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April 21st, 2008

The 2020 summit kept me too busy to blog. Looking back on the weekend I have a range of impressions.

* Rudd’s opening speech was inspiring, one of the best I’ve heard from him. The same was true of the opening ceremony as a whole.

* As numerous speakers said, the sense of new possibilities and a new openness to ideas has been one of the striking outcomes of the change of government, to an extent that has certainly surprised me.

* In many areas, including the water and climate change sessions, the real message was not so much the need for new ideas (though there were some good ones) but the need to act much more urgently on what we already know

* From the government’s point of view, the Summit had a couple of effects. One was to shake up the policy agenda, giving Rudd the chance to pick up a lot of ideas that are broadly consistent with Labor’s policy platform but got crowded out of discussion in the course of me-too election campaigning. The other is to raise expectations that the government will actually achieve things in areas like climate change and indigenous policy, rather than putting a better spin on marginal changes to the policies inherited from Howard.

* It was already obvious that, with Howard gone, and Labor in office, the Republic issue would return to the agenda. It’s something we have to come to anyway, and is just awaiting the right mood of national optimism. To sustain what is bound to be a fairly lengthy debate, we need more than the natural optimism of an electoral honeymoon. For that reason, I hope, and expect, that concrete moves towards a Republic will be deferred for a while, until the government has some concrete achievements to celebrate.

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  1. frankis
    April 22nd, 2008 at 10:27 | #1

    Well, I’m no monarchist despite feeling real respect and affection for our good Queen Elizabeth and her family. This would be respect and affection lacking in my feelings for the Cheney/Bush Whitehouse and all who sail with ‘em, fer sure ‘n certain.

  2. sleet
    April 22nd, 2008 at 10:40 | #2

    It’s nice to see there are those with a positive view of the event. I was a bit disappointed after my discussions with another attending UQ academic indicated strong cynicism.

    Also, I’d be interested to know what the general mood seemed to be after the summit’s conclusion. Many were initially concerned that the summit was just one big political stage-play, and I imagine quite a few participants attended with such doubts. Was there any general change in this perspective by the end of the weekend? Did they feel like the government was being genuine?

  3. gordon
    April 22nd, 2008 at 17:23 | #3

    Steve Hamilton (#45): “Of all people, I’d expect someone with strong pro-environment views to much prefer carbon regulation over a carbon tax…”.

    Absolutely. Let’s remember that the carbon trading scheme only found its way into Kyoto at US insistance. Then the US walked away, leaving the rest of us lumbered with it. The Montreal Protocol (covering ozone-depleting chemicals) is hardly ever raised as an instance of successful control of dangerous atmospheric pollution by regulation, yet it could and should have shown the way.

  4. Steve Hamilton
    April 22nd, 2008 at 20:21 | #4

    I think the idea though is that there are 3 options;

    Quantity regulation
    Quantity regulation with tradability

    The idea is that quantity regulation is better at gauranteeing a definite level of reduction, but may have adverse consequences, while a tax is likely to be inferior in terms of gauranteeing a definite level of reduction, but may be less likely to have adverse consequences.

    Adding tradability to quantity regulation is supposed to give you the best of both worlds as you still guarantee a definite level of reduction, but you allow the greatest reductions to be made by the firms who can most efficiently achieve them. Hence the rationale behind the proposed ETS in Australia.

    I’d probably just suggest that banning CFC emissions is a somewhat less wide-reaching proposal than banning CO2 emissions; one would expect the possible “side-effects” of the latter to be far more significant.


  5. April 23rd, 2008 at 09:47 | #5

    I’d probably just suggest that banning CFC emissions is a somewhat less wide-reaching proposal than banning CO2 emissions; one would expect the possible “side-effects� of the latter to be far more significant.

    A masterly piece of understatement Steve … and a fine post I might add.

    We could probably ban food, water and air as well, but chances are it would be ineffective.

    With CFCs there was an obvious, cheap, effective alternative that was already available. That is not the case with fossil fuels. We are trying change the very foundations of modern civilisation, you can’t just ban it.

