25 thoughts on “Weekend reflections

  1. Do we need one emissions market or two?

    The carbon dioxide that plays a role in anthropogenic global warming is either from sediments including fossil fuels and cement production, or from soils and biomass. This relates to the well known carbon cycle. The carbon in soils and biomass can be transferred to the atmosphere via phenomena like fire and drought, while fossil fuels in the ground generally stay there (except for human activity and some volcanos). A planet with more carbon in soils and biomass and less in sediments is therefore for better or for worse different to a planet with more carbon in sediments and less in soils and biomass.

    This suggests that the externality of greenhouse pollution from burning fossil fuels is qualitatively slightly different to the externality of greenhouse pollution from land clearing. Another issue is there is often much more uncertainty with measuring emissions from land clearing and deforestation, or CO2 sequestered by planting trees or reducing overgrazing. Other greenhouse gases also play a role – there are also issues with uncertainty when estimating methane emissions from cattle.

    Reforestation and avoided deforestation can have huge cobenefits in terms of reducing habitat destruction which is an important driver of extinction. Unfortunately it is harder to measure emissions from activities with strong cobenefits such as biodiversity plantings or avoided deforestation than it is measure emissions from activities with less cobenefits, such as monoculture tree plantations.

    Hansen’s recent paper suggests that when albedo and carbon cycle feedbacks are taken into account then climate sensitivity rises to around 6 degrees for a doubling of CO2. Hansens then suggests that “If humanity wishes to preserve a planet similar to that on which civilization developed and to which life on Earth is adapted, paleoclimate evidence and ongoing climate change suggest that CO2 will need to be reduced from its current 385 ppm to at most 350 ppm. … An initial 350 ppm CO2 target may be achievable by phasing out coal use except where CO2 is captured and adopting agricultural and forestry practices that sequester carbon.” It is therefore important that we address both parts of the carbon cycle.

    In an emissions trading market credibility is vital, uncertainty in measurement could undermine that. In a submission to the Garnaut review, I argued that some money raised from auctioning permits could be spent on activities such as biodiversity plantings until land use could be included. But perhaps these issues with uncertainty will always be significant. Maybe we need to create a parallel market in emissions related to agriculture and forestry. This could either be price based or quantity based. Perhaps uncertainty issues would mean a price (tax) based approach would be better, with activities that sequester carbon having a negative tax.

  2. Continuing from my point last Monday regarding civil unions, I was glad to see that California has become the second state in the US to legalise same-sex marriage.

    This is a significant step forward in human rights, particularly for a state with a Republican governor who, incidentally, said he would leave the decision up to the courts. And followed through on it. I would say this means Mr Rudd could stand to learn a lesson from Governor Schwarzenegger.

    You know you’re in trouble when you could stand to learn a lesson from Arnold Schwarzenegger.

  3. This probably shows me to be an economic drongo, but I’m starting to suspect that petrol, instead of being overpriced, is actually cheaper than dirt-cheap at the moment.

    10 years ago, petrol at the pump was in the mid-60cpl range, and oil was priced at USD10/bbl.

    Before fuel excises, that meant petrol was about 25cpl at the pump.

    I fueled up at my local servo today, 50 litres at $1.40/litre, for $70. Before excise and GST cut in, that’s 89cpl at the pump, when oil is US120/bbl.

    Shouldn’t my tank of petrol then have set me back $180, seeing as the crude oil cost is a dozen times what it was 10 years ago?

    I’m now starting to wonder how much my 50 litres would have cost if the fuel excise had still been tied to the CPI. Would $400 for 50 litres be about right?

