A
carbon tax is an insidious and destructive tax the aim of which is to slash
the standard of living. Those who sincerely believe otherwise have been
gravely misled. Fortunately the mass of Australians smell a rat. Irrespective
of what greens and Labor politicians assert, you do not raise the standard of
living by reducing real incomes, which is exactly what a carbon tax is
supposed to do. Defenders of the tax argue that as the GST didn’t sink the
economy neither will a carbon tax. So why the fuss? This response
leaves the critics completely stumped, Andrew Bolt of the Herald-Sun being a good example.
The
answer is simple. Because a uniform consumption tax — which is what a GST is
supposed to be — taxes all consumer goods and services at the same rate it does
not discriminate against particular producers where as a carbon tax is
designed to do exactly that. For example, if a country’s power stations
consisted of 50 per cent coal and 50 per cent hydro then a sales tax, no
matter how burdensome, would treat the producers of electricity equally.
A
carbon tax, however, would only hit the coal-fuelled power stations because
the tax is levied at the point of production. Make the tax sufficiently
onerous and these power stations would be forced to close, which is what the
greens want for Australia. That the greens admit that they intend to close
down coal-fuelled power stations — which would cause a massive reduction in
the supply of electricity — is a fact that supporters of the tax conveniently
ignore. (Obama let it slip that under his alternative energy policies
“electricity prices would skyrocket”. These people know exactly what they are
doing.)
It
doesn’t stop with power stations. Every firm that emits carbon dioxide — a
nutrient that liars like Gillard and Combet falsely call a pollutant — would
also be taxed. Obviously, the more of this nutrient a firm emitted the higher
would be its tax bill. (It doesn’t matter whether a charge on carbon is
levied in the form of a tax or a price: the result is the same. Price or tax
is a distinction without a difference.) The more energy intensive firms would
eventually be forced to close down. And this is why energy-intensive
industries, including heavy manufacturing, has been driven out of California.
At least in America firms can flee to states with sane economic policies. If
Gillard, Combet and Bob Brown get their way Australian firms would have to
flee to Asia.
What is
overlooked is that industrial processes have always been energy intensive.
One man using an industrial electric welding machine or a heavy machine press
uses far more energy than if he were using a desk top computer. So it would
be fair to say that the carbon tax combined with the drive for so-called
alternative energy is a direct attack on manufacturing. And the greens know
this. If it were otherwise they would be clamouring for nuclear power plants
instead of attacking them. We can see the truth of this in Sweden. Despite
the fact that 50 per cent of its electricity comes from nuclear plants with
45 per cent coming from hydro the fanatical greens are still demanding that
the country’s nuclear plants be decommissioned.
The
Austrian school of economics stresses that an economy has a capital structure
(sometimes called a production structure). This is shorthand way of saying
that the economy consists of an incredibly complex array of interdependent
stages of production. A serious reduction in the size of one of these stages
— or even its literal elimination — could wreak havoc on the remaining
stages. Closing down mining, for instance, would destroy every activity that
was dependent on the mines output. Think what would happen if oil production
ceased or if the greens got their fanatical way and shut down our
coal-fuelled power stations. Electricity is a vital input at every stage of
production. Reducing its supply, which is what a carbon tax would eventually
do, would have devastating consequences for the country’s capital structure
and hence the standard of living.
Unfortunately,
critics of the carbon tax are totally ignorant of capital theory. This
ignorance seriously weakens the case against the tax. Keith Orchison,
editor of the Powering Australia
yearbook and former chief of the Electricity Supply Association of Australia,
is another example of the failure to understand the real economic
consequences of a carbon tax. Like Andrew Bolt and the Institute of Public
Affairs he sees the issue in terms of money costs. What really matters are
opportunity costs: that which will have to be sacrificed to support the carbon
tax policy. Orchison stated:
The big
point to understand is that a carbon price of $30 to $35 pushes up the
end-use power bill by about 25 per cent because it will drive up wholesale
prices by 50 per cent and energy, in round terms, is half the final price.
(By 2020, power bills will shock,
Keith Orchison, The Australian,
26 October 2010)
Orchison
is thinking purely in terms of money costs and that these costs would be
simply passed on in higher prices to consumers. Taken to its logical
conclusion this process would result in no one paying the tax because higher
prices would be paid for out of higher money incomes, which of course is
absurd — unless the RBA used monetary expansion to underwrite the tax and
fund the rise in nominal incomes. Not very likely, and certainly highly
inflationary.
Without
realising it Orchison has touched on the old conundrum of who pays the
tax? In other words: is the tax shifted forwards or backwards? As I just
pointed out, if it is the former then those on whom the tax is directly
levied will not actually pay it because they will simply raise their prices
to cover the additional cost. In fact, the tax will have the effect of
raising the industries’ supply curves to the left which has the effect of
shifting the tax on the factors of production. The graphic below illustrates
this point. Once the government levies the tax the supply curve S1 shifts to
the left and become S2. The quantity produced drops from Q1 to Q2, raising
the price from P1 to P2. Much less is now produced at a far higher price,
firms close, unemployment rises, capital is abandoned, investment turns down.
