Carbon Trading

Auctioning off carbon trading permits will raise tens of billiions of dollars for economic adjustment. Progressively removing another $8 billion of fossil fuel subsidies would bring in more money for reform. Australia has been spending roughly $600 million per year in Iraq, a geopolitical morass caused at least in part by the need to secure oil supplies. Ultimately, redirecting government expenditure away from seat-of-the-pants efforts to cope with effects (political instability in oil producing regions) rather than causes (excess consumption by importing countries) would help Australia move away from fossil fuels in to cleaner, more stable energy sources.

If the coal industry generates 175 terawatt hours a year at a wholesale price of 3.5 cents, a gross undercounting -- that means the revenues derived from this are on the order of A$6 billion. This is an intriguing figure for two reasons. First, that amount is roughly equal to the government subsidies the industry gets. Secondly, the figure is dwarfed by the $36 billion worth of market distortions a $40 per tonne carbon price, a more efficiency energy supply system and abolition of current coal subsidies would eliminate -- creating a massive net gain to the economy. In fact, the 'net' gains would be so large the nation could afford to 'buy out' the coal industry (ie pay it to remain idle as reserve capacity) several times over -- each year.

Australia should encourage much more aggressive use of
renewables to replace fossil fuel generation over the coming decades

Paying the coal industry not to produce power reduces greenhouse gases, shifts the power industry to renewables and extends the life of Australia's current coal fired power plants, thus making them available to meet future excess demand. In other words, idling current coal fired power capacity creates an insurance policy. These plants could be reintegrated to the grid on a as-needed basis to provide both base load and peaking power. It would also ease the way into retirement of the plant by stretching their lifespans until carbon capture plants can prove their worth, if they can.

In economics, there's a theory that says "protect the workers, not the industry." What this means is that, in order to grease the wheels of positive change, government should assist workers in obsolete industries adapt to change, and not help obsolete industries stay afloat artificially. With carbon taxes, the government could fund redundancy packages for coal industry workers nearing retirement, fund transitory income support and training programs for workers still in their prime, and also fund a smaller coal electricity-generation industry in which the goal is to produce peaking power to meet surplus summer demand, rather than operate to provide base load power.

 

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