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Weekend reflections

January 4th, 2009

I tend to lose track of the days at this time of year, but, being Sunday it’s past time once again for weekend reflections, which makes space for longer than usual comments on any topic. As always, civilised discussion and no coarse language.

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  1. January 4th, 2009 at 15:01 | #1

    John, not sure if you’ve come across it over the last couple of days, but Bruce Sterling and others are having a great discussion on well.com, and one quote in particular that I’d love to hear your thoughts on is:

    We’ve never yet had any economic system that recognizes that we have to live on a living planet.

    (You can find it within context about two thirds of the way down the first page of posts).

  2. TerjeP (say tay-a)
    January 4th, 2009 at 20:38 | #2

    JQ – The DZone and Digg buttons you have added make your blog run terribly slow. Loading the page is now worse than waiting for next Christmas.

  3. Marginal Notes
    January 4th, 2009 at 21:11 | #3

    Since it’s the weekend it is worth pointing out that ‘The Bill’ has shown a promising return to something like its old formula of tightly written, intriguing, and thought-provoking plots, with mainly ‘good coppers’ (though fallible) dealing with realistic and morally complex situations. At last there’s something to sit back and watch on a Saturday night while eating dark chocolate and briefly shutting out the GFC and AGW.

  4. gerard
    January 4th, 2009 at 21:29 | #4

    “while eating dark chocolate and briefly shutting out the GFC and AGW.”

    not to mention Gaza…

    (whoops!)

  5. January 4th, 2009 at 22:08 | #5

    Terje beat me to it. I’m using Firefox 3 on XP at the moment, and loading takes forever. It says ‘waiting for reddit.com’ down the bottom, then digg then DZone. Digg takes the longest.

  6. gerard
    January 4th, 2009 at 22:25 | #6

    @5
    yes, really I hate these things. Does anybody actually use them anyway?

  7. jquiggin
    January 5th, 2009 at 08:55 | #7

    The people have spoken! Digg buttons gone.

  8. jquiggin
    January 5th, 2009 at 09:03 | #8

    MN, this is excellent news, which I will check out next Saturday. It’s been a long time coming.

  9. Donald Oats
    January 5th, 2009 at 09:47 | #9

    I caught a random episode the other night, and it drew me in…it’s been awhile now since “The Bill” has been on my watch list. All went downhill around the time they brought Burnside back (Frank Burnside was good value in the earliest episodes though).

    Maybe now they’ll get back to nickin’ toerags and chasin’ scroats. Ahh, the good ol’ days…

  10. Nick K
    January 5th, 2009 at 14:33 | #10

    I have been using Firefox as well. I didn’t realise why it was loading so slowly, not exactly being an IT genius.

    This is a further refutation of the Efficient Markets Hypothesis. Surely the EMH would dictate that the demand for a particular web browser would represent the most accurate and reliable estimate of the true underlying value and utility of that browser for the specific searching activities undertaken.

  11. observa
    January 5th, 2009 at 14:45 | #11

    US Congressman BOB INGLIS and ARTHUR B. LAFFER
    published an article in the NYT recently leading off with-

    ‘CONSERVATIVES don’t support tax increases that are veiled as “cap and trade” schemes for pollution permits. But offer us a tax swap[largely payroll and income tax], and we could become the new administration’s best allies on climate change.’

    Essentially they have strong reservations with C&T after the current derivatives debacle, as would many with putting the world’s food in our tanks. Essentially they believe in taxing things you want less of (CO2) and tax relief for those things you want more of (income and jobs).

    Notice that this compromise position negates any need to argue for or against the AGW theory and given the natural disappointment with the Rudd Govt’s opening stance on C&T and its propensity to hand out so many free permits, could well be more satisfactory for both viewpoints, as well as a more level playing field if implemented domestically and internationally.

    If you follow that course, the next question is how high a tax and concomitant level of other tax tradeoff and that leads you to immediately consider a hypothetical maximum price and imagine a ‘constitutional marketplace’ based on that. It is of course the current total level of taxation for our democratically determined level of expenditure (and here we’ll accept that as given or what we currently observe) Perhaps we could leave aside excise on beer and cigarettes as a special case but a carbon tax could hypothetically replace everything from income, company, payroll taxes, stamp duty, GST, etc. All that 10,000 pages of Income Tax Act, etc gone for a carbon tax at the mine and well head.

    So far so good and that allows us to work out some maxm hypothetical prices for CO2E, for various fossil fuels, black and brown coal, oil, LNG, etc and speculate on its overall effect on demand. As an aside here I recall that when oil prices rose to nearly $150/brl, Australias imports of fuel and lubricants fell 25% and coupled with a similar lift in coal exports gave us that rare and unanticipated surplus on our BOP.

