Renewables need more than this carbon price

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John Passant believes that with carbon price at its current level and the availability of carbon permit for big polluters, the carbon tax will be insufficient to to stimulate the renewables sector such that Australia moves beyond fossil fuels.

MUCH of the commentary on the carbon tax seems a little overplayed. It’s either the end of civilisation as we know it or some first step on the path to salvation.

The faction of the bourgeoisie and their politicians who oppose the carbon tax have managed to hitch on to workers’ entirely rational fears about having to pay more because of the tax. At a time when the share of national income going to labour is at its lowest since records began to be kept, that fear is understandable.

However, the household compensation package – the tax cuts and increased Centrelink payments – in the short to medium term will, if the Government and NATSEM analyses are right, marginally improve the living standards of most workers. Treasury estimates that for most people the cost of the carbon tax will be $9.90 per week and the compensation package will deliver benefits of $10.10 a week. NATSEM estimates the benefits will be even greater.

But this is in the short to medium term. That’s the rub.

A carbon tax – or, from 1 July 2015, its market twin the emissions trading scheme – have as their logic imposing the cost of pricing carbon on workers. A pricing mechanism can only work if that happens. The carbon tax is effectively a consumption tax.

The whole basis of the neoliberalism of the last 30 years has been to implement policies that favour the one per cent and attack the rest of us in an attempt to restore profit rates.

The carbon tax is born of that logic. Remember the GST compensation package? No, didn’t think so. It was eaten up by bracket creep, inflation and changed government policies over time.

Much of the carbon tax compensation package is merely a return of the bracket creep of the last few years. Bracket creep arises when you go into a higher non-inflation indexed tax bracket. Even if that doesn’t happen your pay increase is eaten away because it is taxed at your marginal tax rate, not your (lower) average tax rate.

Further, the compensation package of up to 94.5 per cent of the cost of permits for the polluters means that the cost of the tax can effectively be not $23 per tonne but $1.30 per tonne.

The aim of the carbon tax is, over time, to increase the burden of pricing pollution on to workers, not the bosses and their system, which creates and profits from greenhouse gas emissions.

The carbon tax will lock in gas-fired power stations as ‘cleaner’ energy than coal at the expense of a move to a 100% renewable energy economy.

Don’t believe me? Here are the predictions from the Government’s Clean Energy Future Plan. It says (at page 71) that gas-fired power currently accounts for only 16 per cent of the Australia’s electricity.

Under the carbon tax and associated emissions trading scheme, Treasury predicts (at both pages xii and 24) that ‘total renewable generation (including hydro) will comprise around 40 per cent of electricity generation in 2050. Gas-fired electricity [will] increase by over 200 per cent by 2050.’

Combined with continued coal and petroleum use, this means that 60 per cent of Australia’s energy will come from fossil fuels in 2050, with most of that coming from gas, a fossil fuel which releases carbon dioxide and, in the case of coal seam gas, methane into the atmosphere.

The coal addicts in Treasury go so far as to say that ‘if we can combine coal-fired generation with new technologies such as carbon capture and storage, then our reserves of coal can continue to underpin cleaner electricity generation.’

The Government clearly has a transition in mind, not to the renewables that the Greens and others want, but to gas. This is the key point about the carbon tax. As the Minister for Resources and Energy, Martin Ferguson said:
‘During the period of transition, however, gas will play an important role as a cleaner transition fuel – from both a peaking and baseload perspective.’

The ‘transition period’ appears in Ferguson’s mind to be till 2100.

The price of permits – $23 a tonne, with prospects for some gradual but still minor rises over the coming years – does not make wind power cost effective, let alone solar power.

According to the Greens, that would require a tax of at least $40 a tonne and $100 a tonne respectively. Here’s how Christine Milne put it 2 years ago:
‘I certainly recognise that you are going to need a price at $40 or more to shift from coal to gas and then a higher price still from gas to the renewables.

‘The Greens are arguing for a combination of measures … because even at $40, it is not a high enough price to bring on renewable energy at large scale.’

Sarah Hansen-Young has said you would need somewhere around at least $100 a tonne to drive investment in solar generated electricity.

Beyond Zero Emissions (BZE) estimates even larger costs. BZE says the cost effective figures are more like $70 a tonne for wind power and $200 a tonne for solar thermal. In fact, BZE used to argue for the focus to be not on pricing mechanisms but on action, with a tax of about $10 a tonne as complementary to large scale investment in solar thermal, for example. In the same report BZE said:
‘A low carbon price of $10-20/tonne is somewhat useful, as it will still create a disincentive to build new coal-fired power stations, and will ensure that coal is more likely to be displaced by renewables than gas. However, a carbon price which is greater than $25/tonne will ensure a mass rollout of gas-fired power stations, while renewables are left out in the cold.’

