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251: The Politics of Taxing Carbon - Ross Garnaut
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For those who have followed the tortuous path of Australian climate policy over recent decades, a 2024 report by the Australian Energy Market Commission of a “shadow price” of A$70 a tonne of carbon dioxide equivalent elicits some painful memories. Meet Ross Garnaut who if you are an economics tragic like me, will be a household name. In brief, Ross is a professorial research fellow in economics at the University of Melbourne. In 2008, he produced the Garnaut Climate Change Review for the Australian government. He is the author of many books, including the bestselling Dog Days, Superpower and Reset. Drawing on his unrivalled expertise in economics, industrial development and climate change, Garnaut makes the case for a levy on the big polluters that will help fund Australia to become a carbon-free energy giant, lower the cost of living and assist the world to cut emissions. His latest book ‘Let’s Tax Carbon – and other ideas for a better Australia’ Garnaut examines Australia’s economic history, breaking down which policies have worked and which haven’t. He critiques the Albanese government’s first term and presents a set of policies that, he argues, can deliver full employment with rising incomes for a growing Australian populations. As well as analysing Australian monetary and fiscal policy, Let’s Tax Carbonalso looks overseas to the consequences of Trump and Biden’s economic policies and how countries including China, Japan and the United States are responding to climate change.
He discusses in this show:
1. Taxing carbon is one of those areas of Australian politics that has stymied or worse still. toppled former Prime Ministers and other leaders for 15 years or so, and seems to be publicly avoided as a policy idea by those in power ever since. Explain why your new book is hinged on this being a great idea for a zero-carbon economy to become a reality?
2. How can Australia lead the way in keys areas like the energy transition, as by global standards we maybe considered an economic ‘mid weight’ vs a powerhouse like the US or China?
3. The shadow carbon price described in the March 2024 Australian Energy Market Commission is not a cost to be paid by carbon emitters. It’s an estimate of the marginal cost of meeting Australia’s emission cut target. The $70/tonne figure will be included when calculating the benefits and costs of rule changes. Is that approach the right one? Explain your view and why.
4. With the reality of a second Trump presidency is now confirmed, there concerns his mantra “drill baby drill” means that the focus on “old school energy” from oil and coal remain firmly on his economics agenda
5. Takeaway: What is your final message on The Politics of Taxing Carbon?
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Transcript
Introduction to 'Politics of Everything'
00:00:02
Speaker
Welcome to the politics of everything. I'm Amber Danes, your host and podcast producer. This is a half hour of power podcast dropping every week where I unpack the politics of everything from money to motherhood, nutrition to narcissism, startups to secularism, the environment, quality and much, much more.
00:00:22
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Australia's 2024 Climate Policy Report
00:00:45
Speaker
Hi listeners, this is a bonus episode for 2024 and will be our last episode of the politics of everything for now. For those who have followed the torturous path of Australian climate policy over recent decades, a 2024 report by the Australian Energy Market Commission of a shadow price of in Australian dollars, $70 a tonne of carbon dioxide equivalent elicits some painful memories.
Meet Economist Ross Gano
00:01:10
Speaker
I had to find the right person to dive into such a big topic, so enter the chat Ross Gano, who, if you're an economics tragic like me, will definitely be a household name. In brief, Ross is a Professor of Royal Research Fellow in economics at the University of Melbourne. In 2008, he produced Gano Climate Change Review for the Australian Government.
00:01:31
Speaker
Here's the author of many books, including the best-selling Dog Days, Superpower and Reset. Drawing on his unrivalled expertise in economics, industrial development and climate change, Ross makes the case for a levy on the big polluters that will help fund Australia to become a carbon-free energy giant, lower the cost of living and assist the world to cut emissions.
00:01:51
Speaker
He has a new book out called Let's Tax Carbon and Other Ideas for a Better Australia, where he examines Australia's economic history, breaking down which policies have worked and
Full Employment & Economic Growth Policies
00:02:01
Speaker
which haven't. He critiques the current Albanese government's first term and presents a set of policies that he argues can deliver full employment with rising incomes for a growing Australian population.
00:02:10
Speaker
As well as analysing Australian monetary and fiscal policy, Let's Tax Carbon also looks overseas to the consequences of Trump and Biden's economic policies and how countries like China, Japan and the US are responding to climate change. And so I warmly welcome Ross to the politics of everything. Thanks for joining me. Hello, Amber. Very good to be with you and your listeners in the last podcast before Christmas.
