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Treasury on the cost of saving the planet

October 31st, 2008

I’ve been too busy to do more than read the summary of the Treasury’s estimates of the cost of an measures to reduce greenhouse gas emissions, most importantly an emissions trading scheme. Of course, there have been quite a few exercises of this kind, but what’s striking about this one is that it looks at a much wider (and more realistic, if we want to save the planet) range of options, going all the way to a 90 per cent reduction in emissions relative to 2000 levels, achieved by 2050. This is a contract and converge scenario where all countries accept a common emissions entitlement per person.

Treasury estimates that, under this scenario, GNP per person in Australia will average $78 000 in 2050 compared to $50 000 at present. By contrast in the reference scenario which has an 88 per cent increase in emissions, 2050 GNP is estimated at $83 000, or about 6 per cent higher (I don’t think this takes account of costs avoided through climate mitigation).

When I get a bit of time, I’ll report more on the details and assumptions. But the quibbles coming from predictable rentseekers, and their tame consultants, look like just that, quibbles.

Treasury’s estimates are, not surprisingly, quite consistent with the arguments I’ve made for a long time on this blog. That’s because any competent economist doing the analysis must come up with estimates of a comparable order of magnitude. If you want to make the case that saving the planet requires reducing living standards, or even a big reduction in the rate of growth of living standards, you need either to invent a whole new economics or wave your hands vigorously enough to conceal the fact that you don’t have any economic analysis to support you.

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  1. Uncle Milton
    October 31st, 2008 at 08:45 | #1

    John, the Treasury ‘reference’ case (business as usual) assumes that climate change has no bad effects at all on the economy. This is very conservative. While the economic costs of climate change are hard to estimate, they are going to be more than zero.

    This means that the actual costs of mitigation, which Treasury finds to be low anyway, have been overstated in the modelling. As you suspect, they have not taken into account costs avoided through mitigation.

    To put the costs of mitigation into perspective, a reduction in income which builds up to $5000 per person after 40 years, starting at $400 and growing at 6.5% per year, implies a loss of wealth (NPV) over the period of $34000. And that is before tax.

    The average wealth loss in the last 12 months from the financial crisis would be much larger than that.

  2. Nick K
    October 31st, 2008 at 08:49 | #2

    From what I’ve seen, it seems that Treasury’s estimates are based on highly optimistic assumptions about the development of carbon capture in the near future, and don’t take into consideration the current financial crisis and its economic impact.

    I also think that some of the estimates given for future per capita GNP are wildly optimistic, especially when considering the current financial meltdown as well as the aging population.

  3. Father Mercy
    October 31st, 2008 at 08:54 | #3

    According to one pundit, Treasury boffins would be hard pressed to pick a winner in a one horse race.

  4. Nick K
    October 31st, 2008 at 09:00 | #4

    The problem with the argument that climate change will create economic costs and therefore reducing emissions will be beneficial in terms of reducing future economic costs is this: even if this is true, whether or not these benefits will ever be realised depends on a whole host of other things, including what other countries do and natural climate variations. If other countries increase emissions, then the benefits won’t be delivered.

    Whereas the costs involved in reducing emissions will be incurred regardless of whether the benefits flow.

    So to compare the costs of reducing emissions with the expected economic costs of climate change is something of a false equation. Because it involves comparing costs which we have absolute control over with costs that we have less control over.

  5. October 31st, 2008 at 09:04 | #5

    Nick K: As our gracious host has demonstrated a number of times on the blog, even if you take CCS out of the picture, the costs do not increase that much.

  6. October 31st, 2008 at 09:04 | #6

    I’ve never much protested the cost analysis of action. Mostly I’ve protested the benefit side of the equation. However if CO2 permits are to be law then all I ask is that they be issued at a fixed cost (subject to periodic review) rather than at a fixed quantity, and that the revenue thus generated is used to reduce other taxes (preferably fuel tax, income tax or payroll tax).

  7. Hermit
    October 31st, 2008 at 09:07 | #7

    Treasury like Stern believe that continued growth (as currently measured) remains possible. Some plausible pundits have suggested that the financial meltdown is the first instalment of a one-two punch, the second instalment being critical shortages of liquid fuels and basic foodstuffs in a few years time. Whatever the case we must try to find the least-worst path and transition the economy to a more sustainable footing. Turnbull has misread public opinion if he thinks we should procrastinate.

