Tuesday, 09 July 2013 23:59

A Dummy's Guide to Carbon Tax

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An irreverent look into the ETS (Emissions Trading Scheme).  

A Dummy’s Guide to Carbon Tax

An irreverent look into the ETS (Emission Trading Scheme)

The industrial revolution brought us comfort and ease the like of which was seldom dreamt.  Though men still toiled in desperate conditions and with their heads buried in the fumes of chemical discharge, our lives were always getting better, and almost each month would give us some new and wondrous invention to expand our world,  giving hope of salvation just on the horizon.  We knew intuitively there was to be a price tag for all of this, but the prize so greatly outweighed any conceivable cost that it simply did not matter.  And no one bothered to ask if there was a price that was, for the moment, still inconceivable.  The vast plumes from the factories, the oily surfaces to the water, the choking fogs did little to raise alarm.  No one believed it possible that man’s piddling interventions could move heaven and earth.  We had, finally, even tampered with God’s own tools when theory and technology combined to allow us to split the atom.  We unleashed a previously unimagined power with no particular side-effects, in that we managed to destroy a city and all of its inhabitants at one go without any other consequence.  But some people were growing uneasy and beginning to ask questions that were becoming difficult to answer.  Perhaps heaven and earth were just a little more fragile than we had always thought.    I suppose we can blame it all on Rachel Carson.  Her book, Silent Spring, published in 1962 was the wake-up call and doubtless sparked the debut of our environmental concerns.  It was proof that we could, indeed, cause irrevocable damage to the planet that would start a chain reaction leading to our own extinction.  As a result, many of us, and that includes some rather intelligent scientists, start to see doomsday scenarios in every one of our endeavours.  For example, was it possible that we could leak enough of our waste products into the atmosphere to create a global greenhouse?  Many people not only think so, but some are prepared to say we have already gone past the tipping point.  And many more are shouting loudly that we need to undo that which we have already done.  The only way to do that, or at least to inspire that, is to impose a tax on pollution of anything by anything.  One of the easiest of those anythings to tax is the gas, carbon dioxide.

Our planet is in transition.  We are still thawing out from the last Ice Age and the world is once more heating up.  It’s not the first time this cycle has occurred and, if our planet manages to avoid another massive collision with a rather largish asteroid, it will happen again.

All life on earth is carbon based.  That simply means we use chains of carbon molecules to maintain our structure.  Consequently, we all keep losing bits of carbon along the way and emit a waste gas in the process; carbon dioxide (CO2).  Some life forms, like plants, take up carbon dioxide during the day; they combine that with water in the form of hydrogen and oxygen (H2O) and use the energy from the sun to mix them all together to create a new carbon molecule called a carbohydrate, a sugar.  However, whenever this occurs there are some atoms left over and the plant gets rid of those excess atoms as a rather poisonous exhaust gas called oxygen.  At night, since there is no sunlight to power this process (photosynthesis), plants let go of about half of all the carbon dioxide they absorbed during the day.  When the plant dies, as all life does, all of the carbon it contains is released.

Animals, and that includes us, found a way to make use of that poisonous gas (oxygen) that the plants got rid of during the day while their sugar factories were in operation.  And we animals release, in a nice synergistic balance, carbon dioxide.  We also, as do all animals, release another exhaust gas, methane (CH4), which is perhaps the main contributor to global warming, but we don’t discuss that gas in polite company or vent it too close to a naked flame.  So, how does carbon dioxide make the planet warmer?  If you are a beach goer, then you will notice that the sand at the beach gets rather hot during the day.  When the sun sets, it stops adding to the heat of the sand, and the sand gratefully releases all of the heat energy it absorbed during the day into the night sky.  But if the atmosphere is heavily laden with carbon dioxide molecules, the heat energy just makes them bounce around a whole lot more than usual and the heat doesn’t dissipate and the atmosphere tends to get warmer.  It is much like being in a greenhouse where the heat can’t escape because of the glass.   So, we call carbon dioxide one of the greenhouse gases.

Everything emits carbon dioxide, and we, you and I, manage to add perhaps more than is prudent by burning coal and oil (fossil fuels), and upsetting some balances here and there at the same time.  Climate scientists like to measure things and one thing they have been able to measure is how much carbon dioxide is in the atmosphere.  Another thing they have been able to measure is the ambient temperature of the atmosphere, and they have noticed that it is slightly warmer now than, say, when they first started measuring things.  The latest measurement of atmospheric carbon dioxide puts it at a level (400 parts per million) that is the highest in about three-million years.  Now, that could mean nothing, or it could mean it is pretty scary stuff.  Don’t forget, we are still coming out of an Ice Age and no one knows for sure whether it’s goodbye snow and ice or just one of the cyclic periods of retreat and advance.  The same as no one knows for sure if human activity has really contributed to the amount of atmospheric CO2 or if we aren’t just exacerbating the problem by burning so much carbon.  No one, even scientists in white lab coats, can seem to come up with any definitive answer.  So, on the one hand, we have people running around wringing their hands and shouting over and over that we are doomed, and on the other, people who figure that maybe, just to be on the safe side, we should do something about it.

