That was a quote by Tony Concannon, Executive Director of International Power Australia in a recent AFR article. The fuller version is that he:
recently told a senate inquiry the CPRS created a “very real risk” of widespread destruction of asset value and did not provide the right incentive for a smooth transition for the sector.
“We envisage a systemic failure of the electricity market as a result of damage to balance sheets and a loss of creditworthiness,” he said. “We see increased price volatility and increased short-term contracting.”
This is the gun being held at the Government’s head over the CPRS. The question facing Greg Combet and Penny Wong is whether they are bluffing or whether the gun is actually loaded.
Andrew Brandler from China Light and Power (CLP) said:
“Australia needs $50 billion of investment in energy infrastructure to transition to a low-emissions generation fleet, so why would you destroy the balance sheets of the companies most likely to make those investments?“
Foreign investment “will not be attracted by policy reform that destroys debt and equity in businesses,” and because of growing regulatory risk could be forced to redirect capital to South-east Asian countries, he says.
CLP has plans for a 154MW solar plant in Victoria, 1000MW wind farms in SA and Tasmania plus a 400MW gas-fired plant in NSW. International Power Australia, according to the website, is the biggest private power generator in Australia and has brown coal, gas-fired and renewable plants.
Coal-fired generators are talking to ASIC about concerns they could breach their trading licences because of financial stresses caused by the CPRS. Generators fear they will breach loan covenants, which cover such things as debt to equity ratios and the ability to repay interest.
For similar reasons and sovereign risk there is a “Mexican standoff” between bankers and coal-fired power generators. Where they traditionally lent for 10 to 15 years ow they are only willing to lend for 5.
The government has a $3.8 billion adjustment scheme, which Senator Wong is optimistic might do the trick. But if the Sydney Futures exchange is any guide, investor confidence is not high. There are very few deals being done to hedge forward electricity price rises.
It seems that 60% of coal-fired generation capacity is actually state owned, presumably NSW and Queensland.
I’d have to say that when I attended the Senate hearings on climate change policy, I worried about sovereign risk. It wasn’t just what was said, it was how the politicians carried on. The senior company officials, some of them newly from overseas and not used to the robust style of Australian political exchange, could have been forgiven for thinking that just about anything could happen. Still it was clear and understood that the Senate was not the Government.
I think we can take it that the Coalition senators accepted what the company representatives said at face value. It’s no doubt one reason why the nationals will not pass the CPRS in a month of Sundays. Combet/Wong/Rudd and the cabinet need to decide whether and to what extent the companies are bluffing. The situation is not helped by the extravagant claims made by other company representatives being challenged by the Australian Conservation Foundation and Australian Climate Justice Program.
On that thread John D(avidson) said:
The problem is made worse by the complexity and uncertainity of CPRS. Nobody knows what permits will end up costing or who in their supply chain will end up getting a free ride. The uncertainity is made all that much [more] urgent given that “putting a price on carbon” requires large, rapid price jumps if it is going to get results.
In this case the problem is made even worse by not knowing whether any compensation will be paid if coal-fired power stations are to be closed down prior to the expiration of their normal life-cycle.
John was too modest to say that his idea of adding renewable power capacity incrementally as required and only charging consumers for the marginal average cost increase would have avoided both situations. It is an approach that avoids unintended consequences, is flexible, and there is evident benefit for each price increment. It also separates the functions of emissions reduction and revenue raising.
The main objections, it seems to me, are mainly twofold. Firstly, that it involves multiple actions. My contention that the present CPRS also involves multiple deals but in a context that is quite confusing and more susceptible inconsistent treatment and to gaming.
Secondly, there is the issue of revenue raising. This is better done, I think, in a manner that is direct and accountable, where the purposes are clear at the time the decisions are made.
That having been said, the dye is no doubt caste in favour of an emissions trading scheme and I hope Combet makes the right decisions, which, it seems to me, must contain some guesswork.