  8. scott
    October 31st, 2008 at 09:08 | #8

    As if you can measure wealth in dollars…

    The holocene extinction event isn’t going to be stopped by a cap on greenhouse emissions at 4xxppm CO2-e, or less.

    Saving the planet requires reversing biodivesity loss, ending water scarcity (not just for humans) and maintenance of global environmental health.

    What would treasury know about those things?

  9. jquiggin
    October 31st, 2008 at 09:16 | #9

    Nick K, these are indeed the talking points du jour of those who’ve promoted delusionism in all its forms.

    I tend to the pessimistic side regarding the current financial crisis. Nevertheless I very much doubt that it will have big effects on the living standards of 2050, let alone the difference between living standards with and without an ETS.

    As regards CCS, I will post in more detail later, but you can vary assumptions a lot without changing the qualitative conclusions.

    Scott, limiting CO2 emissions is necessary but not sufficient for saving biodiversity.

  10. observa
    October 31st, 2008 at 09:49 | #10

    Please stop these slab quotes

  11. observa
    October 31st, 2008 at 10:05 | #11

    Would you prefer me to link to the article instead John?

  12. October 31st, 2008 at 10:24 | #12

    John, while I am happy to see serious action on greenhouse gases, there have two comments in the media on the modelling which cause me concern: the reference to it believing that “clean coal” will work and come on line pretty quickly, and the importance of the China, India and the USA coming on board.

    I am deeply skeptical about “clean coal”, and while China says it wants to do its bit, there seems good reason to believe it could face serious social upheaval in the next 20 – 30 years, which could derail a lot of good intentions anyway.

    OK, so maybe you can’t factor in whatever may happen politically in China, but what about the clean coal assumption? Is there reason to doubt the modelling for it being too optimistic on that?

  13. jquiggin
    October 31st, 2008 at 11:20 | #13

    #11, observa, for the moment please avoid both quotes and links.

  14. O6
    October 31st, 2008 at 11:23 | #14

    According to the Australian Climate Science Coalition (http://www.auscsc.org/index.php?option=com_content&view=frontpage&Itemid=1 ), there’s no need to do anything.
    Where do these people come from and who’s paying them to say what they’re saying?

  15. wilful
    October 31st, 2008 at 11:23 | #15

    Nick K, well of course emissions reduction requires international cooperation, however it is still entirely a worthwhile exercise to look at what the costs to Australia are as part of an internationally responsible response. What other alternative would you have? Suggest that no one will do anything in which case we’re all truly f*cked? I don’t think so. And by and large most countries are going to address this issue responsibly I believe. It is becoming clearer to every government (yes even China) that the costs (economic, social, environmental) of failing to address this are horrendous.

  16. Damocles
    October 31st, 2008 at 11:32 | #16

    “I’ve never much protested the cost analysis of action. Mostly I’ve protested the benefit side of the equation. However if CO2 permits are to be law then all I ask is that they be issued at a fixed cost (subject to periodic review) rather than at a fixed quantity, and that the revenue thus generated is used to reduce other taxes (preferably fuel tax, income tax or payroll tax).”

    If the Australian model follows the very successful USA nitrogen dioxide trading scheme, they’ll effectively be issued with a trading band with government holding a reserve of permits to be released if the demand forces the price above the band.

    As an illustration, imagine an initial maximum price of $20 per permit and an initial target of a minimum 5% annual reduction. The government would issue permits equivalent to 90% of estimated output and sell additional permits at the maximum price, if they were required.

    The NOx scheme was mandatory for larger emitters and voluntary for smaller emitters. Smaller emitters could join up if they thought they could reduce their emissions profitably. The government guaranteed these smaller emitters a floor price.

    In practice, neither the floor price nor maximum price mechanisms were ever used much.

  17. Hermit
    October 31st, 2008 at 12:21 | #17

    Let’s hope the US administrators of their SOx and NOx schemes are consulted. Note that unlike the European CO2 scheme there are no free permits or allowed offsets if I understand it correctly. The US EPA runs the scheme having taken it off a private exchange and they distribute the revenue for mitigation programs.