  4. Well Peter, welcome to the club. What you’ve really hit upon is the current emotional attraction of reducing CO2 emissions as the be all and end all of green environmental credentials. I’ll explain what I mean by that. It’s really a bit like wanting to ban plastic shopping bags at the supermarket. Of all the packaging and waste, not to mention the Garbags, kitchen tidy liners and Gladwrap, etc you can buy separately too, banning the ubiquitous poly shopping bag, presumably for more heavy (ie intensively resourced) coloured green plastic ones, will somehow ameliorate all the rest of it, or failing that, make us all feel better about ourselves when we put out the garbage. It’s all garbage of course, but then so is the hot button issue of GW, when it becomes an unhealthy fixation to the exclusion of all else. Basically, it’s bugger biodiversity and the world’s food can go in our tanks so we can feel good about ourselves. That’s essentially my beef and it looks like the penny is dropping with you too Peter if your last paragraph is anything to go by. Also you are quite rightly wavering on quantity control measures vs pricing mechanisms, but history should be your absolute signpost on that score.

    Why should you have these qualms about the current conventional wisdom Peter? Simply this. If we were by some breathtaking breakthrough in science or nanotechnology, etc, to discover some abundant supply of externality free energy, would all our worries be over? You already know the answer to that. It’s the same answer you would have got a decade or so ago before all this GW emotional outpouring. If you’d asked any reasonable gathering of people this question then-‘If the whole world was as successful as we in turning our natural environment to our wants, would that world be a better place?’ To that, you’d get an uncomfortable silence and a quick change of topic more often than not, but suddenly with GW they’ve all found their voice. An emotional outpouring that has shut down all reasoning faculties, as they’re off crusading to change the world, rather than quietly and calmly looking for the exemplary answers to the world’s problems in their own back yard. The global vision splendid, which you rightly suspect Peter, is doomed to failure, but build a better mousetrap and the world will beat a path to your door. We certainly have the ability and wherewithal in this country to do that, but it means broadening the debate and looking at the bigger picture, as well as much introspection. It’s a bit like wanting a Republic, without the hard yards of looking at the Constitution in totality. Same with GW where we need to look at the totality of the constitutional marketplace. As you quite rightly ponder, what profits us to have a biological desert in our ideal parts per million atmosphere? To address that we certainly need the hot impetus of emotion, but the cool understanding of supply and demand. That’s all about the constitution of our marketplace and carefully designing the inexorable pressure of price. Quantity controls just won’t cut it anymore, if indeed they ever did. Besides that’s the path to tyranny as we all well know.

  5. The heavy focus on plastic bags and compact fluros can be frustrating, especially when business and industry seems to escape criticism for non uptake of efficient practices.

    Unfortunately, our fat, lazy, complacent, comfortable, dumbed down, self indulgent society means many people have to be dragged kicking and screaming to change even the minor bad habits, which plastic bags and incandescent globes are. I believe it’s a matter of starting with the little things.

    Green bags are wonderful to use once you try them and there are better ways of dealing with rubbish than simply re-filling supermarket bags with it. CF’s are just a light source and once certain people get over their anal concern for the slightly different quality of light, it will be a non issue, another bad habit successfully dealt with and more importantly, a change in thinking.

    A change in thinking is required to tackle the major bad habits of private energy use and then people will start putting pressure on industry and business to change their incredibly wasteful practices.

  6. Well, if ‘the path to tyranny’ is perhaps a bit too strong, then certainly the path to patronage, special pleading and economic rent seeking then. To obviate that, necessarily requires we all face the same level playing field of price, albeit with some sensible qualifications I have in mind. Essentially the ability to pay that price is a matter of income and that should ultimately be the preserve of Govt transfer policy, although if ‘our’ new ideal constitutional marketplace(CM from hereon) can largely address some of those current concerns, then so much the better, wouldn’t you all agree? I have a blueprint for just such a CM in mind. For you all to comprehend ‘our’ need for it, requires you to accept the path by which you get there. With that in mind I’ll help you explore that path and show you where it inexorably leads.(not that I knew where that path was leading me at the time during my early meanderings)

