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Reviewing the Stern Review

January 24th, 2008

The Productivity Commission has just released a paper called The Stern Review: an assessment of its methodology (the full paper is a 1.3Mb PDF). It’s very good, I think, giving a balanced presentation to the Review, its supporters and critics and those who fit into neither category. Here’s the summary:

The Productivity Commission today released a staff working paper titled The Stern Review: an assessment of its methodology. This technical paper contains a detailed examination of key elements of the Review’s analytical approach. Originally prepared as an internal research memorandum following release of the Stern Review’s report, the paper is being made more widely available given its ongoing relevance in light of Australia’s Garnaut Review.

The staff paper finds that the Stern Review made some important analytical advances. The Review sought to move beyond analysis based on the mean expected outcome to one that incorporates low probability, but potentially catastrophic, events at the tail of probability distributions. The Review also attempted a more comprehensive coverage of damage costs than most previous studies.

The paper also finds that value judgements and ethical perspectives in key parts of the Stern Review’s analysis led to estimates of future economic damages being substantially higher, and abatement costs lower, than most previous studies. The paper notes that the report could usefully have included more sensitivity analysis to highlight to decisionmakers the consequences of alternative assumptions or judgements.

Looking at the way debate has evolved both within and outside the economics profession, a few points have emerged

* No-one credible now disputes the view that a well-designed set of policies could greatly reduce CO2 emissions at very low cost. The Stern Review is marginally lower than average at 1 per cent of GDP, but it would be hard to find any serious analyst claiming costs much higher than 3 per cent. These are once off changes in levels corresponding to a once-off loss of between a few months and one year of improvements in material living standards. It’s intuitively hard to see how risking the worst case outcomes of climate change to avoid such a small economic cost could possibly be justified.

* While there is still plenty of dispute about the economic costs of doing nothing, relative to stabilisation, the median estimate has been revised sharply upwards following the Stern Review. On the issue of discount rates, the (still controversial) choice of a low rate by the Stern Review pointed up the dependence of earlier estimates on rates that now look implausibly high. And on the treatment of risk and damage to the natural environment, Stern’s look at these issues points up how badly neglected they were in the past. If anything, subsequent discussion has suggested that Stern was too conservative.

The speed with which the economic debate has evolved has left the political advocates of doing little or nothing stranded. Most of them had no qualifications in climate science, and embraced delusionist arguments against the science because they were opposed on political, economic or culture-war grounds to the kinds of policies needed to stabilise climate. Many of them clearly envisaged a campaign in which they would fight as long as possible on the science before turning to the economics. But the speed of change has left them flatfooted. Rather than being able to make a graceful retreat to a prepared position, they are trying to argue against what is now the mainstream economics position, while still being lumbered with their now-discredited attacks on mainstream science.

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  1. Hermit
    January 24th, 2008 at 12:28 | #1

    I’ll make a statement before I download the pdf; the high cost camp (ie pessimistic) inhabited by discussion groups such as The Oil Drum have very impressive credentials not only in economics but physics, engineering and agriculture. They tend to stress the doubling up effects of finding cheap alternatives to fossil fuels eg running not only your home but also your car from renewable energy.

    Now I’ll read the paper.

  2. Ikonoclast
    January 24th, 2008 at 22:23 | #2

    The case for clean energy is pretty obvious now. When are we going to start doing something serious about it? I suspect the answer to that is not until we have our first crisis.

    The “perfect storm” complex of crises is very close now. Climate change, mass extinctions, peak oil, peak food, peak (enter resource of choice), general economic collapse, an outbreak of major war(s).

    Erudite papers are not be enough. Once the populace becomes as sh**-scared as they ought to be then there might be a chance of getting some changes in train.

  3. STT
    January 25th, 2008 at 07:29 | #3

    Ikonoclast, are you saying that ‘peak aluminium’ is around the corner? ‘Peak iron ore’?

    Any evidence of that? If there is, I might just get into aluminium futures in a big way.

  4. Hermit
    January 25th, 2008 at 08:42 | #4

    Observations on the Productivity Commission paper. Firstly it focuses too much on the niceties of discounting whereas an examination of the undiscounted prospects for the next 20 years would suffice. Secondly the report defers to IPCC and techno-optimists such as Nordhaus without incorporating some of the heavy criticism eg
    http://gristmill.grist.org/story/2007/10/2/151156/638 . Apart from questionable assumptions such as slow depletion of fossil fuels these sources resort to wishful thinking such as political willingness to impose higher prices. Moreover there is little evidence that mitigation practices such as geosequestration can work on any useful scale.

    Other critics point to chain reacting threshold or Malthusian effects which call into question smooth graphs of mitigation costs per tonne of CO2. These include unaffordable transport, reduced farm inputs, population growth and collapse of some service industries. Others question the timing and availability of cheap capital for huge but low yielding projects. This suggests there may be too many free variables to enable a cost–benefit analysis of smooth transitioning to a low carbon economy.

    Having said that the report is part of the national response called for by IPCC. Hopefully if Rudd makes a start on carbon reductions we can learn as we go.

  5. gordon
    January 25th, 2008 at 09:48 | #5

    Prof. Ken. Arrow quite recently suggested that:

    “A straightforward calculation shows that mitigation is better than business as usual — that is, the present value of the benefits exceeds the present value of the costs — for any social rate of time preference less than 8.5 percent. No estimate of the pure rate of time preference, even by those who believe in relatively strong discounting of the future, has ever approached 8.5 percent”.

  6. Spiros
    January 25th, 2008 at 09:50 | #6

    The media is reporting the PC as being very critical of Stern. That doesn’t seem right to me. The PC paper is more supportive than it is critical. It certainly provides no support for Stern’s denialist critics.

  7. observa
    January 25th, 2008 at 09:51 | #7

    Actually ‘The speed with which the economic debate has evolved’ has left the political advocates of being seen to ‘do something’, ignore the economics of what they’re doing and challenge the whole notion that ‘doing something’ is better than doing nothing and adapting. Nowhere is this better illustrated than in their lemming like rush to put the world’s fresh water and food “supplies in our petrol tanks, as pointed out at Davos-

    ‘Nestle SA Chief Executive Peter Brabeck touched on one of the most sensitive ecological subjects at Davos, the production of biodiesel as an alternative “green” fuel from crops such as maize.
    Mr Brabeck said the drive for biofuels and industrial usage could severely deplete water resources. Action should be taken to create a market for water to drive conservation.
    “It takes 9000 litres of water to produce one litre of biodiesel. This strategy, which is not the right one, is backed by all major governments,” he told a panel at Davos.
    The demand for biofuels in Europe and the United States has also contributed to pressures pushing the cost of maize and soya upwards as world food prices have hit record levels.’

    The scientists are also beginning to concur-
    http://www.news.com.au/adelaidenow/story/0,22606,23068489-2682,00.html?from=public_rss

    These dangerous new evangelists, now intent on making up for their past environmental impotence, due to an inability to understand and critique the shortcomings of our constitutional marketplace, have simply become kilogram wise and tonne foolish with respect to their new CO2 devil. That is abundantly clear everywhere you look at present, but let me point out the glaring obvious.

    So it takes 9000 litres of water to produce a litre of biodiesel, the alternative devil selling for $1.50/L around here now. Last I heard it takes about 1800 litres of water to produce a dollars worth of rice in the driest continent in the world and many are even bitching about that profligacy. A profligacy that goes unaddressed even now with wall to wall kumbaya governments, so much so that Adelaide will now build a desal plant to make up for the shortfall at around $3/Kl as compared to SA Water’s current delivery at $1.10/Kl. Apparently this plant will run on Kyoto promises rather than more Leigh Creek burnable dirt, just like those heathen Victorians
    http://www.theage.com.au/news/climate-watch/greenhouse-emissions-soar/2008/01/06/1199554485339.html

    I demonstrated a while ago the inanity of using more resources, particularly imbedded CO2, than is necessary by these new evangelists. My own Holdfast Bay Council was installing rainwater tanks to its civic centre and plumbing it to their toilets. A quick analysis showed the cost of water harvested at around $11/Kl, ten times the delivery price from the Muaray Darling largely(we do have some local Adelaide Hills catchments) Now it’s reasonable to assume that the respective prices reflect proportionate imbedded CO2 in the cost of delivery. Those poly tanks produced and delivered, with all the plumbing and pumps right down to the fuel in the plumber’s van, etc.(actually my costings didn’t include running the pumps to feed the toilets for 30 odd years) So basically they spend 10 units of CO2 to save 1 unit and God only knows how many with the rebates and incentives for backyard rainwater tanks, that have lesser economies of scale and higher costs. And now because apparently it’s too hard to organise and rearrange the priorities of the MD, Adelaide, using about 1% of the basin’s flows, will spend around 3 units of imbedded CO2 to save 1 unit for rice and cotton presumably. That’s too hard even with wall to wall Labor govts, yet somehow we’re all to go off on a crusade to change the world’s habits CO2 useage. You follow these froth and bubble snake oil preachers and their path to devil worshipping all you like, but I’m sticking quietly with my old time religion.

