Harry Clarke On economics, politics & other things

July 16, 2014

Inefficient though fairly effective carbon pricing

Filed under: climate change — hc @ 9:49 pm

IT is now widely understood (i) that current carbon pricing has fairly marginal impacts on electricity prices and that (ii) current electricity prices are high because of excessive investment in network costs which stems from the way electricity prices are regulated: Ross Gittins provides a simple explanation of this second issue.  Australian  electricity prices are very high and this electricity is largely generated in coal-fired power stations.  Thus the inefficiency in transmission creates the high prices which reduces the quantity demanded of electricity. Indeed this quantity – along with associated carbon emissions – have fallen over recent years.  Are we getting an effective carbon price as a consequence of the distribution network inefficiency?  Not really since there is real inefficiency here because there is a waste of resources, particularly capital, in the electricity sector. In terms of resource allocation it would be preferable to provide households and firms with much cheaper electricity and then to tax the carbon emissions severely enough so that demand was significantly curtailed.  In addition, high electricity costs in themselves do not provide the correct market signal to switch away from coal to less polluting sources of electricity such as gas although this switch has been occurring since 2008 well before carbon pricing came in operation.  They do however provide incentives to switch towards solar energy by households and firms trying to insulate themselves from higher electricity prices.  The interesting feature of the latter switch is that it increases the excess capacity of the electricity sector and makes more electricity price increases likely. This virtuous “downward spiral” accentuates the decline in demand for carbon-based electricity supplies and does have positive although imperfect effects in addressing climate change.

For these reasons I strongly favour retaining incentives for solar and wind energy because of the effects this will have on the conventional power sector.  On the other hand, as Ross Garnaut has pointed out to us, the effects of growing excess capacity in the electricity sector are likely to undermine the effects of the Emissions Reduction Scheme subsidies proposed by the Coalition Government.  Power stations with excess capacity are likely to draw on carbon reduction subsidies by closing down plants with uneconomic excess capacity and then by operating remaining plants at closer to full capacity. This might mean that the carbon reduction subsidies might have very limited effect in reducing emissions – they will simply provide subsidies to the uneconomic (and often privately foreign-owned)  power firms.

http://www.theage.com.au/comment/carbon-tax-merely-a-blip-in-power-price-scandal-20140715-zt7na.html

June 7, 2014

Emissions Reduction Fund analytics

Filed under: climate change — hc @ 12:41 pm

There is a widespread misperception that the Emissions Reduction Fund (ERF) cannot, in principle, work to effectively reduce carbon emissions. An example is in today’s article in The Saturday.  Basic environmental economics on the equivalence between taxes and pollution subsidy policies shows that this is wrong. It is also wrong to dismiss the ERF scheme as a “non-market” based scheme. It is just as much a market-based scheme as the carbon tax provided that subsidies are allocated to the low cost pollution abaters.

Economists look at carbon polluters and focus on the costs that these polluters face in cutting their last tonne of carbon emissions. To use jargon this is the marginal cost of cutting emissions (the marginal abatement cost or MAC).  If a tax per tone of emissions t is imposed on emissions from a firm with a certain MAC then, if t > MAC, the firm will abate since it is cheaper to do so for these marginal emissions than to pay the tax.   In fact firms will abate up to the point where t= MAC.  If instead the government provides a subsidy on emissions reduction s and offers to pay this subsidy to those who offer to cut their emissions at a cost to the government of less than s then firms will offer to cut their emissions and receive the subsidy provided s > MAC.  They make money by doing this because they pay less for abating than they receive from the subsidy.  Again they will cut their emissions up to the point where s=MAC.

Comparing the tax and subsidy schemes it is clear that both are market based and that both yield the same level of emissions reduction for t=s. A tax of $25/tonne on carbon emissions will yield the same level of emissions reduction as a subsidy paid to polluters of up to $25/tonne.

That the carbon tax was fixed in amount where the pollution subsidy under the ERF is determined implicitly by the budget to be spent reducing emissions changes nothing in principle provided that, as is the case, those who seek subsidies are those facing the lowest MACs.

