Carbon tax = lower wages

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The Australian Government’s carbon tax just passed the senate.

The accompanying Treasury modeling assumes that the rest of the world acts this decade, and finds that the policy will lower real wages by around 6% by 2050 – that means the average income will be about 10k lower, at around 120k per year.

I cannot think of a microeconomic reform that ever promised an equivalently large increase in real wages, over such a long period. Because this is a global problem, and because Australia’s emissions are only a tiny fraction of global emissions, it is not possible to say how much ‘green GDP’ we obtain by lowering our standard of living in this way.

Given the difficulty of concluding the Doha round – something experts agree will increase standards of living and is in each nation’s self-interest – I think that there is basically no chance of co-ordinated global action on this matter. As a result, where abatement measures are taken, they will be driven by local politics in the large nations.

With the global economy wobbly, I expect that most nations will follow Canada’s lead, and indefinitely postpone action. Green jobs are a myth – you cannot tax yourself rich.

This scheme is an expensive fashion statement. If we have a half decent recession, even the ALP will ditch this dog.


  1. And of course the absence of a global scheme will increase the costs (and the benefits of repeal) severalfold. Ricardo, this is all such common sense that you wonder how any sane person could think anything else. I have come to the conclusion that just as the subconscious option of Zion was needed for the Matrix to function, 99% of human beings need to have a religion, whether spiritual or secular.

    1. Ouch! What is weird is that it is the intelligent ‘elite’ that hos got this particular religion. Perhaps because they are ideas driven they need an ideology to organise their world view?

      I suspect that the common person is going to ditch this, and retain their woolly agnosticism – both on God and climate change.

      Sent from my iPad

  2. Agnosticism on climate change is surely objectively stupid. It is real, is happening, and is caused by human emissions. This is the only logical conclusion to draw from the best research undertaken by the most qualified researchers.

    The only question is how to respond. I can recognise arguments in favour of adaptation rather than action – such arguments are valid responses to reality (although I disagree with them). But it seems baffling to promote climate change agnosticism given the available evidence.

    1. I favour adaption, as i think the probability of meaningful abatement action is basically zero. If a republican wins in 2012, the global game is over for 20 years. Folks forget that Kyoto went down 95-0 in the US senate.

      China is taking what steps it has taken for public amenity – they will clean up for the reasons London cleaned up in the 19th century … But i doubt they really care enough about carbon dioxide to lead the world toward concerted abatement action.

      1. See, I can accept that. I disagree with your assessment of the probability for meaningful action, but I can understand an adaptation argument. But your earlier comment read to me as supporting climate change agnosticism, which would require neither adaptation nor abatement.

        For what it’s worth, I suspect small carbon prices plus advancing technology (see here and here) will be enough to do the trick, but it’ll be slower than it should be and there will be more damage than necessary. The doom-and-gloom brigade are probably going to look pretty silly.

        And as for, “you cannot tax yourself rich”, (assuming this is a tax, which is not exactly the case), you cannot taxcut yourself educated, or healthy – at least, not on the sort of grand scale required in a shared enterprise like Australia. And why pick on this tax? Why not use the same arguments for all taxes?

        1. I was merely describing my assessment of the average person – not advocating for their point of view.

          Why this tax? It is bad, and the one we are all talking about today.

          If i could have my choice for tax reform i would broaden the GST to all goods, increase it to 20%, eliminate the company tax, raise the tax free threshold, substantially reform the taxation of capital so it was simpler – which would mean rich folks actually paid it – and much more besides.

          But today we are talking about a carbon tax…

      2. Again I agree with your patent good sense, Ricardo. But I think that even if Obama wins in 2012, there will be no carbon price in the US. The US has 9% unemployment, soon to be double digits. Plus, the US will not bind itself if China and India do not – and as you say, if they cannot agree on trade liberalisation, which is a win-win, they will not agree on emissions targets. Another thing people forget is that China is already by far the world’s biggest emitter, and even with ongoing reductions in emissions intensity, they will soon dwarf the entire developed world’s emissions. So well before 2050, climate change will become an issue for China and India to decide. Indians already have plenty of religions, both spiritual and secular, and I’m sure the Chinese also have enough of their own to ensure they won’t do anything meaningful. Bring on warm winters and reliable summers for Melbourne!

        Finally, all of this assumes “the science” is correct. I used to not question it, on the basis that scientists usually know a lot more about physical phenomena than laypeople. But enough has happened (or not happened) in recent years that now I think the chance of the theory of human causation being bunk is about 40% rather than the 10% proffered by the IPCC.

  3. It is perfectly good econmics to ensure external costs are internalised by the use of an ETS.

    Even Republicans will not be able to keep on ignoring the science.

    hold on they probably will.

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