The author has been described by News Ltd as an "iconoclast", "Svengali", a pollie's "economist muse", and "pungently accurate". Fairfax says he is a "Renaissance man" and "one of Australia’s most respected analysts." Stephen Koukoulas concludes that he is "85% right", and "would make a great Opposition leader." Terry McCrann claims the author thinks "‘nuance’ is a trendy village in the south of France", but can be "scintillating" when he thinks "clearly". The ACTU reckons he’s "an enigma wrapped in a Bloomberg terminal, wrapped in some apparently well-honed abs."

Tuesday, July 12, 2011

Where is the cost/benefit analysis on the timing of a Carbon Tax?!?!

My mate the infamous interest rate strategist has another good post out on the Carbon Tax here. His argument is as follows:

1/ Treasury analysis demonstrates that it is costly to impose a Carbon Tax ahead of our international peers, as manifest through less investment and lower wages relative to the alternative. (I would call this foregoing the "option to wait and see".)

2/ This is especially true if global warming becomes a sufficiently serious problem as to eventually compel global action to mitigate it in the future. (So Australia could have exercised the "option to wait", and imposed a Carbon Tax synchronously.) Or in my friend's words:

"if we move with the rest of the world, we are at less of a competitive disadvantage to foreign firms, and there is less of an incentive for Australian firms to move offshore. As a result, there will be more investment in Australia – so the capital stock will be higher, and thus the real wage will be higher"

3/ Sure, there are also costs to 'inaction' as shown by the next two Treasury charts. (In my lingo, this cost is the premium you pay for exercising the option to wait and see.) Treasury finds that a "3-year delay of mitigation action results in higher mitigation costs of 2 to 10 per cent in 2050."

4/ But, here is the rub: where has been the cost-benefit analysis on these two options: that is, unilaterally imposing a Carbon Tax ahead of our global competitors, or exercising the option to wait and see? Said a little differently in my friend's words:

"this is disingenuous...It costs more to hit [any] given target in less time - that’s not what proper cost benefit analysis is about. The relevant comparison is the difference between the gains from inaction and the cost of inaction. The gain is higher income (higher wages etc) and the cost is additional environmental deterioration. What if the rest of the world doesn’t do anything? then we have lower investment, and lower real wages, and no environmental benefit"