Why then the popular opposition among economists to the ERF in favour of the carbon tax?  There are several reasons:

1. Fiscal.  The emissions tax potentially yields large amounts of revenue to the government whereas the ERF scheme costs the government revenue.  There are two responses to this claim. First the carbon tax scheme as introduced by the Labor Government was designed to be revenue neutral so consumers and many producers were offered benefits that compensated for the tax.   Thus, as introduced, the carbon tax would not have yielded any revenue.  One could counter argue that times have changed and that these offsets should not now be paid because of looming public sector deficits. That presumably was what Ross Garnaut had in mind when he claimed the other day that restoring the carbon tax and abolishing the ERF could deal with the Government’s fiscal woes if the Senate rejects its program of social welfare cuts and charge increases.  Even doing this it is easy to show (joint work I have done with Rob Waschik and Iain Fraser does this) that the revenues paid under the ERF to firms are much smaller than the revenues transferred to government by a carbon tax for all but very high (exceeding 90%) levels of abatement.  It doesn’t seem to me that the fiscal arguments against the ERF are compelling. Another possible source of non-equivalence could stem from double dividend benefits from a carbon tax.

Another claimed fiscal disadvantage of an ERF could stem from the fact that it does not yield the double dividend benefits of a carbon tax.  The claim is that carbon taxes punish a bad activity and yield an additional benefit by permitting the reduction of more distorting taxes such as income taxes on labour.  UI think now the consensus is that such double dividend benefits are either negligible or small.  The difficulty is that extra costs imposed by a carbon tax in any event reduce real incomes  which obliterates any benefit from improved tax efficiency.  That said the ERF is funded by taxes on income so, even if the absolute scale of the ERF is not great, its “excess burden” (or deadweight loss)  costs on the tax-payer should be accounted for.

2. Implementation.  There are difficulties of implementing an ERF.  Both tax and ERF schemes require monitoring of current emission levels to check that carbon emission laws are being met. But the ERF requires also that an emissions baseline be determined which determines the size of the subsidy payments to be paid.  These will depend on the difference between baseline emissions and current emissions.  The difficulty here is to make sure that polluters are not “gaming” the ERF scheme by exaggerating initial emissions in order to get higher subsidy payments.  Even without gaming issues the issue is to determine the genuine level of emissions reduction that occurs as a result of the ERF.  Emissions by coal-fired electricity generators have fallen in recent years not because of carbon charges but because of falling electricity demands.  In addition generators switched to using less polluting gas even before carbon pricing was introduced.  It would be unattractive if payments to carbon polluters were made for emissions reductions that would have occurred anyway.  Such issues do not arise with a carbon tax since a firm’s tax liability depends only on its actual emissions – there is no benefit to a firm in fudging a baseline or gaining an unwarranted advantage from a switch to gas.  While touch unwarranted payments to firms are unattractive I do not think that, again, they provide an overwhelming case against the ERF scheme given the comparatively small scale of aggregate subsidy payments.

Other issues of implementing the ERF concern selecting the least cost emitters too subsidise.  This is proposed to be done by a reverse auction where those who can abate emissions at low cost will get the subsidies.  Potentially it seems to me this can work provided firms do not collude and provided they bid a price for abatement that is close to their MAC.  Again it seems to me a detail rather than an overwhelming criticism of the ERF.

3. Time frame.  There are considerable difficulties in understanding the issue of whether firms will sustain emissions reductions.  The current ERF is scheduled to run for 5 years and presumably the Government assumes emissions reductions made during this 5 year period will be sustained into the future.  There are real issues here of the credibility of the ERF scheme.  Will firms cut emissions now in response to an emissions subsidy which compensates them for the extra costs they will occur over such a short-term time horizon?  At least the longer-term future for the ERF needs to be spelt out.

4. Non-equivalence arguments.  Environmental economics texts such as the well-known work of Baumol and Oates (BO) point out that the model outlined above suggesting that tax and subsidy policies are equivalent (in the sense that if s=t the same emissions are produced) are wrong.   BO point out that under a subsidy scheme there are reduced incentives for high polluting firms that would exit an industry under a carbon tax to in fact exit under a subsidy policy.  The reason is that their value is boosted by payments for emissions reductions. BO also point out that firms may in fact enter an industry to secure ERF type benefits.  Neither of these outcomes seems realistic in Australia where firms engaging in such behaviour would certainly expect a prompt regulatory response.  I don’t regard this as a real problem.

5. Political.  Many citizens distrust the Government on climate change.  There are many climate change “skeptics” (more accurately, “delusionists”)  in the Government and among its group of major advisors.  This is probably the major reason for disbelieving in the ERF’s efficacy and it is reasonable given the Government’s track record.

