Weekend reflections

It’s time once again for weekend reflections.Feel free to write at greater length than for a standard comment thread. As always, civilised discussion and no coarse language.

49 thoughts on “Weekend reflections

  1. Those points sound more like features than bugs of a simplest and broadest possible carbon tax to me too, Ian.

  2. Socrates wrote:

    This is exactly why our car industry needs to rapidly change course.

    It definitely needs to change course, but I don’t think trying to reinvent hybrid technology in Australia is the answer. In the short term the local manufacturers could drop a Euro-sourced turbodiesel into their family sixes with relatively little engineering work. The soaring cost of diesel may give them second thoughts however.

    In the medium term local car makers should be looking adapting their LPG vehicles to CNG. Australia has a lot of natural gas, and its very clean compared with petrol and diesel.

    I think the local motoring press has a lot to answer for. They literally threw COTY awards at the new Commodore (which I think will go down in history as the biggest blunder in Australia’s automotive history) but the year the new Prius was released (2004 I think) it was ignored, and was given to some car we’ve now all forgotten.

  3. Ignoring the first sentence, here’s a pretty good summary of the pot pourri of measures the US has devised to hide the growing stench of cap and trade policies
    http://brookesnews.com/080206carbonpolicies.html
    Good luck to the battlers coming through intact from that terrifying minefield of economic rent seeking and special pleading. Start singing God save the Green and pass the vaseline now lads!

  4. Carbonsink

    I agree we don’t have the technological base here to develop a competitive hybrid any time soon. We need more efficient cars, by whatever means we can most effectively produce them. I was just highlighting what is coming. I’d be happy if we could just make the equivalent of an efficient petrol engined Honda Civic or Toyota Corolla here.

    But we shouldn’t be niaive on this. The same article mentioned that Honda was rationed just 900 Civic Hybrids a year to sell in Australia at present. The rest are headed for other markets, mainly USA. So they are not serious about selling hybrids here now. When you compare the US prices at current exchange rates, neither are Toyota.

    Both Honda and Toyota are building new hybrid factories now. In a year or two when they have a larger production run to sell, and presumably start trying to mass market affordable hybrids here, what do we do to compete? I fear everyone has forgotten what happened to local market share against Japanses imports during the last oil crisis in the 1970s.

  5. I’m quite sure the current manufacturers haven’t forgotten Socrates, but they’d know they can’t produce small cars like Mitsubishi’s Colt for $16990 retail that rate at 5.6L/100km. They are stuck with producing v6 larger cars like Holden for $36,790 retail and 10.9L/100km. That’s a similar retail to the cheapy version Prius last price at $37,400 and 4.4L/100km. Still at that price Honda and Toyota aren’t going to make big inroads into the Colt, Hyundai Getz and the like market. Well not unless fuel prices go blue sky pronto. Now presumably Toyota and Honda can’t satisfy world demand for Hybrids and hence the new factories, but bear in mind hybrid world demand may simply be a yuppy top end market here, significant though it may be. Holden may be resigned to the fact that it can only produce a top end standard car, so long as demand exists. To be fair they have made inroads into the US pickup market as these previous owners eye Holden’s ute offering as good value, bearing in mind it can get 7.5L/100km on the highway. Horses for courses and hybrids don’t enjoy any advantage on the highway. Australians can already enjoy much cheaper(less CO2) overall motoring in a Colt,etc right now if they choose. They may well do so when it’s trade-in time in future. Higher volumes of hybrids may simply run into increasingly higher cost mineral requirements for their batteries, which carmakers would be aware of. Toyota and Honda may figure their particular niche market will pay as they witness unsatisfied demand now. How large that demand is remains to be seen as they slug it out for market share.

  6. “, but then if I were taxing CO2e at its source, I wouldn’t cut any slack for taxing end users that didn’t burn it in the most efficient manner possible. Basically you’ll pay up front per tonne, barrel or cu. metre, depending on its most efficient burn to produce a Kw/hr of electricity, given the CO2e it emits. You want to burn it less efficiently under that regime boyoh, go right ahead.”

    So basically rather than requiring power stations and steel makers report their emissions to the government you’ll make them report them to each of their coal suppliers who will calculate the appropriate tax, add it to the purchase price then collect it and pass the money on to the government.

