The stupidity of a carbon tax

Treasury is the one institution of Government that we have come to trust in recent months.  Why on earth does it want to sacrifice that confidence in pursuit of a hare-brained scheme, one in which its own words will “reduce the economy’s average annual growth rate” (Business Day, 10 November)? If it has its way, “household consumption falls by 0.23 percentage points, employment falls by 0.07 percentage points, and real wages fall by 0.2 percentage points.”

This is the best of a series of outcomes from a model of carbon taxes that Treasury has built.  I seem to recall some recent models, which proved beyond all doubt that Hillary Clinton would be the next President of the USA.  Do we have confidence that Treasury’s model has any greater predictive ability?

For a start, let us look at what Treasury hopes to do. “The modelling results suggest the carbon tax will have a significant effect on reducing SA’s greenhouse gas emissions.” That would be surprising. Remember we have had a carbon tax on large cars for several years – statistics show the 4x4 market growing strongly. Wherever you look in the world, it is the same.  India introduced a Rupee50/t tax on coal in 2010 and increased it to Rupee100/t in 2014.  Since 2010, its emissions have grown by over 600 million tonnes CO2. In 2012, Australia introduced a $A23/t carbon tax; by 2014, emissions had fallen by only 2.5% and the damage to the economy was enough to bring down the government (and remove the tax). So it is unlikely that the tax will have any significant effect.

That begs the question as to whether our greenhouse gas emissions constitute any problem at all.  Our total emissions are a little over 400 million tonnes a year – India’s emissions have grown by 600 million tonnes in five years, while China’s have grown by over 1 100 million tonnes at the same time. If Treasury’s tax resulted in our emissions falling by 2.5% (about 10 million tonnes), it would be less than the measurement error in India’s or China’s emissions.

But Treasury argues that “ratification of the 2015 Paris Agreement emphasises the reality that we will have to prepare to operate in a carbon-constrained economy - - .” Really?? The Paris “Agreement” is no agreement as normally understood. It asks us to state our intentions. If those intentions are not met, we can shrug our shoulders and come up with some new intentions.  And if anyone says they are cross with us for not living up to our intentions, we can walk away with nary a grey hair. Treasury’s ‘reality’ is rather like the 3D-movie reality – lift your head a little, and the illusion disappears. We have just cast off the iron shackles of the International Court of Justice; the silken threads of the Paris Agreement can brushed aside.

As always with taxes, you have to check the detail.  The carbon tax is no different.  All those little job losses, all that slowing of our growth, “will result [from] a modest tax rate - - - during the first phase of the carbon tax, up to the end of 2020.” Thereafter the tax rate increases, growth slows even further, there are more job losses, real wages fall further. Should Treasury not be worrying about us South African citizens, rather than trying to show the rest of the world that we want to play the carbon charade? Where are our priorities?

Something Treasury avoids discussing is the complexity of the system for collecting the proposed tax.  Every emitter (and there are thousands) will have to set up a measurement system to quantify its tax liability, and have an additional audit system to verify the measurements. Government will have a policing function, to make certain that all the emitters are in the tax net, and then there will be an army of assessors calculating the tax due against rules that change annually.  The rules include rebates for specific sectors and all manner of other fiddles that arise when you are trying to tax something so pervasive in nature. 

It also avoids discussing the other carbon taxes we are already paying.  In addition to the tax on large vehicles, there is a renewable energy levy and a tax on electricity generated from coal – these two add about 6cents/kWh to the price of coal-generated electricity. Then there are the liquid fuel taxes themselves, one of the largest contributors to the fiscus, and a tax which was originally set up to pay for road maintenance.  The carbon tax proposals come with a suggestion that there might be a VAT reduction, but remembering what happened to the fuel tax helps to understand the games Treasury can play.

Treasury now has a job to do, to restore our confidence in their operations.  We really don’t need a tax that will reduce the economy further, that will shrink household consumption, that will cost jobs, and that will reduce real wages – and achieve next to nothing.

Our Climate Emperors

Hans Christian Andersen wrote the tale of two weavers who promised an emperor a new suit of clothes that was invisible to those who were unfit for their positions, stupid, or incompetent. When the Emperor paraded before his subjects, no one dared to say that they could not see his new suit until a child shouted "But he isn't wearing anything at all!"

   
The climate emperors gathered in Paris last year, convinced they were going to given a suit of armour that would enable them to lead the fight to save the world from carbon dragons. They left, cheering the fact that the dragons would not be allowed to heat the world by more than 1.5oC. Their arms? Nothing more than pieces of paper on which were written “intended nationally determined contributions”, INDC’s.

 
Even before the climate emperors’ return flights had landed, their subjects had found weaknesses in the suits.  There were gaps with some areas, where countries were doubtful about the strength of the INDC’s.  After all, they were only intended – and good intentions are a well-known road to hell. Worse, the INDC’s might have been incomplete, and the suits full of holes, but there were too many dragons to avoid the purported 1.5oC attack.  The weavers urged the climate emperors to be brave and even more ambitious.

  And duly they were.  They flew to New York to sign other bits of paper, in which they swore to believe in their own INDC’s. They would do their best to convince their subjects that the bits of paper were real armament against the forces of nature.  