In my view the problem with the current Abbott Government policy is not its use of an ERF rather than a carbon tax to reduce emissions to 5% below those of year 200 by 2020 but the fact that this target is so miserly.  We are shamed by the intended actions of the Obama administration and by the intended actions in countries such as China and Indonesia. But to dismiss the ERF wrongly when it could potentially address climate issues is foolish.

Caution: I am working on this material.  Subject to revision.

 

May 26, 2014

Cut GGE stocks not rates of GGE emission

Filed under: climate change — hc @ 10:08 am

Climate policies should target the control of stocks of greenhouse gas emissions (GGEs) in the atmosphere not the flow rates at which people are adding to these stocks.  It is a simple point – heating effects depend on the stocks not on the rate at which these stocks are being added to.  The point can be made simply by supposing a country agrees to a 90% reduction in GGE flows by 2050 which is the normal way policy objectives are set. That country could then do nothing at at all about GGEs until 2049 and then in that final year close down all coal-fired power stations and introduce a punitive carbon tax of say $200/tonne in that final year. It could even pre-announce such policies so that firms would not be subject to unexpected shocks and could be prepared for the sudden transition. The net effect is that the country would have added enormously to carbon emissions from 2014 to 2049 (it is these stocks which determine warming effects*) but would still be meeting its emission control objectives.   Clearly the appropriate target is not to reduce flows but to restrict the volume of GGEs a country is adding to the atmosphere.  Doing otherwise is to fudge the intent of GGE restriction policies.

I wonder if, on a less dramatic scale than this hypothetical example,  the Government’s Emission Reduction Fund policies are in fact seeking to do. To allow lots of pollution and then, in the 11th hour, to introduce carbon control policies that meet the miserly objective of a 5% cut over year 2000 levels by 2020. Or is it just a matter of postponing real action and eventually back-flipping to do almost nothing because “money is scarce” or some other phoney argument.

http://www.smh.com.au/federal-politics/political-news/budget-analysis-shows-climatechange-commitments-to-be-left-to-the-11th-hour-20140525-38wvx.html

* Indeed that it is stocks which matter not flows provides one argument for a carbon tax rather than an ETS.  Getting the wrong annual flow by setting a tax wrongly isn’t very costly if you can adjust the tax in future years. Policy-makers can still hit stock objectives by increasing the tax if emissions are being cut too slowly.  In addition tax policies provide a measure of carbon price stability that is useful for public and private sector planning. To be clear this is only one reason favouring a tax.  There are also many arguments for an ETS – it can be used to reflect a nations’s contributions to emission’s stock reduction, achieves exact cutback targets etc.  On balance I prefer an ETS although, of course, either a tax or an ETS outperforms the current Government’s emissions subsidy scheme. .

 

May 14, 2014

Emissions Reduction Fund is now definitely revealed to be a bad joke

Filed under: climate change — hc @ 9:47 am

I saw this morning that total planned funding for the government’s ERF of $2-55b will not be increased after 4 years. This is to be TOTAL funding through to 2023/2024.

This pathetically weak scheme is now revealed to be more than weak – it is a bad joke. There is no way targets of 5% reductions in emissions over year 2000 levels will be met by 2020.

In terms of the overall budget this is a “small potatoes” issue. But the Abbott Government is clearly walking away from any serious attempt to reduce carbon emissions.

http://www.misaustralia.com.au/p/national/budget/environment_organisations_lose_out_4hBpgmcE5vdJDndPYR0i8N

May 6, 2014

Water provides a source of comparative advantage

Filed under: climate change,water — hc @ 4:54 pm

The problem of water shortages around the world is not due to the fact that the total volume of water available is inadequate. The problem is that the world’s water supplies are distributed very unevenly. Moreover it is difficult to directly trade water internationally because it is bulky and heavy.  Products which are relatively water intensive can, however, be traded.  This helps to indirectly allocate water resources to where they are most needed and improves the global efficiency of water use.

