81 thoughts on “Monday message board

  1. If there is confusion about levels and growth I think it is in Stern and JQ. Let’s recall that we have a STOCK of CO2 in the atmosphere of 382.43 ppm as of Dec 2006 at Mauna Loa. Ignoring methane and other non-CO2 GHGs, and BTW methane is reported to be diminishing, the Stern preferred target for stabilisation of CO2 is to hold the Stock at 450 ppm. Simply using the CO2 stock’s growth rate from 1993 to 2006, it will reach 450 ppm by the end of 2036. To hold it at that level thereafter requires that emissions of CO2 then drop to ZERO, not some footling Kyoto target like X% below 1990 levels. It has to be 100 per cent below 1990.
    So pace some suggestions above (eg Dave), if Australia it is to play its part we must eliminate our TOTAL emissions, not just some of them. On its growth rate from 1980 to 2003, Australia’s emissions will be nearly one billion tonnes of CO2 by 2036. These must drop to zero. Ruling out nuclear energy as we must because of the ALP’s likely control of all governments by the end of this year, there will have to be a strong blend of sequestration of CO2 from energy production and massive adoption of solar and windpower, and coal production will have to expand to generate enough power to produce hydrogen for land and sea transport. Monbiot is right, aviation will simply have to be abolished (nuclear power is probably the only remotely feasible alternative aviation fuel to kerosene but has to be ruled out to placate Rudd and Garrett). But fear not, we have the Stern/JQ guarantee that ending all emissions by 2036 will cost only one per cent of our GDP between now and then.

  2. Fair enough criticisms frankis, except that I think these 1%ers like Mike Rann (I live in Ranndom) and JQ are insulting my intelligence and yours. If it helps you here frankis I have an economics degree and freely admit it has much sense to offer with its marginal analysis and laws of supply and demand. However I have met men who left school at 15-16, who understand that intuitively too. Don’t be fooled, economics is a ‘social’ science from there on and has little more to offer us all than the gentlemen previously referred to(refer above to some obvious shortcomings of the predictive merits of economists)Esoteric intellectual arguments can be fun for those with a bent for it, but sometimes they need to be tempered with common sense. Also intellectuals are no more or less captive to certain biases and dogmas than they might accuse their opponents of. They can even be downright sneaky for political ends too.

    You don’t need a degree in economics to know that fossil fuels are the fundamental key to our wealth and lifestyle. The steam engine/turbine and the reciprocating piston engine are THE most important technologies here and they haven’t changed much in generations despite the best efforts of chaps like Sarich, Wankel and the like. Yes they’ve improved efficiency, but the law of diminishing returns applies here too. Now I drive down to my servo to fill up with petrol(LPG in my case) and I’m pondering how 60% less in my tank is gunna work. Putting aside the 60% less fossil fuels to mine and fashion the glass, steel, aluminium, plastics and rubber and get all this lot to me in the form of the car. Also demographic increases in demand and rising generational expectations. How is moi really gunna be affected by a 60% reduction in my fossil fuel consumption I ponder. Same with my home electricity use. Now, my mate spent $21000 (less $7000 taxpayer subsidy) to solar power his house but it doesn’t work at night. Don’t you worry about all that O meboy. technological innovation will mean only 1% cost to your lifestyle with a 60% reduction in fossil fuels(or marvellous efficiency of use). Thinks to himself- not much technological innovation has replaced his and his ancestors steam and piston fossil fuel driven lifestyle yet. Trust all the experts says frankis. Hey, I’m an expert! I’ve got one of them economics degrees and I still pick C. What say the rest of you experts?

  3. Observa: you are absolutely right albeit a touch conservative. According to IEA Australia’ CO2 coal emissions were 57.37 million tonnes in 2003, having grown at 3.3% p.a. since 1980; projecting forward to 2036, and sequestering at the IPPC’s lower cost estimate (Metz et al) of around A$100 per tonne, the cumulative cost to 2026 would be A$3.1 TRILLION; one per cent of Gdp from now until then is A$301 billion. So Stern/JQ are out about by a factor of 10, par for the course!

  4. Graham Samuel this week was admonishing the oil companies for selling their products at too high a level. Perhaps he should have been telling them to put their prices up.II’m with you observa, I can’t see how it is going to work outside of esoteric intellectual arguments-where of course anything is possible.

