Water-filled balloons - water bombs - are one of the coolest science lessons around for a young child; there’s so many fields which they touch on. The tensile strength and elasticity of rubber. Galileo’s formula for uniform acceleration. Evaporative cooling. The fight-or-flight response. Kohlberg’s stages of moral reasoning 
But one of the most important lessons the water bomb can teach you is that water is incompressible. You squeeze one end of the water bomb tight; the other end expands. You grab the other end with the other hand, the middle bit expands. No matter how hard you try, you can’t squish the whole thing; bits keep on poking out further and further, and eventually you either run out of hands or the thing explodes in a mess. The government’s proposal to temporarily (in effect) exempt petrol from the emissions trading scheme strikes me as the economic equivalent of squeezing on one end of the water bomb, and about as effective.
Let’s assume for the moment the scheme operates as expected and the initial price cap is not reached (as the Green Paper notes, the price cap is expected to be set well above the likely price). As petrol users aren’t exposed to the increased prices, more permits end up being used in the transport sector, and thus less are available for the other uses that require permits. Given agriculture isn’t in until 2015, the overwhelming majority of the remaining permits will be required by the electricity and gas sectors. And what happens? The other end of the balloon - the price of gas and electricity - goes up more than it otherwise would have. Heavy users of petrol win out, heavy electricity and gas users lose out, but all in all we all end up pretty much as we were. Slightly worse off, because some of the lower-cost abatement opportunities in the transport sector (in a nutshell, a few less Landcruisers and Territories on suburban streets) won’t be taken. But, basically, where we started.
It’s important to put this in perspective. We’re talking about setting a policy whose broad outlines will last for decades. It will continue to strongly influence what happens when the conservatives inevitably return to government some time in the distant future, and the next Labor government after that. So getting the basic design of our scheme right, and pushing for a good outcome internationally (which, as Garnaut says, means much steeper emissions cuts by Australia than presently admitted to by the government), are far, far more important than whatever political fixes they throw in the pot to get the scheme up and through the first couple of years.
But that’s what it is: a political fix that helps out heavy users of petrol at the expense of the rest of us. Nothing more. And it’s going to make another headache for the government in three years’ time when it’s up for review.
You’re right about the relative effects in the first three years, but I’d add
i) many aspects of ETS are going to need major revisions over the next 20 years, as technology changes, consumption and production patterns change, as uncertainties in estimates of emissions (e.g. by agriculture) are reduced; so a revision planned now for 2011 is likely to be small beer
ii) the “price signals” on petrol are strong now and will rattle around in the Aussie economy for the next couple of years, regardless of ETS: effects on car purchases, car useage, car pooling, use of public transport, holiday driving plans, etc
iii) anticipating a big electricity price rise, many householders will go for solar hot water or even solar PV, regardless of Federal or State subsidies
cheers
I think the problem here is that you can’t seriously claim “petrol users aren’t exposed to the increased prices”. There is already a huge price signal in this industry, and i think that this will cause the demand to be reduced. I’m not sure how that effects the balloon analogy but it’s worth considering…
j: that’s true. However, if the emissions trading scheme applied to petrol, and the excise remained unchanged, petrol would go up a few cents more than it otherwise would. That would cause an additional decrease in demand for fuel, and thus fewer permits would be required in the transport sector. Therefore, the cost of permits would come down, making electricity cheaper.
My point isn’t that this makes will make a huge difference one way or the other; the increased costs of crude oil make the initial carbon price look tiny. My point is that we’re not magically lifting the costs. We’re just redistributing some costs from one group of people to another.
Yes, Possum’s made that point here, Robert http://possumcomitatus.wordpress.com/2008/07/07/climate-change-rocks-and-hard-places/
That comments thread is worth checking too…
One thing I don’t really understand is the details of how the government will decide how much to reduce fuel taxes “on a cent for cent basis to offset the initial price impact on fuel associated with the introduction of the Carbon Pollution Reduction Scheme.” The carbon price could fluctuate considerably over the course of the year, and hence how much they will need to cut fuel taxes would also vary considerably. Are they going to reduce fuel taxes by an average amount over the whole year? Or are people going to pay a different fuel tax each month, or each week? If they reduce fuel taxes by the same amount over the whole year, how will they determine how much to reduce fuel taxes during the beginning of the year?
