Meanwhile, in the main game

I’ve been at the Australian Conference of Economists for the last couple of days, talking about climate change. As we all worry about the collapse of the global financial system, the final report of the Garnaut Review reminds us that we have much bigger concerns in the long run (not only climate change, but nuclear proliferation and global poverty to name a few).

31 thoughts on “Meanwhile, in the main game

  1. So could a nice international economic meltdown turn out to be a bit of an earth saver both by slowing emissions growth and by stopping everyone in their tracks long enough to make them change direction?

  2. sean, the SIVs were failed attempts to get around the capital adequacy regulations. It’s silly to argue that capital adequacy regulations were the cause of the problem in the first place.

  3. It is not said in the “first place”, we are where we are, for better or worse, and it seems that as the Wall Street Journal editorial says, “Mark-to-market accounting rules have turned a large problem into a humongous one.”

    I would have thought a big conference of big academia would be keen to tell us a way out.

    how we got here is one issue, how we get away from it is another.

  4. So now we know why banks ect have been unwilling and unable to value their securities after more than a year of trying to find out.

    More regulation is needed? I dont think so. Less might have been a good idea.

  5. History will determine that Reagan was the single most devastating blow to the actual survival of civilization.

    His first acts as President included removing Carter’s solar panel from the White House and heading up the Department of Energy with people dedicated to destroying it (a move that would be repeated by subsequent Republican Presidents).

    If, instead of building a military-industrial-complex (which “burns” about $1Tn/yr now and makes stuff we shouldn’t use) we’d built an energy-industrial-complex (as Carter proposed), we’d be a self-sufficient electric economy today trying to figure out how to clean up the oceans and pull carbon out of the air.

    Instead, we must now solve two huge technical challenges at once with commensurately large infrastructure replacement projects — (1) peak oil is here and we must find an alternative to sticking a straw in the sand and having free money flow out (the 300Mn people in American want 100 quadrillion BTU’s per year), and at the same time (2) we must get off carbon (making the increased burning of coal throughout the world extremely problematic).


    The Energy Program started by Carter and killed by Reagan.

    It seems prescient now. The largest opportunity cost ever paid — the three decades lost to corporatist and Republican lies.

  6. Sean, the wp article you linked to certainly makes the case than in extreme situations such as we have currently, the current mark-to-market rules are insufficiently flexible, and are exacerbating the problem. But that hardly means the answer is getting rid of them – part of the reason mark-to-market rules were initially strengthed was in response to the Enron scandal, where highly questionable accounting practices were widespread.
    You could make an equally strong case that had regulators better enforced and policed mark-to-market accounting rules over the past 6 or 7 years the crisis wouldn’t have been nearly as bad either.

  7. Well we know the status of the ‘game’ now-

    ‘IN A serious setback to the Rudd Government’s stated ambition to become a world leader on climate change, new global figures show Australia’s greenhouse gas emissions from burning fossil fuel are continuing to rise rapidly in stark contrast to other developed countries.

    “Australia’s position remains unique as a developed country,” said Dr Michael Raupach, a CSIRO scientist and co-chair of the Global Carbon Project which released the figures yesterday. “Since 2000 Australian fossil-fuel emissions have grown by 2 per cent per year”.’

    And you can read how the world is doing too-

    The other point to note is that we can’t trust public servants to get it right so naturally we’ll have to rely on private consultants for our expert advice-

    ‘THE Rudd Government will pay $1.5million to the Boston Consulting Group to develop a “business plan” for its proposed Global Institute on Carbon Capture and Storage.

    BCG was engaged after the Government invited a handful of international consultancies to tender for the work.

    The consultancy is also developing the Government’s national early childhood development strategy – a “high-level” policy requested by the Council of Australian Governments.

    Questions have been raised privately in the Government and the bureaucracy about outsourcing such wide-ranging policy work instead of relying on the federal public service.

    But a spokesman for Kevin Rudd denied that BCG – a global management consulting firm with 66 offices in 38 countries – had been asked to develop the entire clean coal policy. He said BCG had been asked to provide “advice on an element of this policy – a possible business model that would support the policy objectives of the proposed international institute”.

    The Prime Minister told the UN General Assembly yesterday that Australia wanted to bring together the best researchers and the best technology to develop technology to capture carbon emissions from coal-fired electricity generation and store them underground because the world “can no longer afford to delay”.