  8. Spiros
    January 25th, 2008 at 09:59 | #8

    Observa, nobody cares about what is going in Adelaide, except for the cricket, and even that, not very much.

  9. observa
    January 25th, 2008 at 10:24 | #9

    You are obviously lacking in taste or smart money Spiros
    http://www.news.com.au/adelaidenow/story/0,22606,23104282-2682,00.html?from=public_rss
    Nevertheless, I caught Nick Xenophon on his radio spot yesterday with guest Chris Hanna, banging on about how we should be trying to emulate our superiors interstate with their higher kilogram wise tonne foolish rebates and subsidies for rainwater tanks, shower heads, green washing machines, etc, so I assumed the snake oil preachers were alive and well interstate too.

  10. Hermit
    January 25th, 2008 at 11:55 | #10

    Actually I think Observa has hit on the obvious; if any place in Australia should go nuclear it is Adelaide. Apart from the water and energy needs of the Olympic Dam expansion (to become the world’s largest mine) both Leigh Ck coal and Cooper Basin gas are running out. SA lost its nuclear virginity with the A-bomb tests in the 50s. Build a large nuke and the extra power can be used for metropolitan desal. I suspect Mike Rann thinks this as well but is politically hog tied.

  11. peterd
    January 25th, 2008 at 12:11 | #11

    In reply to Hermit, it is a little-known fact that Mike Rann was a CND member in his school and university days. Were he to advocate nuclear, he would have to disown his own intellectual past.

  12. Spiros
    January 25th, 2008 at 12:21 | #12

    Why? Nuclear weapons and nuclear power are different animals.

  13. January 25th, 2008 at 12:41 | #13

    Observa: your point is well made, but somewhat orthogonal to the issue at hand.

    In any case, the economic case for efficient shower heads and washing machines is pretty strong, though mainly for the energy savings from using less hot water rather than the water savings.

  14. Tom N.
    January 25th, 2008 at 13:42 | #14

    Re: Spiros’s comment #6, alas the media thrives on reporting conflict, even where there is none, or reporting only the conflict in situations where there is both conflict and concord.

    Thus the various media outlets have focussed only on the criticisms of the Stern methodology and presentation from the PC staff paper; not the compliments. Even the ABC has taken this route, and to add insult to injury it has procured some inane comments from a chap from the Climate Institute about how the debate’s over now anyway and we should just get on with it.

  15. Peter Wood
    January 25th, 2008 at 13:50 | #15

    I totally agree with #6 and #14. I guess most of the journo’s didn’t read beyond Page 2 of the summary.

  16. Tom N.
    January 25th, 2008 at 14:21 | #16

    Its not just journos and the MSM, of course: Christine Milne in Crikey has given a predictably simplistic and loopy characterisation of the PC’s work.

  17. peterd
    January 25th, 2008 at 16:20 | #17

    “Why? Nuclear weapons and nuclear power are different animals.”
    I suspect you’d find that most people who are/were sufficiently concerned about nuclear weapons to join CND would also be opposed to nuclear power. But, yes, they are, in a strictly logical sense, different.

  18. Ros
    January 25th, 2008 at 17:59 | #18

    SA has 3 uranium mines Beverley, Olympic Dam, just approved Honeymoon, and a fourth in the pipeline, Marathon at Mt Gee. Ex Labor Senator Chris Schacht has just been appointed to the board of Marathon. I think Rann disowned his intellectual past a long time ago. Or maybe not, he is vehemently opposed to any nuclear power stations in SA. And he fought vigorously to prevent Keating’s drums of waste in a shed at Woomera being stored in a dedicated nuclear waste dump in SA.

  19. observa
    January 25th, 2008 at 18:16 | #19

    A bit OT but you gotta listen to these idiots here
    http://www.canada.com/montrealgazette/news/story.html?id=5a0e128d-c60a-4f31-a5b4-4dabd49c5bf2&k=68845
    The laugh and Eco101 lesson compliments of Greg Mankiw.

  20. rog
    January 25th, 2008 at 18:20 | #20

    Rann was elected to run the State and if he allows his own personal views to influence his decisions and to disregard the needs of the constituents…..well, thats as bad as little johnny!

  21. January 25th, 2008 at 19:10 | #21

    The speed with which the economic debate has evolved has left the political advocates of doing little or nothing stranded.

    Unfortunately the politicians are still doing little or nothing. Lets face it, global CO2 emissions in 2008 will be higher than they were in 2007, U.S. recession or not. They’ll be higher again in 2009, 2010, 2011…

    I see zero evidence of serious policy to combat climate change anywhere in the world.

    P.S. Hermit: Great to see TOD mentioned here.

  22. Ikonoclast
    January 25th, 2008 at 19:19 | #22

    STT ridiculed my assertion that peak “all resources” was coming to a planet near us. It’s to do with resource quality, accessability and the recovery costs in energy terms.

    First I’ll quote Jay Hanson.

    “We mine our minerals and fossil fuels from the Earth’s crust. The deeper we dig, the greater the minimum energy requirements. Of course, the most concentrated and most accessible fuels and minerals are mined first; thereafter, more and more energy is required to mine and refine poorer and poorer quality resources. New technologies can, on a short-term basis, decrease energy costs, but neither technology nor “pricesâ€? can repeal the laws of thermodynamics.”

    Second I will quote Kenneth Boulding from “The Economics of Spaceship Earth” -

    “… in the (future) economy, throughput is by no means a desideratum, and is indeed to be regarded as something to be minimized rather than maximized. The essential measure of the success of the economy is not production and consumption at all, but the nature, extent, quality, and complexity of the total capital stock, including in this the state of the human bodies and minds included in the system. In this economy, what we are primarily concerned with is stock maintenance, and any technological change which results in the maintenance of a given total stock with a lessened throughput (that is, less production and consumption) is clearly a gain.

    This idea that both production and consumption are bad things rather than good things is very strange to economists, who have been obsessed with the income-flow concepts to the exclusion, almost, of capital-stock concepts.”

    Boulding probably overstates his case by saying “production and consumption are bad things”. I think he should have said “excessive and wasteful production and consumption are bad things”.

    The current capitalist system is entirely predicated upon the most wasteful and exponentially increasing consumption patterns which can possibly be induced. As such, this system is in conflict with the laws of physics and our situation in a finite system; planet earth, or if you wish the solar system.

  23. January 25th, 2008 at 19:51 | #23

    Of course, the most concentrated and most accessible fuels and minerals are mined first; thereafter, more and more energy is required to mine and refine poorer and poorer quality resources.

    Which is just another way of saying the EROEI inexorably decreases. Sure, we will use energy more efficiently in the future, but eventually the ever decreasing returns will catch up with us … only an economist would pretend otherwise.

    Anyone who believes exponential growth can go on forever in a finite world is either a madman or an economist.

    - Kenneth E. Boulding

  24. Hermit
    January 25th, 2008 at 20:39 | #24

    If Rann truly opposed nuclear power he must do the decent and honorable thing and close down all the uranium mines. The Feds will pass complementary legislation.

  25. Ian Gould
    January 25th, 2008 at 22:24 | #25

    I’m afraid I remain an optimist.

    New technology such as the Australian-designed ultrabattery will see plug-in hybrids on the streets in 2-3 years time at costs comparable with current conventional technology.

    http://www.evworld.com/news.cfm?newsid=17283&url=http://www.technologyreview.com/Energy/20105/?nlid=830

    Wind power and solar remain the fastest growing power sources on the planet and solar costs are going to come down dramatically in the next couple of years.

    Doomsday has, once again, been postponed.

