ONE of the nation’s leading carbon-pricing experts has described as “unrealistic in the extreme” Treasury’s budget forecast of a $29-a-tonne carbon price in 2015-16, and warned of a multi-billion-dollar risk to the budget and a failure of the scheme to change emissions behaviour if a floor price is not maintained.
Frank Jotzo, the deputy director of the Australian National University’s Climate Change Institute, told The Australian an oversupply of credits in the UN’s Clean Development Mechanism meant carbon prices would stay low and a more realistic estimate was $5.
This would mean that in 2015-16, the carbon price in Australia would fall to the $15 floor price when the carbon pricing scheme, which begins on July 1 with a $23-a-tonne fixed price, switches to a floating price three years later.
Dr Jotzo was a key adviser to the Garnaut climate change review. He presented a report on floor pricing to the multi-party climate change committee that negotiated the climate change scheme passed by parliament last year, and is a lead author on the Intergovernmental Panel on Climate Change’s fifth assessment report. He said the likely cost to revenue could be about $3 billion if the carbon price was at the floor price in 2015-16 rather than the $29 predicted by Treasury.
His assessment of the Treasury price forecast was backed by Deutsche Bank analyst Tim Jordan, who said that, on current policies, it was unlikely that the carbon price would be $29 in 2015.
“In the global carbon market, offsets from developing countries are continuing to grow strongly, and there aren’t many new sources of demand before 2015,” Mr Jordan said. “The global carbon market looks oversupplied, and on that basis we’d expect the price to remain below the Australian price floor of $15.”
Mr Jordan said Treasury tended to anchor its revenue estimates using market prices.
“In the case of other commodities, like coal or oil, there’s a liquid forward market, so the forward prices are a good guide to market expectations,” he said.
“But the carbon market is very illiquid out to 2015. That’s why they used their earlier projection of $29.”
The price forecasts echo research by Bloomberg New Energy Finance predicting the carbon price could be as low as $4 by 2020.
All of these efforts to play ‘God’ with entire sectors of the economy remind me of the efforts of medieval alchemists to perform transmutations while remaining in ignorance of the atomic theory of matter.
The main difference is that economics already has its equivalent of an ‘atomic theory’ in the field of statistical microeconomics.
One can understand economic trends if one approaches from the point of view of the individual participant with limited resources and individual priorites that guide the decisions regarding the allocation of those resources. Statistical accounting of a large ensemble of such individuals will describe the behavior of the aggregate well.
The top-down efforts by a few to ‘control’ the economy are as futile as the efforts of Maxwell’s Demon against the laws of thermodynamics, but their ignorance keeps them from recognizing this fact.