The future cost of Australia’s Carbon Tax revealed in Treasury modelling

Great article by Terry McCrann – by my calculations in 2020 we will be paying ~$117 per head to buy emission permits from overseas – as Terry McCrann points out – these could be from “Nigerian scam” operators.
By 2050 the Treasury modelling suggests we could be paying $2280 per head. Surely the Gillard Govt will not be able to sustain this huge confidence trick on the Australian electorate.
Full article archived.
Staggering cost of CO2 permits revealed

www.heraldsun.com.au/business/staggering-cost-of-co2-permits-revealed/story-fn7j19iv-1226122430767

AUSTRALIAN businesses and households will have to send about $650 billion overseas between 2020 and 2050 to buy permission to keep some of our coal-fired power stations and other industries operating.

This staggering cost is indicated in the fine print of the Treasury modelling of the Government’s carbon dioxide tax and subsequent emissions trading scheme.

The $650 billion will be to buy “permits” to emit CO2.

The permits will be bought from sellers that don’t yet exist, or in markets that have yet to be formed, although the Government expects – hopes – they will develop over the next few years.

But this week it was reported that European police agency Europol had revealed a fraudulent trade in these so-called carbon credits in the only serious market that does operate – for the European Union – was far more widespread than previously thought and could have cost EU taxpayers up to €5 billion ($7 billion) in lost revenue in just 18 months.
It’s important to stress, we won’t be buying anything tangible with this huge amount of money.

Like wind turbines or solar panels or even licences to use technology. It will just buy “permission” to emit CO2 with every prospect it will be rorted Nigerian-style.

These are the permits that Australian industry and power stations will have to buy under Julia Gillard and Greens leader Bob Brown’s scheme. With the costs passed on to consumers.

Even without any rorting, the impact on the economy of this part of the scheme will be exactly like taking $650 billion and shredding it.

That will be throwing away nearly $30,000 for every Australian, about $120,000 for a family of four.

These wasted funds could build 15 National Broadband Networks. They could build a fast train network linking every capital city five or six times over. Every hospital we need. Every road. Every port, every dam, indeed every power station.

The expected outlay is the equivalent of closing down the entire economy for a full six-month period. True, as it’s spread over 30 years, that allows Treasury to claim we’ll hardly notice the loss.

Indeed, Treasury claims that by pushing up the price of power, to everyone – households and businesses alike – every year, from next year through to 2050, we’ll all get richer and richer.

Under its plan, the Government is committing to cut Australia’s CO2 emissions by 5 per cent by 2020 and by 80 per cent by 2050. Except it isn’t, and we won’t.

The Treasury modelling shows that would require us to cut our emissions by 152 million tonnes in 2020.

According to Treasury we’ll actually only cut 58 million tonnes.

So we’ll buy “permits” from foreigners that will cover the other 94 million tonnes. Theoretically somebody else – Nigerians? – will do the actual cutting; and we’ll pay them to allow us to keep emitting.

Treasury estimates these permits will cost $29 per tonne in 2020, so the total cost in that year will be a relatively modest $2.7 billion. That’s “relatively modest”, only if you are living in Canberra’s ivory towers.

But by 2050 we’ll be buying permits from foreigners covering 434 million tonnes, according to Treasury. And they will cost $131 a tonne then, Treasury says.

So by 2050 we’ll be sending $57 billion every year to foreigners. Just for the right to keep our lights on. That’s to say we will be throwing away an NBN every year.

If we calculate a constant increase in the number of permits and their price from the $2.7 billion in 2020 to the $57 billion in 2050, the total cost adds up to nearly $650 billion over the thirty years.

20 comments to The future cost of Australia’s Carbon Tax revealed in Treasury modelling

  • Paul80

    Does the above include an ETS?
    Is the Government still intending to introduce one?
    Would an ETS allow free trading of carbon credits?
    Would the price of the credits slowly fall to near zero and collapse the whole scheme?

  • AD

    I was interested to see in last weeks fight for the ALP leadership that Kevin Rudd was the only person to bring in some policy discussion. Whilst Kevin questioned the method of implementing the Carbon Tax (currently being introduced in July at $23 per tonne) I could not help but reflect that the European carbon market has collapsed to $10 per tonne.

    Any carbon tax will cause an unfortunate burden on the Australian people both in terms of cost of living and employment.

