I’ll stay out of the compensation issue, except to note that the “compensation” in the EU has turned out to be a massive rort that has made the coal generations billions in windfall profits.

Comment: Most interesting, and an issue I have no visibility of. Do you have any source data or links?

Hepburn et al. Auctioning of EU ETS phase II allowances: how and why? is a good place to start. Auctioning 100% of emission permits to any greenhouse gas intensive firm will almost certainly result in a net profit for the firm.

The Glorious Minister for Making the Sun Obey Krudd apparently believes that this does not require government compensation for destroying the value of their assets! I seem to recall a section of the Constitution which has something to say about that…

I’m not an expert in constitutional law but I don’t think that every time a government makes a decision that adversely affects a firm they are eligible for compensation. Should governments compensate cigarette companies for regulations that affect their profits? When asbestos was made illegal because it was carcinogenic, should governments have compensated the firms that made the asbestos for lost profits? When I invest in shares, I am likely to make more of a profit than if I was to invest in cash, because I am making a risk. This is what investors in greenhouse gas intensive industries are doing. If greenhouse gas intensive industries were to be compensated for a carbon price then it would set a very strange precedent. A “section of the constitution” may mean that a firm is eligible for compensation if its assets were acquired by the state, but that is not what is happening here. As long as a carbon price in not in existence, greenhouse gas intensive firms are being subsidised by future generations for the climate change costs that will occur, I think torts law may have something to say about this.

Let me see… how long will power companies stay in business when they are forced to operate at a loss, from a ruined asset base ? Probably not long. Wonder who they will be forced to pass the costs on to?

Power companies will pass the cost of emissions on to consumers regardless of whether they are compensated for the polluter finally having to pay. It is the marginal cost that makes a difference. I find it amusing that they are still trying to use this argument. Garnaut is certainly not buying it.

I could make more comments but I prefer not to provide free advice to rent seekers. If I was to offer any advice to greenhouse gas intensive firms, I would suggest that they should reduce their emissions, rather than try to postpone action on climate change or shift the burden of a carbon price elsewhere - which is what they are trying to do when lobbying for free emission permits.

The permits are per tonne of CO2 (technically “CO2 equivalent”, an accounting measure that takes into account the relative power of greenhouse gases like methane), not carbon. When you use that figure, a $25 carbon price equates to a price impost on petrol of about 6.25 cents per litre.

Comment: I thought so too at the time when doing back-of-the-fag-packet calculations. So I asked the interlocutor, who looked at me, smiled, and said ‘apply it as a VAT, not as a point of retail sale tax’. I have no knowledge of whatever policy is planned in regards to the new tax, but I hope his hint is wrong.

As far as quadrupling electricity prices, you do realize that wholesale baseload electricity tends to go for about 4 cents per kwh, whereas retail goes for triple that? Quadrupling the wholesale price (highly unlikely, for various reasons) would only double the price for consumers.

Comment: My understanding is that if no means of compensation for lost asset value is forthcoming, the asset value losses will have to be recovered from consumers, hence the information. Now, I have no idea as to the scale of asset loss (that would be commercially sensitive), but the very silence on that issue is telling, as is the ‘difficult’ nature of meetings with the Minister for Making the Sun Obey Krudd. At this stage, my assumption is that those meetings are in the ’cause and effect’ stage, with the Minister for Making the Sun Obey Krudd being given a fairly brutal education in real-world impacts of greenie dreams. That would apply (based on my stated assumption) that this issue is being used as a stick to beat some sense into her head.

The horsetrading would be fascinating to see, not that any of us will, because as Gordon Brown is finding out in the UK, ‘working families’ are averse to paying for the dreams of climate change fantasists.

I’ll stay out of the compensation issue, except to note that the “compensation” in the EU has turned out to be a massive rort that has made the coal generations billions in windfall profits.

Comment: Most interesting, and an issue I have no visibility of. Do you have any source data or links?

MarkL
canberra

Considering it took physics and chemistry millenia to get as far as alchemy, I’d say that’s a pretty good rate of progress.

Wake me up when they quit searching for the Philosophers stone equivalent (i.e. the ultimate statistical proof of correctness of political leaning). Then it might start being a useful tool rather than a blunt object to bludgeon your opponent with.

…as long as all other things are equal…

Economics in 2008 is about where physics and chemistry were in the age of alchemy.

Whiggish much?

In the sense that experiments help to achieve closure amongst a community of experts, Economics is every bit as scientific as every other discipline.

Economics in 2008 is about where physics and chemistry were in the age of alchemy.

Considering it took physics and chemistry millenia to get as far as alchemy, I’d say that’s a pretty good rate of progress.

Some in industry are concerned about the optimistic assumptions used by Treasury and the perception that the sector was simply “rent seeking” by presenting its frightening scenarios of an industry in meltdown if the Government got it wrong.

“They simply don’t believe us,” one industry source said

“They simply don’t believe us,” - its about bloody time that people stopped believing the scaremongering from greenhouse polluters. It reminds me of the story of the boy who cried wolf…

If I wasn’t trying to save for a deposit, I’d stump up a few bucks to help you in the process of parting these doom-saying fools from their money. It’s not often that somebody will offer you evens for a sure thing!

d

They’ve been doing experiments for ages

Ages? They might have started in the 1970s but it’s not exactly a common mode of operation. “Dismal Science” is far too kind a description - the use of scientific tools doesn’t make it science any more than telescopes make astrology science. Economics in 2008 is about where physics and chemistry were in the age of alchemy.