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00:03:47
Speaker
I'm really excited and I really am an
Ross Gano's Economic Journey
00:03:49
Speaker
economics nerd. Believe it or not, if I hadn't become a journalist in my career, my other thing was I wanted to be an economist. So I feel like with journalism, I got to do a little bit of economic stuff. I was a business journal for a number of years, but so I certainly don't have the the economic credentials you do. So it's really great to have you on the show. But I will ask you my first question, which I ask all my guests, what did young Ross want to be? I don't suppose economist was necessarily on your plans when you were a
Shaping Australian Climate Policy
00:04:14
Speaker
high school student, but I could be wrong.
00:04:16
Speaker
Can you remember what you thought you might do? oh No, it it's happened just step by step, Amber. I didn't have any grand career strategy. yeah I yeah ah happened to get a scholarship to the ANU after school. I was at school in Perth, at Perth Modern School. and And it seemed interesting to go to Canberra to study economics. ah I was interested in a lot of things. I'd actually been very interested in physics up until then. And I, for a little while, wondered if I'd regret that not studying physics, because in the early 60s, it seemed that physics was going to be the science that sorted everything else everything out, that told us
00:05:05
Speaker
ah what reality was all about. I don't regret the the decision, but I can't say that it was a purposeful, deliberate decision. I got into it and have found the life of an economist interesting enough to keep me there.
00:05:20
Speaker
Absolutely. Well, you've had a long career in it, so you must have found your thing, which is great because a lot of people that I speak to, you know, they might have two or three different types of career and then they get to something that, you know, is is what they're meant to be doing, what lights them up. But you've obviously been able to stay the course and, um you know, do really well with it, which is which is a fantastic thing to look back on, I imagine.
00:05:41
Speaker
Yes, and i've I've had interesting things to do right through my career. I suppose they the though binding theme, holding it all together, is an interest in economic development in Australia and its Asian neighbourhood. And that's ah been changing enough to keep it interesting. And then in these last 17 years, ah since all the premiers and then the Prime Minister joining the premiers gave me the job of looking at policy on climate change. And ah that that was a new interest, actually very closely related to my old ones, ah ah but but different enough to keep me going.
00:06:20
Speaker
Excellent.
Carbon Tax and Julia Gillard's Policies
00:06:21
Speaker
Look, this topic of taxing carbon, it feels like one of those prickly areas of Australian politics. It's stymied or worse still top at former prime ministers and other leaders for the past 15 years or so. It seems to be something that gets kind of shunned a little bit. The words don't kind of come out of any politician's mouth that I can hear of. We might package it differently. I'm in the world of comms. I know how to do that. But this idea that you know, we need to tax carbon and head towards a zero carbon economy. It seems like something in this book which you've written, it it can be a reality rather than a pipe dream. Why do you think so? Why is this the path you think Australia should be taking? Well, I don't think it was ever the political negative that it's now remembered as. ah Julia Gillard's government introduced carbon pricing and it worked very well.
00:07:09
Speaker
Emissions came down at the rate they should have at 8% per annum for the sectors covered by the emissions trading scheme. If we'd kept on like that, we'd be ah headed towards net zero by 2050, which the the Morrison government promised the international community that we'd get to.
00:07:26
Speaker
And it did that without and disrupting industry at all. ah There were careful arrangements put in place around the Gilad scheme that made sure that our industries weren't disadvantaged by competition with other countries that didn't have similar arrangements. It also looked after the incomes of people on on lower and middle income. So it increased the tax-free threshold, which meant that all workers had lower taxation, but especially those at the lower end of the income distribution. It adjusted social security so that no one in Australia on average or low incomes was disadvantaged and some actually ah were better off as a result. It gave a lot of revenue to the budget, $7 billion that
00:08:12
Speaker
that financed those things and also was put into the Renewable Energy Agency and Clean Energy Finance Corporation to get the the yeah the new industry is going. So it worked very well. And I don't think Tony Abbott won the election in 2013 because of the carbon price. It won the election in 2013 because the Labor Party was fighting itself. Well, that wasn't a helpful period in politics. And of course, we can't go back. and We can only go forward and and move from where we are today. And we have that.