    I regret to say that I am looking forward to saying goodbye to Julia in the next election.

  • woodNfish

    So who is running against Gilliard and the other Labor commie. Or are you Aussies just looking to trade one commie for another?

  • Graeme Inkster

    Paul80

    This is based on an ETS. The Government has decided (or rather the Greens decided for them) to bring in a carbon price for 3 years from July 2012, then switch to an ETS. The initial $23 per ton of CO2 will rise each year (to end at $29), and then the Treasury modelling is for the ETS, with trading of carbon credits locally and from any approved international scheme e.g. the European Union.

    Will the price collapse? I hope that long before we get to an ETS, we will get a Government that will trash the scheme.

    The Government says the scheme will reduce our CO2 emissions. The Treasury model is a little more realistic, and admits Australia’s emissions will grow by 16% to 2020. No coal fired power stations will shut down until 2032, and as more follow then they expect total emissions in 2050 will be down 5% on 2012 figures. The 80% figure above is an estimate of what we would have emitted without the scheme.

    Since emissions won’t ever reduce to the amount the Greens fantasise about, we will have to buy “permits” overseas forever. Of course in reality emissions will reduce substantially as industry disappears overseas, so then transport, electricity, finance etc. will also reduce their output. This is probably what the Greens intend, assuming they are capable of thinking ahead. Quite how people will survive when we are all supposed to be working for the Government without any money is something they have never asked. But the Greens all work for the Government either directly as public servants, teachers, doctors, nurses, university lecturers or administrator etc. or indirectly for entities which depend on the Government for their income. They all “think” that there is a large bucket of money which will never run out, and all they have to do is “campaign” (shout loudly) for more.

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  • Peter Lang

    That’s just part of this story. Treasury also assumes that 75% of our electricity will be generated by technologies that do not exists and will probably never be viable: wind, solar, geothermal and carbon capture and storage.

  • Peter Lang

    Can anyone please refer me to a link where the estimated compliance cost of the CO2 tax and ETS is documented. [Please don’t point me to the Treasury, DRET or DCCEE, as they have not done these estimates).

    What would be the compliance cost for the ETS once it is fully implemented and running at the level of financial security from fraud that will be expected? For example, what will be the annual cost for:

    – Public servants in DCCEE, Treasury, ATO, Australian Federal Police, state police forces, state bureaucracies, Attorneys’ General Departments, Federal Department of Resources, Energy and Tourism, ABARE, BREE, the equivalent state departments of energy, resources, agriculture, forestry, environment, Prime Minister and Cabinet, State departments of Premier and Cabinet, the law courts, High Court, goals, any others I haven’t thought of?

    – The businesses that have to report their emissions – what is the cost to implement and maintain the monitoring equipment and to report.? What is the cost to update and replace equipment, reporting systems and legacy data each time the rules change (as they do every few years)?

    – Farmers and all the upstream and downstream industries (farming will be included eventually if the tax and ETS remain)

    – Accountants, lawyers, accounting firms, law firms, courts?

    – Firms that use the data, analyse it and report? What is the cost for them to have to maintain and continually update their systems and legacy data?

    – I haven’t even started to ask questions about the compliance cost for purchasing overseas carbon credits

    I understand the some of the costs involved in doing what the USA EPA requires (clearly we would have to move to that level of accountability and well beyond it eventually), are in the order of $23 billion per year. The link below provides some insight into the requirements. We can only imagine what the costs would be for the businesses involved and all the people who use and analyse the data. Notice that the rules have been changing (for emissions other than CO2) every few years for about the last three decades (roughly); think of the compliance cost that imposes.
    www.epa.gov/airmarkets/business/ecmps/docs/ECMPSEMRI2009Q2.pdf
    www.epa.gov/airmarkt/emissions/docs/plain_english_guide_par75_final_rule.pdf

    The EPA recently stated in a court submission that the cost to the EPA alone to manage the existing regulations would be $23 billion per year. That is not a typo. They estimated they would have to increase their permanent staff numbers from 17,000 to 250,000 permanent employees. (It is clear from this why the unions want a carbon tax and ETS – it means lots more public servants and hence lots more union dues). The cost to business could be expected to be at least ten times this cost, and the other departments who have a role to play would at least double the EPA cost.