    Before his speech, Mr Rudd said: “The Global Carbon Capture and Storage Institute has been the focus of so many of my engagements here in New York … carbon capture and storage, part of our climate change agenda, has been front and centre.”

    The increased outsourcing of high-level policy advice has been in part influenced by Mr Rudd’s new departmental chief, Terry Moran, who made extensive use of consulting firms in his previous postition as head of the Victorian Premier’s Department. He used the Allen Consulting Group to develop the initial proposal for the reform of commonwealth-state funding and the national reform agenda, which were adopted in 2006.’

    Yes like me you were all suddenly aghast that we could trust something as convoluted and complex as an ETS to the likes of those Govt central banker experts or those private financial derivatives experts we’re all surrounded with at present. That’s the fundamental lesson from the financial meltdown for us all now. ETS is dead and buried as an option now and we must demand open, transparent, level playing field carbon taxing now. Anyone who still advocates ETS as a solution to GW is a denialist now.

  8. Oh and if you want to know the maximum effect carbon taxing could have on CO2 emissions, it is the price of carbon when all public revenue is raised by such a tax. Denialists who still cling to ETS dogma can’t tell you their price, let alone defend the progress of such quantity control schemes to date.

  9. observa.. I think you are coming across a bit strong on the whole ETS thing.

    Based on what I know, my personal preference is a straight-up tax on carbon. However, if an ETS is the scheme that can get up politically (because it brings about an alliance of free-marketeers and greenies), then so be it. The poor record of the European ETS seems more a reflection of the political situation (vested interest groups who oppose anything that will increase there costs) rather than of ETS itself. Once an ETS is firmly established, it should be easier to reduce the number of permits, and auction them off properly.. the trick is to get over the initial resistance to any sort of scheme.. and ETS may be easier to get up than straight up taxes.

  10. “observa.. I think you are coming across a bit strong on the whole ETS thing.”

    ‘AUSTRALIA’S international trade position surged back into the black in August, posting a large $1.36 billion surplus as exports jumped 6 per cent.
    This was the nation’s second surplus in the past three months after revisions, the Australian Bureau of Statistics said.
    The seasonally-adjusted trade balance of goods and services compared to a revised $697 million deficit in July.
    Economists were expecting a surplus of $200 million in August.
    The jump in exports partly reflected a 26 per cent increase in coal exports.
    Imports fell 2 per cent in the month, partly as a result of a 25 per cent drop in fuel and lubricant imports.’

    Makes you wonder what that 25% drop in fuel and lubricants imports was due to now doesn’t it? Fuelwatch presumably? As for that 26% increase in coal exports, perhaps we really need Coalwatch. I guess we’ll have to leave all that up to Boston Consulting Group, safe in the knowledge that Professor Garnaut will be offering them some sage words of advice-

    “Australia could cut emissions to zero, could do it tomorrow – it couldn’t actually do it, but if it did do it – it would have almost no effect on global warming.

    “If we did ourselves great damage in the process we would become an example to the world of how foolish it is (to) mitigate.”

    I’m glad Ross cleared all that confusion up for us so we can all move forward in the right direction now.

  11. observa, please explain how a carbon tax works. Is it basically a tax on emissions? Do you only tax big emitters (just as the ETS only involves big emitters)? Is the idea that the tax is increased over time, just as the number of permits is likely to come down with time in an ETS?

  12. John, if I may respond to Sean by saying had financial institutions ‘acted in good faith’ under Basel Mark II then distressed banks would have assigned a much higher risk-weight for defaulting sub-prime loans and expected losses requiring them to hold more capital. For this very reason there is a need for State intervention to now regulate the activities of financial institutions.

  13. “For this very reason there is a need for State intervention to now regulate the activities of financial institutions.”
    Here’s the problem Michael-
    Essentially the West has been living way beyond its means and $810 billion will be quickly sucked down the living room black hole. Mark to market has to be ditched for survival of the fittest financial institutions now as Western asset prices and returns crash back to sensible world levels (recall here Australia now has some of the highest RE values in the world)There have to be losers for sensible capital owners to pick up the pieces and run with them. There is no liquidity crisism just an asset price crisis and Govts cannot defend them on our behalf now. Besides it’s our taxes anyway.

    The answer is the same answer we gave to Asians in 1997-
    There is no lack of capital to fix this and Asian or Arab money can buy up distressed assets and financial institutions at fire sale prices as necessary. That’s the price you pay for insolvency and living beyond your means internationally. We need to accept our own medicine and work hard, with real savings and investment for real prosperity and move on. Forget nanny state nose wiping and get over it. Asians certainly did.

