The government’s response to the Garnaut report has been less than enthusiastic. Still, who would have thought, a year ago, that the news would be “government reaffirms target of 60 per cent cut in emissions” and that the only effective criticism would be from those saying the target is too soft.
The government is also saying that the review will be one input to policy. This isn’t all to do with the bad news in Garnaut: now that they are in office, departments like Treasury are pushing hard for a say in the process, rather than relying on an independent expert.
John Quiggin 
I wanted to comment by way of a question when I read what you said in Crikey yesterday about the effect of Australia (with US) not having ratified Kyoto earlier. Are you not the victim of that characteristically Australian distortion of perspective which (a) forgets that Australia’s interests are often quite different from those of the US and (b)greatly exaggerates the effect of anything Australia does? Obviously we cement our position as a reliable US client from time to time with only prospective and unreliable rewards in mind but both major parties agree that, on balance, it has to be done. However, it is no reason to maintain illusions. Australians protested against the Vietnam war as though our interests and those of the US which lost 55,000 troops killed were the same. The idea, though occasionally fostered disingenously and rhetorically by a few Asian ministers, that Australia’s stance on Kyoto has had any material effect on the course of the possible climate disaster by providing excuses for inaction is ridiculous, n’est-ce pas?
perhaps the problem is not so much 60% versus 90%. maybe it’s the realization that you have elected politicians to run the nation, again. and once again, you are faced with reality: their goals and the goals of the people are not closely connected.
this is normally not a big problem, but this time the goals of the people include survival, when those of the pollies always begin and often end with re-election. when wong stood up, po-faced and unequivocal, and said the very enquiry that labor commissioned to beat the howard regime about the ears with was just another ‘input’, all of australia should have felt betrayed, again. well, except for me.
i never expected anything different. that’s why i don’t vote for pollies, nor have much respect for those that do. ok, it’s cultural: you are brought up to accept pollie rule as inevitable, and inescapable. like gravity, really.
well, now that we are clear that politics-as-a- tool-of- re-election will direct the government in it’s handling of what might be a genuine question of racial survival, let’s stop hoping for the best. instead, let’s do what ozzies do in the political sphere- talk, and talk, and then .. stop talking.
Disengagement of the political class has a nice ring to it…
I think judgement here to say Labour will not is a little harsh. Penny Wong should not be cajoled on door-stop interview to a policy position that without proper consideration of the report and the learned input of other economists (treasury included) as to how, when and how much. Garnaut is correct our emission reduction will make no physical difference to the global problem but if we get it right then we can make a big contribution to the global solution. Early days to be blowing the whistle!
I do find Penny Wong’s comments a little odd. Firstly, I didn’t realise the Rudd government will still be around in 2050. Secondly, Garnaut’s proposal for deeper cuts was in the context of collective international action for deeper cuts. Is the Australian Government saying that if the rest of the world cuts emissions by 80-90% in 2050, Australia should still only reduce its emissions by 60%?
Although the ALP did make an electoral commitment to a 60% 2050 target, I do not believe that the government would be breaking that commitment if its policies mean that we can strengthen that target in the future.
I disagree that it is too early to blow the whistle though. It seems to me that the government is deliberately distancing itself from the Garnaut review because it does not have the guts to implement the climate change mitigation that is required.
I suspect that we are only going to get good policy from the Rudd government if there is political pressure on the Rudd government to have good climate change policy. Climate change policy should be based on economics and climate science rather than politics, special interests, and regression analysis of opinion poll results. Unfortunately Rudd seems more interested in the latter.
Until I see good policy coming from the Rudd government, the honeymoon is over Kevin!
Personally I’d be ecstatic if Australia reduced its emissions by 60% in 2050. (Frankly, I’d be astonished if we’d stopped emissions growing before 2020). So its not the more ambitious target that’s the problem, its the immediate demoting of the Garnaut report to an “input” that’s my main concern.
I can’t say I’m the slightest bit surprised though. I’ll start believing that Rudd is taking the problem seriously when he announces that electricity prices are rising by 50%. I mean, if Rudd can’t do it now when he’s a few months into a first term honeymoon, up against Brendan “Mr 9 percent” Nelson, when will he do it? Indeed, when will any politician do anything?
If it doesn’t happen now, our next opportunity will be 5-10 years from now when Prime Minister Turnbull is enjoying his honeymoon period.
Rudd’s broken one of the golden rules of politics – never hold an inquiry into anything unless you already know the answer. Unfortunately for Rudd & Wong – Garnaut has now created a headache for them. The optics mean that Rudd looks like he’s backpedalling when of course the reality is he is pushing well ahead of where anyone expected him to go. I wonder what Garnaut’s agenda is?