    We should also ask what is the likely benefit to be gained from this expenditure?

    1. By how much will the CO2 tax and ETS reduce global emissions?

    2. By how much will the CO2 tax and ETS change the climate?

    3. What effect will the CO2 tax and ETS have on the ecology of the Great Barrier Reef and Kakadu National Park?

    4. What effect will the CO2 tax and ETS have on sea levels?

  • In the European Union we have all this as from 2005. It all works perfectly fine.
    We buy credits from all over the world and are very happy to do so.

  • Graeme Inkster

    Well, I can’t answer your question on the cost. I don’t think we will ever know because the cost and disruption to the economy will probably cause a revolution (yes, I’m serious).

    It’s some years since I left work, but the NSW Gov. was introducing new emission reporting, principally for “greenhouse gases”. My boss and I looked at the requirements and I think he had the best comment. “if those damn public servants want those figures (that could only be obtained by climbing 70 feet up an exhaust stack at 300ºC ), then they can do it themselves. By the time they’ve organized themselves I have my pension”. [He was well short of 40]. Shortly after we both left the company for various reasons.

    In the Company there were 2 people working full time on health, safety and pollution compliance. Of the 7 accounting staff, 1 full time on tax matters and that doesn’t count the part time activities of 10-12 others answering Government queries, requirements. That in a staff of 180. Most of those jobs no longer exist (in Australia).

    In answer to your last 4 questions
    1. Global emissions will increase because low polluting australian companies will shut down and chinese and indian companies do the manufacturing.
    2. Zero.
    3. Zero.
    4. Zero.

  • Graeme Inkster

    I have been calculating the effect of the “carbon tax” on electricity costs.

    The latest figures for generation from the Federal Government are for 2008/9, but using those I estimate that $M4718 from coal emissions, and just under $M600 for gas turbine emissions, for a total of $M5317. These are at $23 per tonne of CO2 with no allowance for any free permits. At this rate, it would push the cost of electricity up by 62%. It still wouldn’t make coal fired power as expensive as wind; that would require a tax of roughly $70 per tonne of CO2, hence the suggestion of $131 by the Government report.

    Those tax amounts are barely enough to fund the army of Public Servants necessary to enforce the law (I’m a firm believer in Parkinson’s Law) let alone the hand out the Federal Government is claiming it will give.

    The report is at www.ret.gov.au/energy/Documents/facts-stats-pubs/Energy-in-Australia-2011.pdf

    It makes interesting reading in some ways. The comment on transmission lines for example, where it points out that because most power is generated close to the cities the transmission lines are largely the cheaper, lower voltage types. For longer distances more expensive high voltage lines would be necessary to minimise losses. That would surely be the case with wind and solar farms, adding to the cost of their electricity.

    Another side line is that the States most into “renewable” energy (SA and TAS) are net importers of electricity, and are all ready paying premiums over 20% on the coal States. (Did I hear a distant “I told you so” frpm TonyfromOz?).

  • val majkus

    Thanks Graeme, I think …
    I’ve started to save ….

    BTW is there a list of the top 500 polluters yet (I think it was promised to John Laws mid last year)

  • Peter Lang

    This gives a summary of the effect of the carbon price on electricity prices:
    www.energetics.com.au/newsroom/energy_newsletter/carbon-price-announcement

    What I would be really interested to know is what will be the complinace cost for any ‘carbon’ pricing scheme. It will continually have to ramp up its integrity, over time, to include all ‘carbon’ emitters. It will have to improve its integrity to reduce fraud. You can’t trade a product you can’t measure accurately. So what will be th real cost.

    The US EPA estimate it would cost the EPA alosn US$23 billion per year to adminsiter the existig legislated requrements for monitoring CO2 in the USA.

    The EPA has been taken to court for trying to get around the regualtions. The hearing is today: judithcurry.com/2012/03/04/climate-policy-discussion-thread/

  • Peter Lang

    Graeme February 29th, 2012 at 5:13 am

    Thank you for your response to my questions.

    You provided some figures on the number of people involvedf in government reporting compliance in your firm. Would you be able to extrapolate from your experience to estimate a rough figure for Australia for the cost of CO2 emissions compliance.