How serious a problem is it?  That sort of depends on your point of view.  We all drive cars and we all are aware that they are a major polluter of the air we breathe.  We, all of us, do tend to feel a little guilty about this.  However, just sixteen container ships contribute more dangerous pollution into the atmosphere than all of the cars in the entire world.  I bet that made you stop and think.  And think about this, though they are not all container ships, the fleet, travelling about out there on the high seas when they are not in port unloading their cargoes, is up around a hundred-thousand ships.  However, if you don’t have the things you want to eat or to wear or to make steam for your power generators in your own country, well then you pretty well have to put up with it, do you not?  It just makes good sense to stop shoving nasty things into our atmosphere, our oceans, rivers and landfills.   And that is why a tax on carbon has been proposed.

A lot of the CO2 gas released into the atmosphere comes from burning coal and oil that is used to create steam that drives the generators that lets you turn on the lights in your living room so that you don’t bang your shin on the coffee table, and to toast a couple of slices of bread in the morning.  We could use nuclear fission—no carbon involved—to produce the heat necessary to create the steam but the words, nuclear power, make people think of those scary bombs.  And there are many others who automatically mouth a litany of Fukushima, Chernobyl and Three Mile Island if you dare mention nuclear power.  The terror of Chernobyl that threatened to kill up to two-hundred-thousand people didn’t, of course.  The only data the UN had to work with was the data collected from the atom bombs dropped on Japan in 1945.  A wrong, very wrong assumption was made, hence the wild figure of expected casualties.  The number of people that actually died was about thirty, the same number we see killed on our roads on any holiday weekend.  Three Mile Island was an example of where the safety equipment functioned the way it was supposed to.  Nothing escaped, there was nobody injured and everything quickly returned to normal.  Fukushima was a case where the science community was called in to assess the danger of a tsunami that could cause problems to the reactor core and its cooling system.  The scientists all agreed, and presumably bowed, and said how high the wall had to be built around the plant.  No tsunami could possibly go higher than that, they assured everyone.  After all, they are scientists and they always know everything.   Had the tsunami checked with the scientists before it rolled in to shore, then maybe it would have known it was impossible for it to be that high and we would have had no problem with the power plant.  Still, there is all of that radiation stuff that scares the bejesus out of people and so everyone talks about renewable energy.  If we could only find some other way to create energy for our hairdryers and espresso machines, then we could stop burning all that coal and shoving all of that bad stuff into the air.  Have faith, for there are all kinds of ways of creating usable energy.  Most are impractical, some rely on a technology we haven’t quite developed yet and others are just an eyesore.  One thing they all have in common is that they are expensive.  The people that are flogging the concept of renewable energy, and sometimes the product, seem to like the sound of the words, free energy.   They happily proclaim free energy from the sun; free energy from the wind; free energy from the tides.    Fortunately, none of you is quite so gullible as to believe there is any such thing as a free anything.  But, if the politicians can find some way to make fossil-fuel power stations more expensive for you to buy electricity, then, by comparison the other forms of energy production seem more reasonably priced.  Get the idea?  And that is how a carbon tax works.

Everything organic is carbon based so everything leaves behind what is now the new buzzword, a carbon footprint.  Even if you just sat in the corner for all of your life, you would still leave a carbon footprint.  The best that can be done is to reduce the size of the footprint and that becomes the focal point of the carbon tax.  Get the industries that leave the biggest carbon footprints to find better ways to do whatever it is they do so that they stop emitting such huge amounts of carbon dioxide, and the footprint gets smaller.  Theoretically.  First, you are going to have to assess what volume of emissions is entering the atmosphere; you need a yardstick.  The best and simplest measurement is to calculate how many metric tons (one tonne equals one-thousand kilograms) are involved.  The people favouring a carbon tax like to call it pollution so as to make it sound like it’s a very bad thing, and even turning on the lights winds up putting stuff into the atmosphere, but you will notice that they are careful not to mention that you are polluting the air with escaping carbon when you have a backyard barbecue.  They don’t want to get you offside and thinking that they are going to make you stop having a beer and a barbecued burger on a Saturday afternoon.