    Aside from the non-arrival of CCS there is the issue of an early world coal production peak, originally estimated for around 2025. A subsequent long plateau was expected, not a rapid downslide. Thus we have to de-carbonise sooner or later GW or not.

  18. Michael of Summer Hill
    October 31st, 2008 at 13:24 | #18

    John, it seems like the delinquents who oppose the introduction of the ETS are barking up the wrong tree for Treasury’s findings of a negative 0.10 per cent difference in GDP per capita is acceptable. But having said that I do not agree with the government handing out free permits and rewarding the most inefficient polluters who had years to get their act together but decided to do sweet FA.

  19. Andrew
    October 31st, 2008 at 13:41 | #19

    I really don’t trust the treasury modelling;

    a) There analysis doesn’t pass a common sense test – it’s so intuitively wrong large increases in energy cost will have no impact on living stanbdards as to be laughable.

    b) Treasury economic modelling can’t get next year’s budget forecast right – why would we rely on a forecast in 40 years.

    What a load of nonsense.

    An Australian ETS scheme may or may not help mitigate climate change (depends on so many factors outside our control) – but let’s not kid oursleves that introducing an ETS will be painless.

    And another thing…..if there really is little cost to cut CO2 emissions (or even benefit as some claim), why isn’t it happening regardless of an ETS.

  20. Andrew
    October 31st, 2008 at 13:42 | #20

    ‘Their’ not ‘there’…. sorry.. typing too fast

  21. jquiggin
    October 31st, 2008 at 14:34 | #21

    Andrew, as I said in the post, feel free to invent your own economics, just as so many “sceptics” have felt free to invent their own science. But don’t expect me to take this kind of “I don’t buy it” statement as an argument. Pauli’s dictum “it’s not even wrong” applies here.

    Michael I’ve criticised free permits in my submission to the Green Paper. I’ll post a link when I get a free moment.

  22. derrida derider
    October 31st, 2008 at 14:42 | #22

    Andrew, there’s a difference between forecasting what income will be in 2050 and forecasting the difference a given policy will make in 2050. That’s because when you forecast the difference the fixed errors you make in your “base case” projection of income (ie without the policy) and your “counterfactual” projection (ie with the policy) subtract from each other. So forecasts of what difference a policy makes to future income are in general much more likely to be right than forecasts of what that future income will be.

    As for the “sniff test”, your intuition is quite wrong because it radically underestimates the (proven) ability of economies to adjust to a change, especially given time – and 2050 is plenty of time. This is capitalism’s best feature (god knows it got some ugly ones), as Marx well understood.

    It’s partly Harberger’s Law – any distortion of a resource use within a market system has relatively small effects on the system as a whole, because if a market system is prevented from using resources for their most valuable use it will use them for their second-most valuable use. That difference in value is often small in the scheme of things.

    And it’s also partly that the difference in value creates profit opportunities for Schumpeterian innovation that closes that value gap. I’m not even sure that the Treasury modelling includes this second effect – it exists, but is hard to predict and quantify. But if they don’t include it, they may be considerably over-estimating the economic costs of an ETS.

  23. Donald Oats
    October 31st, 2008 at 15:07 | #23

    Permits should be set up in the same way as an IPO for shares in a company: you put in a bid for carbon credits, along with everyone else. Then they may be sold in a secondary market. Credits could also have a range of set expiry dates (and different prices to match) meaning that at the end of say two years the first batch expire, leaving a smaller pool. This would force emissions to reduce over time, while allowing those businesses that need a longer time frame to buy up longer dated credits.

    Anyway, what is the all the fuss about the personal cost of an ETS? We all copped a 10% GST in 2000, and the world didn’t fall down around us. And note that the GST was Australian, not global; it didn’t destroy our trade with the outside world, did it?

    Bring it on.

  24. chrisl
    October 31st, 2008 at 16:46 | #24

    Donald: Your GST example is not really relevant.It actually replaced other taxes and is (almost) guaranteed not to rise. An ETS is supposed to cost an extra $7 per week ( $5 for electricity and $2 for fuel) This can only be seen as a “starting” price. How on earth can these piddling amounts change anybody’s behaviour.
    It has to hurt and hurt bad. The price of coal generated power has to double and alternative fuels made reliable to have any effect whatsoever.
    Wishful thinkers and dreamers.