    So we have this maxm hypothetical carbon tax in mind and are imagining that new constitutional marketplace and how it would tick. Too drastic for you perhaps? Then perhaps you could draw back from that and think of lesser combinations of carbon taxing in conjunction with other tax mixes, right back to our current system with only fuel excise as a proxy carbon tax at present.

    That’s the price spectrum for straight carbon taxing all wrapped up neatly except for the estimation of quantity effects due to that hypothetical price. Would it produce 25, 50, 80% reduction in the use of fossil fuels? Simply one for the economists or IPCC quants to work out for us with those sophisticated and reliable computer models no doubt. The raw input data is esaily accessible in the national accounts, rather than buried in inhospitable ice cores yet we haven’t done the calculations or come up with the figures. Why not? The results of various ranges of carbon taxing, tax offsets and CO2 reductions could give us all a pleasant and compromise surprise. Makes you wonder what some of these learned institutions do with all that knowledge and computer power these days, particularly given some of the marginal studies that are the object of their endeavours.

    Of course it may be that the exercise shows our hypothetical maxm carbon tax could only ever produce a 40% reduction in CO2 emissions over some manageable period. Aha, not enough cry the climate scientists, when we need 50, 60 and even 80 and 90% reduction figures being bandied about so obviously we need C&T. Well who knows because we haven’t done the sums and even if we did and say came up with that hypothetical 40% reduction figure, it might indicate a fly in the ointment for those C&T targets of 60-80%. How so? Because it’s quite possible that in attempting to move towards those targets the price of fossil fuels increases far above our hypothetical maximum outlined above and has serious income effects. Now note instead of the Govt receiving the carbon tax for redistribution, now the tax is being levied by those who have bought the caps at auction to the highest bidder. Simply put, C&T fans may find a powerful political push for Govt expenditure to move aside to accommodate ever increasing private taxing.

    I’d suggest in the absence of any hypothetical maxm pricing calculations, those who have a fondness for large Govt may well be shooting themselves in the foot long term with C&T, rather than direct carbon taxing. If they did they might find it very difficult to go back to the future, a la MDB water rights. Have they thought about that or even considered any back of the envelope calculations in that regard?

  12. Nick K
    January 5th, 2009 at 14:48 | #12

    I agree that the Bill has been going downhill for a long time now.

    For a while they have tended towards melodrama and sensationalism, whereas once it used to be a more gritty and realistic portrayal of trying to manage in the frontline of an unmanageable social environment.

    They also have a tendency of turning over characters rapidly and bringing new people in. This seems to be a superficial way of generating interest, instead of developing more credible characters and plots.

    The best character was Don Beech. His departure was about the time the show began to deteriorate.

  13. Michael of Summer Hill
    January 5th, 2009 at 15:05 | #13

    John, according to the Swiss Gas Industry Association, Ukraine’s unauthorized taking of Russian natural gas is illegal and a flagrant violation of existent agreements and back Gazprom’s decision to appeal to the Stockholm Arbitration Court.

  14. Michael of Summer Hill
    January 5th, 2009 at 15:33 | #14

    John, according to reports, commercial real estate in America is the next ticking time bomb which may adversely impact the likes of Bank of America, JPMorgan Chase and Morgan Stanley. Current office building vacancies in major cities exceed 10 percent and showing signs of economic distress.

  15. January 5th, 2009 at 15:54 | #15

    Senator Penny Wong has written an article in New Europe on Australia’s emission targets. It seems to be open for comments!

  16. mitchell porter
    January 5th, 2009 at 20:43 | #16

    That “New Europe” article is just a reproduction of one which appeared in the Chinese media in mid-December.

  17. mitchell porter
    January 5th, 2009 at 20:47 | #17

    OK, it’s not an exact duplicate. Here’s the Chinese version. There are extra phrases about Europe in this new one. Still, “New Europe” is not that prominent a forum. I suspect it’s just syndicated from somewhere else.

  18. TerjeP (say tay-a)
    January 5th, 2009 at 21:08 | #18

    Observa – I agree entirely. However nobody is listening.

  19. January 5th, 2009 at 22:40 | #19

    Observa, you should learn to write more succinctly. You may be interested in James Hansen’s proposal for a carbon tax with 100% of the dividend returned to households.

