Archive for August, 2015

My submission or the Abbot Point port expansion Environmental Impact Statement

August 28th, 2015 22 comments

The Queensland government is going ahead with (or, more hopefully, going through the motions of) the process for expansion of the Abbot Point coal terminal. A Draft Environmental Impact Statement has just been released, and there is a call for comments here

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Categories: Economics - General, Environment Tags:

We need a new word for “reform”

August 27th, 2015 44 comments

Hardly anyone bothered to pay attention to the “National Reform Summit” put on by the Oz and the Fin the other day. The word “reform” tells us everything we need to know about this event: yet more invocations of the exhausted policy agenda of the 1980s, all with the implicit message that we need to work harder. Both Jeff Sparrow at Overland and Ben Eltham at New Matilda have pieces today making this point.

“Reform”, meaning “change for the better” was always a problematic concept, but it was a useful word, and we don’t have a good alternative. I don’t think a single replacement is feasible, but I’d like to try out some alternatives, and call for other suggestions

“Redesign” and “restructuring” are reasonably neutral and can be used to indicate a wide range of policy changes, without assuming anything specific. For example, “retirement income policy redesign”.

“Liberalisation” describes a wide range of things for which “reform” is commonly used, for example “drug law liberalisation” or “financial market liberalisation”. This gives a pretty clear indication of the general line of policy change, without the approval implicit in “reform” (except to the extent that support for liberalization in general is assumed).

What is lacking is a good single word term for what was the primary connotation of “reform” until the 1980s, namely, policy changes along social democratic lines. Any suggestions?

Categories: Dictionary, Oz Politics Tags:

What do destroyers destroy? What do frigates … ?

August 25th, 2015 192 comments

The Abbott government is copping plenty of flak (metaphor used advisedly) over its obvious politicking with respect to the construction of a new class of guided-missile frigate for the Royal Australian Navy. The project with total costs touted at $90 billion is promised to create lots of jobs in South Australia, perhaps replacing those when the same government, in its free-market incarnation, welcome the death of the car industry.

Rather than pile on, I’ll ask a question which, from past experience, I know is bound to annoy many. What are these things supposed to do?

As far as I can tell, guided-missile frigates are supposed to shoot down aircraft and missiles, but this seems, on the face of things, to be an absurd proposition. Pitting an effectively stationary boat, costing the better part of a billion dollars, against missiles (fired from land or from aircraft), travelling at the speed of sound or more, and costing a million dollars apiece, seems like a hopelessly lopsided contest.

Of course, it’s just about impossible to test this proposition. AFAIK, the only conflict in which surface ships have actually engaged in combat with aircraft using missiles was the Falklands, more than thirty years ago. That didn’t appear decisive: the Royal Navy managed a win against the air force of a Third World country, but took some heavy losses in the process. But technology has advanced a long way since then, and there’s no way of testing which side of such conflicts it now favours. So, naval advocates can make up whatever claims they like about the capabilities of the ships we keep on buying.

Of course, the fact that there has been so little naval warfare in the last 70 years or so seems to me to be a very strong argument for spending less on money on warships.

Readers will be aware that I think war is almost always disastrous for both sides, that most military spending is wasteful and harmful, but that I know this to be a minority view. Even given that, the case against spending money on navies (and particularly surface fleets) seems so overwhelming to me that I’m amazed to find hardly anyone in agreement.

Categories: Economics - General Tags:

Is anyone surprised …

August 25th, 2015 23 comments

… by Martin Ferguson’s emergence as an enemy of the Labor Party and the trade union movement? I’m certainly not. Ten years ago, reviewing Michael Thompson’s Labor without Class, to which Ferguson contributed a laudatory foreword, I wrote

The obvious inference from Thompson’s book is not that Labor should change its position but that he, and others who share his views, should join the Liberals.

In 2009, looking at political nepotism in general, I said,

People like Belinda Neal and Martin Ferguson would never have made it into Parliament on their own merits, and would probably have been on the other side if not for their family ties

In between, I noted Ferguson’s support for John Howard’s climate do-nothingism as an argument against the hereditary principle in politics.

My record as a political prognosticator is notoriously mixed, but I got this one right.

Categories: Oz Politics Tags:


August 24th, 2015 44 comments

A new sandpit for long side discussions, idees fixes and so on. Unless directly responding to the OP, all discussions of nuclear power, MMT and conspiracy theories should be directed to sandpits (or, if none is open, message boards).

Categories: Regular Features Tags:

Monday Message Board

August 24th, 2015 65 comments

Another Monday Message Board. Post comments on any topic. Civil discussion and no coarse language please. Side discussions and idees fixes to the sandpits, please.