  25. Nick K
    October 31st, 2008 at 16:55 | #25

    John says “I tend to the pessimistic side regarding the current financial crisis. Nevertheless I very much doubt that it will have big effects on the living standards of 2050, let alone the difference between living standards with and without an ETS.”

    It may not make a difference to the economic cost of introducing an ETS. But the argument (from Treasury and others) is that the economy is going to continue to grow, so therefore we can afford to sacrifice a small amount of growth for the sake of emissions reduction.

    The current financial crisis may not have a big impact on living standards around 2050. But it is likely that it will lead to a significant downturn for years to come, and so will hold back net long-term growth.

    But my broader point is that if you take into consideration the costs of emissions reduction, the costs of the current financial crisis, and the costs of aging populations, then it seems wildly optimistic to suggest that per capita GNP will be $78, 000 in 2050. The only way I can imagine that happening is if hyperinflation dramatically reduces the real value of that $78, 000 compared to today.

    As someone who will probably still be around in 2050, I will be most grateful if our policy-makers can deliver this rosy future. But I doubt it.

  26. jquiggin
    October 31st, 2008 at 16:57 | #26

    Provided the rentseekers in emitting industries aren’t overcompensated, the revenue from auctions of emissions permits will be returned to households in much the same way as the GST. And, even at prices of $100/tonne (far above Treasury’s estimate), the total revenue will be less than for the GST. So, your response to Donald fails on both counts.

    In general, as DD says, its striking how little faith those on the political right seem to place in market processes. Unless CO2-emitting industries continue to receive the subsidy of free garbage disposal, it seems we’ll all be rooned.

  27. Nick K
    October 31st, 2008 at 17:05 | #27

    Chris says “An ETS is supposed to cost an extra $7 per week ( $5 for electricity and $2 for fuel) This can only be seen as a “startingâ€? price. How on earth can these piddling amounts change anybody’s behaviour.”

    Good point. Any increase in the cost of fuel, electricity and other things will have to be steep enough to induce people to change their behaviour. The recent evidence of higher petrol prices shows that demand is not that elastic. It takes a big rise in fuel prices to make much difference to people’s driving behaviour.

    The other thing is that the government is promising to compensate low-income households for increased costs. This will further reduce the incentive for those compensated to change their behaviour. It will merely stoke inflation.

  28. jquiggin
    October 31st, 2008 at 17:14 | #28

    Nick K, the costs of an aging population have been greatly overstated as previous Treasury research (the intergenerational reports) has shown.

  29. Nick K
    October 31st, 2008 at 17:30 | #29

    John at 26, I don’t think the point is that the GST will cost the economy more than an ETS in pure revenue terms. Of course it will be much less.

    The point is that the very nature of the two policies are vastly different. The GST is a broad-based tax that was designed to either replace or reduce other taxes that are more economically distorting. As such, it had little net negative impact on the economy.

    The ETS, on the other hand, is a whole different matter. It will cause a significant economic cost by penalising industries that are currently more competitive and rewarding those that are not.

    “In general, as DD says, its striking how little faith those on the political right seem to place in market processes.”

    I don’t think anyone is doubting that the market will respond to price signals. The point is that there will still be a significant net cost to the economy.

    Moreover, what is really striking is how many people who normally have so little faith in markets generally seem to have such confidence in emissions trading.

  30. Nick K
    October 31st, 2008 at 17:37 | #30

    John, one of the reasons why Japan’s economy has been so sluggish the last couple of decades is because their population has aged faster than other developed nations (as their post-war birth rates started falling earlier). So they are dealing with these problems sooner.

    I guess it boils down to whether you believe Treasury reports that are merely predictions of the future, or the real-life example of a country that is actually living it.

  31. swio
    October 31st, 2008 at 18:00 | #31

    “An ETS is supposed to cost an extra $7 per week ( $5 for electricity and $2 for fuel)”

    Switching over to 100% green electricity for our 2 person household has changed our bill from about $300 to $400 a quarter. An increase of around $10 a week. If we bought a plug in hybrid car it would cost about $15,000 more than than the car we actually bought recently. That would be an extra $60 a week in extra interest and amortisation over what we actually own. So for about $70 ($10 + $60) a week we could almost completely carbon neutral today, right now.