  • Graeme Inkster

    Peter Lang

    Sorry, anything would be a wild guess. The point I was trying to make, was that the Government would push as much as possible onto the manufacturers. There would still be loads of public servants ticking the boxes on compliance, with no real knowledge of what was happening, and conclusions reached on the most shaky grounds.

    That particular episode involved a NSW Gov. “fishing expedition” for all emissions, not just CO2. Although the Federal Public Service were interested in some way. The trouble was that their model paint factory was the Dulux one in Rocklea, making only water based white paint. As such Dulux had a bulk (emulsion) resin holding tank, a dispersion tank, and 2 make-up tanks. As it was all water based there was little emissions. As a mainly solvent based paint manufacturer, with in-situ resin plant, around 6,000 products and over 200 tanks of varying sizes and uses, not always for the same type of paint/resin.

    We had an exhaust collection system which fed most emissions through a burner and up a stack. They wanted regular testing of the hot gases as they discharged into the air (hence boss’ comment). There were (from memory) 4 different ways of calculating emissions, from actual measurements to assumed evaporation rates of solvent or paint spills (which would vary depending on the temperature, humidity, air flow rate etc.) None of them looked at all likely to be accurate, especially to the accuracy you were expected to sign off as correct and accurate. Indeed, the would be regulators disciplined one inspector when he insisted that one method should be used, when nobody was prepared to waste enormous amounts of time on it, for no result.

    I moved to another position in the company, and lost interest. My successor was a practical (unscrupulous) fellow who responded to their plaintive cries for something (no other paint company had sent anything either) by generating a vast spread sheet of over 600MB. 16 pages of calculations, I’ve forgotten how many pages of information on composition, tonnage produced, batch sizes and frequency of manufacture. All in 10 point Arial font with no graphics. Factors were assumed and buried in obscure corners with no explanations.

    Take the case of 1 paint. Containing 2 resins and 3 solvents. that might appear as 40 separate entries depending on the pigments used. There would be differences in each composition, with minor amounts of other solvents sometimes present. Now try to back track to the resin produced on site, and used in 7 different paints. So the main resin might be spread over 200 products. And with 6000 rows and 120 columns on a page, try working through that, esp. with references from page to page to another page.

    It looked impressive, but trying to check it for accuracy was nigh on impossible, but the public servants were pleased and even recommended that other paint companies consult him! His view was that he retired in 5 years and they wouldn’t figure it out in that time.
    His comment was “Brains baffle bullshit”.

    Shortly after that I left the Company and lost touch. I know my boss and I did an estimate of 6 months work for both of us to prepare any sort of meaningful figures. But we would have to do that every 3 months, because of changes in tank usage etc. called for more measurements. Call it 4 man years per annum. On top of that we guessed about 3 weeks data entry for each report. The IT Department would have been busy until they could semi automate the reports. And the Public Service wrote that this was “starting simply, with the scheme being expanded with time”.

    I can well believe that 10-12,000 extra public servants would be needed Australia wide, and close to that number (or as consultants) in industry. Whether it did any good in terms of reduced pollution would be doubtful (at least in those companies still in business). The Americans were always amazed at the cost and lengthy procedures on registering resins in Australia. I’m sure that those enforcing the carbon tax will turn it into an expensive nightmare.

  • Peter Lang

    Graeme,

    Thank you for that. Well explained. What fun. You are clearly a practical man with genuine experience. people should take more notice of the few people like you who actually take the time to explain the practicalities as you have done here.

    Lots of your points made me smile, smirk, laugh. I love the Excel spreadsheet bit. His response reminds me of what Ontario Hydro did in the 1980′s. They were being continually attacked by the media for supposedly withholding information about incidents in their nuclear power plants. They had been explaining informing the press about that was considered relevant but the press never let up. So they hitched up their fax machines to all the error reports from everything that happened in the power plants – even if a toilet was blocked! And faxed all the error messages to all the news media outlets.

    In summary:
    10,000 extra public servants
    10,000 extra consultants
    say an average 5 man years per year per business of your size
    What is the size of your business and what should we scale up by to make it relevant for all businesses in Australia?

