Is exempting petrol from the carbon tax such a big problem?

Is transport the main game? Source: Productivity Commission: Carbon emission policies in key economies

Given Australia already has a large excise tax on petrol, exempting automotive fuel bought by “families, tradies and small businesses” from the Gillard Government’s carbon tax is not the disaster some would have us believe.

Australia has a minority government so compromise was inevitable – two of the independents, Tony Windsor and Rob Oakeshott, wouldn’t be party to any increase in the price of fuel for their country constituents. It was either put a price on most but not all sources of greenhouse gas, or have the whole idea shot down yet again.

The exemption is expected to apply to petrol, diesel and LPG. Were the tax to apply to petrol, the impact would be modest – a $25/tonne tax is generally estimated to increase the price at the pump by around $0.06 per litre. The CSIRO calculates that even a $40/tonne tax would only raise the price of petrol by about ten cents per litre.

These amounts are much less than motorists already pay via the $0.38 per litre excise tax on petrol and diesel (there’s no excise on LPG). While it might have a “sin tax” dimension in relation to cigarettes and alcohol, in the case of automotive fuel the excise is not aimed at making motorists pay for roads or for the external costs of petrol – it’s just a convenient way of raising revenue (although it’s not as good as it used to be since John Howard abolished automatic indexation of the price in 2001).

Nevertheless the excise tax is a serious deterrent to driving. The Productivity Commission’s recent report, Carbon emission policies in key economies, calculates that “in 2009-10, fuel taxes reduced emissions from road transport by 8 to 23 percent in Australia at an average cost of $57-$59 per tonne of CO2-e”. Although not put in place with the purpose of abating emissions, the excise already has a much more significant effect on driving than any level of carbon price that’s been seriously touted in the political debate. Based on the CSIRO’s estimates, it could be argued its effect is equivalent to a carbon tax of over $100 per tonne (the relationship isn’t linear – there’re diminishing returns from a marginal increase as the fuel tax gets bigger).

Thus there’s a good argument that automotive fuel is one of the few areas where consumers already pay a high level of tax over and above the GST. Indeed, if it were so minded, the Government could’ve imposed the new carbon tax on petrol and diesel and simply provided an equal offsetting reduction in the level of the existing fuel excise tax. There wouldn’t be a lot of political or economic sense in that, but it illustrates the principle. Read the rest of this entry »


-Why should we “go it alone” on carbon?

600,000 years of CO2 - with music

I regularly hear the argument that there’s no point in Australia putting a price on carbon because we’re so small it will mean jack shit at an international level. We’ll suffer the pain, so the argument goes, for no gain.

Australia is one of the world’s highest emitters of greenhouse gases on a per capita basis, but because we’re small, we only account for around 1.8% of world emissions. By 2020, our emissions are supposed to be 5% below what they were in 2000 – if we were to achieve that target it would, in quantitative terms, amount to an extremely small reduction in total world emissions (although on current policy settings we’ll actually be 24% over the target!).

It’s commonly argued that we should therefore hold off until the big emitters like the US and China take parallel action.

There are a number of reasons for not accepting the “we can’t act alone” argument. Some argue that action now will give us an early start on sustainable industries; some that a carbon price could foster a culture that is more receptive to the wider idea of sustainability; and some that a carbon price is a more efficient way of addressing climate change than direct expenditure.

But there are two arguments for rejecting the “we shouldn’t go it alone” thesis that particularly resonate with me.

The first one is an unashamedly moral argument – I think we should clean up after ourselves as a simple principle of ethical responsibility. If we despoil the quality of the world’s environment we should fix up the damage we create, independent of what other nations do.  We should do the right thing.

The second reason is more instrumental. It’s in our interests to encourage the big emitters to take action because we all suffer from the build up of greenhouse gas. They’re hurting us so we should be prepared to accept some pain to try and make them change their ways. It’s worth it for us to show, by example, what needs to be done, how it can be done, and that some nations think it’s worth doing. In other words we’re not so much “going it alone” as “setting a good example”.

P.S. Here’s another version of the Time history of CO2 – it’s clearer, but no music.


HSR feasibility study: what should it address?

