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market failure « Previous | |Next »
November 1, 2006

Greenhouse gas emissions are a classic example of market failure. The polluters are not paying for the cost of the effects of global warming. That is the cost of cheap power. So we need government intervention. That is what is rejected by the Howard Government except for some money for research for low emission technology. All that we have in Australia are studies about is the costs of a tax on firms emitting gases (eg., a fossil fuel industry funded study by ABARE) and nothing about the costs of doing nothing, or the benefits of mitigating climate change. The Stern Review changes that.

Bill Leak

Tim Colebatch in The Age makes a good point about the Costello and Bracks pledge $80 million for a demonstration project to dry the coal in one of Hazelwood power station's eight units before it is burnt, cutting its greenhouse gas emissions by 30 per cent. He says it's an:

... essential step, but down a very long road. It covers just one unit in one power station. It brings its emissions down only to the level of Loy Yang's emissions, which in turn are far worse than the black coal stations of NSW and Queensland, which in turn are unacceptable by world standards.If we are to rely on taxpayer subsidies as the core of our greenhouse gas policy, the federal and state governments would have to pay billions of dollars of subsidies so that all four Latrobe Valley plants could dry their coal before use, and many billions more to get them to adopt the other technologies that could one day make coal clean: combined cycle generation with gas, capturing carbon emissions and storing them underground, and so on.

He adds that if governments are prepared to raise income tax high enough, we could do it that way, but makes more sense to impose a tax on firms emitting gases, to spur innovation. When we have a situation of market failure then there needs to be built-in incentives to cap and reduce greenhouse emissions.

So is there a net benefit to Australia to take this path of reduction in carbon emissions? Presumably. But no studies have been done.

| Posted by Gary Sauer-Thompson at 6:47 AM | | Comments (0)