard to imagine that this chronic problem might be addressed simply as a "side issue" to the primary aim of the carbon tax -- to create some sort of vehicle for the reduction of carbon emissions. If the Labor government was unable to directly impose a very reasonable super-profits tax on the mining companies, it seems less likely to be able to make big companies wear (and not pass on) a new tax simply as the "by-product" of an environmental protection policy.

Carbon tax and climate change policy

In the euphoria of overcoming the blockade on the Kyoto Protocol by Washington (and therefore also by Canberra) we may have lost sight of what that agreement represented. Yes, it meant accepting and addressing the fact of human-aggravated climate change by carbon emissions -- but it also represented a "market mechanism" to deal with the problem. It particular it proposed emissions trading.

Even the Australian Greens, in the midst of their other quite reasonable policies on climate change (public investment in renewables, removing subsidies for coal companies, new standards and regulation in favour of sustainable industries), include reference to “market-based” mechanisms.

What is meant by "market mechanism"? It is a neoliberal concept, in the sense that it pre-supposes that pathways to ecological integrity can be found through private commercial transactions, making use of "price signals". It assumes, and therefore demands, that there can be no real conflict of interest between private commerce and public policy. If only the "right" price signals are built into transactions, incorporating more closely the full costs of production, private markets will "correct" their previous distortions. Carrying on with business as usual (i.e. commodification and profit making) after a simple price adjustment is thus said to be the best way for the planet to go green.

Based on this logic, a designated price for carbon is central, and underlies a carbon tax as well as an emissions trading scheme. Both pretend to set up "market mechanisms" which create higher prices for "dirty" industries, supposedly driving investment into better alternatives. The carbon tax proposal differs a little, in that it pretends to build public revenue to assist the process and stops short of a "market price" for carbon; but there is no great conceptual difference between the two. Indeed, the "Multi-Party Climate Change Committee" agreement between Labor, the Greens and some independent MPs, asserts that the "carbon price mechanism" will roll out for some years "before converting to a cap and trade emissions trading scheme".

The problems with this line of logic should be obvious. The demand for carbon-dirty industries is mostly "price inelastic" and so the higher costs will be accepted, and passed on to consumers without technological change. Australia has had very high taxes on petrol since the late 1970s, with no real impact on fuel consumption. Second, there is no guarantee that revenue from a carbon tax will be used to invest in renewable energies; indeed the more recent debate has degenerated into one where most revenue is said to be used in "compensation" for affected industries and consumers. While potentially worthy in the sense of tax equity, "compensation" negates the supposed behavioural impact of higher carbon prices.

Finally, the "emissions trading scheme" towards which this is all heading is certain to be a sorry collection of unfulfilled promises, evasions and scams. Companies will be encouraged to buy their way out of their liabilities, instead of being required to change their technologies. They will finance shonky and unaccountable nature conservation projects in other countries. These projects in turn will be purchased by the next wave of loggers and miners. Liabilities will be onsold into a new derivatives bubble market, and we very recently saw the consequences of such bubbles.

Green political strategies

Meanwhile, some in the Greens seem to think that the carbon tax agreement represents a new era in responsibility and maturity. Some even accuse the Liberal Party -- through its opposition to the tax -- of "scaring the business community".

One activist on a Greens blog says, "We need to find a way to align ourselves with our potential friends. Let’s start talking to BHP and Westpac." "Great point", the blog host replies. In my view, this sort of naivety spells great danger for the Greens.

The "market mechanism" minority part of the Greens' climate change policy has rapidly come to dominate the party's other policies. The Greens are now deeply implicated in a neoliberal agenda and (along with Labor) will be blamed for its failure. When the "carbon bubble" collapses they could share the fate of the Irish Greens, or the Australian Democrats.

The simple alternative would be to reject the talk of "market mechanisms" and pursue measures that directly address both carbon emissions and technological change towards sustainable industries: public investment in renewables, removing subsidies for coal companies, and new standards and regulation in favour of sustainable industries.

Better to promote an honest alternative than help administer this latest scam.

[Tim Anderson is a senior lecturer in political economy at Sydney University. This article has been posted at Links International Journal of Socialist Renewal with Tim Anderson's permission.] 


An Open Letter About Economic Changes, Stagflation & Carbon Tax

An Open Letter About Economic Changes, Stagflation and the proposed Carbon Tax

Oh how we forget the recent lessons of our modern history.

In 1973 to 1975, and indeed into the early 80s the world experienced an end to the post World War 2 boom. This was characterised by a recession with high unemployment and high inflation - 'Stagflation'. Increased competition from newly industrialising countries, and a costly regional war (the Vietnam War), high oil prices and government over-regulation were identified as the main driving factors.

Following their success in winding back communist government economic policy in Chile, the “Chicago-Boys”, a group of economists including Milton Friedman, a Nobel Prize winner, were enlisted to solve the problem.

This culminated in several austerity measures, namely deregulation and tax cuts. Following these changes in the US, UK, Australia and New Zealand; and indeed worldwide recognition that big government and higher taxes cannot deliver satisfactory outcomes; an economic boom occurred, as countries like Russia and China deregulated or completely removed their communist government.

Here we are now in 2011, with impending high oil prices, costly regional wars and intense manufacturing competition from countries like China and it would seem we are on our way back to the dark days of the recession era of the 70s and early 80s. How quickly people forget how the government taxing us in order to “give something in return” has failed in the past, and will likely fail again: especially when the circumstances are so similar.

Unfortunately (and I say this with some experience based on my job), the administrative machine of the government bureacracy is simply not efficient enough to maximise the return from our dollars. So if a government is intending to create a tax that they will fund households from, most of that will be wasted on administrative overheads. And as government departments need to constantly spend their budget to justify the same or an increase in funding next financial year, the administrative cost of running this bureacracy will likely rise instead of fall if there was competition in that particular market.

The current government intends to tax carbon; ostensibly in order to reduce our dependence on it. SO why are we so dependent on fossil fuels in Australia? A quick search on a wiki on government policy in Australia regarding renewable energy reveals the answer: “Governments in Australia provide substantial financial support for the production and use of fossil fuels, through direct payments, favourable tax treatment and other actions. These subsidies keep the cost of fossil fuel energy artificially low and make it harder for renewable energy to compete. They distort energy markets, encourage greater use of fossil fuels, create higher levels of greenhouse gas emissions and improve the profitability of energy companies that produce or use fossil fuels.”

So the government intends to create a tax on something that they themselves created. This seems quite typical of a communistic method of excessive meddling in the economy. The policies aren't working to create the outcomes we want, so lets create another tax to solve the problems we caused. Why not change policy to be more favourable of renewable energy? Why make every person in the economy pay for the governments regulatory mistakes? Why are we returning to recession era politics and regulation?

JD Barton

A Concerned Darling-Downs Citizen

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