  26. pablo
    January 25th, 2008 at 22:55 | #26

    I hope you’re right Mr Gould but NSW power generator, Macquarie Gen has just abandoned a planned windfarm near Scone in the coal rich Hunter Valley because of insufficient price incentives and government interest. Meanwhile BHP Billiton is seeking planning approval for a $300m underground coal mine nearby. The more things change…

  27. observa
    January 25th, 2008 at 23:46 | #27
  28. January 26th, 2008 at 01:03 | #28

    John, subsequent reviews by Marty Weitzman (who has finished ground-breaking new work on how the “fat tail� of climate risk affects cost-benefit analysis, here: Weitzman: “On Modeling and Interpreting the Economics of Catastrophic Climate Change�, December 5, 2007; http://www.economics.harvard.edu/faculty/weitzman/files/modeling.pdf) and Richard Tol (who just finished a new survey of the literature, that I summarize here:
    http://mises.com/blogs/tokyotom/archive/2007/12/16/the-social-cost-of-ignoring-carbon.aspx) reinforce your argument that Stern’s conclusions were largely right, even if wrongly argued.

  29. Ikonoclast
    January 26th, 2008 at 05:23 | #29

    Ian Gould refers to “the Australian-designed ultrabattery” with “costs comparable with current conventional technology”. I assume Mr Gould you mean economic costs. If you meant energy costs I think you would have specified that.

    The key point is that economic costs are not fundamental in the long run. It is energy cost that is fundamental. Economics properly viewed is a sub-discipline of physics. We need to make the move from political economy to physical economy.

    There are only two disciplines, physics and philosophy. Properly speaking all other disciplines are subsets of those. Some disciplines are derived from both; mathematics derives from both physics and philosophy.

  30. Abba
    January 26th, 2008 at 09:26 | #30

    Regarding the potential of nuclear power:
    It’s important to consider the earliest year Australia could begin operating its first nuclear power station. The most optimistic estimates for UK’s proposed new nuclear plant is 2018. Add to this the most optimistic scenario of 6 years for energy payback time.
    So even with optimistic assumptions any new nuclear plant are likely to have a net increase on GHG emissions until at least 2024. This would put us on a trajectory for warming exceeding 2 degrees and the unacceptable risk of tipping points.

  31. observa
    January 26th, 2008 at 10:03 | #31

    Let this somewhat orthogonal Observa to the issue at hand get a bit more orthogonal. I, like my fellow South Australians are not really residents of SA, but residents of the greater Adelaide metropolitan region. A map of the Federal electorates should make that crystal clear here
    http://en.wikipedia.org/wiki/Image:Map82007.gif
    We’re divided up into 11 electorates and straight away you’ll notice 1 out of 11 of us live in 92% of SA in the seat of Grey and a fair chunk of them live in the Iron Triangle cities of Port Pirie, Port Augusta and Whyalla, watered by the Murray via the Morgan Whyalla pipeline. The rest is largely lizards and snakes with the odd homo sapiens burrowing underground to get away from them and the heat. Add to that another 1 in 11 in the rural seat of Barker(6.5% of the state), from Mt Gambier, Bordertown up to Renmark on the Murray and that leaves 9 out of 11 of us living in Adelaide or its near playground (the 1.5% that’s left), up north to the Clare Valley and down south to the Fleuriu Peninsula to Victor Harbor and Kangaroo Island. Over a million of us have about as much to do with old nuclear test sites as Sydneysiders do with Bourke or Wilcannia, but unlike Sydneysiders we only get about 20 inches of rain a year. That makes the water flowing out of the MD nearby, a fairly attractive and sensible proposition, ever since God put us downhill from where it fills up. Unfortunately a few very profligate devils have since taken up residence in between and that’s a bit of a problem for we parsimonious, God fearing folk. The devil has now given us a Faustian bargain with GW. We’re between the devil and the deep blue sea now. With Kyoto, it’s a Faustian bargain for you lot too now, although if the good citizens of Grey can wangle emission caps on a per square kilometre basis, then clearly we’re with our brothers and the devil take the rest of you lot, particularly those in Brumby’s brown coal, Sodom and Gomorrah. Thirty percent CO2 emissions increase since 1990? Good God, if we’d known that last September, then Geelong footballers and their idolaters should have been made to cycle to the G, to earn carbon offsets and do penance for all Victorian sins. God why hast thou forsaken us?

    Well he’s forsaken us because we’re not allowed to buy all the water we want at market rates, assuming there is one statutory authority monitoring and controlling the long term average supply from the basin. We and the other urban and industrial users along its length, who make up 9-10% of the useage now. Adelaide(largely SA remember) uses about 1% of it now. So if SA can’t use the cheapest source available, then it’s forced to spend $1.4bill of resources (and its embedded CO2 emissions) on a 50GL pa desal plant, to provide 25% of its needs with provision for a doubling of that capacity. Reverse osmosis of that 50 million kilolitres that coal fired power figures say produces 1.8kg or 0.9cu metres of C02. Now that’s black coal figures so Leigh Creek brown coal CO2 equivalent may well be 1 cu m of CO2 per cu m of water. Just let that sink in for one moment while you’re off Kyoto dreaming about changing the world. Now ask yourself why Rudd and Wong haven’t put their(really your) hands up to Rann and said stop the EIS and the pilot plant planning and let’s all sit down and think seriously about this folks. I’m quite sure Penny Wong knows what’s going down, but it’s about time you all did too, assuming you believe we’re all in this together with that Kyoto commitment. It’s one thing knowing about what’s going down, but quite another to do something about it. My take is if you can’t get your act together in our jurisdiction with wall to wall Labor now, you’ve got a snowball’s chance in hell of making Kyoto work internationally. Or is it all too hard and SA should start on that nuke power plant right now?

  32. Ikonoclast
    January 26th, 2008 at 10:18 | #32

    I think observa has a point. Cheap water from the Murray-Darling system (provided it isn’t all used up by upstream users) may well be the economically cheapest, “power cheapest” and “greenhouse cheapest” water source for Adelaide.

    I agree it’s an abomination when cotton growers (to name one group) “shark” all the water upstream. I’m a Queenslander and I still reckon Qld and NSW have a major obligation to let adequate water go all the way down the MD for environmental flows and end of the line users (Adelaide).

    I’m just not confident in market solutions for basic resources. Do we want capitalists to own all fresh water? What’s next? Are we going to marketise the atmosphere? No way! Never! Basic resources must never pass into private ownership.

  33. observa
    January 26th, 2008 at 11:03 | #33

    “What’s next? Are we going to marketise the atmosphere?”
    err…well yes if we hand out emission caps to big carbon and allow them to be traded and the economic rent passed on. Why the hell do you think I’ve been banging on about those reducing caps remaining in govt(communal) hands for chrissakes?

  34. observa
    January 26th, 2008 at 11:06 | #34

    Yes Virginia, there are grown ups in places like Quebec who still believe in Santa Claus and fairies at the bottom of the garden

  35. Ikonoclast
    January 26th, 2008 at 13:10 | #35

    Gee observa, I’d hate to see how mad you’d get if I was disagreeing with you. :) In one of my past posts I noted my complete opposition to tradeable CO2 emission permits. I noted that a carbon tax was the only way to go.

    Negative externalities like pollution have to be costed in to production costs. Yes, I know the consumer will pay for it in the end but that’s the way it goes. However, putting a cost (tax) on polluting a commons is not the same as selling it to private capital. In fact, there is a big, big difference, a world of difference if I may pun a little.

  36. January 26th, 2008 at 14:05 | #36

    Doomsday has, once again, been postponed.

    Nonsense. All evidence suggests we are accelerating towards the cliff.

    Growth in global greenhouse gas emissions is actually accelerating. Oil demand is forecast to grow at 2 percent p.a. while production from mature oil fields is declining at more than 4 percent.

    Wind power and solar remain the fastest growing power sources on the planet…

    Yes but from a microscopic base. Wind and solar combined provide less than one percent of global energy demand.

  37. observa
    January 26th, 2008 at 14:08 | #37

    Just baying at the moon as usual Ian, or more precisely our MSM. Sweet Jesus, can’t they stick a mike under Mr 60% reductions, Media Mike’s nose and ask some pertinent questions, not to mention Penny and Kevvy? They’re all too busy breast beating and hand wringing over the demise of their new James Dean antihero, for splashing mud in the eye of the archetypal John Wayne cowboy. Another of their sensitive actor types cut down in his prime by the oppressive ‘system’, when he was really just another lousy human being with no money worries, who couldn’t cut it like millions worried about where their next feed’s coming from do every day. Wankers!

  38. johng
    January 26th, 2008 at 14:25 | #38

    Observa’s points in 7 and elsewhere are excellent. There are a lot of precious energy and other resources being wasted by going for the trendy green solutions and/or the politically popular ones rather than the more cost effective solutions. Power from solar cells is another example. While the price of silicon is so high, it is better to hold off on this, and put the resources into wind power etc until solar power becomes price competitive. We’re such a rich society we can afford the waste of misallocating our resources without any real trouble, but it is rather pointless. And this sort of misallocation can’t be afforded by poorer countries.