Penny was asked that question at the Press Club, Peter. Her response, if I remember correctly, was that they would review that ‘periodically.’ In other words, they’ve got no idea.
Peter - I think by including fuel and yet magically not including fuel at the same time so they can claim to have an “all-in” scheme and still not affect petrol prices they’ve bought themselves a long term headache. The problem you point out is going to be significant if only from a media point of view and we’ll be left with arguments over a few cents in the price of petrol for at least the next few years.
I don’t see how they’re going to remove the subsidy in 3 years time. There will still be too many people driving petrol driven cars for it to be politically palatable. Now is the time to burn a bit of political capital.
I agree with Chris. It’s about time they burn some political capital. They’re ridiculously popular compared to the opposition, and they’re doing near enough to bugger all. They could quite easily have put forward a good policy (i.e. one close to what Garnaut recommends) and still been streets ahead of the opposition.
It’s a huge wasted opportunity.
Chris: there’s a couple of bits of political cover for them. One is to note that if the oil price really stays this high, it doesn’t matter whether petrol’s in the ETS or not, people will be cutting consumption. If it drops, they’ll probably be able to justify removing the defacto exemption.
The second possibility is that in the wake of an international agreement, it will become clear that Australia needs to hit more stringent targets. The government can then argue that petrol can’t be exempted under these new, tighter targets.
The final point is that if they’re really serious that this is a temporary adjustment measure, they need to keep repeating that point all the time.
At what stage does the ETS ever get removed? If the government is serious about the science and the effects then they should be able to set a “hooray weve done it” mark shouldnt they?
Either that or they dont believe either the science (extremely unlikely), or they really dont think the ETS scheme will be worth bugger all in the attempt to control the weather.
The added costs to industry and power users is being capped at an artificaly low rate of $20.00. The EU model has prices which have ranged from much lower (originaly) to nearly tripple that.
http://www.spiegel.de/international/business/0,1518,550689,00.html
The Speigel article is interesting in that it shows the people making money from this scheme arent actually producing anything. They are buying bundles of credits and betting on government policy.
“..This is no feel-good charity scheme. Enticed by the possibility of high returns from the European Union’s Emission Trading Scheme, financial institutions, including Barclays and Morgan Stanley, have flooded into the Continent’s cap-and-trade carbon dioxide market since its creation in 2005. Now, an estimated $78.6 billion in carbon credits — the right to emit a specific amount of carbon dioxide — are traded annually on the EU ETS. And trades in other carbon-related financial products, such as derivatives and futures, are posting double-digit gains each year..”
I must also admit to being a little uneasy that the biggest promoter of the AGW theory stands to make a killing by registering and issuing the carbon indulgences from 3rd world countries to the 1st.
“..On Mar. 14, the company launched a new financial product tied to carbon emission reduction credits, a U.N.-approved program that allows companies to generate carbon credits through CO2 reductions in the developing world, which can be sold on the EU ETS. While only 135 million CERs have been traded so far, analysts reckon there’s significant growth potential: Between 2 billion and 3 billion such credits are expected to reach the market by 2012..”
This isnt a crank “UN conspiracy to take over the world” post, just a worry that an organisation not well known for its transparency or ethical behaviour is both broker and promoter of the scheme.
Mole: where did you get the idea that a price cap of $20 has been specified? From the Green Paper recommendations (recommendation 3.7, page 39):
In short, it hasn’t been specified yet, but the level will likely be considerably above $20.
Robert, there is another possibility. If the assumptions behind ETS (including the demonstrably oversimplified one that the sole impact on climate is human CO2 emissions) prove to be false, then this government is in a world of hurt.
It really is worth reading the Indian Government’s version of the Garnault Report. It is brief, logically consistent and lays out a solid basis for Indian government policy. They will use a mix of nuclear, fossil fuelled and renewables (the latter mostly in niche applications in current low demand areas far from the baseload infrastructure) to improve the quality of live of the Indian population as fast as possible, while avoiding the industrial pollution problems which bedevilled second stage western industrialisation.