  5. Sorry all, there was a computer-typo glitch in my last; the correct direct cost of sequestration to 2036 is A$301.8 billion, but to that has to be added the opportunity cost, since CO2 underground yields no income, and CO2 stabilised at 450 ppm by 2036 yields no improvement in climate over today’s, with its CO2 at 382 pp. Investing what could be spent on seq. at the RBA riskless rate (say 5% on average until 2036), we would have a sinking fund of A$696.5 billion by 2036, yielding 5% or A$15.1 billion in perpetuity from then on WITHOUT reinvestment, as against a sunk cost on seq. of A$301.8 billion. My first back of envelope and erroneous calculation also omitted the extra coal (IPCC estimates between 10 and 40%) that would have to be burned to cover the energy intensive cost of seq. So just dealing with coal related emissions costs 57% of our current GDP by 2036, and coal accounted for only a seventh of total emissions, so the extra cost on an annual basis is indeed likely to be 10%+ of GDP.

  6. Some interesting exercises here, but it’s important to remember that emissions from coal count against the country where the coal is burned, not the country where it is mined.

    I’ve done a number of posts giving a clear quantitative basis for the numbers I’ve proposed – all observa and chrisl are showing is that intuition uninformed by any evidence can be way off the mark.

  7. JQ: the emissions I cited are for Australian coal burned in Australia. Could you give dates of those posts of yours, I don’t recall your case by case costings for total prevention of all emissions including from aviation.

  8. Call me a bit of skeptic about the pace and takeup of GG amelioration technology here, but there was I driving into Canberra at Xmas, off to see my hippy mate in Bega and there in the paddock is a bloody great sign saying- “This is a wind turbine free zone”

  9. I was almost tempted to go and write on it- “We only use the nicest organic Hunter Valley coal fired electricity, delivered underground”

  10. The Sydney Morning Herald was a touch schizophrenic today, reporting that on the one hand, according to the IPCC’s FARt, that we “are on the brink of climate disaster” and that if emissions do not cease before 2100 they will warm the earth for 1000 years… But… on an inside page it reports Fabiano Ximenes as finding that timber products found in rubbish tips “were still looking good 44 years after burial”. The ineffable IPCC assumed that at least 50% would have released CO2 back to the atmosphere. The fatuous Stern assumed that deforestation means that “the stored carbon oxidises and escapes back into the atmosphere as CO2” (p.537). Even the Australian Greenhouse Office concedes that the IPCC is wrong to assume that 90% of carbon released by deforestation is destroyed “immediately”. Wood products have a long life, easily 1000 years (try Westminster Hall), and crops replacing trees could well absorb more CO2 than (the exaggerated amount) that was displaced by land clearing (See Carbon Dioxide from the Atmosphere, AGO, 1998, trees’ CO2 absorption is not linear: it reaches a peak then levels off). All this is beyond our Kev,Pete,and JQ, with their prefs for coal, old growth trees, and cement.

  11. With green house gas we must stop putting them into the air and if possible start to take them out. The only way to do that is to think of as many ways as possible to generate energy with little or no carbon emissions and we have to replace our energy producing systems. The question is how much will this cost us and can we do it in time to save the planet? My back of the envelop calculations above suggest that Australia can do it within 10 years if we put about a 30% surcharge on energy. Putting a tax on carbon is not a good way of doing things because that means that governments get to spend the tax and governments are not good at spending efficiently. Putting the surcharge on polluting energy but requiring the money be spent on clean ways of generating energy can be done immediately and I suspect with little economic impact. I would like someone to tell me why this will not work?

  12. Hey! If coal only counts where it is burned, why not extend that idea of declaring parts of Australia not really Australia for migration purposes? Just make all the power plants part of (say) some Pacific Island nation’s extraterritorial embassy compound. They trade us cheap energy that they are allowed to produce with more pollution, Australia gets to sign Kyoto – everybody wins.

  13. Kevin: a surcharge seems to be the same as a tax in your system. The problem is that even a tax/surcharge of 30% seems to have had little impact on consumer demand. Oil prices about tripled after 9/11 with very little impact on consumption. Meantime despite Qantas’ fuel surcharge, demand for air travel increases exponentially. I think the tax/surcharge has to be at least 1000% to have any impact.

  14. Tim, your assumption about zero emissions being required to stabilise CO2 concentrations is wrong. Check the literature on carbon sinks. More generally, engaging in ill-informed amateur criticism on subjects about which you know nothing doesn’t help.

    Observa, before going with your gut on “many times 5 per cent”, you might take a look at how hard Tim has to strain (including big errors) to get up to 10 per cent.