    And you think this will promote efficiency.

  7. Socrates. in the short term the local industry will be protected by the sheer inability of hybrid manufacturers to meet demand.

    Australian consumers will be well down the totem pole behind North American, Japanese and European buyers.

    In the longer term, Holden motor works is probably pretty safe since it seems they’ll be upgraded to produce hybrid power trains for export.

  8. Peopel are talking hewre abotu the Australian car industry as if it existed in vaccuu.

    The Australian industry doesn’t need to re-invent hybrid technology because the Australian industry wholly owned by the US and Japanese manufacturers and has access to their technology.

    The question is whether the foreign parent companies think its in their interests to continue manufacturing here.

    The current level of the Australian dollar is a much more significant threat to the industry than fuel prices.

  9. jquggin: “futures prices ought to have risen in advance of the increase of the last few years, rather than in tandem with it.”

    Would futures really work that way for a commodity where producers have a large but finite reserve, some ability to stockpile, and the product itself is not perishable?

    It seems to me arbitrage will pull the future price towards the current price or vice versa. If a producer knows that the price will be substantially higher next year, they should either stockpile production or cut back the rate of production. I would expect there is a fair amount of friction in any one producer increasing or decreasing production but it may average out over all.

    http://en.wikipedia.org/wiki/Contango

  10. the reason that I’m not sure that simple supply/demand explanation for the spike in fuel/food prices is totally adequate is that it has just been so sudden! Has there really been a correspondingly sudden uptake in real-time demand and decrease in real-time supply? There are a lot of explanatory factors, but what makes me interested in the idea of price speculation as an additional culprit is the timing of this sudden, unforeseen crisis. with the credit crisis making stock-markets and residential investment much less attractive, the world capital-glut is looking for places to park their cash – and perhaps this might account for the boom in commodities futures. The interesting thing – and here my understanding falls short – is the feedback between futures prices and present prices. When enough people buy futures prices at higher than present prices, commodities have to be placed in reserve, which reduces supply and drives up present prices, which in turn drives up futures prices. The financial institutions that issue these futures contracts have an interest in talking up future prices – as long as the actual prices don’t actually catch up to the talked-up expectations. But then, whether or not futures pay off could turn out in large part to be related to the demand for further futures!! And so on – one of these weird, unregulated, speculative feedback processes that just like other sorts of financial instruments, have the potential to wind up distorting economies and creating mischief. I guess the question is – this sort of thing probably couldn’t perpetuate itself during a time of soft demand and easy supply, but when things are already tight, and especially when other investments are looking even shakier, it might be able to turn a gradual price increase into something much more rapid and deadly. I might just be confusing myself, but it seems glib to just dimiss the possibility out of hand. At any rate, it sounds like a gnarly problem for an econometrician. Especially considering whole parts of the world’s population are looking at being ‘priced’ into a malthusian catastrophe – or should I say, ‘equilibrium’.

  11. “the reason that I’m not sure that simple supply/demand explanation for the spike in fuel/food prices is totally adequate is that it has just been so sudden! Has there really been a correspondingly sudden uptake in real-time demand and decrease in real-time supply? There are a lot of explanatory factors, but what makes me interested in the idea of price speculation as an additional culprit is the timing of this sudden, unforeseen crisis.”

    Food reserves were getting tight for the past several years and oil prices have been rising for around 5 years now.

    The crisis didn’t develop abruptly, the media finally woke up to what was going on and decided to make a story out of it.

  12. “So basically rather than requiring power stations and steel makers report their emissions to the government you’ll make them report them to each of their coal suppliers who will calculate the appropriate tax, add it to the purchase price then collect it and pass the money on to the government.”

