Tuesday, September 27, 2011

Climate change, Social change 2

In my previous post, I outlined the apparent underlying strategy of the Gillard Government's Carbon Tax proposal and expressed scepticism that it was likely to work.

A recent piece by Henry Ergas suggests that my scepticism was premature. As he points out, the Government's proposal includes the creation of new property rights:
START with what is uncontested. First, once carbon emitters are issued permits, those permits will be property they own, so any government that abolishes them will have to pay compensation, possibly in the billions of dollars.
Second, entitlements created by statute may be found by the High Court to be property even if that is not specified in the legislation creating them. But specifying it in the legislation, as the government intends, makes that outcome, and the need to pay compensation, far more certain.
Third, a future government could not get around the need to pay compensation simply by mandating a zero carbon price.
Under provision 51 (xxxi) of the Australian Constitution, property can only be acquired by the Commonwealth under "just terms", which the High Court has ruled effectively means market price and includes regulatory changes which destroy property value.

So the policy of moving Australian public policy against comparative advantage and creating a whole new structure of interests dependent on that may be much harder to overturn than it first appeared. Indeed, the entire strategy seems to be to ensure no future Government can overturn it, except at huge expense:
In short, a new government would be comprehensively locked in. But that, Mark Dreyfus, the Parliamentary Secretary for Climate Change, assures us (The Australian, September 22), is not the legislation's intention. Rather, its aim is merely to provide certainty.
Dreyfus does not explain why certainty should be provided here but not for water entitlements, taxi licences, fishing quotas or development approvals.
The short answer would be--because they are not attempts to entrench a whole new set of political interests.

As part of the strategy a move very familiar from past Australian policy history is being undertaken:
As a result, when the Gillard government promises investors in "green" activities certainty, it is not eliminating risk: it is merely shifting it from those investors on to taxpayers and the community, magnifying its cost along the way. And while private investors get a choice about whether to bear risk and are compensated accordingly, the victims of this risk transfer do not.
To add insult to injury, the victims are not even being told how big the resulting loss could be.
The “Deakinite Settlement” (pdf) of White Australia, Wage Arbitration, Trade Protection, State Paternalism, Imperial Benevolence represented just such a shifting of risks to the taxpayer. It was a system that made Australia's economy more susceptible to economic shocks and depressed economic growth.

That environmentalism is a substitute for the failure of socialism has long been clear. But it seems it can also be a vehicle for substantially reversing 30 years of successful economic reform. And just as commodity prices, which have given us historically high ratio of export prices to import prices (i.e. our terms of trade, the value of what we sell compared to the value of what we buy), are declining (which has been their long term trend).

The struggle and debate over the Carbon Tax suggests that Vaclav Klaus is correct: climate change has become a defining socio-economic issue of our time, and not in a good way.

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