  39. Ikonoclast
    January 26th, 2008 at 14:51 | #39

    Carbonsink, essentially you are right. We are still (tragically) accelerating towards the cliff. Ocasionally I stray into a little bit of optimism. All I can offer is the “Leech-gatherer-on-the-moor” defence from W’s Resolution and Independence.

    “Once I could meet with them on every side;
    But they have dwindled long by slow decay;
    Yet still I persevere, and find them where I may.”

  40. Hermit
    January 26th, 2008 at 15:29 | #40

    Barring recession there is no way real emissions will decline in the first term of the Rudd govt. More so if you add coal and LNG exports since the new Infrastructure Australia agency is tasked with speeding things up. I expect the ready made excuses are that now is not the right time (when is?) to increase power prices and the old standby of being ‘on track’ with tree planting etc.

    So much for the PC’s neat little graph of carbon abatement costs.

  41. Salient Green
    January 26th, 2008 at 15:38 | #41

    Observa and johng, further to your points, the very best co2 abatement strategies are actually cost negative.
    The low hanging fruits of energy efficiency for commerce, industry, home and existing coal power need to be first in line for uptake. The table and graph on page 5 and 6 here http://www.greenhouse.nsw.gov.au/__data/assets/pdf_file/0017/4544/cost_curve.pdf
    show the point very clearly.
    It would have been better to upgrade my home insulation and install double glazing etc, with curently nonexistant Govt rebates, than the new, expensive to buy, install and subsidize, solar hot water system.

  42. Peter Wood
    January 26th, 2008 at 17:46 | #42

    Re comments #6, 14, 15, 16. The headline on the ABC news website is “Stern Review ‘exaggerated’ costs of climate change”. The Productivity Commission’s review doesn’t even contain the words ‘exaggerate’ or ‘exaggerated’.

  43. Spiros
    January 26th, 2008 at 18:45 | #43

    Peter Walsh (Hawke government Finance Minister) has written an ultra-denialist submission to the Garnaut inquiy. (The science is bullsh1t, emissions trading is a cargo cult etc.)

    It matters not a jot what yesterday’s man Walsh thinks on the matter, but his son-in-law Gary Gray is a Rudd government parliamentary secretary and probably destined for a place in Cabinet in the government’s next term. There has never been any difference in discernible policy positions between Gray and his wife’s father in the past.

    Gray is a man to watch.

  44. Ian Gould
    January 27th, 2008 at 12:09 | #44

    Ikonoclast, the cost savings for the ultrabattery comapred with the current nickel hydride hybrid vehicle batteries arise from the fact it’s based on lead and carbon.

    Embedded energy and resource demand are lower because it doesn’t use large quantities of nickel, nor does it require platinum which is used in most fuel cell designs.

    The ultrabattery also has a projected operational life three times that of the current battery pack in the Toyota Prius. This is backed up by the operational tests to date in which a ultrabattery-equipped car was driven for 100,000 kilometres over the course of a year.

    Using it in a plug-in hybrid rather than a pure electric vehicle means you can refuel the IC engine if you’re in a hurry and recharge the battery overnight from mains power using a standard outlet.

    This means firstly that much of the required power will come from off-peak power that otherwise goes to waste and that the power and resource demand involved in widespread deployment of new recharging infrastructure.

  45. Ian Gould
    January 27th, 2008 at 12:16 | #45

    Meanwhile Nanosolar has started shipping thin-film solar panels with a capital cost below US$1 per watt.

    http://www.evworld.com/news.cfm?newsid=17303&url=http://www.thecherrycreeknews.com/content/view/2329/2/

  46. observa
    January 27th, 2008 at 12:22 | #46

    You might have wondered how I came across that horrific tradeoff with desal water. Now I like my fellow Adelaideans(think South Australians)have long appreciated the precious need for water, huddling together as we do near the coast and any semblance of collectable rainfall, not to mention the precious end of the Murray Darling basin. Inhabitants of the driest city state, in the driest continent, who could only look out with envy at Easterners splashing their good fortune about over the years, until finally they too came to the same status demographically. Add a prolonged drought and they quickly came up to pace with our kind of thinking over the years. The same drought that ended Adelaide collecting about 45-50% of its water needs over the years and suddenly last year, according to SA Water, only 2.92% of our demand. With around 6% regularly from groundwater, that only left pumping the balance from the falling Murray, panic stations and a desal plant pronto.

    So with the prospect of $1.4 billion dollars of industrial resources being trotted out, I know that’s one helluva lot of resources in one hit and what are we going to get for it? Fourteen hundred million dollars starts to get more of a mouthful, particularly when SA Water reckon their whole box and dice infrastructure now is valued at a total of $7500 million. Straight away this little capitalist’s mind is spinning over. At 5% interest that’s SEVENTY MILLION DOLLARS PER YEAR before it produces a drop of that lovely 50GL of water for the year. I’m getting my head around that and who’s gunna pay,(the govt reckon only 12.7% extra on the average bill, but that’s compounding and before a drop from the plant in 2014 and any cost overruns and, and…gasp!) as the blue rinse set start hitting the airwaves about whether the salts produced are going to turn St Vincent Gulf into the Dead Sea and then SAHT tenants who have just been conveniently billed for some portion of their water for a bit more user pays, start realising that many are on collective metering. Little old ladies with walking frames are looking at their fertile neighbours with kids and pools and starting to fret a bit like me. The cost of retroffitting meters to them all is freaking the SAHT and me out even more.

    Well there’s always a stock market crash to take one’s mind off these minor distractions and don’t you ever let a chance go by old son. So topically I’m reading the OZ Business pages and commodity prices and spot the perfect opportunity for some upside with this-
    “The rains are good news for newly listed soft commodities company Prime Ag. This week it purchased the 6952 hectare property Milchengowrie, near Gunnedah in NSW, for $33 mill. last week it purchased three properties near Goondiwindi in Qld. One of its hub properties, Braylands, is located at Emerald and the drenching rains have brightened its prospects.”

    So with the crash and the share price nicely below the original offer price I pounce with some readies. If you can’t beat the profligate bastards, join them. However that got me thinking about that $1400 mill again and just how much well watered property, SA Water could buy with our dough and get cheaper water, providing some useless govts would get off their behinds and allow the water allocations saved to flow downhill to its new owners. Now at 1800 litres of water to produce a dollars worth of rice, I’m thinking God’s gift to those profligate bastards must be the cheapest ecological water Adelaideans can get for their buck, but those gaia, kumabaya bastards withg their shower head subsidies and tree palnting offsets are never going to get off their butts and allow it to happen. Hmmmm, I wonder if there’s another way to get at them. Of course, their pet hand wringing subject, CO2 emissions. So I Google-’CO2 emissions reverse osmosis desalination’ to satisfy my curiosity. The first cab off the rank gobsmacked me here
    http://freedomaustralia.org/co2.htm
    A litre of CO2 for every litre of water eh? A kilolitre, or 1 cubic metre of the stuff is about five 44 gallon drums full. 50GL per year is 50 million lots of five 44gallon drums of their dreaded stuff and all it needs is their undivided attention and cooperation to see it doesn’t happen for the next 25 or 30 years life of that plant. More’s the point, that Adelaideans don’t build that plant and further take up the option to double the size of it in that period. What gets me is how all the kings horses and all the kings men can’t put two and two together, when a halfwit like me can do a quick google and work out the bleeding obvious.

  47. observa
    January 27th, 2008 at 12:46 | #47

    Meanwhile Mr 60% and his cohorts are buying more feelgood carbon offsets with taxpayer dough naturally which even causes middle class mum Lainie some palpitations
    http://www.news.com.au/adelaidenow/story/0,22606,23113825-5012955,00.html

    “The most important lesson I’ve learnt from this process, though, is that we small-scale polluters have a double responsibility.

    Yes, we should all be doing what we can to cut our household emissions.

    But Robert Kennedy Jr is right. Our biggest job is to pressure political leaders to end large-scale industrial and environmental pollution.

    Mike Rann has shown pretty amazing leadership on climate change – both by offsetting his personal flights and also through government initiatives to massively increase solar power and wind generation.

    Now he’s got to use his influence federally and, most importantly, abroad, to affect change that will really clear the air.”