    I notice an interesting thread on Judith Curry’s web site about “legal challenge to the US EPA”: judithcurry.com/2012/03/04/climate-policy-discussion-thread/
    There is some interesting material in this thread and in some of the comments, including a 44 minute video by the four lawyers who are presenting the case against the EPA. The case is in progress at the moment. What is my point? The points is that the EPA is required by legislation to apply the emissions monitoring to all organisations, even schools, that emit more than 15,000 tonnes pa (I think from memory). To achieve this, the EPA would need 230,000 extra dull time staff, for an annual cost of $21 billion per year, and virtually all applications for any sort of power plant or anything that emits CO2 would take 10 years to get through the approvals process.

    That is where the CO2 Tax and ETS will inevitably lead us.

  • Graeme Inkster

    Peter Lang:
    It wasn’t MY business, I just happened to be working in Regulatory Compliance at that time. As I said above it had, then, about 180 employees and an annual turnover around $50 million. A good deal of this was the export of resins to China and various paints to Asia.

    I lost touch when I retired. The Company has contracted markedly since, some of the contraction being due to the high dollar. They lost personnel all the way from 2006, if not before, but the big losses were Oct. 2010 (33%) and a further loss of 44 in May 2011. I can certainly assert that the latter involved the loss of 20-24 million in turnover. It would appear to be a rump operation now.

    I find it hard to scale up as you request. I know that the Carbon Tax will be a monster and devour enormous resources. I am sure that Swan hasn’t any idea how much “wastage” there will be from his new tax amount because of extra public servants. He has been busy spending (in his mind) the whole estimated revenue… so much to pay off the public, so much for the UN, so much for subsidising alternative energy projects..etc. I think if he lasts long enough for a full years experience he will get a big shock. Personally I hope he doesn’t last much longer.
    I have just returned from Lawn Bowls and was amazed by the talk over the tea table. Normally you shy away from politics, as it could cause an argument. Today it was full on abuse of the government over the carbon tax. NO dissent at all. Everybody has worked out that it is going to leave them worse off.

  • Peter Lang

    Graeme,

    Thank you for the clarifications. And I like the message in the last few sentences (the feeling amongs the lawn bowls people).

  • Peter Lang

    Belief in catastrophic climate change must be turned into costs to allow us to make rational decisions as to how and where we should use our limited resources – of wealth and GDP.

    Therefore, I want to know what is best estimate of the net cost-benefit of:

    • adaption to climate change
    • “no regrets” policies (an economic term meaning economically rational policies only)
    • mitigation to prevent ‘climate change’

    This article www.tnr.com/blog/critics/75757/why-the-decision-tackle-climate-change-isn%E2%80%99t-simple-al-gore-says?page=0,0
    presents a persuasive case that we should not waste our present and future wealth on mitigation policies. We should only invest in adaption, “no regrets” and R&D.

    Furthermore, if I understand Tol (2011) the base case estimate of the damage cost of CO2 is about $8/t. www.esri.ie/UserFiles/publications/WP380/WP380.pdf (I understand that this work is being done for AR5).

    However, this estimate is based on assumptions such as:

    1. The value of a life is 200 times average weekly earnings. On that basis an Australian life is valued at $16 million. However, this government web site www.finance.gov.au/obpr/docs/ValuingStatisticalLife.rtf says “Based on international and Australian research a credible estimate of the value of statistical life is $3.5m”. That means Tol has used values for a life that are over estimated by a factor of about four. It is likely that other damage costs are similarly over estimated. So the damage cost of CO2 would be about $2/tonne, not $8/tonne.

    2. Furthermore, Tol (2011) assumes a discount rate of 1% for his damage estimate of $8/tonne CO2. How can such a low discount rate be justified? If the discount rate is 3% Tol’s base case estimate of the damage cost of CO2 emissions is $0.30/tonne. If the discount rate is 10% the damage cost is virtually $0/tonne CO2. But we use 10% discount rate to choose whether to invest in a low emissions or a high emissions power station. So how can the difference be reconciled. Surely, the discount rate we use for these decisions should be the same. If not, why not.

    It would seem there is no justification for high cost, highly damaging, CO2 mitigation policies.

  • Peter Lang

    Graeme Inkster (and other WSH contributors),

    If you see this comment I wonder if you could post some of your thoughts on this topic at this new post on “On Line Opinion” www.onlineopinion.com.au/view.asp?article=13578&page=0

    Graeme, you made some excellent comments beginning on this thread at: February 29th, 2012 at 5:13 am
    www.eenews.net/assets/2011/09/16/document_pm_02.pdf#page=48

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