    If the cost of green electricity can be brought down about 25% then my 100% green electricity would go from $400 back down to $300, comparable to a normal bill. It seems quite reasonable to expect that the rapidly improving sources of green electricity will be able to acheive that goal over the next 25 years. Simply scaling up would almost acheive it and there is still enormous scope for technical innovation. So an extra $2 a week for elecricity is quite believable. Remember that the fossil fuel methods of creating electricity are not simple or cheap either. Look at how expensive and difficult a coal mine is to run and sticking up a big windmill and forgetting about it suddenly seems pretty easy.

    On the car front things are even more optimistic. The only thing holding back the technology are batteries, but it looks like the battery issue is close to being solved. Any decent mechanical engineer will tell you a a nice, simple and elegant electric motor is cheaper to build, maintain and run than a cranky, heavily vibrating and terribly thermally stressed internal combustion engine. Look around you and you will see dozens of cheap, quiet and ultra-reliable electric engines powering devices in your home. There are good reasons domestic applicances are not powered by petrol engines. It is probable that if the battery issue is solved, then plug-in hybrids produced in the same numbers as conventional cars today will actually be cheaper.

  32. chrisl
    October 31st, 2008 at 19:32 | #32

    Look at how expensive and difficult a coal mine is to run and sticking up a big windmill and forgetting about it suddenly seems pretty easy.

    Swio: The coal mines are already there! Just dig it up and ship it out. And feed it in 24/7.
    Windmills are difficult! Inefficient, expensive and unreliable. And not green at all in their manufacture.
    If they were so easy, why aren’t there more of them?

  33. observa
    October 31st, 2008 at 21:21 | #33

    Terry McCrann points out how hopeless last year’s Treasury forecasts were for inflation, growth and the budget surplus and then challenges them to get within 50% of their forecast surplus/deficit next year. Given Treasury’s stunning silence on any unintended consequences with their enthusiasm for unequivocal deposit guarantees, Terry may well be on a sure thing.

    As to pricing carbon and the consequences, I’ve pointed out before that the maxm straight carbon tax regime is one in which all revenue is gathered via carbon taxing. Noone has seen fit to do such a hypothetical calculation, perhaps because it seems too drastic. Well if it is, then ETS quantity reduction controls of 60 or 90% by whenever we can manage it, can theoretically exceed this, which makes one wonder what will happen to other forms of taxation. Skeptical about that? Don’t take my word for it, but read the open letter by 255 Canadian economics professors that Greg Mankiw links to. Now to get 255 professors to agree on a tight analysis of the problem takes some considerable compromise ie OTOHOTO stuff but note their point that C&T means certainty of target (assuming away all other reservations outlined), but abandoning price. In trying to achieve certainty of target, they also point out that C&T is highly complex to implement and the inevitable price uncertainty is problematic for long term consumer and producer decision-making.

    There is of course one certainty about the price direction of emission permits, if the activities of Goldman Sachs(yes the recent taxpayer bailee and 10% reducer of their workforce)are anything to go by. Despite certain hiccups they have just invested in a strategic alliance with Blue Source LLC a developer of projects that help companies offset their GG emissions. Leslie Biddle, Goldman’s Global Head of Commodity Sales is extremely excited at being able to help all their clients manage their carbon risk. You can web search and read all about the plethora of companies and law firms involved in this strategic alliance of anticipation, bearing in mind the US has no formal ETS yet. Perhaps Goldman are only thinking about all those staff that had to be laid off and this bold new direction could re-employ many of them. We’ll all look forward to that no doubt.

  34. Damocles
    October 31st, 2008 at 22:27 | #34

    “If they were so easy, why aren’t there more of them?”

    Yeah, wind power is only growing by around 40% a year globally.

  35. observa
    November 1st, 2008 at 08:41 | #35

    John at 26, assuming your proviso, how does the revenue from auctioning permits continue to accrue to households cf the GST? I note the GST continually accrues to them as Govt shareholders now, but how will that be the case with emission permits if say Goldman Sachs own these new taxing powers? Is it like MDB water rights? ie they always have the free market option of collectively buying back the Tooralees from their UK owners if they want the returns again?