People, either individuals or corporate persons, need an incentive to do anything, especially something they don’t really feel they should have to do.  Governments are proposing that we use the carrot and stick approach, incentive and punishment.  The corporate world responds mostly to two things; public opinion (we won’t buy your product) and profitability.  And that is where a carbon tax is going to hit them, right on their bottom line.  The incentive will be to change their method of doing things so they release fewer tonnes of carbon dioxide (hence a smaller carbon footprint) thereby attracting less tax to pay.  It certainly looks like a winner on paper, doesn’t it?  Is it possible to get your carbon footprint down to zero?  Nope, nor is it even necessary; all that really has to be done is to strike a balance.  And that introduces the carbon cap.  The government will decide just how many metric tons of CO2 an industry will be allowed to slough off into the atmosphere; the cap.   The current figure for Australia allows for about twenty-five thousand tonnes.  Anything corporate Australia does to emit less carbon than the cap, then the less tax they have to pay and the bottom line looks a whole lot healthier.  The healthy bottom line is supposed to be the carrot and the tax is the stick.

Since you weren’t born yesterday, you know full well that if industry has to increase the cost of doing business, they are simply going to increase the price tag on what product or service they sell you.  The government is also aware that you know this and so they have already been offering some incentives to make it seem that you are not being slugged just to make this carbon tax thing work.  And, also, they have been telling you what a noble thing they are doing by setting emission targets so that we all seem like good guys who really give an environmental damn about the planet.  It makes you feel good, doesn’t it?  Subscribing to an unproved assumption that curbing greenhouse-gas emissions will delay or offset global warming is one thing.  But setting emissions targets is another.  There is a cost involved that you and I individually have to pay and the greater the target and the closer the target date the greater those costs.  For industry to reduce their emissions, they must incur costs.  These will simply, as usual, be passed on to you and me.  Spread out over time these costs are gentle.  Make them abrupt and dramatic and the cost involved to you and me will also be abrupt and dramatic.   But rest assured, whatever happens, you and I will bear the cost of it all for there are very few philanthropic corporations out there. 

Can industry actually reduce their impact on our atmosphere?  Oh, my yes!  There are several ways and some of them even work rather well.  As for power plants that burn fossil fuels, they can make use of carbon capture and sequestration (CCS).  One method, post-combustion, can be retrofitted to smoke-stacks to filter the flue gases.  That can reduce carbon dioxide emissions by up to eighty per cent.  Another method is to treat the fuel pre-combustion, before you set fire to it, and this will get you another ten per cent, but it can’t be retrofitted so is rather more costly just to begin with.  The corporate problem is that both methods create an ongoing expenditure, and the ongoing cost may well exceed the cost of the tax, especially when you have to ask yourself what the heck you are supposed to do with all those tonnes of carbon dioxide you just captured.  That will be an ongoing and fluctuating expense and the solution may just be catastrophic, for it is all new to us and we aren’t too clear on how best to handle the problem.  How do we store it or get rid of it, safely?  And if we make a mistake and do the wrong thing, or choose the wrong solution, the consequences can become something more than an oops situation.

Another problem is fairness and equality.  Some corporations, by their very nature, don’t produce a lot of carbon emissions.  Some corporations, by their very nature cannot reduce their emissions by very much, if at all.  The latter will be paying huge amounts of tax, so common sense says that they would either go into another venture instead, or move their industry to another country that doesn’t tax them for doing what they do.  The tax is to be collected by the government by selling permits (carbon credits) but in the future (July 2015) these credits would be available for purchase on the open market, just like gold shares.  And that is called an Emissions Trading Scheme.  The suggested price per permit per tonne is, in Australia at the moment, twenty-three Australian dollars.  If you are beginning to get some inkling that this is big business with huge profits to be had, then you go to the head of the class.   However, a dampener at the moment is that Europe also has an emissions trading scheme but their carbon permits (as of the date this was written) only cost about six-dollars and seventeen cents.   Going global is going to add to the woes for expected tax revenues and will make for a highly volatile market.  It is going to be interesting to see how major corporations predict their profit and losses for those shiny brochures they produce for the shareholders every year.  