Carbonsink: What reduction in greenhouses gasses do you envision if the price of electricity goes up by 50% ?
Consider: Electricity is an essential service
: A 50% rise has had little effect on petrol consumption
Bugger all, but at least it will indicate Rudd is taking the problem seriously.
James Guest Says:
What the hell does this mean? Who does the “our” in “our interests” refer to? Who gets to decide what “our” interests are? Ditto for the US.
If higher electricity prices is the stick there must be a carrot to ease the hurt. Basically the solar rebates will go leafy suburbs where it means delaying the new car for six months. In struggletown it could mean less food. I’m now starting to think that electricity retailers should take charge and give household makeovers (insulation, smart meters etc) and work out a payment plan. Since State govts normally demand a dividend from their powercos the Feds should set up a reward system for achieving real cuts. See it close up and personal, unlike carbon banks and PNG forests.
“A 50% rise has had little effect on petrol consumption”
In the short term that might be true, be its pretty obvious it is having major long term consequences. People now want to live in the inner city much more than previously, and car manafacturers that didn’t make good small cars have basically gone and are going broke (Mitsubishi in Aus, Ford and GM overseas, cf. Toyota).
solar cells are not the complete answer to our crisis, but they are clearly helpful and distributed power generation has virtues such as damage control and no line loss. since they are a social good, society should pay for them.
new houses can be regulated to contain their own power supply, with a subsidy for the actual cells, and a bonus for extra capacity.
old houses can be retro fitted, free of charge, with a payment for the trouble involved in putting someone on the roof.
subsidized installations should be plugged in outside the meter, with provision for the householder to pay for the installation and move the feed inside the meter.
socialism can be wonderful, learn to love it.
Hardly socialism. Just an ill-thought-out government program.
Cost it (initial capital + ongoing maintenance) and compare to the cost of a centralized facility.
I expect the report on my desk by Monday morning.
Re 8, 12: High petrol prices should affect peoples investment decisions on fuel economy for cars etc. Hopefully this will mean that the long term price-elasticity of demand for petrol is greater than the short term price-elasticity of demand. I don’t know if this is true in practice or not. It could also be the case that a perception that the price is only going to increase will have a more significant impact on behaviour than the price itself.
mugwump, distributed generation can avoid costly powerline upgrades in areas of growth and reduce transmission losses. These can account for over 30% of electricity costs. Very importantly, people with their own solar generation become acutely aware of their power use/generating balance.
Peter Wood: We are hooked on petrol and we are hooked on electricity. Our houses and cities rely on both.Raising prices won’t reduce consumption.
Raising prices may well have little effect in the short-term, but that’s unlikely in the long-term. Look at the response to the OPEC 1970s oil price hikes, which caused a shift to smaller, lighter vehicles and arguably brought forward the focus on drag factors and engine efficiency in car design.
Tom N ” a shift to smaller, lighter vehicles and arguably brought forward the focus on drag factors and engine efficiency in car design.”
So how do you explain SUV’s?
“Hopefully this will mean that the long term price-elasticity of demand for petrol is greater than the short term price-elasticity of demand. I don’t know if this is true in practice or not.”
– Peter Wood
It is **obviously** true – you don’t see many castiron V8s in Europe, for example. In fact throughout economics longer term elasticities are almost always much higher than short-term ones (a problem which, BTW, is underrecognised in the econometrics of measuring them). It takes time to change habits and to develop substitutes.
“how do you explain SUV’s?” – chrisl
Because petrol is far too cheap.
“So how do you explain SUV’s?”
Legal loopholes that classify them as light trucks and not passenger vehicles.
Meaning they tend in most countries to attract lower levels of sales tax and import duty and to be exempt from most of the safety and air pollution laws that apply to cars.
Until a couple of years back all ten of the vehicles classified as least safe in the US were SUVs.
“Carbonsink: What reduction in greenhouses gasses do you envision if the price of electricity goes up by 50% ?”
“Bugger all, but at least it will indicate Rudd is taking the problem seriously.”
Well if all you’re looking for is a meaningless gesture, how about we all just wear sack cloth and ashes?
In econometric studies, “long-run” is traditionally taken to refer to a period of five years, long enough for some kinds of adjustment, but not for replacement of capital stock, let alone induced innovation. The elasticiteis relevant here are much higher.
To answer the question “What reduction in greenhouses gasses do you envision if the price of electricity goes up by 50% ?â€?” I’d say, around 33 per cent, which is implied by a long-run elasticity of 1 (since 1/1.5=2/3).