    To know which direction to head in, firstly you need to clear your mind of extraneous noise and concentrate on the main problems at hand. What those versed in the dismal science know as ‘ceteris paribus’ to take some liberties. That means holding some parameters in abeyance while you examine others of immediate interest or more pressing concern. That said, we’re now being told that GW is it. Problem numero uno, or the big cahuna bar none and basically it’s all a matter of giving up around 1% of our GDP growth, some carbon cap and trade scheme and a few other bits and pieces (like the $9500 taxpayer subsidy for the solar to the grid system that went up at my place last Monday) and she’ll be apples mate! Do you all really believe that stuff? Or, do you like me glance at yesterday’s front page headline of the Advertiser- “FAMILIES HIT- Basic living costs rise by $80 a week� and think that doesn’t seem like just 1% of their GDP to me when rising oil prices eventually flow through to all those ‘working families’. Do you think that the end result of reducing tradeable energy caps down to 40% of their current useage by 2050, will have even more dire consequences for their family GDP? Yes I know there’s that economic tradeoff with failing to ameliorate GW, but it seems pretty obvious to me that in such a future, we’re all going to have to take a drastic cut in material standard of living here. Funny how noone seems to be talking about how we’re going to share that burden, nor how we’re to stop the relentless march of human activity on our natural environment, let alone repair some of the damage already done. Which way will we turn? Price or quantity controls, freedom or tyranny? That’s essentially the burning question now, except that history screams at us it should always be price to unleash and foster the combined might of individual ingenuity, albeit within the confines of our ideal CM. That mutually agreed, invisible hand on each and every tiller.

    That’s all nice in theory Observa, but what about those like us who know GW is the biggest threat to the planet since George Bush, bar none? Well they’re easily accommodated by a CM based on price alone. What if we simply let them have their head and gradually/rapidly switched ALL agreed taxation(ceteris paribus recall)to fossil fuels and imagine how that market based CM would fare. I can see some real pluses in that, can you? After all, with their carbon cap and trade system, we might all be paying that sort of implicit taxation to the private holders of their emission licences anyway. However, why not leave the revenue raised to Govt? Makes more sense to me rather than a double whammy, or what’s more likely, the concomitant upsurge in demand for the shrinking of Govt taxation, in order to ease the burden on ‘working families’. Is that what you all want? If you don’t you’d better start asking some hard questions of these people right now, like what’s your estimate of the end price of implicit taxation inherent in carbon caps, vs complete Govt reliance on fossil fuel taxation right now. We can estimate the latter fairly easily, but haven’t got a clue on this from the cap and traders. Therein lies my first question to you all. Is GW so important to you that you’d be prepared to estimate the impacts and then switch all taxing to carbon, or let these cap and traders have their heads with blue sky carbon pricing? Over to you on that.

  7. #4. On the issue of prices vs quantities and uncertainty, I see uncertainty of measurement being a serious issue with agriculture and land use, but it does not seem to be so much of a problem with activities such as burning fossil fuels. This is one of the reasons why we should have two markets. If both markets were quantity based then there is case why there should not be trading between these markets.

    Let me illustrate this with an example. Suppose that the science suggests that no-till farming sequesters a certain amount of carbon dioxide in soil and so farmers using this practice either qualify for an offset, or are able to sell permits on the market. Suppose that later scientist make some new soil measurements at a different depth or something and decide that carbon is not actually sequestered. This would not be catastrophic but would mean that there are more permits on the market than their should be, which would lead to a lower carbon price elsewhere, and would undermine the credibility of the ETS. This would make it cheaper to burn coal for example. If there were two markets, and it was not possible to trade between the two markets, then the price of burning coal would be unaffected.

    I don’t see prices or quantities as being more ‘market based’ or ‘tyrannical’ than the other. I also don’t have a problem at all with cap and trade, but I suspect that price based mechanisms would be better for agriculture and land use if there was a separate market.

    If I was to design an ETS then the main market (the non land use one) would be a cap and trade market with a price floor. I would implement the price floor with a carbon tax on top of the permit price. I don’t think that a price floor would add much to the transaction costs, because the transaction costs primarily involve measurement.