00:08:43
Speaker
for any overseas listeners, we Australia's had a series of conservative and, if you like, left-leaning governments and everything in between in the past 15 years or so. So it feels like we've never really got momentum on this issue. So how do you think Australia can lead the way in key areas like the energy transition, which we talk about a lot, to make us considered you know more than, ah I guess, pulling our weight? I often think Australia, it's not an economic powerhouse like US or China,
00:09:10
Speaker
But we can do our bit. How do we do that right in your
Australia as a Renewable Energy Leader
00:09:14
Speaker
view? Well, we can do a lot more than our bit. ah we've In the new economy, the zero carbon economy that all the countries of the world have ah committed to, we've all agreed in the United Nations that we'll take steps that will cause the world as a whole to be net zero by 2015, net zero carbon emissions. Now, Mr. Trump has promised to pull out of it. he'll be the only His will be the only government that is not in the yeah
00:09:41
Speaker
the Paris Agreement with the commitment to net zero by 2050 for the world as a whole, if he does take that step. ah ah But at the moment, we're all in it. And in that world,
00:09:56
Speaker
ah We'll need a lot of renewable energy and we'll need a lot of sustainably grown biomass plants. And it happens that Australia is the best place in the world for renewable energy and for sustainably growing biomass. So we are the natural home for a very large part of a global industry.
00:10:18
Speaker
in the zero carbon world economy. ah In the world of fossil carbon, ah we were pretty well endowed. We had a lot of ah coal and a lot of gas compared with our population, so we were a bi big exporter. Coal, we were competitors with Indonesia and some others. Oil and gas, we were competitors with the Middle East, Russia.
00:10:39
Speaker
and some others, compared to the world as a whole, we're much better off with resources in the new world of zero carbon. Our solar and wind is is that good. And just as in the old world, the countries with a lot of industry and high incomes and not many fossil carbon resources had to import a lot to sustain their standards of living in their industry, Europe and Japan and China and Korea.
00:11:06
Speaker
had to import a lot of ah oil and gas and coal. ah In the new world, ah those countries also lack ah renewable energy resources and sustainably grown biomass. and So we'll have to import a lot from countries like Australia, and Australia is a much better place than any other country in this world. We weren't the very best place in the fossil carbon world, some of the Middle East countries, Saudi Arabia and so on.
00:11:30
Speaker
even better place than us, but but we're top of the league yeah in in the new world. And in the old world, ah yeah you could export gas or coal or or oil, and that was quite a good industry. It helped Australian incomes. But it wasn't the source of advantage in industrial activities because It was almost as our coal and our gas was almost as cheap, sometimes cheaper, in the countries that were importing it than here. It was cheaper to use Queensland coal ah in steelworks in Japan or China or Korea than it was to use it in steelworks in Wai'ala. The transport costs were actually lower, but it's completely different in the zero carbon world. It's very expensive to move
00:12:17
Speaker
electricity, renewable electricity across continents or across the sea between continents. ah You can do it, but it's expensive. Very high cost transmission cables. You can turn it into hydrogen and take the hydrogen, but that's also very much more expensive in the importing countries than it is in Australia. So the natural tendency, the forces of economics will drive us to use our renewable energy resources and biomass to support industry in Australia.
00:12:45
Speaker
and That's just going to be a huge economic advantage. and the the The new industries exporting goods made from renewable energy and biomass, ah these industries are going to be much bigger export industries than coal and gas exports in the old economy.
Social Cost of Carbon Explained
00:13:03
Speaker
Absolutely. And I think you've explained that very clearly. In the introduction I did, I did mention this idea of this shadow carbon price, which I mentioned from that report in March 2024 from the Australian Energy Market Commission, basically saying it's not a cost to be paid by carbon emitters. And it's an estimate of that marginal cost of many Australia's emission targets. And that $70 a ton figure will be included when calculating the benefits and costs of the rule changes.