Categories: Regular Features Tags:

War and technological progress

August 22nd, 2015 46 comments

One of the big benefits of blogging for me is the chance to try out my ideas on an audience I couldn’t easily reach (or at least hear back from) in any other way. That’s particularly true when I’m writing a book, which is always a difficult process for me. My last post, on the opportunity cost of war produced a great comments thread. Particularly useful was a discussion, started by Chris Bertram at Crooked Timber, of the oft-heard claim that war stimulates scientific and technological progress. I’ve used my response, along with points appropriated from commenters to draft a new section for the book, pointing out how this claim ignores the problem of opportunity cost.

As always, comments of (nearly) all kinds are appreciated, and useful ones may be recycled.

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Categories: Economics in Two Lessons Tags:

Three word slogans

August 22nd, 2015 18 comments

I have a piece up at the Drum, looking at how the three-word slogan approach of the Abbott government helps to explain their budget problems. Text is over the fold

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Are there any sceptical “sceptics”

August 21st, 2015 40 comments

The US National Oceanic and Atmospheric Administration just reported that the global mean temperature for July 2015 was the highest for any month since record keeping began in 1880. That follows a string of record-breaking months. And with a major El Nino well under way, it seems highly likely that more record high temperatures will follow.

To anyone with a sceptical attitude to factual assertions, this evidence would appear to cast grave doubt on the claim that the world is experiencing a “hiatus” or “pause” in global warming. On the face of it, either the supposed “hiatus” never occurred, or it has now ended.

So, it’s natural to ask whether such sceptical attitudes have been observed among those who describe themselves as “global warming sceptics”. I would be genuinely glad to find examples, since it would imply some possibility of serious discussion, as opposed to a restatement of tribal shibboleths.

Are any sceptical sceptics reading this? Has anyone else noticed any? Or are self-described “sceptics” only sceptical about things they don’t want to believe.

Categories: Environment Tags:

Big Tobacco: A threat to Australian democracy

August 20th, 2015 29 comments

The news that the tobacco industry is seeking to abuse Freedom of Information legislation to gain access to surveys of Australian teenage attitudes to smoking confirms what has been obvious for a long time. The tobacco industry is a threat to democracy. Among its many hostile actions
* Misusing ISDS and other provisions of trade treaties to undermine domestic health policy
* Debasing public debate through the use of scientists for hire, fraudulent lobby groups and thinktanks, vexatious litigation and other tactics. In the use, these actions have led to criminal racketeering. The denialist apparatus set up by the tobacco industry was taken over by the fossil fuel lobby to promote global warming denialism
* Large scale purchasing of politicians and political parties

The big question is, what should be done about this? We need to consider a comprehensive approach to drug policy, which would also take account of the failure of the War on Drugs, and provide a model for legalisation of currently illegal drugs. That rules out prohibition of tobacco, but would leave no role for corporate pushers.

Even if we don’t get there immediately, it’s highly desirable to start the discussion. Big Tobacco and its friends should be warned there is something to lose from attacking democratic government.

Categories: Oz Politics Tags:

The opportunity cost of war

August 19th, 2015 37 comments

What is true of natural disasters is even more true of the disasters we inflict on ourselves and others. Of these human-made calamities, the greatest is war. The wars engaged in by the US, Australian and other governments come at the opportunity cost of domestic programs that could save thousands of lives every year. The cost of war, in terms of American (and Australian) lives, is many times greater than battlefield casualty counts would suggest.

That’s the theme of this extract from my book-in-progress, Economics in Two Lessons. You can find a draft of the opening sections here.

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Categories: Economics in Two Lessons Tags:

Polls and punters, yet again

August 17th, 2015 52 comments

I just read this piece on The Drum, taking the line that it’s better to rely on the betting markets, which have Labor and the government level-pegging, than on the polls, which have had Labor well ahead for a long time. Elections are only held every few years, so they don’t provide much data on which to test the relative performance of the two. But, if markets give better estimates than polls, we should expect to see movements in the poll results follow those in the market rather than vice versa (in econometrics, this is called Granger causality). Digging around, I located a study finding that, if anything, movements in polls Granger cause movements in betting markets.

Since a compelling observation beats an econometric analysis for most people, let’s look at the 18 months or so since I last posted on this topic. Labor started out with a small lead in the polls and stayed consistently in front, with the lead varying over time. Meanwhile, the betting markets favored the government until very recently, before moving to even money. It seems clear in this case, that the markets are following the polls and not vice versa.

