‘There is such confusion in my powers’: Is an ETS a tax?

Here is a definition in search of a term: what do we call a calculated political strategy to confuse the citizenry in order to gain an electoral advantage?

For anyone who thinks clearly, and wants to minimise ambiguity in their communication, definitions matter.

In political discourse certain terms have diverse interpretations so definitions are not clear-cut. Think of “freedom”, “democracy” and “equity”. But there are technical terms that have long-standing, unambiguous and uncontroversial definitions, so that experts who use them know exactly what they are communicating to their audience.

One of those unambiguous terms is “tax”. A tax is a compulsory payment to a public authority for the purpose of raising revenue and sometimes also to change behaviour. The GST and exemptions to it is a good example. Unlike a fine, a tax is imposed on a broad segment of the community rather than on individuals.

A carbon tax is a penalty levied on the carbon content of fuels. It’s paid by those entities responsible for the emission of carbon dioxide from the combustion of fossil fuels. So for every tonne of carbon dioxide that, say, a coal-fired power plant emits it must pay a fixed amount to the government.

Paying the government for a permit to be able to engage in a certain activity does not qualify as being taxed. If it were then buying a fishing permit would be paying a tax, perhaps “a great big fish tax”.

It’s worth noting that while imposing a carbon tax is designed to reduce the amount of carbon dioxide emissions, it does not attempt to determine the amount emitted in any year, say.

An emissions trading is the opposite of a carbon tax. The government sets a fixed limit or cap on the amount of emissions that polluters can emit in, say, a year. Polluting entities must own a permit for each tonne of their emissions. The overall number of permits is fixed at a level lower than the tonnes of carbon dioxide that would be emitted without the cap.

The demand for permits exceeds the supply. Permits to emit can be bought and sold (i.e. emission permits are “tradable”) so that their price is determined in the market according to supply and demand.

So a carbon tax and an emissions trading system differ in a fundamental way: under a carbon tax the price of carbon emissions is fixed by the government and the amount of emissions varies; under an emissions trading system the amount of emissions is fixed by the government and the price varies.

Anyone with a nodding acquaintance with economics knows this. And any politician engaged in the formulation or public advocacy of one or another ought to understand this essential distinction.

In no sense can an emissions trading system be called a carbon tax. And yet various members of the Federal Government, led by the Prime Minister, have recently been attacking the Labor Party’s proposed emissions trading system (ETS) as a “carbon tax”. It’s reasonable to assume they know the difference between the two – the three leaders of the Liberal Party prior to the current one all promised to introduce an ETS.

Environment Minister Greg Hunt has been particularly deceitful. He has followed his leader in describing Labor’s proposed ETS a carbon tax. Yet he understands the distinction perfectly well. He co-wrote a thesis titled “A Tax to Make the Polluter Pay” on precisely this topic. A number of quotations from it can be found here.

Agnotology is the deliberate cultivation of ignorance, which does not quite capture the phenomenon we are witnessing, the deliberate cultivation of confusion. I invite anyone who knows Ancient Greek to coin a new term?


Published by The Conversation, 27 July 2015

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© Copyright Clive Hamilton