We might have to! 🙂
Seriously though, I’m not looking for a meaningless gesture, but until we see a price on carbon (however small and however ineffective) all this talk about Kyoto, 60% targets, clean energy targets etc, is just hot air.
Well, lets hope ProfQ is given the opportunity to be proved correct.
I’d anticipate we’d see real reductions from industry pretty quickly, particularly industries where electricity forms a large percentage of their cost base.
I’m not so sure about residential consumers. I have a sneaking suspicion most households wouldn’t be able to tell you what their quarterly electricity bill is, so I doubt an increase from (say) $400 to $600 would have much impact.
If I was king for a day (and isn’t that a scary thought!) I’d make smart electricity meters mandatory. They’d attach to your fridge and show you the cost of your daily electricity usage. If you turned on too many appliances they’d flash lights and sound an alarm, a bit like that one on “Carbon Cops”.
Whaddya reckon Terje? Mandatory electricity meters — yet another infringement on your God-given right to foul the planet?
Re: Chris (#19), the emergence of SUVs does not negate the point I made. Clearly, many things affect the nature of the vehicles people drive, and how much they drive, and there have been signficant changes over the last thirty years in consumer incomes and preferences, as well as in fuel prices (which, incidentally, are much lower now in real terms than their highpoint in the 1970s). The question is whether the OPEC price hikes made vehicles more fuel efficient than they would otherwise have been, and the answer to that is “yes”. Of course, other factors have since led to an increae in fuel consumption, but whatever the trend, increasing real fuel prices can be expected to lead to reduced fuel consumption (ceterus paribus).
Well if all you’re looking for is a meaningless gesture, how about we all just wear sack cloth and ashes? – Ian Gould
Getting ahead of the game –
1. gives us a chance to influence followers with more substantial national and per capita greenhouse input to our mutual benefit
2. gives us growing as well as declining export markets in the energy industry
3. gives us a better local quality of life sooner – it’s not as if we actually like coal mines in wine country or traffic in city peak hours
Items such as SUVs are purchased for reasons beyond just price of one factor (in this case fuel); functionality, maintenance, perceived safey, marketing, status, emotional state, alternatives available etc all feed into the decision making. Same goes for any other product or service.
Inertia in markets where a change is seemingly warranted on rational grounds, yet fails to materialise, can be partly explained by behavioural factors affecting preferences. Relevant to the current global warming issue, and any responses to it, is whether it seems to be socially “normal” to adopt low-energy habits, or whether it is socially “deviant”. Even acceptance or denial of anthropogenic global warming is in part a social issue for most people. Go to a rural sporting club (eg lawn bowls or weekend cricket) and start a discussion on global warming and or water – then tell everyone you’ve been indulging in energy saving and conservation practices and you’ll be marked for life :-0
This is where the government of the day can make a real difference by helping to socially normalise something that once might have been seen as rather radical. That’s quite apart from introducing legislative constraints on anything.
In the previous government’s world, even the suggestion that we could improve energy efficiency would tar a person as an environmental religious zealot, to use Howard’s words.
I’m not sure if anyone has raised the prospect that steep carbon cuts may happen anyway due to physical depletion and price rises. Before long Australia will become a net oil importer http://anz.theoildrum.com/node/3657#comments. Outlooks for natural gas and coal differ according to the source, noting that ABARE is far more sanguine than some unofficial groups. Complicating matters are offshore discoveries, oil/coal substitution, new technologies such as underground partial combustion of coal and pressure to supply Asian economies rather than conserve.
So if carbon cuts of x% by 2050 will happen anyway
I’d prefer it was an orderly transition, not a scramble.
To answer the question “What reduction in greenhouses gasses do you envision if the price of electricity goes up by 50% ?�� I’d say, around 33 per cent, which is implied by a long-run elasticity of 1 (since 1/1.5=2/3).
Very interesting. Does it also mean that to acchieve a 60% reduction prices need to go up 100%?
It would be interesting to track petrol prices vs consumption over the last 5 years to see if it adheres to the formula
Tom N
Further to your comments (which I agree with) the real price of oil did fall in countries like Australia and USA from 1990 to 2005, which explains the rise of SUVs. In European countries policy kept the oil price high ($3+/litre in France, Germany) and sure enough, there are very few SUVs. Price has an impact in the long term.
Generally transport demand is highly ineleastic with respect to price in the short term, and even fairly inelastic in the long term. However vehicle type, mode choice (car vs PT in cities; rail vs truck in rural freight) and trip length do vary over time. People and businesses change their equipment, location and habits.
