Carbon scheme 'like a GST from hell'

By Catherine McGrath for the ABC's Australia Network

ABC News Online, Posted Wed Jun 3, 2009 

• http://www.abc.net.au/news/stories/2009/06/03/2588506.htm
• Video: Carmody: Consumer pays (ABC News)
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One of Australia's most eminent economists says the Federal Government's planned emissions trading scheme is like a 'GST from hell' that is bound to fail economically and environmentally.

Geoff Carmody, a co-founder of Access Economics, says the Government's Carbon Pollution Reduction Scheme should target consumers, not producers.

The scheme is currently being debated in the House of Representatives.

Mr Carmody has been at the centre of many policy reforms in Australia, including the long battle to introduce the GST.

Now a private economic consultant, Mr Carmody has turned his attention to greenhouse gases and believes that without a big rethink, the push for a global agreement will be unsuccessful.

Mr Carmody told Jim Middleton from ABC's Australia Network that emissions should be measured and restricted not at the point of production but at the point of consumption.

He believes the West should pay for the emissions embedded in products or services it buys from China and he says the only economic system that will work to cut emissions world-wide is a system based on "global consumption".

In other words, carbon produced in the manufacture of a television set in China should be paid for by the consumer or consumers in the country where that television is purchased.

"I accept the science. My main concern is that we have a policy model that actually works, a policy model that maximises chances of getting a global deal where all countries do their bit to slow climate change," Mr Carmody said.

"In the Australian context the CPRS is very much like the GST from hell.

"What I mean by that is it taxes our exports but not the exports of our trading partners; it taxes our import competing products but not our imports.

"It is not a big deal to fix it. If you look overseas, all other countries are looking at this too."

'Trade neutral'

China's Department of Climate Change has argued that with up to a quarter of all Chinese emissions coming from the manufacture of products the country exports to the West, receiving countries should be responsible for dealing with those emissions.

Mr Carmody says "they are dead right".

"If China keeps exporting emissions to the West by exporting goods and services to the rest of the world, it is incumbent on the rest of the world to deal with those exports and those emissions," he said.

"It is up to other countries to do what China said they should do, that is, if they are importing products from China or from any country, they should be applying a tax adjustment to reflect the emissions in those imports.

"If every country did that we get back to the conventional version of the GST. This is a GST that doesn't apply to our exports [but] it does apply to our imports and our import competing products."

Mr Carmody says such a scheme would be trade neutral.

"Because it is trade neutral, every country that wants to act can do so without fear that all they are going to do is undermine their own competitiveness and cost jobs," he said.

"A consumption-based approach for a carbon price or a carbon tax is protection neutral.

"It doesn't give a country a competitive advantage; it doesn't give a country's trading partners a competitive advantage.

"The plan would be in line with requirements of the World Trade Organisation because exports would not be touched but imports would be taxed at the same rate as corresponding locally produced substitutes."

Last month Mr Carmody gave evidence to the Senate inquiry into CPRS legislation.