  6. wizofaus
    April 23rd, 2008 at 10:28 | #6

    Terje, I think the quote from Nordhaus above accurately captures the benefits of a carbon tax. As for the idea that “all taxes depress growth” – if this were literally true, then removing all taxation would give the fastest possible economic growth. But anyone who believes that economic growth would continue for very long without a properly-funded government to maintain the integrity of the environment necessary for a modern market economy to function in is, to put it mildly, a little naive (or deluded).
    Further, it also assumes that governments are invariably worse at deciding how best to invest capital than private companies, which seems a quite unprovable claim to me.

  7. April 23rd, 2008 at 11:22 | #7

    wizofaus @ 56: Oh they’re deluded alright!

    As to the energy tax vs carbon (emissions) tax debate: I think the key difference is that we want to penalise the ‘bad’ (carbon emissions) by taxing it, and encourage the ‘good’ (energy production) by not taxing it. If you simply tax fossil fuels it doesn’t directly encourage technologies that produce fewer carbon emissions per unit of fossil fuel burned. (of course it does make the fossil fuels more expensive thereby encouraging more efficient use of fossil fuels with the side-effect of lower emissions)

    Granted it is considerably more difficult to tax carbon emissions at the tailpipe than it is to tax fossil fuels at the mine/well.

  8. April 23rd, 2008 at 12:15 | #8

    Ross Gittins makes a fool of himself today by cheering on the fact that Australia profits from the enemy of the human race.

    On the second page he makes this curious comment:

    (The news will, however, discomfort people who’re convincing themselves it’s a sin to sell coal and those who imagine global warming will somehow halt the poor countries’ economic development. Remember that most of what we’re selling the Chinese goes to make steel, not electricity.)

    As I understand it, if you burn coal for steel production or electricity generation, you still produce a similar amount of CO2. I know that some of the carbon in the coal is fixed in the steel alloy but most of it is released as CO2. Please feel free to correct me if I have that wrong.

    Australia has made a deal with the devil and the devil is coal. Its like we’ve harvested a bumper crop of opium poppies and the economists are applauding the high price of herion and telling us how much richer we’ll all be (ugh!). It may be a radical view now, but I am utterly convinced this is how we will view this dark period in Australia’s history in … oh, around 2020.

  9. wizofaus
    April 23rd, 2008 at 13:05 | #9

    Actually carbonsink, taxing carbon emissions at the tailpipe is simply – the amount of CO2 produced from a litre of petrol purchased is quite easily calculated. So a tax on petrol is effectively a tax on CO2 emissions, seeing as petrol has no use other than for burning for energy. If someone magically invents a method of extracting and storing the CO2 emissions generated by an internal combustion engine, then we’ll cross that bridge on the unlikely chance we come to it.

    And yes, Gittins should check his facts more carefully. There’s no question very significant amounts of CO2 is emitted as part of the steel production process.

    If the vast majority of the profits we were currently making from coal were being ploughed back into developing replacement jobs and technologies, I don’t think anyone would object too much to the degree to which we will still rely on coal exports, but as long as coal-producers and exporters have an obligation to shareholders to return maximum short-term profits to them, that’s not likely to happen.

  10. April 23rd, 2008 at 13:30 | #10

    the amount of CO2 produced from a litre of petrol purchased is quite easily calculated

    Sure that might work for cars, but say you taxed coal by the tonne and not CO2 emitted by the tonne, how does that encourage investment in CCS? A powerstation with CCS would actually use more coal per unit of energy produced, than the powerstation without CCS.

    BTW, I’m not advocating CCS. IMO its a load of boll*cks, but I do think its important we levy the tax the right thing.

    That raises the issue of coal exports. With the near zero likelihood of a price being put on carbon emissions in any of our major coal markets (except Japan) I think our only option is to impose a carbon tax at the port. Every Australian should be outraged at the obscene profits our big miners are making out of destroying our kids future.