  14. “observa, please explain how a carbon tax works.”

    Well first and foremost michael you look about you and observe that you can’t rely on public servants in cahoots with international big biz to come up with some obscure, convoluted, trust us little people, world grand plan to divvy out tradeable licences to emit CO2 and let them derive all sorts of schemes to trade same world wide. That is bleeding obvious now and anyone who says any different is a denialist of the worst kind or simply smoking something they shouldn’t.

    Secondly, even if we lived in a perfect world with no hidden agendas, fast buck merchants and carpet-baggers to spoil all great intentions, you’d hardly want to use price or quantity controls on the product of fossil fuel burning, after you’d extracted it, shipped it all over the globe and then measured its outcomes as it issued from every smokestack or exhaust pipe. Much easier to apply your preferred method at the mine or well head. Simpler, fairer and transparent to tax same on the basis of each particular fossil fuel’s CO2E output at its most efficient burn. That’s a simple technical measurement problem like taxing alchohol on a volumetric basis and just like alchohol tax/excise you don’t get any exemption for vomiting it all over the floor or spraying it on GP winners if you get the drift

    None of this is rocket science, although we’re surrounded by rocket scientists at present you’ll notice. Lots of central bankers and top financiers too, if you’ve got plenty of readies to indulge them all and their latest hair-brained, globalised derivative schemes. Up front taxing means you know exactly what you’re up for and might necessarily require some other tax relief for increasing carbon taxing to be effective. That’s what ETS proponents want to hide from you with their opaque derivative schemes, not to mention who gets what in their initial carveup, but one thing you can be sure of mitchell, you’ll get yours in the end son.

  15. You are not wrong observa.

    The price of a piece of land and a house to put on it has increased phenomenally since just the late nineties in Australia. The Main Game for those like ProfQ might be addressing the survival of Planet Earth, but most of the class of 2000 are perplexed by the daily challenges of finding shelter, food and water.

    So, what’s your bank balance? 😦

    Apparently a report was released from BCG the other day that counted the number of millionaires in Australia at 190,000 in 2007, up from 148,000 in 2006.,27753,24388821-462,00.html

    Should I be glad that at least a fifty odd thousand are living comfortably.

    I can’t work it out. I can see why Canberra or the state governments are obliged to try and make it easier for the vast majority of our population to pay for shelter, power, education and a generally healthy life for their children, but when the culture appears to have bifurcated between those seeking to maximise returns on their capital and property portfolios and those that have relatively nothing, what could any group of bureaucrats (public or private) do to make the situation better?

    Why not just allow the punters to take the lot. As a bureaucracy it would certainly be easier to deal with a smaller number of property owners.

    I know, lets set up a property trading system, and regulate it. We know what we’re doing.

  16. Oh and mitchell(and not michael), you’ll recall recently that when ‘working families’ were asked what they’d be prepared to pay on their power bills to ameliorate GW, they reckoned $10/month. This was pre-depression too you’ll note, so you can see that we wouldn’t want any carpet-bagging, derivative sellers pushing carbon credits on poor working families they couldn’t afford. Perish the thought! Like mobile phone plans, it’s best to read their fine print for that elusive bottom line, to make sure you’re not over-committing yourself. You know what happens when too many of us do that mitchell.

  17. Do any measures of Australia’s GHG emissions count the coal we export? Australia is a major supplier of GHG’s to the world, the world’s biggest exporter of coal and is proactive in the race to get bigger.

    70 new coal mines and export infrastructure to overcome the bottleneck that’s holding coal exports back (according to Abare) means our contribution is growing fast. Only by absolving ourselves of any responsibility for the product we sell can any claim that what Australia decides and does is global small change be sustained.

    Even more than the decisions about how fossil fuels are used within Australia the decisions about mining and export of coal mean what we do matters a lot and Australia’s decision is already made, it seems – full support for the growth of fossil fuel use and a bit of greenwash at home.

    When PM Rudd adressed the UN and expressed his concern about climate change and the urgent need for Clean Coal technology, I can only take this as code for we are going to keep mining, using and exporting coal without restriction.

  18. I try to avoid commenting too much on coal these days because my still relatively new job is in the hole digging business and I risk being accused of having a conflict of interest. Perhaps no worse than advocates of socialism that live off the public purse but still.