What is the What?!!! Wau, Southern Sudan

There’s a long history of rent-seeking in Australia over major projects. Business puts a lot of effort into lobbying government and the media to subsidise projects the private sector wouldn’t otherwise touch with a bargepole.

So when IPA (Infrastructure Partnerships Australia) – the nation’s peak infrastructure lobby group – releases a new study calling for land to be reserved for a High Speed Rail (HSR) service from Brisbane to Melbourne, I don’t immediately assume it’s an impartial assessment.

However that didn’t bother The Age, which ran the story as the lead on the front page of Saturday’s issue. The paper reports that AECOM, who prepared the study jointly with IPA, was involved in France’s TGV and Britain’s HS2 HSR projects.

The Chairman of IPA, Mark Birrell, is also on the board of Infrastructure Australia, the body established under legislation to advise the Federal Minister on infrastructure needs and priorities.

No, rather than assume the report is impartial, I thank the angel of small mercies that the only promise on the table from the Greens and Labor is for a $20 million feasibility study of HSR. There may be a thousand more welfare-enhancing ways that $20 million could be spent, but it will well and truly have earned its keep if it leads to the right decision on what could be a $40 – $80 billion investment in HSR.

I’m not going to reiterate the many and varied problems I see with HSR, since I’ve covered them before (see here, here, and here, ). What I do want to address however is the way the planned feasibility study will be conducted. Read the rest of this entry »


How much carbon are the candidates emitting?

Crikey's Election Tracker

Crikey’s Election Tracker reported today that Gillard has so far flown 39,431 km during the campaign and Abbott has flown 40,800 km.

I thought I’d take a ‘ballpark’ look at the carbon emissions associated with that travel.

For simplicity, I’ll assume they both flew all those kilometres in a standard jet such as a 150 seat Boeing 747 400. If I also assume a relatively high load factor like commercial carriers typically achieve, then Gillard’s personal carbon emissions so far are of the order of 6.2 tonnes and Abbott’s 6.4 tonnes (I’ve assumed 158g/passenger km, but there could be considerable variation depending on type of aircraft, load factors and distance. I’ve made no allowance for the altitude of discharge, so I’m treating this as a simple “order of magnitude” estimate) .

At the rate of around $25/tonne propounded by the Greens, they could each offset their personal emissions on the international market for little more than $150. Read the rest of this entry »


Do the numbers support the Very Fast Train?

I’ve run some numbers on how a Very Fast Train in the Sydney-Melbourne corridor would stack up against planes in order to flesh out the questions I posed last week (Is the VFT all huff and no puff?).  I used a simple “back of the envelope” methodology adapted from that used by Harvard’s Edward Glaeser to evaluate high speed rail projects in the US (here).

I estimate the economic and environmental benefits of carrying all current Sydney-Melbourne air traffic by VFT rather than plane at around $840 million p.a. (although this does not include the cost of GHG emissions from construction of a rail line  – this would be large).

Table by Booz Allen

At first glance a VFT looks unpromising, since I estimate the capital cost of constructing and maintaining a VFT line from Sydney to Melbourne at about $1.5 billion per year. This is well in excess of the benefits.

However this assumes Sydney can accommodate passenger growth by using larger planes. It quite possibly can, but if it can’t and a second Sydney airport has to be built, a VFT starts to look viable if the cost of the airport were to come in at around $15 billion.

Let me emphasise that this is a simple analysis. I’ve left out many complications, including Canberra passengers and car traffic on the Hume.

The only environmental issue I’ve included is (operating) GHG. And of course I’ve made assumptions on things like construction costs and future interest rates.

Starting with capital costs, estimates of the cost to acquire land and construct a VFT line range from $14 to $82 million per km in Europe and the US (Japan is much higher because of earthquake risks). I assume a middling cost of $30 million per km, giving a total cost of $27 billion to build a 900 km line (the existing Sydney-Melbourne rail line is 950 km). I’ve assumed an interest rate of 5% p.a. and annual track maintenance cost of $124,000 per km. These assumptions give a total capital cost for the line of $1.5 billion per annum. Read the rest of this entry »