    Hear hear, up to a point Lainie my dear. That point is that our current constitutional marketplace is stuffed and needs a complete rewrite in order to unleash the best mechanism we have for allowing the millions of daily individual decisions to add up to a tsunami of activity roaring in the right direction as I reiterated here
    http://clubtroppo.com.au/2008/01/23/another-question-for-economists/
    Without carefully crafted market forces pushing us all in the right direction, we haven’t got a snowball’s chance in hell, or more relevantly, an Antarctic ice sheet’s chance on earth, of achieving any respectable environmental outcomes.

  48. STT
    January 27th, 2008 at 12:59 | #48

    Ikonoclast,

    I can see your fundamental point that in the future getting a tonne of iron ore out of the ground will take more energy than it does now (if our mining technology doesn’t improve, which it will). On top of that, energy will be more expensive as we suck out the last of the easily accessible oil. The compounding effect will make a tonne of iron ore more expensive. But it’s not going to lead to ‘general economic collapse and major wars’.

    Increasingly expensive oil is nothing we can’t deal with, through that amazing mechanism known as ‘price’. So what if oil gets more expensive? And so what if that flows through to food, minerals etc.? Relative prices chnage all the time, and people adjust their consumption in response.

    As the price of oil rises, we’ll shift to public transport (has happened in Melbourne over the last couple of years as petrol has passes $1.35, now nudging $1.50). Locally produced food wil be more competitive with imports. We will change the materials we use for our buildings. And mining engineers (who are clever buggers) will figure out cheaper ways to dig up the iron/aluminium/oil. No need to get all survivalist quite yet.

    You also quote some weird stuff. A quick Google of Jay Hanson revealed that he is prominent in peak oil circles, and he thinks that we should ban restaurants and food advertising to save oil. (http://peakoildebunked.blogspot.com/2005/10/145-jay-hanson-solution-military-junta.html).

    Jay Hanson seems like a pretty unreliable source for anything. In my brief search, he didn’t seem to have supplied any evidence that we are approaching ‘peak iron ore’ or ‘peak tungsten’. Just an alarmist website. Ignore him and his ilk: you’ll be happier for getting the cranks out of your life.

    The Quote from Boulding is pretty bizarre, if you break it down. Specifically:

    ‘The essential measure of the success of the economy is not production and consumption at all, but the nature, extent, quality, and complexity of the total capital stock, including in this the state of the human bodies and minds included in the system.’

    So the success of a system is down to the ‘stock of the state of human bodies and minds’ of its inhabitants? That just makes no sense. Who judges the quality of the minds in a society? What do we do if your state of mind isn’t contributing to the general wellbeing? Or if your body isn’t in tip-top shape? Slippery slope to a pretty nasty world, if you ask me. “Make the world a better place: round up the fatties and the depressed.”

    And contrary to Bouding’s first sentence, classical economics sees the measure of the success of a system as the wellbeing of its citizens, not production or consumption. Consumption is a proxy for wellbeing, but, as all economists recognise, beyond a certain level, extra consumption doesn’t make people much happier. Wellbeing can also be measured by things like infant mortality, life expectancy, literacy and educational attainment. All those things are getting better all the time (at least in the medium to long term).

    So what I’m trying to say is, relax. We’re not on the brink of a massive war caused by climate change. A changing climate will produce a lot of difficulties, but humans are smart. We will adapt.

    STT

  49. Ian Gould
    January 27th, 2008 at 14:01 | #49

    Observa, ever stop to wonder what the economic value of that desal plant water will be if the Murray actually dries up entirely?

    Yes it’s expensive – but it’s intended to insure against the worst case scenario.

  50. SJ
    January 27th, 2008 at 16:04 | #50

    Ian Gould Says:

    This means firstly that much of the required power will come from off-peak power that otherwise goes to waste…

    Ian, this isn’t correct. No off-peak power gets wasted. It’s cheap, sure, but if there’s no demand for it, it doesn’t get generated.

    If everyone charges their cars overnight, this will mean that there’s no increase in the peak demand, which occurs in the afternoon/early evening, and so no new power stations would need to be built to supply the cars.

    However, the greenhouse intensity of off-peak power isn’t lower than peak power, it’s actually higher. In most parts of Australia (Qld, NSW, Vic, SA, WA), you can guarantee that off-peak power will be 100% coal. This means that the greenhouse intensity of an off-peak charged hybrid will be about the same as an ordinary petrol-fuelled vehicle.

  51. January 27th, 2008 at 16:07 | #51

    STT wrote:

    I can see your fundamental point that in the future getting a tonne of iron ore out of the ground will take more energy than it does now (if our mining technology doesn’t improve, which it will). On top of that, energy will be more expensive as we suck out the last of the easily accessible oil.

    Two problems here:

    1. Eventually the energy required to extract a fossil fuel resource will exceed the energy returned by burning it. i.e. the EROEI is less than 1. We are already close to that point with oil sands.

    2. When we suck out the last of easily accessible oil we will inevitably move to sources of liquid fuel that require vastly more energy (and therefore carbon emissions) to produce, thus accelerating the growth in CO2 emissions.

    Its all very nice for the techno-fix optimists here to spray around links about solar, wind etc, but its meaningless unless there is real policy in place to mandate the use of these technologies (whether it be regulation, taxes or emissions trading).

    I am yet to see single politician anywhere in the world do what’s needed: Make fossil fuels more expensive.

    When Kevin07 announces he’s going to double the fuel excise and triple electricity prices I’ll reconsider my position, but until then the optimists are kidding themselves.

  52. Ian Gould
    January 27th, 2008 at 16:48 | #52

    “Ian, this isn’t correct. No off-peak power gets wasted. It’s cheap, sure, but if there’s no demand for it, it doesn’t get generated.”

    Actually SEQEB effectively gives away power to local councils amongst others, or they used to anyway.

    About five years back I looked at the economics of solar-powered street lights. Even at wholesale rates, the solar-powered lights were competitive with the normal wholesale rates. But SEQEB was charging the councils something like $20 per stanchion per year including maintenance and replacement costs.

    It’s also grossly inefficient to run turbines under minimum load which happens overnight at many Australian coal-fired power plants.

    “This means that the greenhouse intensity of an off-peak charged hybrid will be about the same as an ordinary petrol-fuelled vehicle.”

    I think you’re mistaken. Thanks to regenerative braking most hybrids use substantially less power than equivalent conventional vehicles. On top of that, the thermal efficiency of the average coal-powered power plant is significantly higher than that of most internal combustion engines.

    Admittedly you’d have offsetting transmission losses in the electricity grid but I suspect the overall carbon emissions for plug-in hybrids would be much lower.

  53. observa
    January 27th, 2008 at 16:59 | #53

    “Observa, ever stop to wonder what the economic value of that desal plant water will be if the Murray actually dries up entirely?”
    The only reason it was drying up is because the water in it was priced too low for a number of years, bearing in mind 90% of it was used for agriculture. If its long term average flows are dropping to 10% of its past average flows(something we’ve just measured as a result of this drought) then I’m sure we’ll have plenty of lead time to build that desal plant. There’s no shortage of water, just like there’s no shortage of steak in the butcher shops. The world’s full of water, about 80% of the earth’s surface as I recall. It’s just a matter of the price we’re prepared to pay for what quality and quantity. I notice shelves full of bottled water every time I shop too.

  54. Ian Gould
    January 27th, 2008 at 17:12 | #54

    Yes, if everyone else behaving virtuously we wouldn’t need locks either, think how much money that would save.

  55. SJ
    January 27th, 2008 at 18:27 | #55

    Ian Gould Says:

    Actually SEQEB effectively gives away power to local councils amongst others, or they used to anyway.

    As I said, it’s cheap, but that doesn’t mean that it would otherwise be wasted. Electricity isn’t like the last box of tomatoes in the fruit market at the end of the day. There’s no “stock” of electricity that’s going to otherwise end up on a landfill somewhere.

    I think you’re mistaken. Thanks to regenerative braking most hybrids use substantially less power than equivalent conventional vehicles. On top of that, the thermal efficiency of the average coal-powered power plant is significantly higher than that of most internal combustion engines.

    Let’s try some numbers, then, and see what happens. Most of the cites are from the U.S., so we’ll have to deal in miles and gallons.

    A Prius running on electricity only at 70 mph uses about 250 Wh/mile.

    A Prius on highway cycle gets about 45 mpg. Note that this refers to US gallons (3.8 L), and not imperial gallons (4.55 L). The link may not take you directly to the page, the site uses cookies.

    Now, carbon intensities for Oz coal fired stations is as follows:

    NSW – 923.8 kg/MWh = 9.238E-4 kg/Wh
    Vic – 1299.1 kg/MWh = 1.2991E-3 kg/Wh
    Qld – 904.3 kg/MWh = 9.043E-4 kg/Wh

    NSW is in the middle, i.e., Qld is less but Vic is more, so we’ll take NSW as reasonable overall estimate.