This paper by Peter Debare shows that water is a source of comparative advantage in the sense that relatively water abundant countries do tend to export water-intensive goods.  Thus water is indirectly traded internationally through trade in goods which are more=or-less water intensive. Comparative advantage in water therefore undoes some of the effects of an uneven distribution of water globally. But water contributes much less to the pattern of international trade than other productive factors such as labour and capital.  Hence changing water supplies due to climate change should cause only moderate disruptions to international trade.  For example,  if Australia experienced a 10% drop in precipitation due to climate change, Debare calculates that overall Australian exports would fall by 5.2%. Not negligible from Australia’s perspective but not catastrophic either.

It is a fine paper. I’d suggest that the failure generally to price water at its scarcity value limits the comparative advantage role that water plays in world trade and also limits the ameliorative role that such comparative advantage might play in mitigating the effects of climate change. Of course we also want water priced efficiently to achieve sound patterns of water use and prompt adaptations to climate change even in the absence of international trade.

http://pubs.aeaweb.org/doi/pdfplus/10.1257/app.6.2.32

March 12, 2014

A carbon capture & storage (CCS) success story

Filed under: climate change — hc @ 1:31 pm

This New Scientist article is worth thinking about.  A CCS plant in Canada (Boundary Dam) is about to become a working coal-fired power station with 90% of its CO2 emissions captured.  It will be the first commercial scale CCS power station.  A second plant in Mississippi that utilises coal gasification will test another energy source.  Finally a CCS plant is being designed in the UK that is gas-fired.

Saline aquifers in the US are being judged as capable of storing 100 years CO2 emissions.  The North Sea has the capacity for 100 years European CO2 emissions.

The hurdle for CCS is cost. The chemical scrubbers on a CCS power plant absorb 20% of power so the cost of CCS is relatively high. CCS costs are about that of wind energy.  Research is continuing on ways to reduce such costs.

CCS can vanish gigatonnes of CO2 emissions annually.  No other technology can do this in a world where we know coal use will continue to be important.

February 26, 2014

Daft Coalition Policy #10: Unwarranted drought assistance

Filed under: agriculture,climate change — hc @ 1:43 pm

The move by the Abbott Government to provide $320m to farmers experiencing drought is terrible, not merely inconsistent, economic policy.  The move undoes 5 years of reforms to drought assistance arrangements initiated by previous governments although the Gillard Government did some equally daft things.  Australia experiences regular “droughts” as a part of its normal climate.   It is essential that farmers come to internalise this fact particularly given that, with climate change, we can expect more droughts and more severe droughts.  Most of the $320 million is in the form of low interest loans which have the moral hazard consequence of reducing the incentives of farmers to prepare for drought.  It also discourages de-stocking in the face of drought which has adverse environmental consequences.

In its report on drought assistance the Productivity Commission recommended abandoning all drought assistance or (if assistance was to be retained) tightening the “exceptional circumstances” motivation for it.  I agree.

February 17, 2014

Worsening droughts with climate change

Filed under: climate change — hc @ 6:06 pm

Tony Abbott might be correct that climate change is not responsible for the current drought but he would be irresponsible to assert that future drought patterns will be independent of climate change.

There is, in fact, evidence published by our own Bureau of Meteorology that El Nino effects – and hence droughts – will have increased intensity under climate change.  While studies from the UNSW Climate Change Research Centre suggest severe drought events will occur twice as often with climate change.

In the past various groups have been skeptical of the climate change-drought severity link – although the likelihood of a link during the Millennium Drought seemed strong – but the evidence is now becoming clear.

January 5, 2014

Warming & telling lies

Filed under: climate change — hc @ 5:41 pm

2013 was the hottest year since records across Australia were begun.  9 of the warmest years on record have occurred in the past 12 years. That is what the Australian Bureau of Meteorology (BOM) states.

Of course it could be that Australia’s BOM are cooking the books to exaggerate the extent of warming. They could be selecting data which supports this view and ignoring data which does not.   That was Jennifer Marohasy’s claim in March 2013. Professor David Flint thinks the same.  Jennifer Marohasy will examine the recent high temperature claim when she has examined the data. I can almost anticipate the outcome.

It seems the conspiracy to deceive the world on climate change is not restricted to the thousands of scientists who contribute to the IPCC. Our own BOM is in on the act too.

There is something more than a genuine disagreement on scientific facts that is occurring here.  Reading Jennifer Marohasy’s blog (and her postings on Facebook) reveals a whole community of right-wing sceptics who have what seem to be bizarre attitudes to the way science is carried out.  Maurice Newman and other prominent people presumably have their views driven by this group.