  20. observa
    January 5th, 2009 at 23:58 | #20

    Thanks Peter. It would seem James Hansen and I concur on approach although we’d come to that from different perspectives. He seems to be a bit of a heretic among AGW theory fans. You get the impression it’s a bit like the Republican issue. Don’t confuse them, pick a particular stance and stick with it come derivative meltdown hell or high water. You’re right Terje, they don’t want to listen to any ugly thoughts about blue sky price/taxing powers being privatised. Hence no number crunching or further correspondence will be entered into.

    As for writing more succinctly Peter it’s a fair comment although I was talking about some esoteric hypothetical prices and the thoughts can run ahead of pecking ability. I guess that’s why I’d like to see some actual numbers/estimates from our enquiring sandstones, but as Terje notes that doesn’t fit with the prevailing orthodoxy and priorities. We might all regret that.

  21. Jill Rush
    January 6th, 2009 at 23:34 | #21

    Observa,
    Even if you are right there is no doubt that one of the hardest things is to get people to listen. Getting agreement is another level. Mostly because people have their own theories and ideas or because they aren’t interested. The trick is to find a way to make an idea interesting and relevant. Prof Q has done so in the current series by letting his audience know what he plans to discuss and by tying it into the economic matters of the moment. He goes to a lot of trouble to tease out ideas and to present them in a way that non experts can understand.

  22. observa
    January 8th, 2009 at 00:51 | #22

    Fair comments Jill and I notice James Hansen is going straight to the top with his ‘Dear Michelle and Barack’ letter as well as ‘Tell Parack Obama the Truth-The Whole Truth’ detailed on his website here
    http://www.columbia.edu/~jeh1/
    As a pioneer of the science and theory of AGW his current stance is worth reading, particularly if he has the ear of the incoming Obama administration.

    Now while he has some bad news for Australian coal and the anti-nukes, the gist of his letter is clearly anti Cap and Trade and pro level playing field. carbon tax with 100% ‘dividend’ return. When he states-
    ‘“Cap and trade” generates special interests, lobbyists, and trading schemes, yielding non
    productive millionaires, all at public expense. The public is fed up with such business.’
    he must know he’s addressing a foundation member of the Board of the Chicago Climate Exchange and some inevitable attraction to the siren song of that political support base. Hansen is clearly not mincing words with Obama on that score in his public letter.

    On any rational assessment of current events, you’d have to agree with Hansen that the world of derivatives implicit in a global C&T is on the nose now, as well as failing to produce the desired outcomes to date where it’s been introduced. The Rudd Govt’s target and free permit plans just reinforce Hansen’s point there and don’t mention those coal export infrastructure plans either.(Australian MSM have already picked up Hansen’s coal critique and are awaiting Penny Wong’s response on that)

    Relax James Hansen about the future of global C&T, because Govts and regulators are wise to the ways of the world of financial derivatives and those millionaire factories now. Much wiser than the bevy of expert US regulators that elevated Madoff to the financial lexicon and relegated Ponzi, as they investigated Bernard L Madoff Securities 8 times in 16 years and were even armed in their efforts with a damning point by point expose’ of what to look for and why it had to be a Ponzi scheme on every point of analysis. Couldn’t happen again? Not according to the OECD that has just been very critical of our blanket bank deposit guarantee and the threat of moral hazard and distortions that creates. The NAB, fresh from raising $3bill in equity on the back of that Govt guarantee, has gone to none other than Barclays, HSBC, Merrill Lynch and RBC Capital Markets to borrow another $3.15bill at cheap rates in the greatest tranche of Australian Govt guaranteed bank bonds yet. And as if to emphasise how quick the millionaire factories are to seize an opportunity- “To illustrate the risk of moral hazard, the OECD cited the example of financial instruments created by Macquarie Bank, among others, to take advantage of European Central Bank guarantees.” Hansen has every cause to be scathing of the bleak future presented by global C&T across jurisdictions. As he says, ‘A carbon cap that makes one more stinking millionaire on the backs of the public is going to
    infuriate the public.’and where will that leave the public appetite for C&T amelioration when it does?

    Now while Hansen has much evidence to back his critique of the derivatives road to CO2 amelioration, notice he suddenly and typically has none when he asserts his preferred option ‘A tax is not sufficient. All other measures, such as building codes, are needed.’ Well how on earth would he know that, when as I’ve pointed out previously, noone’s done the sums on say swapping income, payroll and company tax for CO2E taxing, let alone that obvious hypothetical maximum. All of a sudden this great guru of AGW shows that analytical nakedness, along with that of his peers. Just don’t mention the emperor’s clothes and maintain that faith in C&T James and you’ll get along just fine.