    How about a coal export funded ‘future fund’ that ploughs money into clean energy? Hey, we’ve had future funds for just about everything else, how about something really useful?

  11. Steve Hamilton
    April 23rd, 2008 at 13:54 | #11

    carbonsink: Nice analogy with heroin.

    wizofaus: You got it in 1.

    The amazing thing about fuel economy is it’s perfect correlation with CO2 emissions. The only way to reduce a car’s CO2 emissions is to reduce it’s fuel economy. So if you want to tax carbon emissions, you just raise the tax on fuel; pure and simple. The issue with fuel taxes is that short- to medium-term demand for petrol is extremely price inelastic; meaning that you’d have to apply a relatively massive tax in order to have the required effect.

    There’s a couple of interesting points here:

    First is the fact that in the past decade Europe has significantly discouraged CO2 emissions in vehicles (whether it be through higher taxes, regulation, and the subsidising of diesel). This has lead to a massive boom in diesel passenger cars in Europe, as they have a much lower fuel economy (20-30%) than an equivalent petrol engine. In focusing on the long-term issue of CO2 emissions however, the EU has inadvertantly encouraged emissions of much more dangerous (in the short term) gases such as NOx and particulates etc (diesels produce much more of these gases than do spark ignition engines). The short- to medium- term health impacts of such a situation have the potential to be significant.

    Secondly, in the US right now there is widespread debate going on along the lines of the conversation we’re having in this very thread. The Congress has passed a bill that will mandate (quantity regulation) a specific average fuel economy target for US carmakers by the year 2020. This is an ammendment to the decades-old CAFE (Corporate Average Fuel Economy) bill. However, carmakers have suggested that such regulations have the potential to significantly raise the cost of producing vehicles (many have suggested that it’s in the ballpark of $5000-$8000 per vehicle). Some carmakers are significantly better positioned to handle the required shift to lower fuel economy than others (GM, Chrysler and Ford are particularly disadvantaged given their comparatively high share in the SUV and Pickup Truck markets).

    Many have argued for the CAFE ammendments to be scrapped in favour of a fuel tax; ie. that in this instance price regulation might be preferred over quantity regulation. However, I’d argue that both options are flawed. Fuel taxes won’t do much good due to the inelasticity of demand for fuel, and quantity regulations will have an excessively negative effect on consumers with some carmakers forced to pass on higher cost increases than would otherwise most efficiently be the case.

    What I would propose is that they maintain the current CAFE ammendments, but introduce the ability for carmakers to trade their CAFE’s with each other. You’d be gaurunteed of a certain reduction in emissions (which the scientists are telling us is an increasingly urgent thing to be doing), you’d have a rapid shift to the new level of emissions, and you’d minimise the cost to consumers. Once again, quantity regulation with tradability saves the day.


    PS. For those who are unfamiliar with the CAFE bill, it basically mandates that the average fuel economy of all the cars a carmaker sells in a given year must meet a certain predetermined level. The ammendments passed recently call for an average fuel economy of something like 6.7L/100kms, which is pretty stringent given that a Holden Commodore consumes around 10.9L/100kms and a 4 cylinder Toyota Camry consumes around 9.9L/100km. The penalties for breaches are significant, but carmakers can get concessions for providing E85-capable vehicles and other measures.

  12. wizofaus
    April 23rd, 2008 at 14:20 | #12

    carbonsink, there’s no reason petrol can’t be taxed based on litres used, but coal taxed based on tonnes of CO2 produced. In the form, litres used is the most accurate way we have of determine CO2 emissions.

    And yes, demand for petrol is somewhat inelastic in Australian and the U.S. because the alternatives are so crappy. In Europe where the alternatives are often preferable anyway (faster, more reliable etc.), high taxes have successfully brought down petrol demand considerably.
    So I agree that fuel taxes on their own aren’t enough to lower demand, you need to combine it with a program to improve and promote alternatives to driver-only transport (including everything from bicycles to telecommunication), and an information campaign about basic ways to improve fuel efficiency.