Categories: Oz Politics, Politics (general) Tags:

Green jobs

August 17th, 2015 13 comments

The question of “green jobs” has arisen in a lot of different contexts. At present, the most relevant is the problem of how to deal with the employment effects of the necessary and inevitable decline of industries based on fossil fuels. Part of this question is whether expanding sectors of the economy will create a number of new jobs comparable to those that disappear , and whether those jobs will be appropriate for the kinds of workers who worked, or would have, in the declining sector (that is, predominantly, male manual and trades workers). There are a lot of conceptual problems here, which I’m not going to address in detail. Rather, I’ll just look at some raw numbers and throw in some comments.

I was struck recently to read that, in the United States, the solar power industry now employs 174 000 people. That’s twice as many as coal mining. And, while these aren’t direct substitutes, they are, it would appear, broadly similar kinds of industries in the sense that the core workforce is dominated by male manual and trades workers.

Looking quickly at similar stats for Australia, I found that the numbers were reversed. According to the ABS, there were just under 40 000 Australians employed in the coal mining industry in May 2015, down from a peak of 60 000 in 2012, but well above the 20 000 or so employed in the early 2000s.

The Clean Energy Council estimates around 20 000 jobs in the renewables sector in 2014 – that’s up from virtually zero before 2010. So, broadly speaking growth in renewables has offset the decline in coal mining.

One specific issue in the US, that’s less of a problem here, at least in Queensland, is that of declining communities in places like Appalachia. Thanks to the practice of Fly-in Fly-Out, there are many fewer Australian communities focused on coal mining.

Finally, some related statistics I found in the process of researching this. The forestry and logging industries currently employ 3900 people (this number bounces about a lot, so I’m not sure how reliable it is). That’s about the same as the combined total for the NSW and Victorian National Parks systems. I expect if you added in various kinds of manual/trades jobs in adventure tourism and similar, you would find a net gain over the past 25 years or so.

Categories: Economic policy, Environment Tags:

Monday Message Board

August 17th, 2015 16 comments

Another Monday Message Board. Post comments on any topic. Civil discussion and no coarse language please. Side discussions and idees fixes to the sandpits, please.

Categories: Regular Features Tags:

Are natural disasters economic disasters ?

August 14th, 2015 14 comments

Yes. This has been the latest in our series “Short Answers to Misconceived Questions”.

Actually, there’s a longer answer over the fold, another extract from my book-in-progress Economics in Two Lessons. You can find a draft of the opening sections here.

This extract is a subsection of Part 2, in which I explore the implications of Lesson 1:
Market prices reflect and determine opportunity costs faced by consumers and producers.
The conclusion is

if the damage bill measures the cost of restoring assets to their pre-disaster condition, it is also equal to the opportunity cost of the disaster, namely the goods and services that would otherwise have been produced.

I’ll be interested to see whether readers’ reaction is “That’s obvious” or “That’s obviously wrong”, assuming of course that you have any reaction at all. As always, civil comments of all kinds are welcome, particularly constructive criticism.

Read more…

Categories: Economics in Two Lessons Tags:

Solar PV (now with grid backup)

August 13th, 2015 60 comments

Following my previous post there was some discussion about the need for grid backup of solar PV to deal with extended periods of overcast weather. It’s obvious that storage will help with this to some extent, since batteries can store electricity from the grid as well as from distributed solar. I thought I would try to put some numbers on this (slightly changed from last time to simplify the numbers).

I’ll focus on 1 kW of solar PV generating an average of 4.8 kWh per day, with (as before) 2 kWh of storage. If there is zero solar generation and no demand management, the entire 4.8 kWh per day must be drawn from the grid. In the absence of storage, we might suppose that 1kW of backup capacity is needed to match the peak output of the solar PV system. But with storage, all that is needed is enough to supply 4.8 kWh over the course of a 24-hour day, that is, 0.2 kW.

The optimal backup choice is a fully dispatchable technology such as hydro or gas. Hydro resources are pretty much fixed, so I’ll focus on gas. According to the US Energy Information Agency, the capital cost of gas-fired power plants is around $1000/kw so our grid backup will have a capital of cost only $200 for each kW of distributed solar. There’s also the need to take account of fuel and distribution costs. Fuel costs will be low since the system is only used as backup, while distribution costs will be around 20 per cent of what would be need if peak loads were to be met by centralised generation.

To sum up, if battery storage becomes available at a sufficiently low price, there’s no obvious problem with a system in which over 80 per cent of capacity, and an even larger proportion of generation is distributed solar PV.