    You make a point that biodiversity is also a very important issue. An article in Nature suggests that climate change will lead to 18-35% of species becoming extinct. This will mainly be driven by loss of geographical range, and therefore activities which increase the amount or quality of habitat or reduce the fragmentation of habitat have biodiversity benefits and an adaptation role. There should also be a price mechanism to reflect this externality, which may be more important than the climate change mitigation effects of some forms of land use.

  8. Roy Wilke:

    I’m now starting to wonder how much my 50 litres would have cost if the fuel excise had still been tied to the CPI. Would $400 for 50 litres be about right?

    According to that well known economic genius Brendan Nelson, petrol would now be 17.7c more than it would have been if fuel excise indexation had not been abolished. However, the biggest single factor in keeping our petrol prices down is the strength of the Aussie dollar, which has essentially doubled against the US dollar since 2002.

    If you happen to live in the great state of Queensland, you also benefit from the Queensland Fuel Subsidy Scheme which cuts 8.5c/L off the price at the pump. Queensland’s Sustainability Minister Andrew McNamara is a committed peak oiler and climate change “alarmist”, and this weekend is warning of fuel rationing in the future due to peak oil.

    Earth to Andrew: If you want to do something to prevent future oil shortages, and help mitigate climate change, get rid of the dumbest subsidy in Australia.

    It won’t happen of course. We all know that to do anything that raises petrol prices at the moment would be political suicide. Ditto for electricity prices.

    This why we will do nothing about climate change, peak oil or broader sustainability issues. Instead, faced with ever increasing energy prices our politicians will cut taxes and provide subsidies that accelerate us towards the cliff.

  9. “Unfortunately, our fat, lazy, complacent, comfortable, dumbed down, self indulgent society means many people have to be dragged kicking and screaming to change…”
    Well there I have to disagree SG. If you want to sell somebody something, it’s best not to start out insulting them, but more importantly you need to make damn sure you have something worth buying. I have no doubt there is the demand for change out there and indeed enormous capacity to do so (think Floating the dollar and dropping protection, GST and the like) but it will be down to leadership to come up with the right goods. As I cast my eye over the offerings to date, I’d have to say it wouldn’t exactly encourage me to dig deep either. That’s where I’m coming from. Australians need to know exactly what’s being asked of them and why and then explain what’s in it for them individually and collectively. You couldn’t really say they’re getting that at present from their thinkers, movers and shakers. The most recent Budget deliberations wouldn’t exactly excite on that score, but let’s hark back to that design phase of what form of product they really need. Then we’ll worry about the sales pitch and advertising although that usually becomes self-evident during design.

    Turning to our hypothetical CM of carbon only taxing for all revenue raising(leaving aside excise as a special case perhaps)certainly has some obvious attractions. Since the rich use carbon the most, it soaks them correspondingly. Tick equity. Taxation can’t get any simpler so an even bigger tick there. Then think about all the neutrality benefits. Business, personal, charitable or religious cosumption? Who cares. Also goodbye to all that negative gearing, capital gains and the dire ramifications for new home buyers. Goodbye high EMTRs with social security and the like too. It should also shift demand to those with mainly their physical labour to sell, a severely disadvantaged group at present. The list goes on and on, while the downsides are fairly minimal, by comparison with our current CM. Voila! In one simple flourish of the brush on canvas, we have our simple, equitable, neutral and quantifiable CM for all these cap and traders and their burning imperative for us all. Instead they want us to engage the world in some unquantifiable, difficult to manage and police, utopian nightmare. Get the world on board, with blue sky emission permits, to be traded on Wall Street, London or Bonn, like taxi licences, or handed out like Murray Darling water rights all those years ago. All this global dreaming when we have trouble deciding on whether to intervene in Iraq, Afghanistan, ET and now the latest quandary over Burma. Shhhhh! Don’t mention Zimbabwe in the same breath. Why can’t they see the simple, achievable answer staring them in the face, right in their own backyard?

  10. Since the rich use carbon the most, it soaks them correspondingly. Tick equity.

    Not necessarily true. The inner city dweller who walks to work, lives in a small, well insulated terrace packed with ultra-efficient euro appliances, is going to use less energy than the ‘working family’ living in a 15 room McMansion with a 10kW A/C and a breadwinner who commutes 500kms a week in a clapped out Falcodore.