    The figures above are “sent-out”, i.e. at the power station gate. We need to allow for 10% losses between the power station and your home, and another 20% losses in the charger and battery.

    That gives a figure for NSW of 9.238E-4 / 0.9 / 0.8 = 1.283E-3 kg/Wh.

    So to travel a mile in the Prius using electricity alone would give us 1.283E-3 kg/Wh x 250 Wh/mile = 0.321 kg/mile.

    The hybrid Prius gets 45 mpg, so it uses 1/45th of a (US) gallon to travel a mile. Burning one gallon releases about 8.8 kg of CO2. 8.8 kg/gallon / 45 miles/gallon = 0.2 kg/mile.

    This means that “topping up” a Prius with off-peak electricity increases its greenhouse emissions by about 50%.

    The comparison wouldn’t be as bad if we compared say, an all petrol RAV4 with the RAV4 EV. Then the emissions would be about the same.

    Also note that the greenhouse intensities of the Oz generators above are average figures, not off-peak, and as you say, their efficiency is lower during the off-peak. If we allow for this, it will only serve to make the off-peak top-up look worse.

  56. SJ
    January 27th, 2008 at 18:42 | #56

    Ian, something in my reply has triggered the spam filter.

    John, if you’re watching, could you help out please?

  57. January 27th, 2008 at 19:45 | #57

    This means that the greenhouse intensity of an off-peak charged hybrid will be about the same as an ordinary petrol-fuelled vehicle.

    Ummm … you don’t plug in and charge hybrids, the currently available ones anyway. This is only relevant for EVs or PHEVs.

    On top of that, the thermal efficiency of the average coal-powered power plant is significantly higher than that of most internal combustion engines.

    Off the top of my head the thermal efficiency of state-of-the-art coal power is ~35%. Transmissions losses about 7%. Electric motors are about 90% efficient but the battery charge cycle is also about 90% efficient.

    Petrol engines are around 25% efficient (diesel about 35% efficient) but to compare well-to-wheel efficiency you’d need to include the drilling, refining and transportation in your calculations. Similarly for coal powered electricity you need to include mining and transportation.

    Tesla Motors has a good comparison here and here but with the electricity generated with ultra efficient combined-cycle gas not with dirty old coal. If you swap the 60% efficient gas generation Tesla uses in its calculations for the 30% efficiency typical of Aussie coal power, the Tesla EV has roughly the same well-to-wheel efficiency of a good diesel.

    Whoops! Techno-fix fails again.

  58. SJ
    January 27th, 2008 at 20:03 | #58

    Ummm … you don’t plug in and charge hybrids, the currently available ones anyway.

    Well, duh. Ian is specifically talking about a “plug-in hybrid”.

    I’ve gone through all the numbers in the post above that’s awaiting moderation. The bottom line is that that the energy gained from plugging in the hybrid has a CO2 cost about 50% greater than the hybrid can achieve on its own using petrol.

  59. SJ
    January 27th, 2008 at 20:18 | #59

    Quick summary of the post that’s in moderation:

    Toyota hybrid gets 45 mpg. Same car at similar speed on electricity alone uses 250 Wh/mile.

    CO2 emission in hybrid mode is 0.2 kg/mile.

    Using NSW black coal as the electricity source, and assuming electricity transmission efficiency of 90%, and battery and charger efficiency of 80%,
    CO2 emission using electricity from the plug in is 0.3 kg/mile.

  60. January 27th, 2008 at 21:00 | #60

    Well, duh. Ian is specifically talking about a “plug-in hybrid�.

    Well don’t use the term “hybrid” then. What you’re really comparing is battery electric vehicles and internal combustion engines.

    Anyway, you’re basically making the same point as I am, that BEVs are no better than ICEs if the electricity is generated with coal.

    P.S. Why on earth are you using such antiquated terms as “mpg” and “mile”? kg/mile, what’s that? FYI: a Prius is officially rated at 104g/km.

  61. SJ
    January 27th, 2008 at 21:31 | #61

    Well don’t use the term “hybrid� then.

    Hmm, I thought I explained that bit.

    Anyway, you’re basically making the same point as I am

    This is another of those “well, duh” things.

    You ain’t impressing me much.

  62. Hermit
    January 28th, 2008 at 07:18 | #62

    The fallacy of smooth energy transitions and cost-benefit analysis is that in reality we will lurch from crisis to crisis. Rudd is not going to restrict coal any more than Rann will find a low carbon solution for SA. If indeed electric vehicles are not the claimed panacea then that is another business-as-usual option fallen by the wayside. We don’t want to pay more for fuel, water or electricity but we don’t want to drastically cut back either.

    Stern was undoubtedly correct in counselling us to take the pain early since much bigger pain follows delays. However he didn’t understand the realities of populist politics.

  63. observa
    January 28th, 2008 at 07:31 | #63

    “I am yet to see single politician anywhere in the world do what’s needed: Make fossil fuels more expensive.”
    Tsk, tsk, pay attention carbonsink. The good burghers of Quebec did exactly that-
    http://www.canada.com/montrealgazette/news/story.html?id=5a0e128d-c60a-4f31-a5b4-4dabd49c5bf2&k=68845
    It’s just that they forgot to tell the poor slobs how it all works. That’s essentially why the 60 percenters, smoke and mirrors turning into only one percent, want cap and trade rather than transparent carbon taxing. Then like the Ranns and his Cabinet colleagues, they can use the poor slobs dough to make their cabinets ‘carbon neutral’ and feel all warm and fuzzy inside. The only thing left to do then is make the slobs’ circuses warm and fuzzy too like Iemma is doing-
    http://www.news.com.au/adelaidenow/story/0,22606,23119372-5005962,00.html
    As for the bread part of it well umm..errr, there’s just a wee small problem, but that can be shifted out of sight and out of mind
    http://www.ft.com/cms/s/0/df52ae50-cbb1-11dc-97ff-000077b07658.html
    Gentlemen, start your green engines!

  64. observa
    January 28th, 2008 at 07:56 | #64

    Now where was I? Oh that’s right, downstream with all the poor slobs, paddling like hell to keep my head above water and assessing my situation. It seems I have to pay the dollar costs of desal water and you all the CO2 costs of subsidising cheap cotton for Chinese mills so they can sell their cheaper shirts off our backs anywhere they can and as well I have to help pay for Rann and his cabinet to be carbon neutral and help subsidise those shower heads and rainwater tanks, etc, etc. Ah well the capital gain on PrimeAg shares may help and as well I’ll grab the Feds $8550 in solar subsidy and REC credits and outlay my $15k for solar to the grid, taking advantage of Rann’s new 44c/kwhr mandatory buyback from the power utilities soon. That’s effectively a 10% risk free after tax return. That should keep the head above the poor slobs for a while. That’s green socialism for you I guess.

  65. observa
    January 28th, 2008 at 08:41 | #65

    However, today being Australia Day, I’ll do some extra Aussie dreaming about a new constitutional marketplace for us all that leads to a better mousetrap in our own backyard and the belief that if you build a better mousetrap, the world will beat a path to your door. Happy dreaming.

  66. January 28th, 2008 at 09:42 | #66

    You ain’t impressing me much.

    This coming from someone who expresses a car’s CO2 emissions in “kg/mile”. What next? British Thermal Units?

    Tsk, tsk, pay attention carbonsink. The good burghers of Quebec did exactly that

    I believe they propose similar in British Columbia. Meanwhile in the oil sands province of Alberta carbon emissions are growing exponentially and they’re deperately trying to bury the CO2.

    Honestly, what is so hard about imposing a carbon tax in return for income tax cuts? Is there a problem with reducing taxes on honest labour and raising taxes on planet-destroying emissions? Surely the boffins in Treasury can come up with something that is equitable and fiscally neutral.

  67. Ian Gould
    January 28th, 2008 at 09:55 | #67

    “Using NSW black coal as the electricity source, and assuming electricity transmission efficiency of 90%, and battery and charger efficiency of 80%,
    CO2 emission using electricity from the plug in is 0.3 kg/mile.”

    Three points:

    Firstly, as I’m sure yo urealsie, while black ocal is the largest component of the Australian fuel mix its not the only one.

    Secondly, the average emissions per kilowatt hour include the overnight emissions from power plants operating at minimum load – which is highly inefficient. Plug-in hybrids woudl effectively deliver a big chunk of load-levelling allowing those plants ot be used more effectively.