If anybody else is interested in taking this bet, let me know (either replying on here or by email), and we’ll send some group emails round to set the exact terms, which we’ll then publicize on LP.

Of course! *smacks forehead* Why has nobody thought of that before? Economics should be a hard science. It’s so easy! Especially since humans are so like atoms in their predictability and consistency!

There are plenty of hard sciences that include unpredictability - that’s what statistics are for. Besides which, if humans are that unpredictable, why are so many economists happy to be associated with political leanings first and mathematical and investigative skills second? Andrew Leigh might be (somewhat) of an exception but the world is filled with lightweights like Sinclair Davidson and or heavyweights like Paul Krugman, both sides making conclusions first and doing their studies second. Roberts post is a perfect example.

Robert Merkel wrote:

So I’m prepared to make an inflation-adjusted $500 bet with you - our per-capita real GDP, as measured by the ABS or its successor, will be bigger in 2030 than it is now.

How are we going to organise this bet Robert? Do you have an escrow in mind?
I’d like to increase (your) odds - I’ll bet it’ll be lower in 2020, 2030 and possibly even 2040.

A further point: the “hard sciences” do spend a hell of a lot of time simulating stuff on supercomputers these days.

Yes, they do, but they also have to follow it up with repeatable experiments or observations that fit those models, and make testable predictions. Economists seem to forget that last step, by and large.

The most noticeable error in Mathew Warren’s article is probably what is causing the issues with the models. I suspect it is not so much the amount of emissions as it is the fact that they are being reduced in 2050. Economic models are uncertain enough as it is, but the idea of quantitatively modeling the economy in 2050 has huge uncertainties.

I do find it curious that Warwick McKibbin believes we should have a safety valve price cap on emissions in case they are more expensive than expected, but does not seem interested in a price floor. The issue of climate change is rife with uncertainties - as well as the uncertainty in abatement costs there is also the uncertainty in climate sensitivity, carbon cycle feedbacks, climate change impacts including whether Greenland will melt and so on. Because of the existence of backstop technologies, such as solar power and CCS, there is already a natural cap on the price of climate change abatement that is something like $400/t CO2-e. Unfortunately there is no cap on the costs of climate change - it’s impacts have “potentially unlimited downside exposure”. Some recent work from Weitzman suggests this means that low probability high impact effects of climate change dominate its expect costs.

There is also the possibility of ‘unknown unknowns’ - impacts of climate change that we have barely thought about, let alone attempted to quantify in an integrated assessment model. When it comes to abatement the role of the ‘unknown unknowns’ is reversed - the possibility of abatement technologies that we have not thought about yet could lead to the cost of abatement being lower than expected. So I find it peculiar that McKibbin is so concerned with abatement costing more than expected when both common sense and more complicated forms of cost-benefit analysis that deal with risk and uncertainty suggest that the risk of climate change being worse than expected is much more serious than any uncertainties in the cost of climate change mitigation.

The permits are per tonne of CO2 (technically “CO2 equivalent”, an accounting measure that takes into account the relative power of greenhouse gases like methane), not carbon. When you use that figure, a $25 carbon price equates to a price impost on petrol of about 6.25 cents per litre.

As far as quadrupling electricity prices, you do realize that wholesale baseload electricity tends to go for about 4 cents per kwh, whereas retail goes for triple that? Quadrupling the wholesale price (highly unlikely, for various reasons) would only double the price for consumers.

I’ll stay out of the compensation issue, except to note that the “compensation” in the EU has turned out to be a massive rort that has made the coal generations billions in windfall profits.

I hope someone takes your bet, Robert. That’s easy money unless the inmates stay in charge of the asylum for too long.

Looks like the price addition for standard petrol of pricing CO2 at about $25 per ton is an additional 20-21 cents per litre. Before GST, of course.

Lot of money for ‘working families’ to cough up to solve a problem that does not have the good grace to actually exist.

Lots of interesting stuff too from the meetings “The Minister for Making the Sun Obey Krudd” has been having with the evil baseload boys and demon-spawn hydrocarbon companies. Apparently she’s thick as two short planks and thinks that money grows on trees.
For example, poor Penny thinks that thermal power stations and offshore platforms did not actually cost anything to build and operate! Who knew?

Apparently they grow overnight after one sprinkles pixie dust on the ground (or sea floor).

The ALP’s loopy plans pandering to the greenie fruitcakes are going to devalue all thermal power stations by many billions. The Glorious Minister for Making the Sun Obey Krudd apparently believes that this does not require government compensation for destroying the value of their assets! I seem to recall a section of the Constitution which has something to say about that…

Let me see… how long will power companies stay in business when they are forced to operate at a loss, from a ruined asset base ? Probably not long. Wonder who they will be forced to pass the costs on to? Hope Victorians like the idea of having their power bills quadruple in order to keep their brown coal thermals going.

Or the companies could just go bankrupt and close them down, and Melbourne could return to horse transport, kerosene lighting and no refrigeration.

We live in highly entertaining times. Rather soon, there is going to be an amusing sound as brainless greenie dreams meet the onrushing train of reality. One cannot run baseload without coal, oil, gas or nuclear when one has exhausted all the hydro options. Simple. Anyone but a greenie or a leftist intellectual can understand this.

I look forward to the loud ’splat’.

MarkL
Canberra