(a.) Brian, when I first read your headline based on Concannon’s words I was immediately struck with horror, as it brought to mind the rolling blackouts that took place here in Victoria during the heatwave earlier this year (I don’t know what I would have done if we’d been hit & lost power for the airconditioning).
Are his words calculated to invoke this? Is he saying we’ll swelter in future summers if the power industry is forced to restructure by the Wong plan? Words mean things, and I can’t help but think we are being issued with a threat by corporate rent seekers.
(b.) They are corporate rent seekers, aren’t they?
This bloke might be a relative of mine. Possibly a child of my mother’s sister’s child’s child. What does that make him. Or me? Just askin’.
The usual lobbyist rent seeking:
http://www.reuters.com/article/latestCrisis/idUSSYD410126
Nichws, they are strong words, but there is no way for me to tell whether they are the ungarnished truth or a con/unjustified threat. That’s the problem.
I just want to make the point again that the world isn’t divided into evil polluters and the good guys with renewables in tow. The same companies are involved in both.
At the hearings we were told that no decision was made after 2001 to build a coal-fired power station. Since then Peterc on another thread said that Victoria was planning to build one to power the desal plant. Christine Milne also mentioned a recent approval to expand one in NSW. These states deserve all they might get, but back in 2001 personally I was not yet convinced that climate change was a problem. So I can’t blame people who made decisions back then.
In Australia we have a poor record of adequately compensating people for decisions made in the public interest that cause harm and disadvantage to those directly affected.
In this case we could be shooting ourselves in the foot.
Frankly, I’d be pretty skeptical towards these claims. The generators are getting massive wallops of compensation, remember?
And there’s a big difference between the owners of power stations taking a beating, and the power stations shutting down.
MikeM those are NOT the companies we are dealing with in this post.
Victoria hasn’t invested in electricity infrastructure since before privatisation in 1992 so of course there are going to be rolling blackouts as infrastructure gets to the end of its usable like, then we can add in the dimension of increased per capita demand. In 1992 how many people had a computer at home, a mobile phone an iPod etc. Then you add in the extra 1 million people so of course we will run out of power – so this is just an opportunistic threat.
He’s the one who made the quotes I led off with. His bankers are being difficult and his bottom line is adversely affected by the CPRS. From the talk he expects the brown coal facility to be a “stranded asset” for which he won’t be compensated, or if so inadequately.
Capitalists don’t just look for a return, they look for the best return they can get from their investment. There may well be better opportunities in Asia. There is no sense of loyalty or obligation saying he should invest here.
If investing in greener power makes a profit then the money would be found with no problems, either by existing companies or new players. That existing companies have their profits hurt by economic change is neither here nor there; in fact it is a feature, not a bug. It’s how the system delivers change.
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And to expand on Robert’s last sentence, unless the ETS is so huge that it exceeds the variable cost of operating coal-fired plants it won’t make existing ones unviable to operate – just discourage future coal-fired plants being built and encourage other types of plant construction. The pissweak ETS being proposed is nowhere near big enough to threaten that.
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That companies don’t get enough return on the fixed costs of existing plant to cover their debt servicing just means they’ll either write down the value of the plant or sell it. Running the plant at full tilt will still be profitable for someone.
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Economists have a name for the position being put by these companies – the “sunk cost fallacy”.
dd, it raises the question as to whether this problem is of so little urgency that we can let things take their course in the normal commercial way, with a CPRS. I’d legislate or regulate or otherwise make it clear that expanding coal-fired capacity is not an option. Depending on closer study I might see an interim role for gas, but would mandate that new capacity is to have certain emissions specifications, preferably worked out in life-cycle terms.
I wouldn’t want old coal-fired power stations blasting away under new ownership.
I think it calls for a comprehensive formal energy strategy that includes a program of retiring dirty capacity.
In the long run I might have a carbon market, but when there was a prospect of making it truly international.
As Garnaut has said, never before in the history of Australian politics has so much public money been given to so few with such poor justification.
What DD and Robert said.
Three remarks:
1. Yes, this is pure rent-seeking behaviour.
2. There is no free market in electricity. It’s includes a large element of price regulation.
3. To me the ideal situation is a simple flat carbon tax, deregulated prices, and a firm middle finger extended to rent-seekers.