    Thirdly, the ultrabattery power pack weighs significantly less than the Prius battery pack. So weight and therefore emissions for an equivalent-sized vehicle using the ultrabattery system would be considerably lower.

  68. Ian Gould
    January 28th, 2008 at 09:58 | #68

    “The fallacy of smooth energy transitions and cost-benefit analysis is that in reality we will lurch from crisis to crisis.”

    So what’s new?

    The first oil wells were drilled in response to a shortage of whale oil for lighting.

  69. Ian Gould
    January 28th, 2008 at 10:12 | #69

    “Honestly, what is so hard about imposing a carbon tax in return for income tax cuts? Is there a problem with reducing taxes on honest labour and raising taxes on planet-destroying emissions?”

    You mean reducing taxes on the rich and increasing taxes on the people doing that “honest labour” when they come to spend their wages?

    Carbon taxes are consumption taxes, consumption taxes are regressive.

    Oh and the economic impact of carbon taxes and emissiosn trading are virtually identical.

    The difference is that emission trading is likely to be mroe efficient and have lower total social cost.

    Unless, like Observa you believe governments are innately more efficient than markets.

  70. January 28th, 2008 at 10:51 | #70

    You mean reducing taxes on the rich and increasing taxes on the people doing that “honest labour� when they come to spend their wages?

    No of course not. I mean raising taxes on something that is bad (emitting carbon) and reducing taxes on something that is good (productive labour).

    Carbon taxes are consumption taxes, consumption taxes are regressive.

    Yes I appreciate, hence the comment (that you conveniently ignored) about designing an income-to-carbon tax switch that is equitable. i.e. focus income tax cuts at the bottom end of the income scale and increase welfare payments.

    Oh and the economic impact of carbon taxes and emissiosn trading are virtually identical.

    The difference is that emission trading is likely to be mroe efficient and have lower total social cost.

    Well fine, but all evidence so far suggests that emissions trading schemes do precisely b*gger all. Frankly I don’t care if its an ETS or a carbon tax as long as its effective.

    Another point: Much as I’d like a price on carbon to be as equitable as possible, at some point lower income earners living in triple garage McMansions in far flung suburbs with zero public transport are going to have to take a hit. Their lifestyles are simply unsustainable in the long term. Either they get crushed by ever-increasing petrol and electricity prices (imposed by the market or by policy) or we provide them with decent public transport and subsidies to make their homes more energy efficient.

    I can’t see the latter happening, can you?

  71. Ian Gould
    January 28th, 2008 at 12:40 | #71

    “…lower income earners living in triple garage McMansions…’

    “Lower income people” who own three cars and a home in the suburbs?

  72. Ian Gould
    January 28th, 2008 at 14:02 | #72

    That was snarkier than I intended.

    I think I’ll just state a couple of key points:

    1. Carbon taxes and emissions trading both have the potential to have regressive effects. Careful design can minimise those effects in both cases.

    2. We are going to need to use every feasible strategy to address global warming – fixating on conservation or carbon pricing or technology exclusively is equally mistaken.

    3. While we shouldn’t be complacent, we need to recognise that we don’t need to solve the problem overnight. We can afford to spend the next couple of decades reducing emissions in the way which minimises both total cost and the cost to specific groups within society. That means, for example, that we can use existing vehicles and existing fossil-powered powerplants until the end of their economic life before replacing them.

  73. observa
    January 28th, 2008 at 14:23 | #73

    Ian, carbon cap and trade is an administrative nightmare handing out taxing powers to big carbon and mumbling all the time about auctioning permits to capture their economic rent http://www.bloomberg.com/apps/news?pid=20601085&sid=ax1AtdlxTcRs
    Consumption taxes may be somewhat regressive except that with fossil fuels it is the rich that consume the most and would be hit hardest by carbon taxing. If you don’t believe that, why the hell are MDCs being told to cut CO2 in order for LDCs to take up the slack?

  74. Ian Gould
    January 28th, 2008 at 18:19 | #74

    Observa, cap and trade in other fields such as nitrogen dioxide emissions and salinity trading has quite a good track record.

    The choice between emissions trading and a carbon tax essentially boils down to whether you want to set a firm target for emissions and let the price fluctuate or you want a fixed price and are prepared to let emissions fluctuate.

    Personally, I have no confidence in thew ability of governments to choose the correct price but some faith in the ability of scientists to tell us the safe level of future emissions.

    I actually believe it is a real positive that the EU is moving from grandfathering free emission permits to auctioning them.

    Furthermore, you’ll notice that a number of countries which have emissions trading also have carbon taxes it’s not an either-or and there is no single best one-size-fits-all solution.

  75. January 28th, 2008 at 18:47 | #75

    “Lower income people� who own three cars and a home in the suburbs?

    Well yes, the families with combined incomes below $100K, McMansion mortgaged to the hilt, credit cards maxed out, and a pair of 4WDs in the garage.

    Are you saying these people don’t exist?

  76. observa
    January 28th, 2008 at 21:35 | #76

    “The choice between emissions trading and a carbon tax essentially boils down to whether you want to set a firm target for emissions and let the price fluctuate or you want a fixed price and are prepared to let emissions fluctuate.”

    Ian, fluctate has two very different meanings here. A carbon tax is a one way price bet. Upwards and that means demand falls. OTOH cap and trade has fluctuated alright, with little or no overall reduction in overall demand, simply because the resultant price of emission caps fluctuated downwards. Basically they collapsed. Now the scientists can tell us what level of reduction we need to achieve but they are impotent as to how to get there and how quickly. Cap and trade has failed to date and now we’re told all we need is a surge. The reason it has failed so far is that at a theoretical level, you need to either cap emissions at the point of extraction of the fossil fuels(the simplest approach), or cap it at the consumer level, which is nigh on administratively impossible. That’s akin to everyone being issued with a carbon credit card cap and using it up as they consume, presumably with every good or service they buy having a CO2E price tag attached to it. Failing that impossibility, the fallback is to cap the few big industrial users, who have an incentive to game the system exactly as they have done. Now supposing successful caps could be applied logically and administratively simply at the point of extraction, there is the problem of not knowing what price increase would ultimately be thrown up to produce the desired end target. Not so with carbon taxing. The maximum theoretical price would be the total tax take needed to produce the current level of govt expenditure(well short of running huge surpluses) Now that’s a lot of readies in anyone’s book, yet that value of tax is theoretically and ultimately available to the owners of those caps over time. Who knows what economic rent they’ll ultimately be able to extract from them? They certainly don’t or anyone else, which is the great unknown information problem for auctioning caps. Our ancestors may be gobsmacked at what water(land) rights to the MD basin are worth nowadays, when they were carving up their bottomless river all those years ago. try buying some environmental flows nowadays and see what we’re up for. That’s the legacy we could leave our grandkids with cap and trade.

    You missed the obvious third option, which could develop over time as a mix of the two appraoches. Basically we emit C tonnes now and want to get to say 0.4 x C tonnes in thirty years. the govt issues C tonnes of licences right away, reducing by 2% per year for the next thirty years and cahrges an annual licence fee for same. They can be traded openly, provided the annual ongoing licence fee is paid. If not paid by the due date, the permit is cancelled and reissued on the open market under the same terms. Like a drivers licence but not tied to the original licensee and like purchasing a drivers licence the fee could rise over time. That’s the only ‘fluctuation’ as you call it, I’d like to see. That could allow most of the economic rent to be captured communally and the scientists’ hallowed targets met, without the large informational uncertainty involved in buying those caps today.

  77. SJ
    January 28th, 2008 at 22:16 | #77

    Ian, of the three points you list above about the ultra-battery, only #3 is really a point in its favor.

    You say: “Firstly, as I’m sure you realise, while black coal is the largest component of the Australian fuel mix its not the only one.

    There’s an argument to be made here that if there was a lot more wind generators connected to the system, then battery storage for cars would make good use of off-peak wind power. There was a CSIRO paper to this effect (last year? year before?) but I think he was talking about using home-installed roof top wind, could be wrong about that, can’t find the paper at the moment. I’ll dig it up later if I can. But as things stand, and as I’ve already said, when we’re talking about off-peak power, coal is the only game in town. The only other sources that generate during off-peak are those that are uncontrollable, like wind and run-of-river (i.e. non-storage) hydro. There’s bugger all of those things at the moment. Other things like wave and tidal power might add to this in the future, but at the moment they aren’t there. So the ultra-battery may be useful at some point in the future, but the use of the thing right now as an off-peak charged device would only make things worse.