  36. observa
    November 1st, 2008 at 08:51 | #36

    Bearing in mind with the GST at present, they have the State (never come between them and a bucket of money) Premiers acting vigorously in the shareholders’ interests.

  37. observa
    November 1st, 2008 at 09:01 | #37

    swio at 31, you’re confusing your marginal costs of green flange with average costs if we were all required to do the same. I’m certainly not kidding myself that my marginal benefits of solar to the grid largesse would be the average cost for all. Fallacy of composition loud and clear like relying totally on windmills and NF3 producing solar panels, not to mention planting a few tree offsets or knocking over rainforest for palm oil, etc.

  38. jquiggin
    November 1st, 2008 at 09:03 | #38

    #30 This claim about Japan might have looked plausible three months ago. Now it ought to be obvious that there’s not much relationship between demography and exposure to a financial crisis. The US in 2008 looks exactly like Japan did in 1991.

  39. Salient Green
    November 1st, 2008 at 09:39 | #39

    chrisl at 32. Energy payback for wind turbines is 4-8 months. That’s pretty green in my book.

    Inefficient? If you are talking about a wind turbine’s ability to extract energy from the fuel(wind), yes but erroneous. The true measure of efficiency is EROI and wind is way ahead of coal and nuclear.

    Expensive? Only if you leave out the cost of damage to the planet by fossil fuels.

    The figures for wind are always very conservative due to the 20yr lifetime assigned to a plant but we all know that gearboxes and generators last much longer than that, with regular maintenance, and a tower should last for over 100yrs.

  40. Damocles
    November 1st, 2008 at 10:08 | #40

    “NF3 producing solar panels,”

    Solar panels do not produce NF3 not is it used in their production in any meaningful quantity.

    NF3 is used primarily in the production of plasma screen TVs.

  41. Damocles
    November 1st, 2008 at 10:15 | #41

    The solar panel/NF3 link is being promoted by Lubos Motl. Anyone familiar with his past work will treat this claim with due skepticism.

    Furthermore, coal-powered electricity generation requires far larger quantities of SF6, another highly potent GHG in circuit-breakers and transformers.

  42. Damocles
    November 1st, 2008 at 10:50 | #42

    The blog just ate my latest comment.

    Sorry if this results in a double post.

    Annual production of NF3 is around 600 tonnes (the 5400 tonne figure bandied about is the current total estimated amount present in the atmosphere.)


    600 tonnes of NF3 translates to 10.2 million tonnes of carbon dioxide.

    In reality solar panels are probably responsible for less than 10% of that amount. (For starters NF3 is used in the production of thin-film silicon solar cells but not in the older ingot-style cells,)

    But let’s attribute all the NF3 production to solar panels. Now let’s assume a 100-fold increase in solar panel output.

    That’d increase the annual emissions of NF3 to an amount equivalent to 3% of current annual GHG emissions.

    This story is nonsense.

    It took me all of 10 minutes (including the time to retype the post) to find out it was nonsense.

    However bet on it echoing through the right-wing digirati for decades to come.

  43. November 1st, 2008 at 11:21 | #43

    a visit to spain and germany will convince that windpower is here to stay and grow.

    there would be a solar cell array on every flat surface in oz, if they were cheaper and the tradesmen were available. ‘cheaper’ will fix it self with scale economy. tradesmen can be produced in a month/body, it’s a narrow specialization. coal miners and old-growth forestry workers should be given first access to this training.

    the only real block in active shift to sustainable power generation is political. it’s the pollies, stupid.

    the transition to green power is necessary due to resource exhaustion, and pollution. the necessity for fast and painful transition comes from the possibility of catastrophic shift to ‘venusian’ conditions. leaving what may be a race survival decision in the hands of people who will consult their re-election chances ahead of disaster aversion is my idea of non-survival oriented behavior.

  44. jquiggin
    November 1st, 2008 at 14:46 | #44

    #35 Observa, you’re double counting. Households get the GST revenue back because they no longer have to pay the taxes it replaced (+ some permanent increases in pensions and other compensation items). Governments don’t have any more than they used to (except maybe to the extent that the GST/ABN system has been harder to dodge).

