Wednesday, October 12, 2011

[Environmental Economics] Case Study - Australia: Carbon Tax vs Camel Fart Regulation

Australia has the highest carbon emissions, slightly more than the States
Carbon tax will be around for a few years
Opposition pledges to repeal the tax

The opposition opposes the Carbon Tax (fortunately there are some years to test its effectiveness, which will provide valuable information for economists) - the political problem is probably similar to the states as I read somewhere that Rupert Murdoch owns a great deal of media there. Even the report above, from Sky News, is of a company where Rupert Murdoch's son is the CEO.

Anyways, applying a carbon tax, keeping the tax burden on the source that you want to regulate (i.e. reduce carbon emissions from) is basic economic theory. The idea is that the factories will invest in clean technology and even a societal shift in resources could occur leading to more clean energy generation. Possible problems include the tax being too low or the cost of the tax being shifted onto the middle class and poor consumers which would mean the level of carbon emitted by Australia's industries would remain the same.

I thought it was funny that this solution was actually offered...

Australia Considers Killing Camels to Tackle Climate Change

1. Eliminating Camel Farts to help the environment: A commercial company, Northwest Carbon, has proposed culling more than one million camels in the Australian Outback to eliminate that gas emissions, according to AFP.

2. Innovative solutions from an innovative nation: "We're a nation of innovators and we find innovative solutions to our challenges -- this is just a classic example," Northwest Carbon managing director Tim Moore told Australian Associated Press.

The motivations for such an action could be 1. laziness to shift resources, 2. don't want to lose even a dollar of profit in the short run, 3. hate animals or don't care about anything but themselves.

Here is why an effective carbon tax is important:

Following extracts are from "Why high-carbon investment could be the next sub-prime crisis"

"More money is flowing into clean technologies than ever before – a record £150bn of investment last year – but money is also still pouring into coal, oil, gas, mining and other high-carbon sectors at a pace that severely undermines our efforts to tackle climate change and other environmental challenges. "

The more money that is invested into a method that will choke us also sets up the next 'too big too fail' companies, since if we get too a point where we have to cut down on carbon release to survive then we have to bail out the companies or face another contraction [although effective government spending (stimulus) may be too difficult for the US, we may be better off letting them fail when we get to that point.]

Too big too fail?

"But the known fossil fuel reserves declared by energy and mining companies is equivalent to 2,795 gigatonnes of CO2. That means, if the world acts on its climate change pledges, 80% of those reserves can never be burned and are stranded assets. If you look specifically at the UK, five of the top 10 companies in the FTSE 100 are almost exclusively high-carbon and together account for a staggering 25% of the index's entire market capitalisation."

Looking to the future...

"National and international responses to systemic risks in our economy and financial systems only tend to occur after massive crises. But we cannot wait for our over exposure to high-carbon and polluting sectors to result in a global economic, as well as environmental, meltdown before we act. When markets wake up to the real value of high-carbon assets, the chaos wrought and value lost could be devastating. "Horizon scanners" in international financial institutions, central banks and financial regulators, together with policy makers and politicians, must take notice and act now to manage this bubble."

Environmental Problems in Australia - Extracts from = "Australia's carbon tax is a brave start by a government still gripped by fear":

‎1. "Australia's Black Saturday fires of February 2009 burned over a million acres of land and killed 173 people. It happened because of record high temperatures and a 20% drop in rainfall over the previous 12 years. It was what climate experts had been predicting for some years: the megafire. A megafire is hell come to earth.

The energy equivalent to 1,500 Hiroshima-sized atomic bombs was released in a fire storm that saw rivers of flame – sometimes rising 100 metres in the air – flowing through the countryside, generating winds of up to 120km an hour with new fires spotlighting 35km ahead of the main fire front."

‎2. "Black Saturday reminded many Australians of what they know only too well: that of all the advanced economies, Australia is perhaps the one most vulnerable to climate change. And yet support for action on climate change, which was a key factor in the ending of 11 years of conservative government in 2007, has now largely collapsed."

Australia has begun taking measures to protect itself, the opposite is happening in the States...

Plus there is real damage being done to the environment in mountain top coal mining...

Watch the full episode. See more Need To Know.

Interview: Author Daniel Yergin discusses hydrofracking, alternative energy sources and America's decreasing demand for oil.

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