    In terms of a carbon tax versus an ETS then I side with Observa. Better to know the price of regulation ahead of time and let the democratic process decide the price we are prepared to pay for that regulation. And if you do reduce other taxes as part of the bargain (eg fuel tax or payroll tax or income tax or house buying tax) as you should then I think a simple carbon tax is probably a net positive irrespective of AGW.

  19. The trouble with carbon trade vs tax is that so far both have been botched. Norway has a carbon tax but the wealthy just paid it. The US northwestern states just started cap and trade. They have free allocations and generous offsets so everybody is now taking the freebies. I think Garnaut’s idea of a fixed carbon price for two years then a floating price is astute.

    Another issue is offsets vs carbon tax ‘deductions’. If we had a flat export tax on coal customers like Japan would say ‘but we planted some trees’. It would be near administratively unworkable but I suggest doing it anyway to force international harmonisation.

  20. “Norway has a carbon tax but the wealthy just paid it”

    I’m not sure there’s any politically realisitic way to institute regulations that change the consumption patterns of those who earn far more income than they can possibly spend. But as long as those tax dollars are ultimately going towards paying for the long term costs of carbon usage, I don’t see the problem.

  21. Terje, it sounds like you would agree with the UK’s Green Fiscal Commission:-

    “that is moving taxes from ‘goods’ like labour, to ‘bads’ like environmental damage.”

    So, say Australia was to start down this route. Maybe Ross would have us believe we’d just be doing ourselves and everyone else a diservice. Better establish a complex cap and trading mechanism and all the associated “political economies”.

    I believe that digging up fossil fuel for energy needs to be legislatively banned entirely, and would be happy to see you lose your job if that was the only price we had to pay. But I also believe that Australia should be taking the lead internationally and seeking to create new industries from this situation – I buy the science and just have issues with this whole distruction of civilisation thing.

    I’m an optimist when it comes to industry policy though. I’ll accept there is a mountain of knowledge and information, but that this country has enough intellegent people to create new industries with what we now know about energy and environmental costs.

    Terje, I’d be happy to give you a job filling those enormous holes with charcoal and thermally manufactured synthetic fuel for long term carbon storage, and also for fertiliser and soil conditioner. Although Australians are perfectly positioned to start doing this on a massive scale tomorrow, there are just a few bills that I can’t work out how I’m going to pay before I could employ you.

  22. John, if I may respond to observa by saying you might be interested to know Deutsche Bank has an overall leverage ratio of 50 with liabilities of €2 trillion, whilst the liabilities of Barclays PLC is at £1.3 trillion and a leverage ratio of 60. You might want to reconsider what you have said.

  23. I am underwhelmed by the concern over Australia’s place as a primary provider of GHG precursors. From people here who have consistently argued for action on climate change the silence is deafening. I doubt the rest of the world is as oblivious as most Australians – this hypocrisy hasn’t gone unnoticed by denialists at That one Aussie commenter there insisted our contribution was too small to matter is quite telling.

  24. Ehj2,

    Spot on. After the military made absolute fools of themselves crashing planes trying to rescue hostages, Carter got to the hub of the issue by declaring war on the energy problem. He started the nuclear fusion power project and kicked off the wind and solar energy industries with some very smart legislation. And probably did a lot of other things that I did not hear about at the time.

    Arnold Schwartzeneger will go down in history as being his successor. What a gap.


    Howard must be cursing his luck that the global meltdown came too late to hide his economic and environmental incompetence. But equally
    Rud must be thriving on it. Nothing like an economic catastrophy to throw an annoying environmental crisis into yesterdays news.

  25. BilB, I suppose most of those new coal mines got approved and set in motion under Howard (or more correctly under all those Labour Premiers) but I doubt Rudd is displeased at that. I doubt new coal mines were something Labour would’ve opposed then. Or oppose now; the income stream it produces counts for much more than the long term climate impacts. Especially now. Doesn’t it? I suspect this will remain the dominant thinking every place where coal is mined until it’s too late and climate change tipping points are well passed.

    It really looks to me like climate change won’t get sorted out until clean renewables are the low cost obvious best choice, even if (when?) coal costs plummet. Thin film solar is ramping up production, low cost concentrating solar thermal (with storage included) has gone into mass production, wind is in mass production. The race is on but Anthracite Lad’s owners are long time mates with the Stewards and the Bookies and they all like the game the way it’ been played in the past. They aren’t happy to have to make room for upstart newcomers. I wouldn’t put it past them to nobble the opposition in order to make a killing.

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