The stockbroker expects major reductions in Australian living standards if the emissions target set under the Kyoto Protocol is achieved.

Back in 1990, Australia committed to increase its carbon emissions by 8% from the levels of that year under the Kyoto Protocol.

“Since our emissions are now 56% above 1990 levels, making us the worst performer of all the signatories, this will require a cut in emissions of 31%,” Patersons said in an industry report.

“And since we produce $A2200 of GDP for every tonne of CO2 [carbon dioxide] emitted, then a 31% cut in emissions would logically lead to a corresponding cut in GDP to $1540.

“To put it in per capita terms, GDP per capita would fall from $42,200 to $29,570 per person (in other words, like New Zealand).”

Economist Ross Garnaut is proposing that carbon emissions be taxed at $26 a tonne for the initial three years starting 2012, before moving to an emissions trading scheme.

The federal government is also planning to provide handouts to lower and middle income earners to help them cope with higher post carbon tax costs.

Patersons provided its own assessment of possible scenarios.

At a low carbon price of $10-20 per tonne, it said there would be almost no change in emissions from power generation, but there would be an increase in prices.

From $40/t natural gas would become more competitive than coal, however, as both emit CO2 this level would simply slow the increase in emissions.

Achieving emissions reduction would require carbon tax in the order of $100/t, which would knock out coal altogether and make solar and wind commercially profitable.

“At this level, we will be living in a very different world – that is an economy with energy prices at triple what they are now,” Patersons said.

“There is no doubt that society can and will adjust. It is, however, unlikely that the impost will be at a high enough level to make a measurable difference to emissions – only measurable to the reduction in lifestyle.”

Patersons also spoke about the government’s plans to compensate consumers and some polluters for higher prices.

“Treasury estimates that at $20 per tonne, household costs will rise by about $575 per year. At $40, cost rises to $1150 per year. It is difficult to see how compensation is going to encourage a change in behaviour.”

In the report, Patersons pointed out the impact of similar schemes in other parts of the world.

“Note that nearly all of the countries that have achieved lower emissions compared to 1990 have either experienced a collapse in their industrial base or have no population growth or both – like the former Warsaw Pact countries.

“The introduction of carbon pricing in Europe has had a much smaller impact than the broader economy and demographic changes.”

Patersons observed that carbon pricing mechanisms were weak, since carbon emissions are bound to almost everything we do.

“Taxes, credit trading, offsets are all artificial products that will depend on politics that are not durable. Emission reductions require a totality of geography and time that, simply, is almost impossible to implement let alone enforce. Totality means: the whole planet. Forever. No exceptions.”

The analysts behind the report torched the idea of planting more trees as a solution to the problem.

“CH4 [methane] is 25 times more potent than CO2 over 100 years and the planting of a tree today creates a much bigger global warming liability when it rots at the end of its life than it saves while it grows.”

They weren’t sold on the effectiveness of proposed carbon capture and storage technology either.

While the owner of a reservoir of stored CO2 will be able to benefit by selling credits to companies that exceed government-imposed limits, Patersons said there was a downside.

“However, they are then sitting on a massive liability. How will a bankrupt CCS company be treated? Regardless, we think that the estimates of only a 30% reduction in net energy output from coal fired power stations that use CCS is extremely optimistic.

“Follow the logic; coal is mined, crushed, washed, transported, pulverised, burnt, turns a turbine, the gases separated, the CO2 is captured, then pumped to a reservoir, and stored under pressure in perpetuity. It seems to us that there would be little net energy left to do any actual work.”

Ultimately Patersons warned of significant unintended consequences from travelling down the carbon tax path.

“It is amazing that politicians, who know something of human psychology, constantly fail to understand unintended consequences. Surely, if we build more roads, congestion will decrease.

“Surely, if we tax alcohol, consumption will decrease. It is very likely that carbon is going to be like alcohol – highly inelastic and society will bear the added cost without the reduction in emissions.

“The only justification for a Carbon Tax is if it is used to fund an Adjustment Trust that is spent on preparing for rising sea levels.”

At the same time, Patersons pondered on potential unintended consequences of emission-free technologies.

“We wonder that if a change in such a tiny constituent of the atmosphere like CO2 can potentially cause the melting of all the ice caps, then is it not equally feasible that large scale solar and wind generation will have some impact on some natural system that is inconceivable today and that they could have similarly potent risks to our civilisation?”