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Economists’ open letter calls for carbon price

A carbon price woud disincentivise pollution, the economists’ letter says. Flickr

An open letter signed by 13 of the country’s top economists and published in The Australian newspaper has called for the speedy introduction of a price on carbon pollution, preferably by way of an emissions trading scheme.

Environmental group WWF paid for the placement of the advertisement, which was signed by Chris Caton, Chief Economist at BT Financial Group, Besa Deda, Chief Economist at St George, Saul Eslake, Director of the Productivity Growth Program at the Grattan Institute and Bill Evans, Chief Economist at Westpac.

Richard Gibbs, Chief Economist at Macquarie Bank Limited, Stephen Halmarick, the Chairman of Australian Business Economists and John Hewson, an economist and former leader of the Liberal party were also among the signatories.

“We are all of the view that the introduction of an emissions trading scheme is a necessary and desirable structural reform of the Australian economy, designed to change relative prices in a way that provides an effective incentive to consumers and producers to shift over time to more low carbon energy efficient patterns of consumption and production,” the letter said.

“As such, it should be broadly-based in its application and highly transparent in its implementation. It should not be approached in a politically opportunistic and haphazard manner.”

The letter made five main points:

  • A carbon price should apply across as many high carbon producing sectors of the economy as possible because concessions to one industry would put pressure on other sectors
  • The market should set the price of a carbon permit, and any price cap should be high and non-binding. A fixed price may be appropriate as a transitional arrangement but should default to an emissions trading scheme as early as possible.
  • Revenue raised from the price scheme should pay for compensation to low-income households, while aiming for budget neutrality in the long run.
  • A properly designed price mechanism will eventually encourage the development of new, cleaner technologies but new measures may be needed soon to incentivise clean tech and energy efficiency.
  • The price mechanism should be administered by an independent authority, similar to the Reserve Bank of Australia, to ensure fairness, transparency and accountability, and a clean market price.

Paul Brennan, Head of Economics at Citigroup Global Markets, Australia, said he signed the letter out of genuine concern about climate change.

“Global warming will have significant economic and social impacts and so we do need to take insurance out against those risks,” he said.

The economists stopped short of nominating a carbon price, but Brennan pointed out that government climate economics adviser, Ross Garnaut, has said it should start at between $20 and $30 a tonne, rather than the $10 per tonne that industry has called for.

“We have tried to bring it back to the underlying economic principles that should be guiding the debate,” he said, adding that he was not very optimistic that the message was getting through to the broader public.

“At the moment, I feel less than confident, partly because the debate has become so highly charged and emotional. I think the case for putting a price on carbon hasn’t been very well explained.”

Professor Sinclair Davidson, an economist at RMIT and a critic of the proposed carbon price, said the letter was premature.

“Obviously people can write letters and have opinions about this but it’s not at all clear to me that Australia should be adopting a carbon tax at the moment. It is not where the international community is at,” he said.

“I think to the extent the planet is warming and anthropogenic activity is the cause of that warming, what’s required is a coordinated global solution. Until there is a coordinated treaty that is internationally binding on all countries to do something about carbon and there is a consistent and coherent approach across all countries, Australia should not be moving ahead,” he said.

“It will simply impose costs on the domestic economy without actually providing any benefits that the program hopes to achieve.”

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