Categories: Environment Tags:

EROEI (batteries now included)

August 12th, 2015 50 comments

As I showed in a recent post, a typical solar cell will generate at least 10 times the electricity used to produce it, and probably substantially more. This Energy Return on Energy Invested (EROEI) calculation didn’t take account of battery storage, which is needed to make solar PV comparable to dispatchable technologies like gas.

For this purpose, I’ll assume that each kilowatt of PV capacity requires 2 kilowatts of battery storage. The reasoning behind this is that we get an average 5kWh/day from the PV system, of which 3kWh is used during the day and 2kWh is stored.

According to this life-cycle assessment, a 26.6 kWh battery has a life-cycle cost of 4.6 tonnes of CO2, which comes out to around 0.4 tonnes for the 2kWh system proposed here. Assuming that the system displaces black coal, which conveniently yields about 1 tonne of CO2 per mWh, we have a cost of 400 kWh, which is only a few months worth of generation from a 1 kW system.

This seems amazingly good, so I may have made an order of magnitude mistake somewhere. If so, I’d be grateful to have it pointed out. If not, I think we can put the EROEI constraint to bed, at least as regards solar PV.

Categories: Environment Tags:


August 12th, 2015 78 comments

A new sandpit for long side discussions, idees fixes and so on. Unless directly responding to the OP, all discussions of nuclear power, MMT and conspiracy theories should be directed to sandpits (or, if none is open, message boards).

Categories: Regular Features Tags:

Midweek Message Board

August 12th, 2015 10 comments

A special Midweek Message Board. Post comments on any topic. Civil discussion and no coarse language please. Side discussions and idees fixes to the sandpits, please.

Categories: Regular Features Tags:

Score one for the planet

August 6th, 2015 81 comments

Several pieces of news in quick succession, have made in clear that the nightmare prospect of six mega-coal mines in the Galilee Basin has been staved off, at least for the foreseeable future. The key to the whole process is the Carmichael mine proposed by Indian conglomerate Adani. The rail line and port expansion proposed by Adani is necessary if any of the other mines are to proceed. Now the goods news

* Having already sacked its contractors, Adani is laying off most of its own staff, their non-denial denial notwithstanding. The break with Korean Steel company POSCO is particularly notable since POSCO was a likely equity investor and could have brought in debt funding from the Korean Export-Import bank
* The Federal Court overturned Minister Hunt’s approval of the project. While the grounds were technical, the decision raises the possibility that the whole process will need to be reassessed in the light of the adverse information that
* The Commonwealth Bank, the last likely source of debt finance for the project has ended its role as advisor

The remaining question is why, with no mine remotely in prospect, the Queensland government is still calling for expressions of interest in dredging for the proposed Abbot Point expansion. Hopefully, they have just been going through the motions. But, with the latest news, it’s time to stop throwing public money at this mirage. The tender process should be halted, at least until, and unless, the project is re-approved.

Categories: Environment Tags:

The generation game and the 1 per cent

August 6th, 2015 50 comments

For a generation (fifteen years) or more I’ve been writing and rewriting the same piece about the silliness of the “generation game”, the idea that one’s year of birth matters more than class, gender or race in determining life outcomes and attitudes. But this is a zombie idea that can never be killed.

Stephen Rattner in the New York Times is the latest example, with a piece showing that US Millennials (those born after 1980) are doing much worse than previous generations at the same age, despite higher levels of education. Rattner notes the role of the recession, now nearly a decade old, but then jumps to the conclusion that it is the Baby Boomers, as a group, who are to blame. His only evidence for this is the long-discredited claim of a looming crisis in Social Security.

Rattner doesn’t present any evidence about the recent experience of non-Millennials, but his piece leaves the impression that the experience of doing worse than older cohorts at the same age is uniquely Millennial. So I thought I’d do his work for him, and dug out this graph prepared by Doug Short HouseholdIncomeByAge As can be seen, the group suffering the biggest loss, relative to older cohorts at the same age, are those households with heads aged 45-54 in 2013, a mix of late Boomers (for aficianados, this group is called Generation Jones) and early X-ers. But the main point is that median household income is falling for all groups except the 65+ cohort (mostly called Silents in the generation game). Part of this is due to declining household size, but (IIRC) household size has stabilized recently as forming a new household has become less affordable.

Rattner doesn’t mention, even once, the obvious and well-known explanation for the fact that median income is falling while mean income rises. This can only occur if the distribution of income is becoming more skewed, with the top tail (the 1 per cent) benefiting at the expense of everyone else.