    I would also like to see the fees & taxes associated with being new vehicles significantly lowered, and offset with per-km insurance charges.
    At the moment, buying and insuring a new car is a huge cost, but and the costs to using it frequently after that are comparitively very small. For instance, it might cost me $40000 to buy a decent new vehicle with better fuel economy (say, 5L/100km), including registration/insurance etc., but my only cost in driving it is ~$1.50/L, so driving it 5000km vs 20000km a year is a difference of a mere $21 a week. If on the other hand, it cost me only $35000 to buy the vehicle and get it on the road, but it then cost me ~30c per km to drive, the difference between driving it 5000km and 20000km a year becomes a far far more substantial $87 a week, and the incentive for me to minimize the use of my vehicle is quite significant.
    (Anyone want to double check my maths there?)

  13. frankis
    April 23rd, 2008 at 14:22 | #13

    “hospital pass alert”
    Maybe our own good Professor might venture an opinion on the tax or cap_and_trade, or tax and cap and trade, question? I looked around to see whether you’d admitted to any preferences before making my earlier comments John, but didn’t find anything.

  14. April 23rd, 2008 at 14:32 | #14

    the EU has inadvertantly encouraged emissions of much more dangerous (in the short term) gases such as NOx and particulates etc

    Not that I want to start up the diesel vs hybrid debate again, but the NOx and particulates issue has been largely solved and so-called ’50 state’ diesels will be on sale in the U.S. later this year. As I understand it, the next EU emissions regulations will be in line with the ultra-strict Californian standards.

    CAFE is great, but what I’d really like to see (given that raising fuel taxes is politically impossible) is a system of ‘feebates’ for private motor vehicles. This would reduce the sticker shock for hybrids and diesels, and increase the price of gas-guzzlers. It would be based on grams of CO2 emitted per kilometre. The zero point would be chosen so that its revenue-neutral (as Kev requested).

    Lets say the zero-point was 180g/km. If a car emitted 200g/km you’d pay (say) $500 a gram extra at the dealership. i.e. an extra $10,000. If the car emitted 160g/km, you’d pay $10,000 less.

    The zero point would be moved downwards every year to the new revenue neutral point, as people buy more low emissions vehicles.

    A similar system could be applied to household appliances, which might prevent people buying cheap electric heaters rather than expensive gas heaters, heat pumps or even (gasp!) insualtion.

    I really think ‘sticker shock’ is a huge issue when it comes to purchasing energy efficient products. People would love to ‘do the right thing’ but can’t bring themselves to pay the extra money up front, even if it might save them money in the long run.

  15. April 23rd, 2008 at 14:41 | #15

    carbonsink, there’s no reason petrol can’t be taxed based on litres used, but coal taxed based on tonnes of CO2 produced.

    No of course not.

    BTW, would a feebate scheme for new vehicles help you buy an ultra-efficient car? The feebates could also apply to insurance taxes and registration costs (if we had any half-decent state governments that is).

    Another wild and crazy idea: make all public transport under 10kms free. I reckon ticketing is a big disincentive for occasional public transport users, who just want to pop down to the shops now and again.

  16. April 23rd, 2008 at 14:48 | #16

    My kingdom for a preview button!

    carbonsink, there’s no reason petrol can’t be taxed based on litres used, but coal taxed based on tonnes of CO2 produced.

    No of course not.

    BTW, would a feebate scheme for new vehicles help you buy an ultra-efficient car? The feebates could also apply to insurance taxes and registration costs (if we had any half-decent state governments that is).

    Another wild and crazy idea: make all public transport under 10kms free. I reckon ticketing is a big disincentive for occasional public transport users, who just want to pop down to the shops now and again.

  17. Steve Hamilton
    April 23rd, 2008 at 16:17 | #17

    The main issue I’d have with this feebate system (and the CAFE system) is there is no real direct relationship between the tax/subsidy and emissions. The method of regulation is indirect; ie. you are slugging people with a charge (presenting people with a subsidy) just for buying a car with high (low) fuel economy. What you want to tax or subsidise is the emissions, not the vehicle purchase.