The Ghandi quote that poverty is the greatest polluter and the focus on poverty reduction while industrialising in an Indian way makes for a fascinating contrast. The present Australian government’s approach is embarrassingly facile by comparison, because it is so unbalanced and laden with so much theology.
MarkL
Canberra.
Robert, I dont have the quotes to hand (I believe it was the Australian), however there must be some reference to figures or the pricing would be impossible to work out. I may have used the wrong wording in saying capped. It would be more accurate to say “the inital pricing is expected to be around…” my error.
Heres a link to a carbon trading group that currently costs its product (if the link works for you) at $15.00 a tonne for its cheapest option.
http://www.australiancarbontraders.com/carbonmart/public/search?tons=10&scheme=Greenhouse+Friendly&scheme=NSW+GGAS&projectType=Landfill+methane+capture&projectType=Forestry&vintage=&searchType=lowest
Maybe I’m just thick or dumb or too old to get my mind around this but whenever I read about ETS and carbon trading schemes etc, why do I get this sinking feeling that the end result for me will be that I will be paying a fortune for electricity and petrol etc whilst a lot of entrepreneurs will be making megabucks buying and selling “nothing”?
I already pay a contribution to “offset carbon emissions” as part of my electricity bill but where is the actual proof that the money actually goes anywhere except into the profits of Origin? Do they plant a tree or something?
MarkL: I’m not going to debate climate science with you on this thread.
Allan: Go read up about Green Power.
Further to this, there isn’t that many coal-fired power stations, gas plants, and oil refineries, and they’re public companies. It’s not that hard to track how much they’re burning.
Ross Gittens to the rescue with a concise and quite brief “Idiots Guide to ETS “.
http://business.smh.com.au/business/rudd-sails-through-greenhouse-test-despite-lack-of-green-flagellation-20080720-3ias.html?page=fullpage#contentSwap1
Agriculture shouldn’t be included until there is recognition of the carbon capture capabilities of agricultural practices. This isn’t to say all agricultural practices are good but currently there isn’t an accepted protocol for soil carbon storage .
Robert - agreed that there is political cover for them in the future, but I’m not confident they will have any more political at a later date. I think any substantial, enforcable international agreements a quite a long way off still.
Mole - I think the government is using low numbers for the price of carbon because they didn’t want headlines saying things like “petrol up 20c/L, electricity up 20%” etc. They’ve been very careful not to say what they believe the price will end up being.
Robert
Thanks for the link - very interesting stuff. Nice to see that my little contribution is hopefully making a difference.
As has been stated many times, the primary purpose of an ETS is to send a price signal to consumers so they alter their behaviour. This is unnecessary with regards fuel right at this point in time - the price signals are already very strong. So the case for keeping fuel in the ETS right at this point in time is weak.
The secondary reason for an ETS is revenue raising - but taxing fuel more to use for climate change initiatives is simply hypothecation, which is in general a poor policy idea. If the federal government wants for the first time to spend money on public transport, well they’ve got the funds in consolidated revenue to do so.
Free money for generators on the other hand, well that’s just bullshit.
Robert (#15)
“MarkL: I’m not going to debate climate science with you on this thread.”
That’s not the intention, and either I expressed my point poorly or you read it a little too quickly.
The question is about the potential political impact on the present government if (please note the caveat ‘if’) their present basic assumptions are wrong.
To put it bluntly. What if in 2010 it becomes obvious that the AGW theory was wrong, the SIM theory closer to the mark, and that this was all actually discernable in 2008? (ie: the Indian government had it right in policy terms in 2008, so they picked it, and the Australian government got it wrong)
What would be the political impact on the present government of this situation?
By what we can see of the ‘policies’ to be implemented, people would have been subject to policy which would have caused them serious hip-pocket pain, sent jobs overseas and damaged the economy through wasteful and unnecessary spending in the billions and that this was known in 2008.
Because that is the situation we may (again, note the caveat) be heading in to.
SO I am not discussing climate science here, but the political implications of getting it wrong.
MarkL
canberra
MarkL: OK, fair enough.