We now
see that prices rise not because costs have been shifted forward but because
the supply has been reduced. If costs can be shifted forward then output and
investment would never be affected by an increase in production costs*. In
addition, the grey area on the graphic exposes the Government’s “neutral
revenue” argument as a cynical con. It is argued that a carbon tax will not
raise the tax burden because it will be offset by tax cuts and subsidies
which will keep the level of taxation unchanged. But the whole idea of a
carbon tax is to eliminate carbon dioxide emissions. As these fall — along
with the standard of living — so will revenue from the tax. This means that
other taxes will have to rise to prevent tax revenue from also falling.
Greens
stridently object to this analysis on the grounds that a shift to alternative
energy (wind and solar) will provide the necessary jobs, investment and
energy to promote growth and raise living standards. Now Gillard and Combet
may be dumb enough to swallow this nonsense but the more intelligent greens
are not. And that is why they are forever pushing these alternatives. They
know that wind and solar power face insurmountable natural and economic
obstacles that make them grossly inefficient from an economic perspective.
This is because the energy source is extremely dilute, meaning that vast
quantities of land and materials are needed to collect and store the energy,
resulting in massive diseconomies of scale and colossal waste of capital.
These are facts, not idle speculation or scaremongering.
The
Florida Power & Light company’s 75MW solar complex is an excellent
example of the lunacy of trying to run an economy on alternative energy. This
complex occupies 500 acres and is adjacent to the same company’s natural gas
plant that generates a massive 3.8 gigawatts, electricity that is available
whenever needed. The difference in output between the two plants makes for a
staggering comparison between alternative energy and centralised energy
production. We can easily calculate that the solar complex requires
33.3 times the area of the gas plant just to produce a wretched 0.0197 of its
output. (A gigawatt is 1000,000,000 watts.)
To
produce 3.8 gigawatts the solar complex would need to cover 25,333.3 acres or
39.6 square miles as against 15 square acres for the gas plant. Making the
comparison even worse is the fact that the solar complex can only produce
electricity one-third of the time, proving that the insurmountable natural
and economic obstacles confronting alternative energy projects are not a
myth.
In 1989
53 percent of Sacramento voters agreed to close down the Rancho Seco Nuclear
Generating Station in the apparent belief that solar was a viable
alternative. It was replaced by one of the world’s biggest solar complexes.
The result was a miserable 4 MW of electricity at the maximum, millions of
dollars in losses, a massive rise in costs. On the other hand, the Rancho
Seco unclear plant generated 900 megawatts, sufficient to supply 900,000
homes with 9 kilowatts whenever needed. The solar complex would have to
operate under optimum conditions at 100 per cent efficiency to supply about
444 households with 9 kilowatts. In other words, it’s useless.
The Luz
a solar-electricity generating company filed for bankruptcy in 1991. It had
been asserted by solar power zealots that the company had overcome the laws
of physics by making solar power a genuine economic alternative to nuclear
power. Even Fortune magazine
waded in with support. Unfortunately the company’s 354 MW plant that had been
built in the New Mexico desert to take advantage of the highly favourable
conditions turned into another green energy fiasco.
Green quotes:
Amory
Lovins: “It would be little short of disastrous for us to discover a source
of clean, cheap abundant energy”.
Paul
Ehrlich: “Giving society cheap abundant energy . . . would be the equivalent
of giving an idiot a machine gun”.
Ernest
Callenbach, another green, made it clear in his book Ecotopia that
alternative energy sources should be used precisely because they will raise
energy prices and thus slash living standards.
And our
own Bob Brown: Pulp mills, zinc mills, aluminium smelters, mining, logging
etc., are all “dinosaur industries”. Exploiting natural resources is
“resource robbery”.
I’ll
leave the last word to Drs Arden and Marjorie Meinel, pioneers in solar
energy who had this to say about the greens’ energy fantasy: “Should
this siren philosophy be heard and believed we can perceive the onset of a
New Dark age”.
_________________________________
*Failure
to explain to the public the process by which a carbon tax would affect
prices would lead it to accept the dangerous fallacy that its costs are
simply passed on. Hence the government levies the tax, the companies raise
prices, consumers pay more, government’s compensate them. Everything
continues as before with the only change being a rise in the price level. If
the public comes to accept this view its resistance to the tax would weaken
considerably.
Next
week I shall deal with the greens’ idea of a steady state economy. This is an
important subject because Bob Brown admitted that the theory is central to
the greens’ view of a future world. Unfortunately, critics of the theory have
failed to stress that an economy run along these lines would have to be a
brutal totalitarian state.
Siemens to use
green energy hoax to ripoff taxpayers
Why the ETS report and
Rudd’s carbon tax are a threat to the economy
Cap and trade would
sink the US economy and permanently change the political landscape
Why Obama’s massive
energy bill will wreck the US economy
Green fanatics attack
economic growth
Why a carbon tax would
hit living standards
Green fanatics v. the
facts of economic growth
Bob Brown’s green
vision will be hell for workers