    To illustrate my point, a simple example; under your system, let’s just assume a vehicle with fuel economy of 10L/100km’s has a tax of $1000 attached to it, while a vehicle with fuel economy of 5L/100km’s has a subsidy of $1000 attached to it (suggesting a neutral point of 7.5L/100kms). If the person who buys the low-fuel economy vehicle travels say 30,000kms per year, while the person who buys the high-fuel economy vehicle travels 15,000kms per year, then even though the two drivers are emitting the same amount of CO2 per year (as they are consuming exactly the same quantity of fuel per year), one driver is $2000 better off than the other.

    In other words, there’s that old addage of using the most direct instrument possible. In this instance, you’re taxing car choice, not emissions, even though it’s emissions that you really want to effect, not car choice. This is the real compulsion behind a fuel tax – it’s by far the most direct way to internalise the externality.


    PS: OT; How do you create those purty quotes?

    Is it in the usual [QUOTE] xxx [/QUOTE] way?

    PS#2: Who need’s 2020 when you’ve got us :p.

  18. wizofaus
    April 23rd, 2008 at 16:21 | #18

    It probably wouldn’t make me personally buy one, largely because of my wife’s taste in cars (she has a thing for luxury European models, and the ones we can afford are usually at least 5 or 6 years old), but I certainly agree that any scheme that helps lower initial costs (but increase ongoing costs) is worth pursuing.
    An alternative might be that lending institutions factor this into their loaning practices (i.e. it should be arguably easier to get a $40000 loan for a car that’s going to cost $1000 a year to run, vs a $35000 loan for a car that’s going to cost $2000 a year to run), but obviously not every borrows substantial amounts of money to buy cars, and I’m not even sure how you could structure incentives to lending institutions to encourage such a practice.

  19. April 23rd, 2008 at 16:35 | #19

    This is the real compulsion behind a fuel tax – it’s by far the most direct way to internalise the externality.

    I agree entirely, but I can’t see any politician of any flavour raising fuel taxes anytime soon, can you? Granted, the price of crude is doing the job the politicians can’t or won’t.

    I take your point about the buyer of the gas-guzzler possibly emitting less, but short of a feebate system, how do you get it into the average punter’s head that buying an inefficient product will cost them in the end? I see this particularly with the aforementioned electric heaters. They’re cheap as chips to buy, but cost a mint to run.

    wizofaus: A feebate could potentially bring down the price of a diesel Audi/Beemer/Merc by tens of thousands.

    P.S. Use blockquote in angled brackets to quote.

  20. Steve Hamilton
    April 23rd, 2008 at 17:19 | #20

    This is what makes Kevin Rudd’s “We’ll bring down the price of fuel” (albeit unspoken) suggestion in last year’s election campaign so absurd. It’s frustrating that the Rudd Government says that it’s serious about global warming on one hand and on the other is suggesting that it wants to reduce the price of petrol for motorists. At the end of the day, if you want to reduce emissions, then you want people to drive less, not more. If you want people to drive less, then why on earth would you raise the incentive for them to drive more? Unfortunately, as always politics is a game of pragmatism.

    The same line goes for the ETS. I saw Ross Garnaut interviewed when his interim report was released, and the interviewer seemed bemused and upon realisation almost outraged over the fact that the proposed ETS would raise the cost of electricity. I mean COME ON PEOPLE, we’re both trying to discourage people from using electricity, and discourage the burning of cheap coal; under what circumstances would electricity prices not go up in such a scenario?

    And I fully acknowledge your frustration regarding the inability or unwillingness for individuals to put their money where their mouth is on climate change; everyone says that they support cuts to CO2, but if you actually quanitified the cost to them in $$$, then I’m sure the attitude of many would change quick smart. Which I suppose underlines the whole impetus for action on climate change; it’s human nature to overuse resources when they are free.