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August 4th, 2015 35 comments

Among critics of renewable energy, one key idea is that of Energy Returned On Energy Invested (EROEI). The central idea can be illustrated by the case of ethanol produced from corn in the US. It’s argued by critics that the production of ethanol from corn uses more fossil fuel inputs than it displaces. The US Department of Agriculture has an EROEI slightly greater than 1, but it’s still clear that corn ethanol is not going to do much to solve the carbon dioxide problem.

Now lets look at the case of solar PV. The energy-intensive component of a solar PV module is the polysilicon used to produce the wafer, which is produced using an electric furnace. Clearly, if more electricity is used in this process than is generated by cell, EROEI < 1, and the idea does not work. We can do a rough check by observing that a typical wafer uses 5 grams/watt of polysilicon. The cost of polysilicon is $20/kg. To be conservative let's assume this is all electricity, at a cost of 5c/Kwh. Then a quick calculation shows that each watt of PV requires 2 KWh of electricity in production or about 1 year's generation in a favorable location. So, for a panel with a 10-year lifetime, the EROEI is 10. Clearly not much of a problem. The estimate omits the energy costs of the rest of the module, but that's almost certainly more than offset by the conservative assumptions about polysilicon.

Some EROEI fans don't like this calculation. They want to include all sorts of other costs, going as far as the food energy used by the workers who instal the panel. At this point, the exercise becomes one of trying to price all economic activity in terms of energy, an idea that has been tried without success for decades. For everything except energy-intensive activities like smelting, energy costs are a small part of the total, and imputing such costs to any particular energy source is a fools errand.

Categories: Economics - General, Environment Tags:

No regrets

August 4th, 2015 6 comments

Another quick reaction piece, this time on Obama’s climate policy, for The Conversation. My key observation is that, despite its ambitious goals, Obama’s policy is still in the “no regrets” class. That is, the domestic benefits for the US, disregarding climate effects, outweigh the costs. More over the fold

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Categories: Environment Tags:

How our Senate (and not the US Senate) blocked the TPP

August 4th, 2015 17 comments

Following the breakdown of talks on the Trans Pacific Partnership last week, I did a quick reaction piece for Inside Story, making the point that our much-maligned Senate was the most important source of resistance to the demands for yet more protection for US pharmaceuticals, demands that make a mockery of both the claim that the TPP is a “free trade agreement” and the “diffusion of knowledge” rationale for the patent system.

Is an emissions trading scheme a carbon tax?

August 4th, 2015 23 comments

I was recently asked this question by ABC Fact Check. Here’s my answer:

The core idea of an ETS is to limit the volume of emissions (of carbon dioxide) by creating a set of permits that must be used by emitters. The permits may initially be auctioned or given away. Since the permits are tradeable a market price will be determined by the demand for permits and the willingness of permit holders to sell their permits. By contrast, a carbon tax sets a price on carbon emissions and allows the market to determine the volume of emissions.

There are a large variety of schemes that resemble the ETS in general structure. Within the environmental area, both the Renewable Energy Target and the government’s Emissions Reduction Fund (if augmented with a baseline allocation and penalty structure) fall into this class. Other examples include taxi licenses, electronic spectrum auctions, and tradeable catch quotas in fisheries. None of these policies is normally described as a tax.

CCS: A fiction that has outlived its usefulness

August 2nd, 2015 41 comments

With only a handful of pilot projects in operation around the world, Carbon Capture and Storage (CCS) has not played a significant role in reducing carbon dioxide emissions. CCS has, however, been valuable as a fiction for all those who want, for whatever reason, to avoid dealing explicitly with the fact that stabilizing the global climate will require ending the use of fossil fuels, and particularly coal. For example, rather than prohibiting new coal-fired power stations, the US EPA has proposed that only power stations equipped with CCS technology should be permitted. Since new coal stations are mostly uneconomic even without CCS, this amounts to a ban, but can be justified simply as requiring best practice.

It now appears that this fiction has outlived its usefulness. Recent reports suggest that the EPA will drop the CCS requirement in favour of the weaker requirement that all new coal-fired stations should use supercritical combustion. There are two main reasons for this

(a) The requirement might not stand up to legal challenge on the basis that CCS is not a feasible technology
(b) No new coal plants are likely to be built anyway

Meanwhile, the EU is struggling over proposals to stop subsidies for coal-fired power. Again, the compromise was to subsidise only projects with CCS. But the coal lobby is now arguing that

proposed requirements on carbon capture and storage (CCS) to neutralise emissions have to be realistic as the technology is still in its infancy.

In this context, “realistic” means supercritical and therefore theoretically ready for CCS, as opposed to actually using the technology.

Combine this with a string of cuts in funding for CCS projects, and the conclusion is inescapable. CCS is an ex-parrot.

Categories: Economics - General, Environment Tags: