IPA - a traitor to principle

Over the past two days journalists have been calling to ask ‘what do you reckon about the move to an emissions trading scheme?’, and, ‘how does it compare to the Coalition’s Direct Action scheme?’

Frankly I find it hard to get enthusiastic about either option.

The government’s emissions trading scheme will provide only a very weak incentive to reduce emissions because of its link to the EU ETS. The EU has so many excess permits, there’s little need for anyone to do much to reduce their emissions until after 2020.

Yet at the same time the Coalition’s Direct Action fund won’t come close to achieving the 5 per cent emissions reduction target. As explained in Climate Spectator back in March, the Coalition is likely to fall roughly 80 million tonnes of CO2 short of its 2020 target.

In spite of big flaws in both approaches, when I was pressed for a simple answer I readily answered that the ETS was best.

So why is it better? 

Tony Abbott’s statement two days ago is quite helpful: ''Just ask yourself what an emissions trading scheme is all about. It's a so-called market in the non-delivery of an invisible substance to no-one.''

It’s his own policy that most closely represents his quote, not the government’s emissions cap and trade scheme. 

Abbott wants to use taxpayers’ money to pay for someone to not emit a tonne of CO2. You can’t physically measure CO2 not emitted, it quite literally doesn’t exist. Rather you have to develop an assumption of how much CO2 would have been emitted, and then compare that against how much CO2 is actually emitted. Determining this assumption can be complicated and subjective. 

But it was Tim Wilson from the Institute of Public Affairs who really helped to crystallise my thinking. On ABC television he said he concurred with Abbott that an emissions trading scheme wasn’t a real market. According to Wilson, it’s just a regulatory impost dressed up in drag to look like a market.

This got me thinking – the IPA is a champion of the concept of property rights. Many of the champions of property rights hark back to the land enclosure movement in England over the 1700s and the subsequent Agricultural Revolution.

Prior to the land enclosure movement, large areas of the English countryside were treated as common property. It was open for anyone in the surrounding community to use to graze their livestock and conduct other farming activities. This creates a bit of a problem because it encourages overgrazing (documented in a landmark paper entitled The Tragedy of the Commons).

The reason is simple. A villager might realise that adding an additional cow to already heavily stocked common land would come at the expense of the rest of the community’s stock, because it would lead to a decline in available feed and degradation of the land. But the private gain to the villager from an extra cow is considerable. So he’d add another cow. But then his neighbour would do the same thing.  And no one had much of an incentive to improve the productivity of the land because most of the gains from the hard work would be captured by others.

However over the 1700s powerful people starting putting artificial and arbitrary lines on maps. They then regulated that these lines on maps determined who had the exclusive right to use this land.

This was a horrible regulatory impost on many poor villagers who found they could no longer use this newly privatised land. But it is widely credited as one of the key reasons for a sustained and substantial improvement in agricultural output in England over the 1700s. 

Tim Wilson’s organisation thinks development of these property rights was a fantastic thing.  But they seem to forget it involved government regulating ownership of land, instead of just allowing a free-for-all.

But let’s consider how things would have been done under the Coalition’s Direct Action model. 

Instead of enclosing up parcels of land and assigning ownership, land would remain in common ownership. Everyone would remain free to graze as many cattle or sheep or even goats on the land as they liked, no matter how degraded the land became.

However government would then offer money to people to remove stock from the land. If you happened to be particularly irresponsible in abusing the commons through overstocking, then all the better for you. 

To pay for this stock removal the government would levy taxes on people’s incomes. This is even if they didn’t use the common land, or had done the responsible thing and acquired private land for their farming. This would act as a disincentive to create wealth and improve agricultural productivity.

But it is a bit more complicated than that, because different animals in different locations degrade the land to a different degree. So the government would need to employ land degradation specialists that would attempt to quantify the degradation horses, sheep, cattle and goats place on land in different locations. 

Removing a cow would receive a greater payment than say sheep, because they eat more grass. Also an animal removed from highly fertile land would need to receive a greater payment than one removed from less fertile land. At the same time they’d need to estimate the compensating benefits on land fertility from the animals’ manure and urine.

As you can imagine this would have all become rather bureaucratic and complicated. Thank goodness the English parliament decided to just divvy up parcels of land instead.

And it’s why an emissions cap and trade scheme is vastly superior to Direct Action.