    And you really need to stop reading people like Lubos Motl. Unfortunately, Motl is only a more extreme version of the general delusionism that pervades rightwing thought, so I can’t recommend any alternatives that will support your prejudices.

  45. November 1st, 2008 at 16:06 | #45

    I just got an “internal server error”, so I’ll try this again:

    If James Hansen is correct, then the scenarios modeled by Treasury are not sufficient for saving the planet. Firstly, stabilisation targets of 450 ppm, 510 ppm and 550 ppm are too high to avoid dangerous climate change. Secondly, for the proposed 2020 emission reduction targets to correspond to these stabilisation targets, the rest of the would have to be extremely generous to Australia. The Garnaut targets assume a convergence date of 2050 which is extremely generous to high per-capita emitters. The CPRS targets are even more generous to high per-capita emitters, they assume that Annex I countries that are high per-capita emitters do not have to make deeper relative reductions than Annex I countries that are low per-capita emitters.

  46. Ken
    November 2nd, 2008 at 08:51 | #46

    #32, continuing reliance on coal seems to require all the scientific concerns regarding GHG’s and climate to be dismissed as wrong, like there won’t be significant costs as a consequence of failing to shift to clean energy. Fortunately, as pointed out by Damocles #34 there is strong growth in clean renewables. Unfortunately it’s still eclipsed by strong growth in coal power generation. Can the costs of renewables come down soon enough to not just limit the booming growth of coal, but be cheap enough to see existing, working coal plants shutting down because solar or whatever is undercutting it? I’m not convinced that the world has the organisational capability of getting a grip on this, that even vigorous policy efforts across the board and across the globe can do it without cheaper than coal clean energy technologies. That is, cheaper than coal when it’s price plummets in response to (one hopes) serious competition. It’s a race that clean renewables have to win.

  47. chrisl
    November 2nd, 2008 at 09:28 | #47

    Ken The way I see it,the cheapest of renewables(wind) is twice the price of coal.It will probably stay that way because of the size of the turbines. Wind turbines are probably at their limit size wise.
    The only way for wind to be competitive is
    a) The consumer to pay more for “green power”
    b) The government to subsidise wind
    c) Co2 output from coal turbines to be taxed to raise prices in the order of 100%
    Not only can wind not win, it is not even in the race.

  48. chrisl
    November 2nd, 2008 at 09:42 | #48

    By the way wind turbines are not exactly trouble free. I have a relative who owned one of the largest wind turbine manufacturers in Europe. When I toured his factory a few years ago, he had a very impressive display and maps of all his installations around Europe.
    He went on to build many turbines in India with the assistance of large subsidies from the EU. Unfortunately there were huge problems with erratic wind speeds and compatibility with the grid.He didn’t get paid because of their non performance and his company went broke.

  49. Damocles
    November 2nd, 2008 at 10:46 | #49

    “Ken The way I see it,the cheapest of renewables(wind) is twice the price of coal.It will probably stay that way because of the size of the turbines. Wind turbines are probably at their limit size wise.”

    The average wind turbine in commercial use currently is in the 1-2 megawatt range.

    The largest commercially available turbines are around 3-3.5 megawatts and there are prototypes for designs yp to 10 (!) megawatts under construction.

    The new larger designs are intended for use in offshore farms where the wind availability factor
    is much higher.

    the MARKET price of coal-powered electricity is lower in large part because the price of coal doesn’t include the environmental costs associated with its use.

    As a quick example, pollution from coal-powered plants in the US is estimated to cost roughly 50,000 lives per year. The fact that the power companies aren’t held liable for that is an effective subsidy of more than $100 billion a year.

    That’s in the US which has some of the world’s most rigorous air pollution laws. Imagine the health costs in India and China.

  50. observa
    November 2nd, 2008 at 15:01 | #50

    John 44,
    As far as NF3 goes, it would appear to threaten plasma fans more than solar fans. Nevertheless we all need to be aware of emerging realities and note here that GG amelioration by the Goldman/Blue Source alliance are also targetting methane from rubbish tips. NF3 could ultimately be on the table too.

