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MARK-2-MARKET: Can we afford the carbon premium?

| Sourced From Businessspectator |

Who could possibly want to read another column on climate change after the blizzard of comment we had last week following Marius Kloppers’ speech? To get the CEO of the worlds biggest mining company to say that we need a carbon tax has jump-started this debate.

Whether the skeptics like it or not, the government is going to take some action on climate change now. What neither Marius Kloppers, Greg Combet nor Prime Minister Julia Gillard want to do is make it clear what that means.

What it does mean is that the price of energy will go up and everyones standard of living will go down. Any lecturer will tell you it is that simple in the first week of an economics course. If you want volume to go down you need to raise prices. We want the amount of energy produced by releasing carbon into the atmosphere to go down so we have to make people pay more for it.

Anyone who is advocating a reduction in greenhouse gases needs to acknowledge that they are asking the people of Australia to accept a lower standard of living today to protect the environment for tomorrow. There is no way around it. You cannot provide subsidies out of thin air nor can you ‘tax just the polluters’. Anything the government contributes will have to be paid for as increased taxes, anything business pays for will be passed on as increased prices and this burden will fall on the average person.

Our Prime Minister says that before we get action on carbon she wants to build a national consensus. What that means is that the Australian people will have to agree that the need to fight climate change is so vital that they are prepared to accept a reduced standard of living today in exchange for reduced carbon gases in the future. It is a basic investment decision to invest today and reap the rewards tomorrow.

From the furious response of people during the week to Mr Kloppers’ speech, this looks like a tall order. It will be impossible for Prime Minister Gillard to do so without being honest about what it means for ordinary Australians. Whether the way you choose to get volume down is to go for a carbon tax, a carbon pollution reduction scheme and emissions trading scheme does not alter the rules of economics.

In addition, we need to recognise that if we move ahead of the world it is going to cost jobs. We are a high carbon emitting nation and when we start charging people to emit, it makes them uncompetitive with producers in countries who can emit CO2 freely into the atmosphere.

Because it will cost both standard of living and jobs, it is not fair to marginalise those who ask the proponents of taxing emissions to prove that the planet is doomed without decisive action. The demonisation of the climate change skeptics is a formula for polarisation, not the consensus Prime Minister Gillard seeks.

By contrast there is a more moderate debate that should allow for the consensus our Prime Minister seeks to emerge. It rests on recognising the fact that the climate change skeptics are asking those who propose some action on climate change to clear a too severe burden of proof. We do not need to know for sure that climate change is being caused by greenhouse gases to spend money on addressing the issue. We just need to be convinced that it is more than possible and is likely probable that we are warming the planet. That is a test those proposing action can defend.

You dont have to be certain that your house is going to burn down to buy fire insurance

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