The basic problem with your idea is that even if the mainstream scientific view turns out to have significantly overstated the effects of human activity on climate - and, despite a couple of recent outbursts of nonsense, there’s nothing to suggest that’s the case - there is no way in the world that such a massive turnaround in scientific opinion will occur by 2010.
I am not a climate scientist, but I am a working academic in a para-scientific field (software engineering), so I know a little bit about how scientific ideas develop over time. The probability that something will turn around scientific opinion on this issue in the next two years is essentially zero.
The problem with your idea Robert is how much of this issue is science and how much is politics?
Y2K has a specific date but I don’t recall anysoftware engineers saying that spending billions of dollars adjusting computers was a big waste of time but it was almost entirely so.
The dot-com boom and associated herd driven stockmarket craziness was fuelled by scientists in the first instance and they were all reaping monumental profits right up till the crash.
The science regarding climate change may only have to waver in it’s degrees of probability and the politics might swap around very quickly.
Murph: you have to separate out the real Y2K issues from the hysteria surrounding it.
Big businesses fixed or replaced a lot of old COBOL code that would indeed have caused substantial issues if not fixed.
MarkL, if it was the case that the scientific consensus turned strongly against the theory of ACC, then yes of course there would be a bit of a mess that needed cleaning up. However, given that all of life is uncertain, there are no policy positions that can be taken that assume perfect knowledge of the future. The Government wouldn’t have to apologise, they are working under the best available advice, they would have to go about and fix the mess, but they would certainly not be the only government or business in that boat.
I think the Indian Government position (which I’m not really familiar with, only through media reports) is a far riskier proposition. I would put the likelihood of ACC being real and gaining more and more evidence to be the way to bet. Sure India could ‘win’ the prisoners dilemma by being the cheater, but there will be punitive action meted out by those who play in good faith. If no one will sell India any coal whatsoever, those coal fired power stations are going to look very silly indeed.
Denial of access to resources? Isn’t that the sort of thing that leads to countries going to war?
Robert: awaiting a nice CO2-belching flight, so only a quick comment.
“The basic problem with your idea is that even if the mainstream scientific view turns out to have significantly overstated the effects of human activity on climate - and, despite a couple of recent outbursts of nonsense, there’s nothing to suggest that’s the case - there is no way in the world that such a massive turnaround in scientific opinion will occur by 2010.”
This really is avoiding the question posed and to be honest I did not expect it of you. We could argue - and have - regarding the silliness of the concept of ’scientific consensus’, but that is not the issue raised. We presently have an arguable case that the energy required by the terrestrialists/AGW brigade cannot be located, and the worrisome sight of a spotless sun greets us daily. If, after another two years of cooling and none of the AGW apocalypses have occurred, then it is quite possible that thre will develop a popular perception that the AGW scare was just that - another scare. In that case, then the popular perception could certainly be that the Australian government got it wrong, and the Indian government (which states unequivocally in its report that there is no evidence linking human emissions to global warming), can have been perceived to have ‘gotten it right’.
This is the POLITICAL issue involved. There are scientific papers arguing either way, that is normal, but very specific claims of tipping points and disasters various ahve been made and are not occurring. But the POLITICAL issues arise not from those, but from popular perceptions as influenced by media. If that media worm turns, then so will political perceptions, and you can sell papers by saying that global warming is passe and the REAL problem was global cooling, the government got it wrong, yadda, yadda.
“I am not a climate scientist, but I am a working academic in a para-scientific field (software engineering), so I know a little bit about how scientific ideas develop over time. The probability that something will turn around scientific opinion on this issue in the next two years is essentially zero.”
Neither am I a climate scientist (hey, it hasn’t stopped Flannery from getting $50K per scary bedtime tale) but I have decades of expertise (shall we say) in analysis of data. Sure, scientific papers will say one thing or the other, but you’ll note that the SIM school goes back 70 years in the literature. That scientific opinion is the opposition one to the AGW one, itself merely a subset of the terrestrialsit school. So what?
Political impacts are decided not by that, but by popular opinion.
And that can certainly change by 2010.
So again, back to the question for the third time, if teh government is seen as having gotten it all wrong by 2010, what of the political effects on that government?