    I don’t understand your double counting reference. I understand retaining communal tax and expenditure rights to carbon taxes like GST, but one off auctioning of reducing blue sky carbon tax rights? If they are not to be once off auctioned, then repeatedly auctioning annual reducing rights is effectively deferring to taxing and negating any theoretical advantages from trading. Why would you make taxing so difficult at the smokestack, exhaust pipe, etc, when transparent taxing at the mine and well head is simpler?

    My take is, advocates of carbon trading don’t want tax transparency and the inevitable horse trading over incidence and compensation (a la the GST). In doing so they are prepared to jump into the jaws of the global derivative trading industry, which current experience shows is pure folly. They simply want us to believe in a surge of regulation, not to mention blind faith in forecasting, from the very people who gave Oz a financial crisis when it was so obvious we never had one(short term money markets, MBSs and those deposit guarantees for safe banks)

    As for Treasury forecasting, Terry McCrann points out the bleeding obvious although I have a better idea. Drag those Treasury experts away from their computer models and phone Simsmetal. There they’ll find scrap steel prices (destined for China’s mills)have slumped from $350/tonne to a low of $20/tonne as of last Friday. How many economists does it take to do that?

  51. observa
    November 2nd, 2008 at 15:36 | #51

    And if you think I’m a shill for McCrann, then when he says- “TENTATIVELY, very tentatively, it might be time to get back into the market. .”, all I can say is in your bloody dreams Terry and ring Simsmetal too.

  52. Donald Oats
    November 2nd, 2008 at 19:42 | #52

    Wind farm technology is still relatively new. Much innovation and creative thinking remains to be done.

    For example: So far the really big ones have a horizontal axis of rotation; there are small ones with egg-beater type blade design and a vertical axis of rotation which is up the support tower. Quite probably these ones will ultimately be more scalable than the current favourite propellor design. No doubt some thoughtful souls are investigating the engineering and economic feasibility of this somewhere now.

    Then there is the question of the density of packing into a wind field. Place them too close to each other and they cop some of the wash, losing efficiency. Perhaps computer monitoring of the wind field in realtime could allow dynamic changes in pitch, blade torsion, or bladetip shape. Obviously the current blades are not designed for this sort of thing; perhaps the physical constraints mean it can’t be done (with current wind turbine design), but then again perhaps it can. I’m sure lots of other ideas better than that are out there looking for research cash to support them.

    PS: Snowtown in SA officially opened its new wind farm today. People are waking up to the fact that windfarms aren’t *that bad* afterall.

  53. Donald Oats
    November 2nd, 2008 at 19:48 | #53

    Oops in #52 I missed the last bit just before PS…

    I think windfarms have a great future. Especially when the economics of investment over time are taken into account. For example, a traditional coal or nuclear electricity station has lumpy capital costs, ie go/no go decision at the beginning of the build phase of the project. Once committed, it is very hard to retreat. And if demand proves to exceed the plant capacity, another go/no go decision for another coal/nuclear station is hanging in the air.

    With a windfarm there is an initial discrete capital outlay. Once in place, if demand grows beyond the windfarm’s current capacity, then turbines may be added as needed, in a more incremental fashion than the coal station alternative. Plenty to think about.

  54. TerjeP
    November 2nd, 2008 at 20:01 | #54

    The thing I like about the enviromission idea (solar chimney) is that the system makes it’s own wind and the wind it creates blows 24 x 7.

  55. wilful
    November 2nd, 2008 at 21:12 | #55

    What are effectively underwater windfarms, tidal power, has got a massive future. While we don’t have infinite locations, we’ve got more than ample, and to the best of my knowledge tidal flows haven’t stopped since the oceans filled.

  56. Damocles
    November 4th, 2008 at 07:44 | #56


    In the first sign that the global economic panic is actually having an effect on climate policy, the EU has decided to defer the start of new tighter car emission standards from 2012 to 2015.

    Honestly, given the progress of electric and hybrid vehicles, that three year delay is probably going to radically reduce the cost of compliance.

  57. November 6th, 2008 at 09:36 | #57

    All the ecconomists in here should be well versed in judging risk and reward but what you fail to factor into the equation while predicting a drop in living standards from climate action is the intangibles relating to inaction.
    What price do you put on our way of life or 3rd world starvation?
    From your comments I gather it’s $5000 (but is that pretax or after tax?).

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