The Minerals Council of Australia released research today showing that the cost of the carbon tax would be six times what the government has claimed.

The difference from the government’s modelling is that the government assumes that by 2016 the world will have a synchronised response to global warming which will include the pricing of carbon.

Like a lot of assumptions in models, this is at best an overly optimistic expectation, and at worst a lie.

Looking at the situation, I’m not sure that the Minerals Council has even got it right. On my a priori analysis, without universal agreement on a carbon tax, the cost of abatement is close to infinity.

This is because if each dollar you spend on abatement has no effect, then no matter how much you spend abating there will be no effect, meaning you could spend an infinite amount and yet save nothing.

Without a global agreement, that is more or less the situation we are looking at because the cost disadvantage imposed on domestic companies means that overseas products will be favoured.

Not everything will shift overseas of course, but that doesn’t necessarily lead to abatement. At the moment there is no technology that can actually abate much at all, apart from nuclear power and hydro.  We have some hydro, but opportunities are limited. We have no nuclear, and are not likely to in the rest of my lifetime.

The other technologies currently available  basically require as much back-up power as they replace. The sun “don’t always shine” and wind is completely fluky, as every sailor knows.

Better efficiencies are also touted as solutions, but these don’t help either. When you save energy you also save money, but money doesn’t just sit somewhere, it gets invested, and when it gets invested there is an energy consumption impact.

Look at it this way. If my business gets more efficient at using air-conditioning in our office that means that I save money on air-conditioning, which I may use to fund my next overseas trip which would involve lots of carbon emissions, perhaps more than I actually saved on the aircon. Most economic activities do involve carbon emissions, which is why the IPCC climate models use economic growth as a proxy for growth in CO2 emissions.

Put it altogether and the official economic modeller’s forecasts fail because, like good economists, they assume that all inputs are substitutable for other inputs at only a small additional marginal cost and that their system is closed. And unlike good economists they assume that money saved is money not spent somewhere else.

This is one issue that can’t be solved on anything but a global basis, or at least one which includes China, the US and India.