    No bloody fear I wouldn’t Ian. You’d tax every barrel, tonne, cu.m. at its extraction source, based on world’s best practice for turning the particular source fuel into a KWhr of electricity, setting the relativity of tax based on CO2e outcomes. Clearly then a tonne of brown coal cops more CO2e tax than a tonne of black coal comparitively speaking. What the users do with the taxed product after that is entirely their business, bearing in mind their lowest tax cost is to seek world’s best practice in burning it. That bar and hence the comparitive tax rating could be moved from time to time as world’s best practice moves. Let’s take a hypothetical example. Suppose it takes 0.5 tonne of Hunter Valley black to produce 1Kw/hr of power emitting 0.5 tonne of CO2 at the most efficient power station yet it takes 1 tonne of Leigh Creek brown to do the same at Pt Augusta, producing 1 tonne of Co2 in the process. Leigh Creek brown cops 4 times the tax penalty per tonne than a tonne of Hunter Valley black and so on with gas and oil. This is simply a technical testing issue for various grades of fossil fuels to levy the tax at the mine or well-head. What end users do with it after that is their business, just like we’re not going to fit CO2 meters to Al Gore’s Hummer and my wife’s Colt after all the oil has presunmably been capped and traded. Or are you suggesting carbon credit cards with a fixed allowance for everyone on the planet? That’s cap and trade nirvana apparently.

  13. “the reason that I’m not sure that simple supply/demand explanation for the spike in fuel/food prices is totally adequate is that it has just been so sudden!”

    You’re right to be suspicious that something else has been going on for a long time gerard and suddenly the music has stopped. I’ll let Gerry Jackson explain it to you-

    “..monetary expansion has been dramatic: from March 1996 to December 2007 currency rose by 110 per cent, bank deposits by 178 per cent and M1 by 163 per cent (Bulletin Statistical Tables, Liabilities and Assets – Monthly – A1). For the same period the Reserve’s assets zoomed by 163 per cent. These are shocking figures, the ramifications of which have not even registered with the economic commentariat let alone Mr Stevens.

    Recent monetary figures are now signalling an economic contraction. Currency peaked at 40 last December: for bank deposits and M1 the figures are 191.3 and 231.3 respectively. While currency is stuck at the December figure, bank deposits and M1 started to contract, falling to 186.7 and 226.1 in January, and then to 181.4 and 220.7 in March.”

    Unfortunately that scenario has been repeated around the world compliments of the collective wisdom of central bankers. Such a pyramid scheme with funny money fuelling it was always going to have serious ramifications when the penny finally dropped and rising assett prices stalled. Now there’s a mad scramble to turn all that funny money into commodity money, or the next best thing, commodity streams. Austrian economists would say we told you so and now you all have to wear the unwinding of the malinvestments all that largesse has caused for so long. Either short, sharp and horrible, or long slow and painful. Which would you prefer? Mind you, it might all be out of those central bankers hands to control now.

  14. “No bloody fear I wouldn’t Ian. You’d tax every barrel, tonne, cu.m. at its extraction source, based on world’s best practice for turning the particular source fuel into a KWhr of electricity,”

    Ah so if two power plants by coal from the source and use it less efficiently they’ll actually pay less per tonne of carbon dioxide emitted.

    Yes that’s much more rational.

  15. That should read:

    “Ah so if two power plants by coal from the source and one uses it less efficiently than the other they’ll actually pay less per tonne of carbon dioxide emitted.”

  16. “Ah so if two power plants by coal from the source and use it less efficiently they’ll actually pay less per tonne of carbon dioxide emitted.”
    No, I don’t think you quite get the picture, albeit a tonne of coal hopefully produces more than a Kw/hr of electricity, given current peak costs. However let’s stick with example here, with 2 power stations using Hunter black, normal cost say $100/tonne but paying an extra CO2 tax of $100/tonne, an input cost of $200/T all up. Now if station A produces worlds best that costs them 0.5 x $200=$100.00 for a Kwhr. OTOH if station B is 10% less efficient(ie using 10% more coal) that costs them 0.55 x $200=$110 for their KWhr. Station A can sell cheaper and gain market share, unless station B owners get up to pace. That’s the normal state of play anyway with any supplier. There is an increased incentive to get more efficient (ie emit less CO2), just like there is skipping the Hummer for a Colt. True you might have to wear out the Hummer a bit more first, just like existing power stations, but unfortunately we all start from here.

  17. Furthermore if you take the Leigh Ck brown example and they’re at world’s best but suppose their coal only costs $50/T now. Notice that incurs a CO2e tax of $200/tonne, an all up cost of $250 for their Kw/hr. They’d be hoping there’s a large tyranny of distance between them and an interconnector for both Hunter stations, despite their world’s best practices, but notice the tax has reduced that distance substantially.

  18. Ian, at some point in wandering about teh intranets, you’ve probably come across the acronym “DNFTT”.

    Please consider applying the strategy that the acronym suggests.