As BZE argued as recently as June last year:
‘We believe that seeing a “price on carbon” as central to a low-emissions future, whether in the form of a carbon tax or trading scheme, is both inadequate to the task at hand and a dangerous distraction from effective climate action.

‘Furthermore, while many people who want serious climate action have understandably thrown their weight behind the current carbon tax proposal being formulated in Canberra because at least “something” is being done, we believe this represents a political dead end for the climate movement which will constrain the possibilities for demanding more serious action in the future.’

They estimated the cost of moving to a totally renewable energy economy by 2020 as about $370 billion over ten years — a big cost but, in perspective and annualised, only about three per cent of Australia’s current GDP, and one that could be easily paid for by taxing big business and cutting defence spending.

A full rent tax applying to all minerals and monopoly profits (think banks, for example) might approach that funding level. Add in an annual wealth tax on the likes of Rinehart, Palmer and so on and we may well have enough tax to pay for it. Increasing company tax and the marginal tax rates on the wealthy offers more opportunities to fund a move to renewables.

Let’s go back to Labor’s carbon tax. When (or more likely, if) the move to an emissions trading scheme begins in 2015, then the pricing mechanism might begin to bite.

Let’s look at the European scheme as a guide. The main beneficiaries of that scheme have been the banks, who have manipulated the market and price to make easy money.

In the first two years of operation, the European trading scheme saw emissions increase. In later years emissions did fall, but mainly because the Global Financial Crisis cut production. The scheme arguably had some, but not a major, impact.

The Gillard Government’s plan is to move to an ETS. It hopes this will produce a price on carbon that will really affect consumers — i.e. hit workers.

However, the carbon tax will continue if there is not a significant international trading scheme or capacity to trade internationally in place by 2015.

The Treasury modelling shows that without an international trading scheme, emissions in Australia will rise 2 per cent by 2050. With such international trading Treasury predicts that emissions will be cut by 80 per cent. Good guess? Who knows.

The US, China and India do not have and will not have any carbon pricing mechanisms in place by then or have any plans to introduce such schemes. So the international trading market will rely on major players like Europe but not the other major players.

The European ETS might survive till then. Might. The price has collapsed.

The carbon tax and, in three years’ time, the ETS may well be spurring all that Coal Seam Gas exploration of late.

I really want to side with those who think that the carbon tax will actually address climate change. But reality gets in the way.

To imagine the market will fix the problems intrinsic to the market is to live in a fool’s paradise.

The profit motive will trump people’s needs for a safe and clean environment every time. It is the relentless logic of the system to pollute, to treat natural resources as nothing more than a factor in production and hence something now with a price on it.

Global warming threatens the future of humanity. Tinkering with the price of carbon won’t change that.

It was Australian National University earth and paleo-scientist Andrew Glikson who wrote in The Conversation that the consequence of the dumbing down of the debate was that ‘an irrelevant discourse ensues between those willing to undertake symbolic action and those who deny the science altogether’.

Symbolic action. That’s the carbon tax.

Maybe I am wrong and capitalism can plan ahead and see the necessity to save the system rather than make an immediate profit. Maybe, although every time I write that I am reminded of Lenin’s aphorism: The Capitalists will sell us the rope with which we will hang them.

Immediate profit rules over everything else.

OK, say I am wrong. Say Australian capitalism does try to address climate change in a meaningful way.

As I mentioned BZE estimates that it would cost $370 billion over the next ten years to make Australia a completely renewable economy. That is on average $37 billion a year. A fully fledged resource rent tax would have bought in $12 billion a year on very, very, conservative estimates. Other estimates put it over $20 billion.

Notice how the mining industry destroyed that tax and Kevin Rudd’s prime ministership with it — and that was when the money was going to go, in the main, as tax cuts for all of industry.

Any attempt to properly fund turning Australia into a renewable economy (for example a rent tax on all monopoly, including mining companies, banks, supermarkets and so on) would have to overcome the hostility not just of the miners but most of the capitalist class.

As the ‘debate’ about the Resource Super Profits Tax shows that overcoming of capital isn’t going to happen through Parliament or reasoned argument.

If the Greens are serious, then the fight for real action on climate change will have to go outside Parliament and onto the streets as a counterbalance to Clive Palmer, Gina Rinehart and the like. I don’t get any sense the Greens intend to leave the safety of their warm, safe, parliamentary nest to confront the vultures of capital.

Maybe the answer is a democratic revolution to challenge the rule of capital and its greenhouse gas emissions and to develop, in Glikson words, ‘a plan for the future’ and – quoting Professor Hans Joachim Schellnhuber, chief climate science advisor of the German Government – save ‘the very life support system of this planet.’

I do not believe capitalism can and will plan for the future survival of the planet. We workers can. But to do that we have to democratically organise production to satisfy human need, not to make a polluting profit. That’s a revolution.

(You can read more by John Passant on his blog Enpassant.)

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