Tuesday, September 3, 2013

Xenophon Opposes "Direct Action", Favours Carbon Trading

Senator Xenophon, a South Australian independent, says that he won't back repeal of the carbon pricing legislation as promised by the Liberal Party unless it is replaced with a carbon trading scheme similar to the one proposed by Frontier Economics in a report commissioned by Xenophon and the Liberal Party.

Even if Xenophon loses his seat in the Senate he will remain in parliament till 1 July 2014 but he looks to be certainly re-elected as the Liberal-National coalition looks certain to be elected as the new government. Of course, we don't know if he will have the balance of power when the new Senate takes its seats or whether the Liberals might call a double dissolution election.

The Liberals "direct action" plan might make some sense as a small scheme to get emissions reductions in the agricultural sector etc. but its big flaw is that as it costs taxpayer money it requires raising taxes elsewhere, ceteris paribus, to pay for the payouts.

An even simpler approach than the Frontier Economics trading model would be carbon emissions trading with totally free allocation of permits. This is no longer a "big new tax" because the government doesn't gather any revenue from it. It doesn't require spending except for monitoring and other administration. On the other hand, it isn't as efficient as auctioned permits because it doesn't allow the reduction of other taxes in a "green tax reform".

I'm sceptical that the Liberals will agree to Nick Xenophon's demands or modify carbon trading to a free permit system. A double dissolution election is not unlikely. Free allocated permit trading that could be modified later would though be a better outcome I think though I am actually a supporter of carbon taxes rather than emissions trading.

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