    Mind you, if we did switch ALL taxation to fossil fuels it would certainly put an end extravagances such as two week shopping trips to Paris. I think this idea could grow on me 🙂

  11. carbonsink:

    “According to that well known economic genius Brendan Nelson, petrol would now be 17.7c more than it would have been if fuel excise indexation had not been abolished.”

    But most of what the C’wealth gave away when abolishing fuel excise indexation was taken back by the GST. Removing the Qld fuel subsidy would have added about $12 to my fuel bill yesterday — still substantially less than one would assume given that crude oil is now 12 times more expensive than it was a decade ago.

  12. “We all know that to do anything that raises petrol prices at the moment would be political suicide. Ditto for electricity prices.

    This why we will do nothing about climate change, peak oil or broader sustainability issues. Instead, faced with ever increasing energy prices our politicians will cut taxes and provide subsidies that accelerate us towards the cliff.”

    Well I’d generally agree with that carbonsink, assuming it’s largely to be business as usual within the framework of our current CM. That’s why we need a completely different one and soon. Emotion can give us the impetus to find it, but it’s reason that will light and find the way. Plenty of time for emotional despair if our reason fails us.

    Let me come back to that hypothetical path again. I examined it and found it wanting, much for the same reservations Peter Wood has. If you can’t honestly envisage it and embrace it fully, as quantifiable as it is with all its plusses, as the true light and the way, then the less quantifiable and more uphill path of hitching our star to a similar world CM, should be much more easily dismissed. That’s essentially why I have dismissed the path of cap and trade as the answer to all our prayers. I suggest you all should too. That’s not to say I dismiss the emotional urgency of its advocates, but that I see it more as a catalyst urging us on to change our CM , rather than the form of that actual change itself. Total reliance on carbon taxing has some powerful attractions, but not enough to win me over. Nevertheless, a useful exploration to help decide upon the direction of the next step, whilst discarding a popular but misguided one. I’ll leave you to think about that next step along the path.

  13. Salient Green it is hard to change people’s ways but that is because there is often a down side that isn’t obvious at first. Changing to compact fleuros for instance has the down side of heavy metal going into the waste stream without any kind of control and all the problems that metals such as Mercury can produce.

    The plastic bag issue in comparison seems fairly straight forward.

  14. “The plastic bag issue in comparison seems fairly straight forward.”
    Care to expand on that and give us your thoughts on Garbags, Gladwrap, kitchen tidy liners, sandwich bags and the like Jill? What would be your attitude to the shopkeeper at the checkout that asked- ‘Would you care for a free doggy bag or two with that madam?’

  15. Jill, I completely agree with you on recycling compact fluros. Using CF’s however reduces total mercury emissions. http://www.electricalsolutions.net.au/articles/24321-Mercury-in-compact-fluorescent-lamps

    Observa, you are right that insults are not the way to go, just giving vent to some frustration which I can see that you share.

    Positive action is required. The government needs to set the example and the goals and ways to measure progress and communicate progress. They need to be positive and enthusiastic and encouraging. I can’t see much evidence of that yet.

  16. Taken from the link I posted above –

    The National Pollutant Inventory reported that Australia’s total annual emissions of mercury in 2005/06 were 28,000 kg. It has been estimated that emissions from all lamps (not just CFLs) constitute just 1.7% of this figure. The increased use of CFLs brought about by the phase-out of incandescent globes will add an additional 0.19% to this figure. Hence the proportion of mercury released to the environment as a consequence of the phase-out is small compared to total emissions.

    Most supermarket plastic bags are not necessary. The small ones for fruit and veg are, plus one or two handle bags for meat. Most other plastic bags are over-used but necessary. It’s more efficient to contain garbage in one big bag than a whole heap of little ones.

  17. Re Highlander comment 2;

    There is more than a sting in the tail for the average pooh basher from the the tax man if civil unions are recognised.