The bottom line is that science has been captured by a left-wing bunch of environmentalists who, partly for career reasons, repeat scientific facts to us on climate that are false and known to be false by the scientists who state them because they are involved in falsification of data.  We know that politicians lie but now too, we are led to believe, scientists lie as well.  Moreover, these lies are enforced on a global and a national scale.  This capture has been identified by a keen-eyed group of skeptics on the other side of the political fence – the libertarians and the conservatives.  Groups in Australia chat are allied with the IPA and the “dry” part of the Liberal Party.

The cynical might judge that because such groups oppose the role of government in the economy, and that because climate change is a global externality – public “bads” issue,  that such groups are driven to disbelieve truths that would offend their political ideology.  That has been my critical view of such groups.  The view is “critical” because, in my view, political ideologies need to reflect the facts of our existence.

Markets will not resolve many – perhaps most – of the world’s most pressing problems – environmental and other.   Markets fail in many situations and we do need government action.  You cannot just wish this were not true and will it away.

 

 

 

December 31, 2013

Maurice Newman & foolish commentary

Filed under: Australian economy,climate change — hc @ 11:50 am

In The Australian today Maurice Newman is quoted as saying that Australia’s climate policies have decimated Australian manufacturing.  It is a foolish claim given that manufacturing in Australia faced problems even before we began to set a low price on carbon and before we began pursuing renewable energy targets.  The Dutch Disease consequences of the mining boom coupled with high wages have created difficulties as Australia competes with low wage emerging countries.

Newman’s remarks are wrong and characteristically intemperate. He sees interests in climate change as delusional and fraudulent and he rants like a right-wing crazy.

I don’t think The Australian can be criticised for publishing these views although it can be criticised for heeling to install the mob who propound them. Newman is PM Abbott’s senior business advisor and his views are, for that reason alone, worthy of citation.  The difficulty is that these views are just so self-evidently wrong.  We have a government being advised by people with low credibility who are careless with their words.  Even Abbott would not seem to be fond of people with Newman’s carelessness. Abbott himself is a cautious guy.  He should sack Newman and appoint someone with cautious intelligence to occupy Newman’s role.

Australia faces some difficult challenges over the next few years – many stemming from the appointments the Coalition have made to provide information to the Government.

September 27, 2013

Summary for policy-makers from IPCC

Filed under: climate change — hc @ 8:06 pm

This important scientific report (as with previous IPCC reports) contains a summary for policy-makers. I am reading it now. I am interested in the observation that climate change will intensify El Nino events although specific  rainfall effects remain less specific than one might hope for. This is an important document for my own research so I will add what I think are interesting commentaries as they become available.

Update: I am pleased with Minister Hunt’s statement endorsing the report. He released a statement, saying: ‘‘The report’s findings reinforce the government’s bi-partisan support for the science and the targets set for emissions reductions.’’ I think he is wrong in supposing Coalition policies will work but am very pleased that he immediately affirmed the value of this report.  Presumably at least some Coalition members must recognise the gravity of the implications of this report.  Whatever silly things they do I hope there is the basis for dialogue.

The immediate news report from The Australian was better than I thought it might be though I’ll wait for the possible stream of idiot commentator responses tomorrow.  Again the ratbag commentators at The Australian are presumably people with some brains.   Could there be a rethink on their part?

Update: This article in the NYT captures succinctly the drama the world now faces.  Just running out of time to take action. An excellent summary of what is new in the report at The Conversation.

July 18, 2013

Big deal: Rudd repeals carbon tax one year early

Filed under: climate change — hc @ 11:08 pm

Given that Kevin Rudd faces a tight electoral battle I suppose introducing an ETS a year early seemed like a good idea to him.  The opinion polls are ambiguous  - most Australians favour the tax – hardly surprising given its minuscule influence on living costs and industry profitability despite the frantic bleating of The Australian’s trash economics commentators – Ergas, Sloan etc. Since the ETS is linked to the European scheme its main effect of is to cut the charge on carbon one year early.  That is it.   One hopes that when the European economies recover that there will not be a frantic clamouring to “protect” Australian industry from higher charges.