00:13:29
Speaker
How does that approach fit in or not fit in with what you're talking about? Well, what that says is that their estimate is that they what you could call the social cost of carbon, the cost of the damage that carbon does, so is about $70 a tonne per carbon dioxide. now If the world's, if the economies of the world are working efficiently, ah then you'll keep reducing carbon emissions until the cost of reducing another tonne is equal to the damage it you avoid with a tonne of carbon. These calculations, the social cost of carbon, have been done in a lot of countries. $70 is a pretty low estimate, I think, as ah as a working example of a realistic cost of carbon. The current European
00:14:17
Speaker
carbon price is probably as close as we get. That's about $100 Australian a ton, about four times as high as the Australian carbon price under the Julia Gillard scheme. And that will have to rise over time. It has to ah rise enough to provide incentives, to provide alternatives to goods made from coal and oil and gas. And that and so the that that like the value of reducing carbon, the social cost of carbon will will end up i think have being higher than $70 a ton. what What was suggested in the report to which you referred is that in calculating ah whether some measures are worthwhile when you don't have a carbon price, they will do the calculations as if
00:15:04
Speaker
ah the ah The social cost of carbon was about $70, and they will use regulations to ensure that we act as we would have done if we had a $70 carbon price. That's one way of doing it. Yeah, that makes sense. Yeah, well that's one way of doing it, but actually having a carbon price is a more efficient way of doing it.
00:15:26
Speaker
As well as analysing Australian monetary and fiscal policy, your latest book, Let's Tax Carbon, all also looks overseas. and i think we talk about Obviously, at the time you wrote the book, it was both you know the Trump and Biden's economic policies kind of inter interplaying and looking at how countries like China, and Japan, the US are going to respond to climate change. You did mention that the big thing, which is that we now have Trump presidency 2.0 coming in, in January next year. and If And the likelihood is he's going to yeah pull the US out of that that agreement. Does this change the game at all because they're such a big player or can Australia really just keep moving forward without without that kind of consensus, if you like? Well, it might not change things much if all we see is American policy changing, where it will be really damaging as if it had a big influence on other countries. If, for example, were Australian policy or Japanese policy or
00:16:20
Speaker
European policy changed in the Trump direction, if there was that sort of influence. I don't think there necessarily will be, although there's some risk of that. If there's not, ah then America take pulling itself out of the international activity may not mean so much. ah America was never going to be an important market for Australian exports in the zero carbon world because it's got reasonably good renewable energy resources of its own, not as good as ours.
US Policy Changes & Global Climate Impact
00:16:50
Speaker
i Even though it's a much bigger economy, they're absolutely, their resources are not as good as ours. And of course it's such a big economy that it will need all of that renewable energy itself. So it's always going to be more or less self-sufficient under the Biden policies.
00:17:07
Speaker
Now, if ah ah yeah if the US pulls out of the Paris Agreement and it removes all of the incentives for zero carbon production under the Inflation Reduction the Act and other measures that President Biden put in place, that may slow down a decarbonisation in America, but it won't have a big on the rest of the world. and America is quite important in the world, 8% of global emissions, but the emissions that Australia will reduce for the world as a whole are actually even bigger than that by exporting green iron, green aluminium ah to replace
00:17:44
Speaker
are metals made from coal and gas in Europe and Northeast Asia. So ah so so it's it's so a modest part of the world. And it's even doubtful whether ah President ah Trump will succeed in repealing those acts, because a lot of the industrial development in in the United States, energy industrial development associated with renewable energy has helped employment and incomes ah in in states that strong Trump supporters. I was a meeting and the right in the middle of Queensland in the town of Barcalden a couple of months ago, a conference, and they'd invited over the mayors of the central west of Queensland and invited over
00:18:31
Speaker
ah the seven visitors from the central west of Texas. And the message there was so whether or not you think climate change is a problem worth worrying about, the the the huge investment in renewable energy has been great for rural and provincial development in the central west of Texas. And so The Texan visitors, seven of them all had the message, yeah do this because it's great for development in a sparsely populated areas of the state under good sun and wind like the central west of Queensland. Do it for economic development, even if you don't care about climate change. So President Trump will have his job cut out in trying to get Texan senators and Congress people to repeal.
00:19:17
Speaker
ah the the inflation reduction act and reverse so all of that development. Absolutely. And I suppose, though, to win the election, you know, he had lines like drill, baby, drill, and that really appealed to his his broad base, if you like, of this idea of an old America, including old style energy from oil and gas, remaining firmly on his economics agenda. And you've obviously written some op-eds since his um his win about what that really means. But it feels like he can say all the stuff, but progress away from that is still likely. and And that's kind of, is that where you've landed on that? on that Yeah, I think we have to wait and see. ah But I think you'll have a battle getting rid of the inflation reduction act. And also in the United States, as in Australia, a lot of the effect of action is at a state level.
