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17 October 2019

Dumb IMF proposes up to 200% growth in energy bills

When we began wading through the turgid finance terminology of that paper out this week from the International Monetary Fund (IMF) we had little idea that it was written by idiots for idiots. Despite us thinking it was written in a foreign “economese” language, it turns out that it is in written entirely in “dumb” a language for the obscenely rich who never read newspapers and who don’t know how the world works.

Citing other previous IMF papers, the effort on How to Mitigate Climate change, turns out to be a masterstroke – the plan is to make energy so expensive, any energy, that only the truly rich can afford to heat a cup of coffee.

First it makes the claim that carbon taxes and similar arrangements on fossil fuels is the ONLY way to fixe climate change. And it describes carbon tax as the single most powerful and efficient tool to reduce domestic fossil fuel CO2 emissions. It then compares carbon taxes with Emissions Trading Systems, what it calls Feebates (a combination of fees and rebates) and pure regulation.

A few pages in and the authors are telling us that in some countries a tax of $25 a ton of CO2 is high enough to prevent us using fossil fuels, but in other countries it may need to go as high as $50 and that in some countries even a carbon tax of a $75 tax per ton of carbon would not be enough, but the average across 30 or so countries would just about come down sufficiently. See diagram below.

A carbon tax of $25 a ton would be more than enough for China, India, and Russia to meet their Paris Agreement pledges, in other cases (Australia and Canada) even the $75 a ton carbon tax falls short.

And it reminds us what prior papers have made clear from the IMF, that the price of fossil fuels is subsidized to reduce electricity prices below the cost of recovery.

What it does not remind us of is what happens if you impose a carbon tax that is paid for by the common man, from examples in France (the Yellow Jackets) and more recently this week in Ecuador, not a community known for radical political reactions, where the removal of fuel subsidies was greeted by two weeks of rioting causing President Lenin Moreno to repeal the decision and sit down with protesters to come up with a different plan. Perhaps the President did it based on tis IMF paper.

This was not about a $75 carbon tax per ton of CO2, this was pure and simply about removing fuel subsidies.

The EMF calculates that the combined value of underpricing in subsidies alone globally is around $5.2 trillion, with coal and oil accounting for 85%.

If you want a revolution – kill fuel subsidies, and if you want to be lynched, introduce a huge carbon tax.

When will organizations like the IMF stop taking it out on the man in the street, getting him to pay for everything. There are many other approaches. If we create a country policy that says natural gas boilers cannot be installed in new homes, and that each year every energy supplier must replace around 7% of boilers in homes with electricity based heating, we can wean everyone off natural gas, without making electricity more expensive for everyone. That’s called using policy. If a company misses the target either tax their profits, or their reserves with a fine, and make it clear through price regulation that this cannot be laid at the consumer’s door.

As long as you do this in parallel with a renewables obligation (every year every energy company must produce 5% more electricity from renewables), then over a 15 to 20 year timeframe, you achieve carbon zero energy, at no cost to anyone except companies which are addicted to fossil fuels, which will tend to go bust.

But because the IMF can only deal in solutions written in “dumb” or should we say with “fiscal remedies,” it cannot see this.

Get to page 8 of 30 and you realize that this paper is suggesting that with a $75 a ton carbon tax, coal prices would typically rise by more than 200% above its baseline numbers and that for gas this would only be 70%. Any government doing this and NOT being forced from office would kill off most of its aged population who would not afford to heat their homes, and be removed from office out of neglect.

Many countries, like the US, have energy operators who ask for everything to be included in the price, including carbon tax, and regulators who decide if the energy operators can do this. In more regulated environments (Europe) there are price caps in play, and so companies would be forced to switch to renewables suppliers if a carbon tax was placed on them, because it can both avoid the taxation and move to cheaper suppliers – but it cannot stick with the higher priced fossil fuels and lay the blame at the consumers door.

Funnily enough these regulatory differences are already creating winners and losers in the Paris agreement stakes, and a one size fits all approach from the IMF, because it is truly international, will always be clearly nonsense.