Why is the CIS supporting a carbon tax?

Last week I wrote an article in which I condemned a carbon tax that John Humphreys is promoting for the Centre for Independent Studies. Mr Humphreys responded with an email to a reader in which he said: "I never claimed that a tax was a free-market mechanism". But I never accused him of making such a claim. What I did was call his approach "fallacious" and I used the following quote in support of my opinion:

Taxes do not result from a market process, nor do they reflect allocation decisions of resource owners . . . In other words, taxation is a method of intervening, not an alternative to intervention or nonmarket allocation. (O'Driscoll and Rizzo, cited in Efficiency and Externalities in an Open-Ended Universe, Ludwig von Mises Institute, 2007, p. 13).

On page 2 of Exploring a Carbon Tax for Australia Humphreys unequivocally states:

A better approach to encouraging the switch to non-fossil fuels is to put a price on carbon, which makes all alternative energies relatively more competitive and then allows the market process to discover the best new energy sources.

But this underlines the very point I am trying to make. He and the Centre for Independent Studies are promoting a tax that would override the market's allocation of resources. Humphreys also argues that the tax would be "revenue neutral". That is totally irrelevant. What matters is the impact of the tax on capital. I use the term capital in the Austrian sense of the word (see How the Laffer curve really works).

This is why we need to drive home the point that the carbon tax is not just a tax on energy, it is a tax on Australia's capital structure and the process of capital accumulation. Any half decent economist should know that, just as he should know that as per capita investment rises so does the per capita consumption of energy. This is why we consume vastly more energy per capita in 2007 than our forefathers did in 1807.

It should also be clear that energy intensive industries would bear the greatest burden of a carbon tax. But these industries are also capital intensive.¹ This turns the emphasis on revenue-neutral into a mere distraction (moreover, what's so great about "revenue neutral"?). Mr Humphreys argues that once the tax is implemented the market process will then "discover the best new energy sources", among which he numbers solar and wind.² Apart from the fact that there is nothing new about them, he ignored the embarrassing scientific evidence that these so-called energy sources can never compete against centralized energy production. In his response Humphreys chose to overlook a basic point that I stressed in my article:

These alleged alternatives suffer enormous diseconomies of scale that can never be overcome. This makes them horribly uneconomic. On the other hand, centralised power generation enjoys economies of scale, meaning it enjoys long run falling average costs. Therefore, 'investing' in alternative energy sources amounts to a deliberate policy of creating malinvestments that dissipate capital.

Let me put this another way: forcing Australia to rely on solar and wind for power would be akin to a government ordering a steel works or a car factory to be broken up into a number of much smaller operating units. The result would be horrendously higher prices, a massive increase in the costs of production and a drastic fall in output and consumption. Therefore, by focusing on the impact that the carbon tax would have on the capital structure it can be easily seen that the idea of "revenue neutral" is deflecting attention from the real costs of the tax.

II.

In Humphreys' executive summary on page ix he calls global warming a "potential threat" and says "scientific opinion suggests . . . greenhouse gases (such as carbon dioxide) are leading to global warming". (Italics added). He then continued in the same vein. However, when we get to page 1 all doubt about global warming vanishes and we are told — with absolute certainty — that "There is an emerging consensus in Australia that the government needs to take further action to help combat anthropogenic global warming". (Italics added).

Firstly, science does not progress on the basis of a show of hands. Anyone with a passing knowledge of the history of science knows that the "scientific consensus" has been proven wrong on a number of occasions. Secondly, scientific doubt about so-called man-made warming is becoming more pronounced. Thirdly, some scientists are now sounding the alarm about the potential danger of "global cooling". For example:

Other studies, such as Peter Doran's in Nature in 2003, show actual cooling in recent decades. There is a small area of significant warming in the peninsula that points towards South America, but this is less than 2% of Antarctica's total land mass. (Patrick J. Michaels, More Ice Than Ever, The American Spectator, 5 February 2008).

In a 2003 poll conducted by German environmental Researchers Dennis Bray and Hans von Storch, two-thirds of more than 530 climate scientists from 27 countries surveyed did not believe that "the current state of scientific knowledge is developed well enough to allow for a reasonable assessment of the effects of greenhouse gases." About half of those polled stated that the science of climate change was not sufficiently settled to pass the issue over to policymakers at all. ('Canadian Professor: Prepare for Global Cooling', NewsMax, 21 June 2007).

New evidence has cast doubt on claims that the world’s ice-caps are melting, it emerged last night. Satellite data shows that concerns over the levels of sea ice may have been premature. It was feared that the polar caps were vanishing because of the effects of global warming. But figures from the respected US National Oceanic and Atmospheric Administration show that almost all the “lost” ice has come back. . . . Figures show that there is nearly a third more ice in Antarctica than is usual for the time of year. . . . vast swathes of the world have suffered chaos because of some of the heaviest snowfalls in decades. . . . (Tony Bonnici, 'Global warming? It's the coldest winter in decades', Daily Express, 18 February 2008).

It would pay Humphreys to read Christopher C. Horner's The Politically incorrect Guide to Global Warming and Environmentalism (Regenery Publishing Inc. 2007). Unlike anyone at the CIS, Horner is an acknowledged expert on global warming. His book was highly praised by Dr Richard S. Lindzen (Professor of Atmospheric Sciences, MIT) and Dr Fred Singer (former director of the US Weather Satellite Service and professor emeritus of environmental sciences, University of Virginia).

Notes

1. Intensive energy industries could move offshore to avoid the tax. Aluminium smelting springs to mind. This could be just one of the visible effects of a carbon tax. Then there are the invisible effects like the investments that would have taken place in the absence of the tax.

2. For the life of me I cannot understand why Humphreys' neglected ethanol as a source of energy. After all, according to his logic the government should keep raising the excise on petrol until a point is reached where ethanol becomes "competitive" or "market processes" develop another source of fuel.