So travel demand remains inelastic, but the demand for private motorised travel (passenger car or freight truck) can be reduced over time IFF there is an alternative made available. If governments here don’t invest in increased public transport the changing the vehicle fleet is the only real way of reducing transpor emissions. That could reduce transport emissions 20% to 40%.
Also, bear in mind that the average age of Oz’s vehicle fleet is ten years, so it takes a decade for these trends to have an impact.
Finally, you can achieve this without price too. Just pass ADRs for fuel consumption.
Ummmm … yeah, that would be like legislating Ford and Holden out of business. Like that’s gonna happen!
SJ Says: February 22nd, 2008 at 4:40 pm
The “our” was expressed by democratic vote of the people. The pro-war LN/P coalition won elections in 1966 and 969.
Ditto for the US. Both major US parties supported the war from 1964 until 1972. In fact LBJ & RMN won landslide victories on war platforms.
Why do so many ideologues blatantly ignore basic historical fact?
Carbonsink
I don’t agree. Firstly you can’t assume that the current auto industry policy will see them survive anyway. We have just seen Mitsubishi go and if Falcon sales don’t improve Ford may follow (though they have already announced local asembly of Focus to come).
Second, is it such a disaster? For all that we spend propping them up, the lesson of the recent Mitsubishi collapse (and I live in Adelaide) is that the pain was far less than feared. There is now competition to employ the retrenched workers. In other words, are we being rational about this? In a full employment economy, are there better things for our skilled workers to do than make cars? I suspect that the answer may be yes.
Third, I recall a few years ago that Holden actualy had a prototype Hybrid Commodore, but didn’t put it into production. Likewise Toyota makes Hybrid Camrys in the US but not here. Why can’t we encourage one or two to make hybrids here, and the third to make an economical four cylnder car?
It is not realistic to expect three local hybrid makers, just as four local V6 sedan makers was crazy. But one or two may survive that way. One thing is certain though – even 3 won’t survive making V6s five years from now, just on market trends and peaking oil prices.
Finally, perhaps I didn’t make my point clear on ADRs – that is, we shouldn’t assume that economic measures will solve all aspects of greenhouse emission problems. They can’t. Some issues are best solved technically, and some with economic policies. As an engineere economist, I grow weary at times of economists assuming price solves everything. Human nature (and technology) aren’t that simple.
I am made painfully aware of my power use and government inefficiency every time I receive my electricity bill. Let’s not make it worse.
I am made painfully aware of my family’s food use, duopolistic price fixing and private enterprise inefficiency every time I go to the supermarket.
Heh. The retail grocery duopoly in Australia is a government/union abetted disaster. Don’t blame private enterprise though; efficiency in free markets always requires competition. And think how much worse it would be if there was only one supplier: the govt.
Apart from just the number of cars, you probably want to worry about how much people drive them too. There are lots of people in Melbourne and Sydney, for example, that would love not to have to use their cars for most journeys (as witnessed by the increase in patronage in Melbourne at least as petrol prices went up), but the public transport system is now so unreliabile, packed at peak hours, and dangerous at night, that they don’t. If someone bothers to fix those things one day, I doubt people will give up their cars on mass, but they’ll use them far less. In this case, the size of people’s cars may not matter as much as the usage they get.
mugwump, it’s one thing to be painfully aware of your power bill and just regretfully paying it. Those with rooftop solar generation take ownership of their power use and because they see intimately the cause and effect via the meter, feel empowered and in control and therefore more vigilant as to unnecessary consumption. It is also an asset which will rise in value with the cost of power.
Maintenance of the system, what little there is, comes free. A rooftop is an ecological wasteland where-as, even the desert is teeming with life. I agree we need large systems, but use up the rooftops as well.
I believe it’s too early to spend vast sums on monster pv arrays, because the technology is not quite mature. It makes sense to get a start, injecting some money into the system via houshold pv, for the development of really cheap solar power. Nanosolar has done it but will not be able to supply for a few years due to forward orders.
Conrad 38
Quite right! The problem is that policy makers seem to assume that the capacity of public transport systems is infinite, and thus never requires further investment once constructed. The public transport systems in most Australian capital cities are at their limits of capacity now. Increased demand will simply increase delay and unreliability.
mugwump, how the hell is the retail grocery duopoly in Australia a union disaster?
The way I see it, the government has inflicted the same principles of deregulation on unions as they have on marketing groups, effectively giving those who already had too much power, the supermarkets in this case, even more power.
Socrates:
No, its not a disaster. Ford and Holden (and the idiots who awarded the Commodore car of the year) all deserve to go out of business. I said it won’t happen, not that it shouldn’t happen.