    You Say:Secondly, the average emissions per kilowatt hour include the overnight emissions from power plants operating at minimum load – which is highly inefficient. Plug-in hybrids would effectively deliver a big chunk of load-levelling allowing those plants to be used more effectively.

    The average emmission figure represents a “best case”. Increasing the off-peak load on the power plants to bring the emmissions up to average does not give a greenhouse saving when the alternative, i.e. running the hybrid on petrol, would save one third more greenhouse emissions.

    carbonsink, I don’t know what your position is, and I don’t much care. Facts added into a discussion usually help, regardless of the units that they’re given in. I gave references and derivations for my 0.2 kg/mile figure, which is equivalent to 0.12 kg/km. Your statement “FYI: a Prius is officially rated at 104g/km.”, I see as pointless handwaving. It’s not supported by any references, and even if it was, would not change the conclusions I drew. You even acknowledge that you agree with my conclusions. Grow up, sport. Not everyone on the internets has a personal vendetta against you.

  78. SJ
    January 28th, 2008 at 22:20 | #78

    The italics didn’t work out properly above. The third paragraph should start like this:

    There’s an argument to be made here that if there was a lot more wind…

  79. Ian Gould
    January 28th, 2008 at 22:48 | #79

    “Well yes, the families with combined incomes below $100K, McMansion mortgaged to the hilt, credit cards maxed out, and a pair of 4WDs in the garage.

    Are you saying these people don’t exist?”

    I’m saying if you want to see lower income people next time you’re in Brisbane I’ll take you around Inala and Logan Central – or Greenslopes or Wynnum or Redcliffe . In all cases you’ll note the absence of both SUVs and McMansions.

    A combined family income of $100 K is pretty much smack on the median and certainly doesn’t make you lower income.

    Try a combined family income of $40K.

  80. Ian Gould
    January 28th, 2008 at 22:55 | #80

    “OTOH cap and trade has fluctuated alright, with little or no overall reduction in overall demand, simply because the resultant price of emission caps fluctuated downwards. Basically they collapsed.”

    Yes, the price of permits which were given away for free and which were going to expire in around six months with no penalties for emissions in excess of the permits a company held collapsed.

    Your point?

    The Europeans only started imposing penalties on companies for not having permits this calendar year – and the penalties won’t actually be imposed until next year.

    Basically, European emission trading prior to 1 January 2008 was a dry run with no practical impact – and everyone knew it.

    “Cap and trade has failed to date…”

    No, cap and trade has been used successfully for a decade or more to control pollutants other than carbon dioxide.

    “You missed the obvious third option, which could develop over time as a mix of the two appraoches. ”

    Actually no I didn’t you’ll notice I specifically said the two approaches could be combined.

  81. January 29th, 2008 at 07:28 | #81

    I’m saying if you want to see lower income people next time you’re in Brisbane I’ll take you around Inala and Logan Central – or Greenslopes or Wynnum or Redcliffe. In all cases you’ll note the absence of both SUVs and McMansions.

    Well if these people already use public transport and they don’t have huge McMansions to heat and cool then they will be less impacted by rising energy prices. If your primary concern is for low income earners, why not use the proceeds from a carbon tax to raise the tax free threshold to $40,000?

    The people I am talking about are the people formerly-known-as-the-Howard-battlers, the aspirationals, the mortgage belt … whatever you want to call them. They are going to be hit hard by any kind of price on carbon, and if we’re going to solve this problem they have to be. They need to get the message that their lifestyles are unsustainable.

    Problem is, these are the very same people that sit in the middle of the political spectrum and determine the outcome of most elections. It will take a politician of extraordinary courage to punish these people with higher petrol and electricity prices.

    Grow up, sport. Not everyone on the internets has a personal vendetta against you.

    Charming.

  82. observa
    January 29th, 2008 at 08:20 | #82

    “Yes, the price of permits which were given away for free and which were going to expire in around six months with no penalties for emissions in excess of the permits a company held collapsed.
    Your point?”
    My point is that while they’ve all been dicking about with fluctuating prices and trying to work out how on earth cap and trade is really going to work, a level playing field carbon tax would have still been up there impacting on demand and sending signals to the market to find alternatives. However like the good burghers of Quebec, cap and traders are really interested in trying to pull the wool over everyone’s eyes and buck pass price increases to big biz, pretending its not really a tax, all the while passing the defacto taxing power to big biz, because an upfront auction of caps (bearing in mind the impossible information problem)would give their sly game away immediately. Exactly as Quebecans found out quick smart with their ‘green fund’ being passed on.

  83. observa
    January 29th, 2008 at 08:32 | #83

    The other problem cap and trade will create in the marketplace, is exactly what the ACCC is banging on about with their whinge about a petrol pricing oligopoly and those 4 major oilcos currently Ian. Basically they want to see more importers(ie suppliers) of petrol from different sources. That’s a problem now, given the large investment in infrastructure any new player has to find to take a risk on. How much bigger hurdle will that be with blue sky emission caps added on? As for me I’ll be watching to see which companies scoop up the cheap upfront caps and betting on them long term on the stockmarket. The poor slobs can suit themselves.

  84. Hermit
    January 29th, 2008 at 09:52 | #84

    In defence of cap and trade it is target driven whereas carbon taxation could miss or overshoot. Thus if the cap is a 10% reduction but recession causes a 15% emissions drop the cap is no longer binding. Conversely carbon tax relief might be called for. As far as dodgy offsets (most of them probably) are concerned I’m sure Big Coal would want deductions from carbon taxes eg BlueScope Steel’s request for brownie points for heat recycling. Auctioning of permits could reduce grandfathering and create revenues for cleantech R&D grants.

    That’s all theory. I’m leaning more and more towards recession and skyrocketing energy prices making the cuts that politicians can’t.

  85. observa
    January 29th, 2008 at 13:07 | #85

    Sweet Jesus! Speak of the devil
    http://www.news.com.au/adelaidenow/story/0,22606,23125408-2682,00.html?from=public_rss
    Who let the ACTU Solo nostalgia buffs out of their cages?

  86. January 29th, 2008 at 14:27 | #86

    That’s all theory. I’m leaning more and more towards recession and skyrocketing energy prices making the cuts that politicians can’t.

    Lets face it, the politicians aren’t going to do anything that hurts their constituency, the market (and more specifically the oil market) will do that for them.

    The best we can expect from our pollies is a lot of hand wringing about petrol prices, perhaps another enquiry into petrol pricing, and if they really start to hurt in the polls, a cut in the fuel excise.

    It makes you wonder whether democracy can solve this problem.

  87. Peter Wood
    February 3rd, 2008 at 14:04 | #87

    I have had a bit of a read of Chapter 5 of the Productivity Commission’s working paper. This chapter is on aggregating costs and benefits and discusses discount rates and cost benefit analysis. The working paper has a good discussion of the limits of cost-benefit analysis. There was an important issue to do with cost-benefit analysis that the paper failed to mention. This is related to a preprint by Martin Weitzman that now is titled “On Modeling and Interpreting the Economics of Catastrophic Climate Change” http://www.economics.harvard.edu/faculty/weitzman/files/modeling.pdf

    The latest preprint is dated January 14 so the productivity commission can’t really be blamed for not discussing it. Weitzman’s paper argues that: “(1) because of deep structural uncertainty about the prospects for disastrously large temperature changes, there is a strong prima facie case that the relevant probability density function (PDF) of climate change catastrophes has an extreme tail that is heavy with probability; (2) when these heavy tails are combined with very unsure high-temperature damages, this aspect can dominate the discounting aspect in calculations of expected present discounted utility (even at empirically plausible real-world interest rates); (3) all of this translates into placing severe limitations on the reliability of policy advice coming from standard cost-benefit analysis (CBA) of climate change; (4) the conventional climate-change policy ramp is an extreme lower bound on what is reasonable rather than a best estimate of what is reasonable; (5) removing the artificial limitations on conventional CBAs that comes from excluding very-high-impact disasters is capable of shifting a more inclusive economic-welfare analysis strongly away from the gradualism of a climate-change policy ramp.”

    Parameters such as climate sensitivity have “fat tails”. Climate sensitivity is the expected increase in temperature that would arise from a doubling of greenhouse gasses. There is a small chance (something like 1%) that the climate sensitivity will be something like 10-20 degrees, which would potentially catastrophic consequences. Weitzman’s paper discusses what a “rational economic response” to these issues is and argues that “structural or deep uncertainty is potentially much more of a driving force than discounting or pure risk for cost-benefit applications of EU theory to open-ended situations with potentially unlimited exposure”.

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