    It is better to be taxed as 2 single people than as a couple.

    Regardless of that, my personal view is that, homosexuality should be outlawed as it was 40 years ago and homosexuals should be kept away from young people and children.

  18. Removing the Qld fuel subsidy would have added about $12 to my fuel bill yesterday — still substantially less than one would assume given that crude oil is now 12 times more expensive than it was a decade ago.

    Er, didn’t you read that bit about the Aussie dollar doubling in value?

    Also, the price of crude is only responsible for part of the price you pay at the pump. There are refining costs, transportation costs, profit margins for the refiner, retailer etc and of course taxes.

    Despite what you might think (thanks to the mind numbing populism such as “Fuel Watch”) profit margins are being squeezed all over the world.


    Total reliance on carbon taxing has some powerful attractions, but not enough to win me over.

    It hasn’t won me over either, but its tempting. Its really not that different to the total abolition of income taxes that the more extreme Libertarians (such as Terje) support.

    The real issue for me, and anyone left of centre, is equity. Total reliance on carbon taxes isn’t that different to total reliance on consumption taxes which is really going to hurt low income earners (with high energy use), pensioners and other welfare recipients. These groups would require massive compensation.

    I would suggest a halfway point, where we flatten and reduce income taxes, massively boost welfare (a negative income tax perhaps?) and replace the GST with a thumping great carbon tax.

    I think this is where we’re heading anyway — its pretty much inevitable — but it won’t be politically possible for another 5-10 years. In the meantime we’ll have to endure more pandering like Brendan’s fuel excise cut.

    It seems like Turnbull will be out of the shadow ministry soon so maybe he’ll lob in a few policy bombshells on climate change from the backbenches like he did on tax reform a few years ago.

  19. “Observa, you are right that insults are not the way to go..”
    That’s OK SJ, some might say I’m the last one to be pulling you up here on that score.

  20. “It is better to be taxed as 2 single people than as a couple.”
    Well Tony G, they can’t say they weren’t warned about the law of unintended cosequences. Next the Muslims will be lining up for their inalienable rights and not long before Social Security start sniffing around the bedsheets of all cohabiting adult households for some savings as a result. Pretty soon Soc Sec will be asking any applicant for assistance (ie rent assistance) for the combined per capita income of their household for eligibility. My guess is the ATO won’t be far behind them on that score either. You know it makes sense.

  21. Answer to Roy Wilke:

    You’re making the understandable mistake of assuming that there is a linear relationship between the price of crude and the price of petrol. Crude oil is just one small part of what goes into making petrol. It’s a bit like saying – the price of steel has doubled, so why hasn’t the price of a car doubled?

  22. Thanks, Andrew. I thought the price of crude oil would have been a major component in the price of petrol.

    However, after a quick look at an industry website, I’m now a bit more confused, as there’s only a 1.7cpl margin between the price I paid at my local servo — less GST and excise — and the current Singapore spot price of $0.873/litre.

    According to the BP website, that 1.7cpl includes the import and shipping costs, local terminal costs, refinery and retailer operating costs and the “quality premium” that, I assume, ensures that the petrol isn’t watered-down.

    This seems to mean that, out of the $70 that I handed over the counter in exchange for 55 litres of petrol/ethanol mix, all of $0.009 cents was shared between all the transport companies, refiners and retailers involved between the wharf in Singapore and the petrol station forecourt two streets away from my front door.

    Or am I missing something important here?

  23. Roy: Dunno what you did with those links, but they’re not working.

    Anyway, like I said, profit margins are being squeezed as the price of crude soars and the price at the pump inches upwards. Which just goes to show what a farce “FuelWatch” is.

    Jeez it would be nice to see a politician tell the truth about petrol prices for once!

    Here’s some recent news on refiners profit margins…
    Refineries complain that their earnings are slipping through the ‘crack spreads’
    One Independent Refiner Actually Losing Money
    Sunoco swings to 1Q loss on margin squeeze

    Google “crack spread” to learn more.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s