I believe that’s what KevinO7 promised. IMO its far more likely Ford and Holden will whack a Euro-built diesel into the Commodore and Falcon if petrol prices go through the roof. Its an infinitely simpler engineering job than building a hybrid.
I agree entirely, there is a place for regulation. However, I very much doubt that the federal government would legislate fuel economy standards of (say) 7.0L/100km, thus making the top selling Aussie-built family cars illegal, and putting thousands of jobs in peril.
mugwump Says:
It’s possible that mugwump lives in one of the few US states where the state has retained control.
It’s more likely that mugwump is clueless about who supplies his electricity (assuming that mugwump is telling the truth about living in the US).
If we liberalise gun laws you are going to put a whole stack of them on your roof to fire bullets at the front garden. And if we make you king for a day you’re going to put flashing lights and alarms in everybodies kitchen in case they turn on an electric heater. You are indeed a strange person.
While the preliminary report from Professor Garnaut is sobering reading there is hope. The CSIRO reported on the same day in the Canberra Times that a 35 by 35 square kilometres of land could supply enough solar thermal electricity for Australia. The trick is how to fund the investment. Garnaut puts his faith in emissions permits and trading to supply the funds. This will supply the funds but it may not give the most efficient method to allocate the funds. The most efficient method of allocating resources is through markets where many buyers make choices between many sellers. If we distributed the funds raised from emissions permits to many buyers and permitted them to make choices on what renewable technology to invest in then we would have a market in infrastructure for reducing greenhouse gases. If we gave funds to those in the community whose lifestyles generated fewer emissions but we required them to spend the money on infrastructure to reduce emissions then we will magnify the utility of emissions permits. This approach would mean that we could have zero net emissions within 10 years and as a nation be richer at the end of the period than if we continue on our current course. The addition to Garnaut’s approach is to distribute funds from emissions permits by paying people not to consume rather than giving the money to governments to allocate.
It may come as a surprise to some but solar thermal and geothermal energy running costs are half the cost of the cheapest coal. The reasons why we are told that renewables is more expensive than fossil fuels is that the fossil fuel people often forget the sunk costs in their plants and the discount rate on capital is high. As the discount rate is a human defined parameter reflecting the fact that capital for renewables has to compete with money for consumables it is a strange reason to let the planet burn. Put the discount rate at 4% and renewables today are economically viable and as we know that these technologies will reduce in cost by 10% per year as we “learn” how to build them bigger and cheaper we can get to zero emissions within ten years and be better off financially than spending our money on things like cigarettes, prada handbags, etc.
Seems Mr 60% Rann’s bluff on 2020 targets has been called and now he’s ducking for cover under Kev’s Federal skirts-
http://www.news.com.au/adelaidenow/story/0,22606,23269114-2682,00.html?from=public_rss
Mind you, it’s easy for the Blues and Greens in Opposition to help these big talking Reds set emission targets.
Kevin,
I’m a fan of the solar thermal concept touted by Enviromission and also of the geothermal initiative being explored by Geodynamics. And you are right that the running cost of both types of technology is much lower than for a coal fired power station because such plants don’t need to buy fuel. The major cost in such ideas is indeed the capital cost. However the cost of capital is not arbitrary. It is based on the opportunity cost of not pursuing alternate investments. And because both technology approaches are commercially untested they carry a risk premium associated with the chance that in practice they won’t perform as well as expected or that they will cost more than expected to maintain. However if you add a cost to CO2 emissions (eg via a carbon tax) then the capital cost becomes less of a barrier because the return on investment is now higher. Adding a cost to CO2 emissions is a better approach than picking winners. Private investors are more than capable of doing the latter.
Rann has been seduced by the cornucopians who want another 500,000 people in South Australia.
One of the nuts leading this push is also a grand master of The Australian Population Insitute Inc., which is a group of money grubbers connected with real estate.
I agree that Adelaide deserves special scrutiny because in some ways it provides a litmus test of whether currently fashionable ideas can deliver. Hence a few quibbles about solar thermal and geothermal. Firstly they haven’t been demonstrated yet on a scale that could possibly threaten or replace the Playford and Torrens Island power stations. Secondly the predicted marginal costs should allow for extra transmission lines (geo) or backup (solar) in the event of a week of low sunshine. Thirdly post carbon taxes their physical yield won’t go up it’s more that the higher price of coal and gas fired electricity will be less competitive. Let’s not count chickens before they are hatched.
There is some current debate on carbon taxes at the following site:-
http://catallaxyfiles.com/?p=3445