Carbon charging is intended to get people to reduce their use of fossil fuel based electricity  - it has been somewhat effective in doing this – and to encourage supply switches to less polluting fuels such as natural gas.  Liberal Party lies and stupidity, the lies spread in the Murdoch-dominated media, the fact that politicians like Kevin Rudd exist and the low charges that will now prevail make these supply changes unlikely.  Eventually they will need to be made and the abrupt upward shifts in future carbon prices required to achieve this in the future will now hurt more.  But that is modern politics – never do today what you can leave as a tougher problem for your successor.

We live in unprincipled times.  It is important that cynicism does not take over and that the urgency of dealing with the most significant environmental issue of the modern age is not forgotten about.

June 26, 2013

Obama’s direct action plans deserve applause

Filed under: climate change — hc @ 2:15 pm

Ignorant conservative political parties in the US and Australia are forcing reliance on relatively expensive direct action plans to tackle climate change.  Tony Abbott is using an unprincipled attack on a “big new tax” to foist an ineffective direct action plan on Australia. President Obama wanted an effective carbon tax  plan for the US but was thwarted by unprincipled Republicans and some Democrats to abandon this plan. Now he has formulated a direct action plan that he can implement on the basis of regulations he can enforce via the EPA.  It is commendable “second-best” attempt to address they most significant environmental challenge the world has experienced.

The Obama plan focuses on emissions by the power sector and increased fuel efficiency standards for all vehicles in the US – including heavy vehicles. His critical remarks on the Keystone pipeline project are encouraging but ambiguous. The higher greenhouse gas emissions and possibilities of spills associated with this project make it an environmentally dubious way of extending US dependence on fossil fuels.

Greg Hunt who will implement the Coalition’s direct action plan in Australia sees the Obama move as an endorsement of Coalition policy here. What nonsense. It is at best an endorsement of foolish economics forced on Obama by ignorant “flat-earther” US politicians.   Obama deserves praise – Greg Hunt will force Australia to substitute more expensive and less effective means for controlling emissions than are currently in place.  He is a disgraceful politician who bases his policy on deceit and scare tactics.

April 12, 2013

High speed rail on Australia’s east coast

Filed under: climate change,transport — hc @ 7:38 pm

About half of Australia’s population live in the east coast cities of Brisbane, Sydney, Canberra and Melbourne – it is well more than half if people living at points adjacent to this corridor are included.  The most recent proposal for a high speed rail (HSR) link has been predictably debunked by government officials and the press alike.  One positive feature of such a link is the way it would help reduce carbon emissions by reducing air traffic and car traffic along this corridor. It would also help the establishment of larger satellite cities along the corridor that would reduce the congestion, pollution population pressures on it. (more…)

March 11, 2013

Rising temperatures

Filed under: climate change — hc @ 6:20 pm

This study confirms the Mann “hockey-stick” story but takes the global temperature rise back 11,500 years.  Temperatures during the past 100 years have increased faster than in any period since the start of the Holocene 11,500 years ago.  I can’t locate a preprint of the Science article that details these claims.

January 28, 2013

Restricting carbon supply & climate change

Filed under: climate change — hc @ 10:43 pm

The attractive feature of supply-based restrictions on the extraction of carbon-based fuels is that they raise the price of such fuels globally.  Demand restrictions that are created, for example, by carbon taxes can, in a setting where they are imposed unilaterally, lead to carbon leakages because, in part, of  an induced reduction in the global price of such fuels when mitigating countries reduce their carbon demands.  I favour restricting the development of low productivity high cost coal deposits immediately and eventually phasing out (partly by using buyouts at their net social value) the use of all coal where this is politically possible.  Certainly there is no case for government assistance to “gassy” coal miners as is the case with the current Australian Government carbon pricing package. Demand restrictions are a useful adjunct policy provided they lead to lower overall use of carbon fuels but they are not the whole story.  Societies should seek to phase out the use of coal entirely over the next few decades unless CCS technologies prove robust and commercially viable. My earlier post on  Bard Harslag’s “Buying Coal”  - an ingenious contribution on supply-based policies for addressing climate change – is here.

That oil deposits are finite and subject to increasing costs is a blessing for those concerned with climate control and not-at-all something that we should worry about.  Higher petrol prices would have been a desired target of policy were not “peak oil” a very practical fact of life that made such targetting redundant!  Scarcity will drive higher prices that limit the use of these polluting carbon fuels. A difficulty with this optimistic assessment is the increasing inclination to use environmentally destructive low-grade oil resources such as the enormous tar sand deposits in Canada as a substitute for conventional oil deposits.  Tar sands have 3-times the carbon footprint of conventional oil deposits and now, as Fred Pearce writes in New Scientist,  President Obama seems about ready to approve a massive pipeline project that will transfer these resources to Texas where they can be redirected into local petroleum supplies and made available for export. If he does he will lose most of his dwindling environmental credentials and show that he is captive to both limited vision and Big Oil.