  23. Tony G
    January 8th, 2009 at 12:43 | #23

    Observer said;

    “but a carbon tax could hypothetically replace everything from income, company, payroll taxes, stamp duty, GST, etc. All that 10,000 pages of Income Tax Act, etc gone for a carbon tax at the mine and well head.”

    It could be called ‘Australia’s Future Tax System’

    “You can make a submission to the review at anytime until 1 May 2009.” It would be good if Henry listened.

  24. observa
    January 9th, 2009 at 08:45 | #24

    That’s an obvious point Tony, that in contemplating a maximum price amelioration effect on carbon with a straight CO2E tax that replaces all other forms of taxation (barring say alchohol and tobacco excise)and assuming no rise in the overall level of taxation, you are in effect defining the tax system. Notice Hansen is not arguing for a rise in the overall level of taxation in the sense that he would tax carbon at some level and hand it back via a per capita ‘dividend’, which he points out can have some equity advantages. (he can have his current tax system cake and eat it perhaps?) C&T OTOH can only ever offer a once off compensation with handing back the initial auction revenue, before privatising its future blue sky economic rent. That is unless Govt only issues caps for auction over lesser time periods, thereby negating the theoretical benefits of trading emission rights. To the extent they do that (ie approach asymptotic annual auctions of permits) it simply becomes that hypothetical maximum carbon tax all over again, unless the overall level of taxation is to be raised further. Whichever, it would be pretty dumb to do that via the financial sector rather than at the mine or well head.

  25. John Mashey
    January 9th, 2009 at 15:28 | #25

    Observa #22: the reason he would know about “All other measures” is:

    a) He comes to California on occasion. [Among other things, AGU Fall Meetings are in San Francisco.]

    b) He knows & has dinners with Steven Chu, who has been running the lab (Lawrence Berkeley Lab) that is the longtime home of Art Rosenfeld and drove many of the US appliance standards, building standards, high-frequency ballasts for CFLs, etc. Look at Rosenfeld’s talks, or the CA Energy Commission – just rummage through the headings.

    c) CA has many decades of trying out efficiency measures and seeing what works and what doesn’t, at least here, but often elsewhere. [Some is definitely applicable to Oz.]

    Taxes work for some things, and they don’t work very well for others. For example, building regulations are needed to avoid “split incentives” where a builder is tempted to keep first costs down, even though the owners will end up paying much more over the life of the building. Regulations have been needed to get appliance manufacturers to improve their efficiency ratings.

    d) IMHO, Hansen *certainly* knows about this topic and why efficiency is an important part of the energy/climate issue…

  26. observa
    January 10th, 2009 at 10:47 | #26

    I take your point about split incentives, etc and that Hansen may be well versed on mandatory efficiency standards from building codes to appliances. However we may simply require mandatory efficinency standards because the private cost of energy is way below some true social cost in the current constitution of our marketplace.

    My experience of washing machine efficiency is simply that the washing takes twice as long and what point is there making reverse cycle aircond appliances more efficient (eg mandating say inverter technology) if there is simply increasing takeup and useage? Ditto energy saving shower heads cf how long certain household members stand under them. Price dwarfs these pitiful rearguard actions IMO, as we noticed when oil prices shot up with vehicle choice and driving habits. To the extent that Govts telegraph a measured and steady crossover to carbon taxing consumers will alter their longer term outlook similarly.

  27. John Mashey
    January 10th, 2009 at 14:19 | #27

    re: #26 observa

    These are Jevon’s Paradox effects, which apply sometimes and don’t sometimes.

    For example, refrigerators are more efficient than they used to be (Rosenfeld & co). We don’t buy a bigger fridge as a result, because it wouldn’t fit into the cabinetry around it.

    Likewise, a lot of energy is wasted in commercial building lighting and HVAC. Just turning lights off automatically can save money, and businesses (around here, anyway) do that.

    Price matters for things that have high price-elasticity, but you *really, really* need to study the CA Energy Commission web pages before you dismiss all this as pitiful rearguard actions.

    For example, here’s Chevron Energy Solutions, which has a serious business around energy efficiency.

    Of course, some of this works in CA because people have been conditioned for decades to expect rising prices for electricity and gas, but it turns out monthly bills haven’t generally gone up, because people get more efficient. CA has managed to keep KWh/person flat for 30 years, while US average has gone up substantially.

  28. Peter Clancy
    January 23rd, 2009 at 13:31 | #28

    Classy stuff (Class 2A) John.
    Still following your career avidly.
    It’s academic (a bit) for me to add scholarly comment.
    Thou sayest it all.

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