The idea is to catch the biggest ‘polluters’ but it doesn’t take much to reach the proposed carbon cap.  Even Shire Councils, responsible for waste management, fire reduction, and cutting the grass, can scrape the bottom edge of the cap.   So, is there an alternative to buying carbon credits, an expensive thing for a Shire Council to do?  Yes, there are things called carbon offsets.  For example, if you plant a whole bunch of trees, unless they burn up in a bush fire, they are a permanent carbon sink and they can be used to offset the carbon you are otherwise releasing into the atmosphere.  A whole lot of people are doing that right now on marginal (and not so marginal) farm land.  It is all extremely complex and very complicated and all sort of mind boggling.  For instance, a bad bush fire releases a frightening amount of carbon.  So, what if a Shire Council did some early controlled burns as fire management, should that be a carbon offset when the late season fires don’t do as much damage as otherwise would have happened?  Well, according to the Commonwealth Government who approved the use of Savannah Fire Management to generate carbon credits, it does.  And how about huge farms that use a no-till farm management policy, thus building up carbon in the soil, can they obtain carbon credits for sale on the share market?  It goes on and on with new and more clever ideas on how to apply for carbon credits.  How about this one?  You currently have to pay a few dollars per tyre to the tyre company to dispose of the old tyres when you buy a set of new ones.  So, you could, if you have some vacant land, get the tyre companies to pay you to take them off their hands and just dump them on the vacant land.  After a while you would have sequestered an awful lot of carbon and you can get carbon credits to trade on the market as well as all the money you collected from the tyre companies.  The problem for you and I is that corporations who have to buy carbon credits—because it is easier to do that than to invest huge amounts of money in Carbon Capture and Sequestering—will find it advantageous to buy some of these offset businesses.  They will earn big bucks with their subsidiaries selling carbon credits on the market, perhaps even to themselves, and the cost of that carbon tax will still be passed on to us, as it always is.  And there will not be a huge incentive to invest in clean energy or other expensive measures to reduce carbon emissions in the workplace.

Will the concept work?  It already is.  Our emissions appear to have dropped by as much as ten per cent.  The problem is we don’t know if this is because the concept is the motivator or if it is just corporations getting poised to take advantage of the ETS whenever it finally comes into effect.  We have yet to see any massive undertakings, though some are definitely on the horizon.  Even on the home front, the uptake of government subsidies to install roof-top solar panels is travelling along very nicely.  But will it continue when the subsidies stop and the power companies no longer are interested in buying back the excess electricity generated?  And, is it even a good idea?  That, too, depends on your point of view.  You can never (practically speaking) do without dedicated power generating companies.  There is no other way to meet peak demands and these are in the early morning and the late evening when photovoltaic cells don’t work.  They work best when the need for power is steady, but the power companies simply can’t stop generating all that power just because it isn’t needed at that moment.  It doesn’t work that way.  You can’t just stop and start turbines and generators and, if you could, you would still have to keep the fires going for when you needed to start them all up again.  The cost of running a power plant is pretty well static regardless of how many people are customers or are currently using the energy output.  If more and still more customers opt out, then the cost will have to be shared by fewer customers.  The first thing to happen will likely be that the power companies won’t want to buy electricity, making those roof-top solar arrays not quite so attractive.  The manufacturing sector, very heavy users of power, will have to absorb the increased costs, and that will be reflected back in the price you pay for their product.  We are simply going to be chasing our own tail.

The whole point of the exercise is to take our emission levels back to where they were, first back to the year 2000, and then back further still.  Meanwhile, we keep adding more and more stuff to the atmosphere without getting rid of any that we already stuffed into the sky, and dusting our hands as we say, mission accomplished.  Now, perhaps I am just a little too naïve, but if we posit that human activity is responsible for global warming (and we can measure it) then doesn’t that mean we should be pulling out carbon dioxide from the atmosphere rather than just slowing down the speed with which we are packing it into the sky?  Can we balance all of that with our sales of millions of tonnes of fossil fuels to other countries that are just going to burn it hence adding to the problem?  Somehow this doesn’t seem like a solution, just another mad scheme that will make a few people obscenely and insanely rich while you and I start looking down the sides of the sofa for any loose change.

So, where do you and I win?  Well, we don’t; at least not in the wallet.  Any company that manages to significantly reduce the size of its carbon footprint enhances its bottom line.  However, this is reflected in the value of the company and simply makes them more desirable on the Stock Exchange.   That has never been a precedent for reducing prices at the checkout counter.  Moreover, companies who broker these carbon offset schemes will list themselves on the stock market and the price of carbon credits will be controlled not by need but by share-price.  And worse, if the whole idea is to reduce emissions, how will making it big business cause that to happen?

It would seem that you and I are about to be dragged into another Corporate Australia scheme that will be absolutely awash with money, ours.   Perhaps, if the doomsayers are correct and the sky really is falling, then anything is better than nothing, would you not agree?  However, if it is just the planet doing what it has always done, then maybe we should take a little more personal interest in what will surely be the biggest confidence trick in history.  Maybe we should be asking a whole bunch of questions of our politicians to make sure we really understand what they are getting us into before we just nod and say, “Yeah, whatever”.  It is, after all, our money that is going to pay for it and you probably worked very hard for however little you have.  I sure did.

David Edwards

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