The main cost of such substitutions is the harm created for the global climate but this proposed pipeline will also have numerous local US costs as well.  The possibility of leaks cannot be ruled out and it will pass through the largest aquifer on the plant – the Ogallala –  which supplies water to the “Dust Bowl” parts of the US. Pearce suggests allowing these pipelines only if individual shareholders are made responsible for all consequent environmental damages. Thus shareholders would  not to be protected by “limited liability” of public shareholdings.  Of course he hopes that such investments would then be infeasible.  Maybe that’s right. I don’t have the means to check this claim out – such liability would capture the effects only on local pollution damages not global climate effects – and I imagine the large oil corporates would find ways of either preventing this from happening anyway or of thwarting the intention of such policy.

I like Pearce’s main contention that the key issue here is one of inertial political dependence on the vision of our energy future dished out by politically-influential Big Oil.  Big Oil is acting very much like Big Tobacco in seeking to retain outputs that are highly socially-damaging. The public sector focus should be on plans that will end the use of carbon based fuels entirely not to use increasing quantities of even more polluting low-grade substitutes. Hysterical global reactions to higher oil prices are misplaced.  

Australia is not exempt from analogous prescriptions with respect to coal rather than oil.  Australia cannot point to sleaze-ball  environmentally-destructive corporate greed merchants in the US if it continues to offer unending support for the Australian  coal industry in the absence of definite evidence suggesting that CCS (carbon capture and storage)  will work.  Yes coal  is a big industry (3.5% of GDP) and yes it does boost our export incomes (coal provides 15% of  exports).  But restricting Australian coal exports by initially limiting the development of “dirty” low productivity mines will put at least some pressure on world coal prices.  Longer term (here 30 rather than 100 years), unless CCS becomes viable, Australia should not export coal and should not use carbon-based fuels to generate its electricity. As Harslag points out the more countries engage in such restrictions the greater will be the global impulse to phase out coal – even among environmentally irresponsible rogue nations that are unconcerned to act on climate.

January 25, 2013

An ambiguous ‘climate change adaptation’ case for air-conditioning

Filed under: climate change — hc @ 9:48 am

One of the weird arguments for guns by the US gun lobby is to distribute more guns so the innocent can protect themselves. This argument for air conditioning has similar elements. Air conditioning saves lives when populations are exposed to extreme heat events although the proliferation of such technology, will increase the number of extreme heat events by enormously increasing electricity usage particularly in developing countries where carbon-based fuels are likely to be used.  These adaptations provide temporary relief to extreme climate change impacts but increase the frequency of such impacts.  Adaptations increase the mitigation task.  Scary and plausible stuff given the massive move to air conditioning in countries like China and India.

“Adapting to Climate Change: The Remarkable Decline in the U.S. Temperature-Mortality Relationship Over the 20th Century”
MIT Department of Economics Working Paper No. 12-29

ALAN I. BARRECATulane, KAREN CLAYCarnegie Mellon, OLIVIER DESCHENESUC, Santa Barbara, MICHAEL GREENSTONEMIT, JOSEPH S. SHAPIROMIT.

Abstract: Adaptation is the only strategy that is guaranteed to be part of the world’s climate strategy. Using the most comprehensive set of data files ever compiled on mortality and its determinants over the course of the 20th century, this paper makes two primary discoveries. First, we find that the mortality effect of an extremely hot day declined by about 80% between 1900-1959 and 1960-2004. As a consequence, days with temperatures exceeding 90°F were responsible for about 600 premature fatalities annually in the 1960-2004 period, compared to the approximately 3,600 premature fatalities that would have occurred if the temperature-mortality relationship from before 1960 still prevailed. Second, the adoption of residential air conditioning (AC) explains essentially the entire decline in the temperature-mortality relationship. In contrast, increased access to electricity and health care seem not to affect mortality on extremely hot days. Residential AC appears to be both the most promising technology to help poor countries mitigate the temperature related mortality impacts of climate change and, because fossil fuels are the least expensive source of energy, a technology whose proliferation will speed up the rate of climate change.