  21. April 23rd, 2008 at 17:39 | #21

    Given that raising the price of petrol and electricity is going to be politically impossible, why not introduce feebates? Sure, they may not act directly to reduce carbon emissions, but chances are the more efficient car/appliance is going to use less petrol/electricity.

    I’ve pretty much given up on politicians doing what’s really needed so I look for alternatives that the politicians might go for.

  22. wizofaus
    April 23rd, 2008 at 18:13 | #22

    You would think explaining to people the concept of reduced income taxes = more money to either
    a) pay for same amount of electricity, if you really can’t find ways to reduce your usage
    b) spend on other things, while you reduce your electricity usage to match the increase in price.

    wasn’t all that hard. Indeed, regardless of whether it’s a carbon tax or an ETS scheme, surely it needs to be coupled with income taxes (as I said before, especially to the lower brackets), to be workable.

  23. April 23rd, 2008 at 19:02 | #23

    wizofaus @ 72: Yes you wouldn’t think that’s too difficult, but remember the problems Howard had selling the GST, and that was essentially the same deal. i.e. trading a consumption tax for reduced income taxes.

    I think the concept of replacing the GST with a carbon tax that raises similar revenue would be politically saleable.

    What we lack is politicians with courage who care more about implementing good policy than getting re-elected. That’s why I think Turnbull could be a pivotal player in coming years. If he becomes leader and pushes his income -> carbon tax reform agenda the major parties will be trying to out-green each other at the 2010 election. Rudd might be forced to actually do something.

    Three things Turnbull really believes in:
    1. Tax reform
    2. Climate change
    3. The Republic.

  24. gordon
    April 23rd, 2008 at 19:04 | #24

    Steve Hamilton and Carbonsink (#54 and #55), I’m sure you both realise that I’m not advocating complete abolition of CO2 emissions. The CFC experience was quoted to illustrate the absence of logic in concentrating exclusively on emissions trading schemes as the major strategy in reducing GHGs. Carbon trading was always a political/diplomatic strategy by the US in relation to Kyoto.

    And as far as the price of electricity for the private consumer is concerned (#70 and #72), there is a huge issue of fairness. It’s beginning to look as though only the unsubsidised private final consumer is going to have to pay any extra. Where is the extra cost to the industrial and transport users? When are we going to look at energy subsidies for aluminium, for example? Why did the Shergold Report and the State Governments’ discussion paper both leave large loopholes for “energy intensive trade-exposed sectors” in their emissions trading proposals?

  25. wizofaus
    April 23rd, 2008 at 19:26 | #25

    (BTW I wonder if ETS scheme going to become another example of RAS syndrome, like PIN number.)

  26. April 23rd, 2008 at 20:10 | #26

    gordon #72: Yes, I’ve banged on here (and at other blogs) about the cheap, dirty electricity supplied to smelters etc. The consensus response was that they’d only move overseas and use cheap, dirty Chinese electricity.

    I’m all for hitting industry first with increased energy costs. I don’t know why the politicians are talking about hurting private citizens (read: voters) with higher electricity prices when they could close a few smelters and meet all their emissions targets with one stroke.

  27. April 26th, 2008 at 21:19 | #27

    Quick science lesson:

    coal combustion (for electric power) burns coal (mostly C, with some water, hydrogen, and sulfur) in air, to produce a mix of CO2, N2, SO2, H2O and various other pollutants from partial combustion.

    In smelting, coking coal is first purified to make coke- carbon with very little else in it. This is then reacted with an oxide (iron oxide, zinc oxide, lead oxide, etc) in the following reaction (using iron as an example)

    Fe2O3 + 3C -> 3CO (carbon monoxide) + 2Fe.

    Traditionally, that carbon monoxide is generally burned in air to produce CO2 and energy. But because smelting is an air-free process, the carbon monoxide you produce could be neutralized in other ways and/or sequestered much more easily than the exhaust from coal combustion.

    This simply requires the price of carbon to be high enough to pay for the sequestration.

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