    PML, I think that kind of trick works only when you are judge and jury in your own case (as is the government wrt refugees).,

  15. It’s a little more than gut John. We do have the ability to go back in time via history to assess life before the steam engine, let alone the impact of the reciprocating piston engine. As for people who come country shopping half way round the world and spend their life’s savings to risk it all in a leaky boat, it’s not all about the right to vote for John Howard mate. Try the fossil fuelled lifestyle, that permits us to need only around 60% participating in the workforce and worry about too many calories rather than too few. How easy is it to take it all for granted after a while. Certainly the Chinese and Indians don’t. GW has become the new moral badge of superiority to wear about the place. The old one ‘Ban Poverty’ is now passe and of course is as ridiculous as the new ‘Ban GW’ one that replaces it. If you don’t believe me, try banning air-conditioning in Oz. That’s an easy(marginal use) way to hack into GG emissions and can be done at the stroke of a legislative pen. However don’t let Rudd, Garrett and Co wait around 4-5 months to do it if they are elected John, because in that short time China will have swallowed up ALL our 60% GG reduction target for the year 2050. Anyway, apparently we needn’t worry about GW because all that racy, pacy technological change that will only cost us 1% of our lifestyle is gunna fix things, as the price of fossil fuels rises. I’ve got that as gospel from all the experts.

  16. To all those who are a bit reluctant to commit their present educated guess about costs to my simple A, B, or C (I was genuinely interested by the way), perhaps you could answer if you feel John’s 1% cost estimates are feasible without nuclear power. I certainly don’t. What about you John?

  17. Observa raises a good point about the mechanism for reducing GHG emissions. Taxation ? Rationing ? Public awareness campaigns ?
    Wrecking the economy would certainly work.

  18. JQ: was your last anything more than armwaving and abuse? Neither of us is a climate scientist (itself an oxymoron). Please provide links to your sector by sector cost estimates. IPCC says the sinks are full (in case of the ocean) and negative in the case of the forests. I offer 10:1 your never respond to observa’s last.

  19. Tim you are right in that a surcharge is like a tax. The differences are that the surcharge must be spent on renewable energy and the decisions on what renewables or carbon saving schemes to invest in is done through an investment market where many people decide how to invest their own funds and so they will try to get the best return for them.

    The problems with taxes are that they may not be spent on renewables (and probably won’t) and that you have money distributed by committees and governments and that is a most inefficient way to spend money.

    It comes back to Friedman’s ideas on how to get best value for money spent. Spend money on yourself for yourself and you will get the best value. (that is the surcharge idea). Spend someone else’s money on someone else and you get the least efficient distribution (that is the tax approach). It is all about the most efficient way to spend money. In this case it is investment money in renewables and using a surcharge system you get a true market. With taxes you get a “planned” renewable sector.

  20. Kevin Cox: Thanks, but your surcharge is in fact a hypothecated tax, and although I am a former Treasury official who once tried to advocate their adoption, received opinion of all Treasuries is that they are not efficient, on the strong grounds that all spending should be justified on its merits, not on the provenance of its funding. But that requires the even stronger assumption of non-corrupt governance; where I was working, taxes raised from say environmental protection found their way into politicians’ pockets.

  21. Tim you are right. I believe that the hypothecation excuse by Treasury officials is the reason that this idea is not tried. Of course the excuse is nonsense because the surcharge can only be spent on approved projects which can be supervised against corruption. The government can be involved in deciding what are approved projects but they do not make the decision on which projects the funds are to be spent and the government does not end up owning any asset created. The individuals owning the surcharge decide and they will decide the project that is best for them or the most efficient in their terms. This then gives a true market. A lot of buyers and a lot of sellers and the ability to make a choice.

    Of course government officials and politicians hate the idea of hypothecated taxes as it takes away their power and/or pork barrelling. I find it hard to understand why independent economists do not rise as one against general taxes when hypothecated taxes – where there are choices on what to spend the money – can do the same job. My conclusion is that economists are mainly employed or consult to governments and they know where their bread is buttered.

    Spenders must have to have choices on what to spend the surcharge – including in some cases selling it at a discount for cash to others who can spend it more efficiently than they can.

    Governments and politicians know exactly what they are doing. They are not going to give up the taxes they can spend without a fight. They know that there are benefits to them in being able to seemingly distribute largesse and this has formed the basis of many many grants for roads and water schemes where the money has been collected from fuel taxes and so called water abstraction charges.

    Compulsory super contributions are a hypothecated tax where the spending of the funds is partially left in the hands of the citizen so we do have an example that seems to work well.

    My guess is that Treasury officials know that if we can show that hypothecated taxes work for greenhouse abatement then people will realise that most taxes can be organised this way. There is no reason not to do exactly the same for most taxes.

    Besides Australian super the only other place where I have found a hypothecated tax is the Singapore Health Fund. Here people get a Health Account into which their tax is deposited and they have control over how it is spent – not the government or health fund. Singapore spends 3.8% of its GDP on an excellent Health system. The USA where health funds decide on where the money is spent spends 13.8% of their GDP on Health. While it is not the whole story on why there is such a difference I suspect it is the main reason.

    With global warming we do not have enough time to worry about the sensibilities of Treasury officials and we have to set up systems that give us the best value for money spent and that is through hypothecated taxes.