January 15, 2013

Climate change stopped 16 years ago

Filed under: climate change — hc @ 7:53 pm

No, it didn’t.

OK I am a bit obsessed with this issue (and have addressed the issue recently here and in 2008 here) but the lie that it did stop still gets repeatedly cited as an “inconvenient truth” by populist commentators such as Alan Jones and in blogs such as Andrew Bolt and Catallaxy.  I get angry over this issue because it concerns me that this deceit persists in The Australian and  other news media.  Do the people who promote this deception have moral standards? Those who operate and who live at these websites probably will never be convinced of the reality of anthropogenic climate change irrespective of evidence because of the emotional capital they have expended in defending the indefensible.

Here is a nice new repudiation of this erroneous “no climate change for 16 years” claim.  HT Slate.

All but 1 of the 10 hottest years on record have occurred since 2000. Breaking global temperature records is now the normThanks New Scientist.

Update: More idiocy along the same lines from the Catallaxy site.  The contributors at this site have a casual regard for truth.  This time Sinclair Davidson cites a US marketing professor as their “climate change expert”.  It is instructive to read the (mainly feral) comments associated with this Catallaxy posting.

January 11, 2013

Moylan’s ethics

Filed under: climate change,ethics — hc @ 2:21 pm

Anti-coal campaigner Jonathan Moylan’s actions in disrupting the market for Whitehaven stock a few days ago was intended to be a moral action.  It is not immoral to have principles and to take a strong stance against the use of coal given the imminent problem of climate change that the world now faces.  On the other hand, it is unclear to me that Jonathan’s action itself was sensible given that it will have almost no impact on coal usage by electricity generators and no effects on the international coal trade.  The main effect will be to increase community distrust in the general workings of our local securities markets and that is probably a negative.  We need healthy private investments in non-carbon based sources of energy and other related private sector innovations to move successfully away from coal.

The climate debate has within it some climate science denialists mainly from the ideological right of politics. These people misrepresent climate science consistently and, by their actions, imperil the quality of lives of future generations.  These people are substantial frauds without principles. By any standard they are genuinely immoral since they repeatedly state views revealled on many occasions to be lies.  Yes, these people disgust me but I don’t see any feasible way of dealing with them apart from recognising their deceit and trying to expose and publicise it. They, themselves, won’t change their views. They are resiliantly opposed to rational argument because right-wing ideology, not rationality, drives their views.   The difficulty is that their immorality and stupidity is preventing actions that might reduce the prospect of a future climate disaster.

The difficulty for Jonathan is that these genuinely immoral liars who  will inflict huge damages on society are not disobeying any law and he did.  Apart from not employing  these liars in occupations that rely on veracity (education, financial institutions) we must wait for their lies to be revealled as such.  The difficulty is that we are running out of time.

I can understand the moral tension Jonathan must have experienced.

Update: While it does not affect the principle here, as John Quiggin and others point out, the costs of Jonathan’s actions will be small. To work them out exactly you would have to know the volume of trades that occurred while the information about Whitehaven was being believed and multiply that by the losses that would have occurred if the stock had otherwise been held.  These would provide an upper bound to the losses that accrued to those who sold because of that information.  Of course there would be compensating and offsetting gains to those who made purchases.  The likely total cost will be under $300,000.

December 6, 2012

Real option and insurance approaches to infrastructure investment with climate risk

Filed under: climate change,Investment — hc @ 11:25 am

I attended the Risk Management and Climate Change think Tank meeting at the Australian Centre for Financial Studies in Melbourne yesterday.  As background I prepared the following notes that are intended to provide a non-technical guide to some technical economics.   

Abstract: The real options and insurance literatures alter the way planners think about evaluating infrastructure investments.  These literatures target aspects of infrastructure investment decision-making –irreversibility, uncertainty and risk aversion – that are typically very practical considerations.  Using such approaches however can involve difficult issues of modeling and computation. These notes draw out the major qualitative insights from these theories and illustrate major ideas using an analysis of an urban water supply investment option to build a desalination plant.   The main argument is that while uncertainty and irreversibility coupled with learning provide a case for caution and delay compared to conventional cost benefit analysis that policy-maker risk-aversion  can motivate the reverse of these incentives and create a case for decisive early exercise of an investment option. (more…)

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