It mattered not that earlier suits of armour, given out at Kyoto in Japan, had proved useless. The CO2 dragon had flourished even though most of the developed nations had done their bit. The Chinese dragon in particular had made a mockery of the Japanese armour.

 
But this time it would be better.  The dragon would be contained so that it could cause no more than 1.5oC damage, where the 1.5oC rise was measured from “pre-industrial” temperatures.  And suddenly the small children were laughing, because even they knew that thermometers had only become effective around 1860. “Pre-industry” was before James Watt’s steam engine of 1800.  No one knew what the “pre-industrial” temperatures had been.

 
Yes, there had been some necroManncy trying to read tree rings to guess the temperatures, but the International Magicians Union had shown the flaws in that approach. “Pre-industrial” temperatures were a ±1oC myth, and even little children knew that.

  
Meanwhile, there were so many dragons on the loose that people were beginning to turn them into pets.  Dragonfire makes the world warmer, so the grim reaper of winter had less work to do. Plants love dragonfire, so the world was a cleaner, greener place. Dragonfire gives us energy to do things that overtax our own muscles. It pushes our massive trains and aeroplanes. Just wisps of it power our mobiles. 
 

The climate emperors just don’t understand. They thought they could persuade us that dragonfire was dangerous, so we could be taxed and they could have bigger cars and larger homes and breed many princes to rule over us.  Some unfortunate nations were convinced. They are now are suffering, with huge increases in the costs of energy and loss of jobs. 

 
That’s what can happen when emperors are deaf, and cannot hear what the children are telling them.

  

The Paris "Agreement"

All the excitement, the back-slappings, the hubbub is over, and the 40 000 have jetted back home. COP21 has come and gone. We have now had time to assess all 32 pages of the Paris Agreement.

In spite of the claims about saving the planet, there is little for your carbon comfort. Much of the Agreement has to do with noble intentions: ”Each Party shall prepare, communicate and maintain successive nationally determined contributions that it intends to achieve. Parties shall pursue domestic mitigation measures, with the aim of achieving the objectives of such contributions.” (Article 4.2) Legally binding? No! And wasn't there something about the path to Hell being paved with good intentions?

Much of the Agreement has to do with accounting: “Parties shall account for their nationally determined contributions. In accounting for anthropogenic emissions and removals corresponding to their nationally determined contributions, Parties shall promote environmental integrity, transparency, accuracy, completeness, comparability and consistency, and ensure the avoidance of double counting - -.” (Article 4.13) It will be nice to be able to tell how rapidly we are committing carbon suicide (if indeed we are), but it is difficult to see how this is going to save the world.

An issue largely left unresolved is what to do about the big emitters who have emerged since 1992, when the Convention on Climate Change came into being. It is all very well for the Agreement to say “Developed country Parties shall provide financial resources to assist developing country Parties with respect to both mitigation and adaptation in continuation of their existing obligations under the Convention. “ (Article 9.1), but there is no clarity of who is ‘Developed’ and who ‘Developing’. Which category does China fit into? Or South Africa, for that matter?

On the money, the Agreement is gloriously vague: “strongly urges developed country Parties to scale up their level of financial support, with a concrete roadmap to achieve the goal of jointly providing USD 100 billion annually by 2020 for mitigation and adaptation.” (Para IV, 54) In other words, for all the pious promises, S100 billion a year will not be available soon.

You will understand that I am seriously underwhelmed by the Paris Agreement. The fact that it is little more than hand-waving is made clear by Article 28: “1. At any time after three years from the date on which this Agreement has entered into force for a Party, that Party may withdraw from this Agreement by giving written notification - -. 2. Any such withdrawal shall take effect upon expiry of one year from the date of receipt - - of the notification of withdrawal, - -” An agreement from which you can opt out any time you feel so inclined? That’s no agreement!

As the Romans would have put it, “The mountains have been in labour, and given birth to a little mouse.” (Horace)

The hot-air balloon has gone up!

The 21st Conference of Parties has ground to a halt, predictably late. It has produced a 31-page Paris Agreement. It looks very like previous agreements, with much gnashing of teeth over climate threats. It is full of pious decides, also decides and further decides. But nearly all the decisions are about forming new committees, or making progress on earlier decisions. Decisions on real action are conspicuous by their absence, which is probably a merciful release for us all. The basis for carbon-cutting is the Intended Nationally Determined Contributions or INDC's. Most nations were urged, after COP 20 in Lima,to dream up ways they could cut their emissions. Many responded. The UNFCCC sausage machine ground up the INDC's and found that by 2030 the world would emit some 55 million tonnes of carbon dioxide, rather than the hoped-for 40 million tons. Note that the INDC's are only intended - there are lots of good intentions paving this particular path to hell. But right at the end, it becomes clear that all this teeth-gnashing has worn the poor molars away: "1. At any time after three years from the date on which this Agreement has entered into force for a Party, that Party may withdraw from this Agreement by giving written notification to the Depositary. 2. Any such withdrawal shall take effect upon expiry of one year from the date of receipt by the Depositary of the notification of withdrawal, or on such later date as may be specified in the notification of withdrawal. 3. Any Party that withdraws from the Convention shall be considered as also having withdrawn from this Agreement." Some agreement!