MarkL
Canberra
Replacing fuel excise with a carbon emission cost is entirely the correct action for this energy sector. Have we completely missed the renewable energy replacement incentive that this policy gives? I suspect that a lack of enthusiasm for ethanol can blindside one to the real potential here. This part of the ETS gives the biofuel industry a permanent incentive to improve their delivery, which in turn gives the motoring public the best way to reduce their road transport cost and their subsequent carbon emissions in the process. The policy clearly recognises that applying a few cents in carbon cost on its own would get lost in the 20 and 30 fluctuations that petrol is experiencing over short periods of times as peak oil demand plays havoc with once stable markets. And as for the non increase this is entire consistent with the rest of the Labour policy of handing back 50% of ETS collections to reduce ETS impact.
In reality this is the only significant (other than wind generators, light bulbs, and not clearing land) area of carbon abatement underway in Australia to date, and it is certain to stay that way for some time to come. Electric cars (in any volume) are decades away as is the volume renewable electricity to fuel them. Can anyone prove otherwise? And new developments such as http://web.mit.edu/newsoffice/2008/solarcells-0710.html & http://news.bbc.co.uk/1/hi/technology/7501476.stm are still on the drawing board, however much promise they offer to push the distributed energy drive into high gear.
In fact, this is the only part of the Labour policy that does make sense. Every other part of it is just meddling with commercial mechanisms.
Well Robert is even less of a pollster and politician than he is a climate scientist, to the best of my knowledge, so who knows? If ACC is all wrong, then the Government are well down the list of people who will be apologising.
I really wouldn’t bet on it happening however. Or rather, I would bet on it, but against it, if someone would take my money.
Of course, if and when the last sceptic gives up, I will wait in vain for apologies from that side of the aisles.
Chris, if we don’t sell India the coal they want in thirty years, and they threaten to go to war with us for that reason, well good luck to em.
Wilful,
I might be out by some degree but I think China has hundreds of years of coal reserves. As technology changes the scenarios involved with it’s use, I’d bet they will be happy to sell it to anyone.
You might be out, wilful, it seems we don’t really know. This is what Barry Brook says:
And:
As you say, MarkL the word seen is the crux. With an irresponsible media there is no telling what people will see. And on these matters you can’t always expect the people to be right.
As to the actual science turning, like Robert I can’t see that happening in so short a time. The science is pretty tight. But it involves feedbacks which inevitably produce uncertainties, or so I’m told. According to the science, on present emissions trajectories there is a miniscule chance that things will be fine in 2100. There is an overwhelming chance they will be crook and a significant chance they will be simply horrendous or very obviously trending that way.
As to what happens in the next year or three in itself it simply doesn’t matter, unless it becomes plain that we are getting one of those rare sudden climate flips when the temperature changes about 5C in a decade or so. Then there would be panic of a different variety.
Have a look at this NASA GISS graph or if you like the Hadley graph here. The former runs a 5-year men, I think the Hadley one is a 10-year mean. Both are still trending upwards, especially if you understand that up to 30 year it is generally considered weather rather than climate. A 30 year running average would show a clear uptrend, but of course it would finish at 1992. I reckon we’d know something was wrong for sure if the 30-year average had turned down for about 15 years. It can’t happen by 2010.
Anti-AGW mob are fond of telling us that we need to look at things in long time scales and that a blip upwards in the 20th century is just a bit of noise. Yet they seem to regard some flattening of the curve from 1998, when it has happened four times already since 1960 on the Hadley graph, as something significant. They even got agitated about 2007, when NASA has it as the second warmest year ever and Hadley has it as the warmest La Nina year ever.
murph, in the 1980s I had a fair bit to do with the introduction of microcomputers into schools. The Department preferred to have a neo-Luddite like me in between the technophiles and upper management. I found plenty of techno heads in industry and education at that time who were significantly detached from reality and were convinced that the world had changed, so history was not relevant.
In the end the dot com mob kind of sucked George Soros in. He thought it was crap but thought you had to be in there nevertheless. Warren Buffet couldn’t see a proper business in there and stayed out. Not sure he’s in even now, because he won’t buy unless it’s a bargain.