    A reason not to use hypothecated taxes is the administrative costs. My estimate is that with modern technologies and competitive market in people supplying the systems the cost will be about half a percent of throughput and that is a lot less than the cost of administering regular taxes.

  22. Tim if we used the approach of hypothecated taxes where the citizens controlled the spending of the money then we could dispense with most of the personnel in all government departments including Health, Tax, Social Security and Education – and get better value for our money. Most of the cost in government departments is in controlling the spending of money and if we give that control to citizens then the reason for most jobs in the Public Service disappear.

    Governments would be responsible for the budget which will specify – as it does now – that we will spend say 10% on education, 15% on defence, 50% on social security etc. and government will control the sorts of spending that is allowed and would police compliance but government will NOT decide on the minutia of spending decisions because that will be left to the citizen who will get the best value for money because it is their money and they are spending it to best advantage themselves.

    A system of hypothecated taxes would reduce total taxes by a significant amount and still give the same benefit. At present my estimate is that we spend at least 10% of taxes collected on spending the money. If this is reduced to half a percent then the savings are obvious. The benefits are even higher from more efficient spending and Singapore Health gives some indication. Potentially we are looking at getting at least twice the value from our taxes.

    The funny thing is that I believe it would help politicians get reelected much better than pork barrelling because it will benefit more people through lower taxes or the same taxes but more public spending because of more efficient spending. The losers will be Treasury officials, Public Servants and their advisors and they are going to be hard to move.

  23. Tim after reading my responses I realise that I have not actually answered the Treasury objection that hypothecated taxes are bad because they distribute money on the basis of provenance not merit.

    The approach we are suggesting does not depend on where the money comes from and we do not have to spend all the money collected from greenhouse gases on greenhouse gas abatement and we can use money collected from other taxes on greenhouse gas abatement. For example instead of the surcharge being left with the buyer of energy perhaps we give the surcharge to someone who through their life style uses less energy.

    The point about the proposal is that the merit criteria on where to spend money is decided by many citizens through a market mechanism where they have a choice on what to spend. It is not decided by a bureaucrat, or by an “expert” committee, or by some other group who try to pick winners.

  24. Observa, if you think large reductions in CO2 emissions are inevitably catastrophic, you might ponder how it is that Europeans manage to enjoy a modern lifestyle with around half the emissions per person of Americans, and much less than Australians.

  25. JQ: there has been substantial deindustrialisation in western Europe over the last quarter century while industrial output remains substantial here and in USA. But even more pertinent is that the French maintain their elegant lifestyle with per cap GHG emissions at not merely half but a third of the USA level. Nothing to with their nuclear powered electicity I suppose.

  26. The availability of nuclear power is one of many options that shows observa’s claims about the essentiality of current levels of carbon-based fuel use to be wrong. Let’s put a price tag on carbon emissions and see which option wins out – I assume as an economist, you’d support this, Tim. BTW, as regards your claims on deindustrialisation (a side issue in any case), you might want to check the balance of trade in goods for the countries you mention.

  27. Just a note with all this talk on C02 I notice more press on methane esp regarding the food industry.

    Anyone willing to give up their steak or burger?

    I wonder what they would cost if you factored in this externality?

  28. John: trade balances are flows; the LEVELS of value added in industry and manufacturing in UK, France, Italy and Germany as a proportion of total GDp all fell very substantially between 1980 and 1999, by 13% in France, 16% in Italy, 18% in UK; Germany also had very large falls because of union with East Germany, but comparable data are n/a for 1980 for both Germanies; the proportion fell in the USA as well but not by nearly as much, at 11%. (Source: World Development Indicators 2000). In principle I agree with you about carbon taxes but not emissions trading, which I feel is foolish, so far it has achieved nothing in UK and EU. But I do not see either party winning the next election here on a platform of say an extra 20 cents on petrol plus $200 a year on electricity bills just for for the feel good about doing something for the planet.

  29. Simonjim I believe about 12% of Australian greenhouse gases come from our ruminants. However there are ways of inoculating cattle to reduce their emissions (not sure it works for old men:). There are other economic reasons for doing this because CH4 represents a loss of the value of the feed and if you reduce a cow’s emissions you can get better use of the feed. Perhaps a small incentive to farmers may enable Australia to meet Kyoto?

  30. Kevin I wonder what the cost of that would be and level/% it would then be at.

    The other factor I would raise is the amount of water needed to produce this food resource.

    I we coupled the methane problem and this relatively inefficient use of our water resources, even if we inoculated them and were then to show the true cost, would meat be affordable?

    I would also imagine it takes more resources to process this food resource than most plant based products so it would still have a larger footprint.

    BTW I’m not a vegitarian.

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