  19. Two things on “speculators” and “hoarding”:

    – the reason the text book answer (that speculation smooths prices) is usually right in practice is that in order to make money speculating you must buy cheap and sell dear. When you buy cheap you’re pushing the price up, when you sell dear you’re pushing it down. It’s an insight popularised in the profession by Milton Friedman.

    – if in fact suppliers are hoarding oil because they have strictly limited reserves and want to sell those reserves for the best price, they’re doing us a favour. The alternative is for them to flog it to us cheaply now and then have none at all to flog when it runs out. That would be far more disruptive to us than the hoarding.

  20. Slower, simpler maths and one more time for you to troll through SJ. IF a tonne of brown and black coal, a barrel of oil and a cu.m. of gas produced a KWhr of electricity all under best burn practice and all produce X amount of CO2 in the process bar the brown coal which produces say 2X in the process and we tax them based on $100 per X of CO2 then they all increase in price to the potential user by $100 per barrel, tonne, cu.m, except for brown coal which increases by $200/T, irrespective of their current costs. Presumably we are all interested in reducing the CO2 externality here and taxing via that method will aid that purpose. If you think doing that analysis on fossil fuels and taxing at the point of extraction is all too hard, explain to this simple fellow the ease of ‘capping’ or taxing the eventual CO2, after it’s dug up, blended and shipped all over the globe and pouring from every stack and exhaust pipe. You could of course cap and trade at the mine and well head, but for some strange reason the cap fans don’t want to do that. Perhaps it’s because they don’t know what the price could skyrocket to as they screw down the caps and want a bit of wriggle room? No they want to cap the smokestacks at Pt Augusta and the Hunter which is a lot more problematic for Pt Augusta A&B than Hunter A,B,C.. no doubt. Actually more a problem for Media Mike’s working families’ power bills and desal water bills in the Saudi Arabia of uranium, but a triumvirate of enterprising fellows might have some clever suggestions to whisper in his ear about that big conundrum. Forget pricewatchers Mike. What about we sell PA’s cap and replace it with nukes with the money Mike and we can make a little more on the side selling that burnable dirt to the Chinese? Whaddya reckon Mike, or should we be talking to the Opposition? At least the Chinese would be paying this KISS troll his carbon tax while you doff your tinfoil caps to them.

  21. Slower, simpler maths and one more time for you to troll through SJ. IF a tonne of brown and black coal, a barrel of oil and a cu.m. of gas produced a KWhr of electricity all under best burn practice and all produce X amount of CO2 in the process bar the brown coal which produces say 2X in the process and we tax them based on $100 per X of CO2 emitted then they all increase in price to the potential user by $100 per barrel, tonne, cu.m, except for brown coal which increases by $200/T, irrespective of their current costs. Presumably we are all interested in reducing the CO2 externality here and taxing via that method will aid that purpose. If you think doing that analysis on various grades and types of fossil fuels and taxing at the point of extraction is all too hard, explain to this simple fellow the ease of ‘capping’ or taxing the eventual CO2, after it’s dug up, blended and shipped all over the globe and pouring from every stack and exhaust pipe. You could of course cap and trade at the mine and well head, but for some strange reason the cap fans don’t want to do that. Perhaps it’s because they don’t know what the price could skyrocket to as they screw down the caps and want a fair bit of wriggle room? No they want to cap the smokestacks at Pt Augusta and the Hunter which is a lot more problematic for Pt Augusta A&B than Hunter A,B,C.. no doubt. Actually more a problem for Media Mike’s working families’ power bills and desal water bills in the Saudi Arabia of uranium, but a triumvirate of enterprising fellows might have some clever suggestions to whisper in his ear about that big conundrum. Forget Pricewatchers Mike. What about we sell PA’s juicy cap and replace it with nukes with the money Mike and we can make a little more on the side selling that burnable dirt to the Chinese? Whaddya reckon Mike? Or should we be talking to the Opposition? At least the Chinese would be paying this KISS troll his carbon tax while you, ever so politely, doff your tinfoil caps to them.

  22. Of course the only thing more befitting these amenable genuflecters, would be for our enterprising trio to reward such a scintillating show of good manners, by a partnership with one of Chairman Mao’s sovereign wealth funds. Priceless!

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