00:20:06
Speaker
Yes. And a lot of the states of America remain very strongly committed to reducing emissions. The big state of California has very strong domestic ah laws of its own, and many other states do. so So we'll just have to wait and see. But I don't think that that the election of Trump will necessarily greatly change what happens inside the US and it certainly won't affect Australian opportunity because the superpower opportunity for Australia, the opportunity to export goods using our renewable energy and biomass never depended on the American market. The most important markets are right now in Northeast Asia and Europe, ah Japan, China, Korea and Northeast Asia and Europe, the European Union,
00:20:53
Speaker
the Scandinavian countries and Britain outside the European Union. Later we'll find that Southeast Asia and South Asia, ah Indonesia, India, other countries in those regions will become important markets. ah The United States was never going to be an important part of the story.
00:21:11
Speaker
Interesting.
Philosophy on Success & Societal Progress
00:21:12
Speaker
I love that perspective. Here's hoping. I'm changing tack a little bit. I've got three questions, which I always wrap up my interview with all my guests. So my first one, and so far, what's been your biggest life lesson to date and what has it taught you? And it doesn't just have to be career focused. It could have been something in your personal life that has really stuck with you and and I guess had an impact. Oh, I think the ah death of my mother when I was a primary school boy.
00:21:40
Speaker
had the biggest impact, took me a very long time to to adjust to. So just asking the question like that, what's had the biggest impact? Oh, of course, and I'm sorry. Yeah, that that that stands out against everything else.
00:21:55
Speaker
Absolutely. And how do you define your own version of success? I imagine someone who's got to where you have in your career. I mean, you don't need to keep working. A lot of people probably of your vintage would be looking at playing golf and retiring. You're still very busy and very much part of those political conversations which are going to move the needle on this. What is success now for you? Well, it's no sacrifice for me not to play golf. I don't particularly... Or trick trick choose whichever hobby you'd like to insert.
00:22:23
Speaker
and I do indulge myself in front of an AFL game. ah and are you oh You wouldn't be a Mel Burney if you didn't do that, would you? I'll be there in the Boxing Day test. so ah But but i i i I find that working on these things interesting. And I i don't think that yeah in a lifetime in public policy, economic policy, I've ah come to the view that ah not no important ah battles of ideas are ever won quickly or ever won forever. It's an ongoing process and it's only through committed citizens remaining engaged in the discussion of policy, yeah ah continuing to work on the issues and
00:23:15
Speaker
contribute to the debate about them, that we make any progress. I say in the book, in the in the chapter called The Economic Consequence of Mr. Lowe, which was originally the Manning-Clark lecture yeah at the ANU in honour of the great Australian historian Manning-Clark. I quote Manning-Clark as saying, yeah every individual life is a failure, but humanity succeeds. We all make our little contributions.
00:23:44
Speaker
ah even alongside lots of failures of attempted contributions. But the little positive things that lots of people add mean that generation by generation, on the whole, humanity's done better. We're better off as a human society now than we, I say in the book, yeah than we were 80 years ago or 800 or or 8,000 or 80,000 years ago. So ah that's how we should see each of our contributions. yeah It makes life interesting and and rewarding to be to participate in the processes. And ah we we shouldn't ever expect to have the decisive victories that make things good forever.
00:24:31
Speaker
That's not how things work. If we make a bit of a difference at the margin and lots of other people do the same thing, then humanity can gradually succeed. So profound. I don't think anyone's given that kind of answer for that question. So there's that's that's an awesome piece of advice and I guess perspective. Just a final takeaway message for us as we wrap up our conversation today on the politics of taxing carbon.
00:24:57
Speaker
Yeah, well, I think that ah Australia has an immense opportunity. I make quite a lot in the book of how badly we've done in the last 10 years on general economic policy. We've had stagnant living standards. Real wages have fallen. where We've been near the bottom of the developed world on productivity growth and growth in average output.
00:25:18
Speaker
ah since Tony Abbott got rid of carbon pricing a decade ago. And we should reflect upon that and getting the climate transition right, making use of Australia's immense advantages in the zero carbon world from our renewable energy resources and ah potential for growing biomass, and that can put Australians back on a path of rising living standards after a decade of stagnation.
00:25:46
Speaker
Fantastic. Well, it's been a great conversation. Of course, if anyone is interested, there will be some details of how to contact Ross, his website, and of course this fabulous new book on my show notes. Until next time, everyone, take care. Thanks so much for listening today.