Both sides are to blame here. The Coal people who want to stay coal people, by giving credence to “clean” coal (a technology with minimal certainty, extended lead time, very little GW scientific community support, and minimal public support), have created an aura of doubt over future energy directions. That is their choice (gamble). The government by giving scope for that “choice” have compounded the doubt. Lenders, who it would presume, listen to the doubts of insurers facing massive GW related payouts are expressing their own doubts about future energy outcomes with tight lending terms, more than likely to force the hand of the gamblers. Any government who then further compounds the uncertainty by fuelling the gamblers while installing policies that offer no clear outcomes, is not working in the interests of the people they “represent”.
When the average voter realises the implications for the increasing cost of their electrcity (which is already happening without a CPRS, doubly so in WA) and reduced certainty of supply, then they will really start questioning “what’s in this for us?”. The CPRS/ETS is dead, doubly so following the highly likely failure of Copenhagen.
The above is part of the reason why I think something as crude as CPRS is not an appropriate system for handling something as complex and important as our electricity supply. Part of the complexity comes from the need to retain the right type of surplus dirty power generation throughout the cleanup process. The right type to retain will not necessarily be the lowest cost or the lowest emission. Speed of response, location and ease of ramping up supplies of fuel will all be issues. See pp6 of What is wrong with ETS for more discussion of the complexities of cleaning up the power supply. Chapter 5 of the Senate Climate Committee Report also discusses the inadequacy of CPRS on its own to manage the changes required for electricty generation among other things.
One thing to keep in mind when listening for arguments in favour of increased compensation is that the present worth of profits earned 20 years into the future is quite small. Having said this, it is not unreasonable that dirty eelctricty generators earn reasonable profits during ramping down and that they are paid to maintain plants that will be required for standby.
Tell them to stop hyperventilating; desperation isn’t becoming.
BilB, I think the ‘clean coal’ people are the ones who want to keep on mining it, and the federal and state governments, rather than the private power generators. Just my perception.
If the private power industry decides to invest somewhere else, then we have market failure and the state will have to stump up the money.
I am not at all worried about “a systemic failure of the electricity market” due to the CPRS, even if it did have good targets. There is a small chance that brown coal fired power stations will be the ones that get switched off during the weekend instead of black coal or gas, and this will affect some firm’s balance sheets. But overwhelmingly any increased electricity generation costs will be passed on to consumers. Even if some firms do end up in a difficult financial situation it is not a concern of mine, or just about anyone else who is not a shareholder. Poor financial positions of generators will not create significant risks for our electricity supply, if firms are not solvent, their assets will simply be bought by someone else.
I do not hate “big polluters” or anything like that, but as a taxpayer I do not want it to be handed out to firms in order to help their shareholders manage the risk that they may have made bad investment decisions.
If there are concerns about the security of our electricity supply, then that is a reason for investment in transmission infrastructure and technologies that reduce demand from things like air conditioners. Handouts to generator’s have nothing to do with energy security.
“And to expand on Robert’s last sentence, unless the ETS is so huge that it exceeds the variable cost of operating coal-fired plants it won’t make existing ones unviable to operate …”
derrida derida, I think you’ve got the wrong end of the stick on that one. I’m not having a go at you, and indeed it’s good to have economically-literate people on left-wing blogs …
… but the relevant equation is surely:
If VC + ETS > Marginal Revenue, then plant closes down.
So a small ETS could theoretically lead to plant closure, if their profit margins are also small. (Whether this is actually the case or not, I cannot say.)
PS: (a) sorry for mis-spelling derrida derider, and (b) what Jacques Chester said.
More firm middle finger around the negotiating table please, Mr. Combet…
DD and Peter Wood have this pretty much right.
I’d add a couple of points:
- The short run (months to years) demand for electricity is inelastic, and the owners of the existing coal fired power stations will be able to pass the costs directly on to consumers.
- Over a longer time frame, the owners of the existing coal fired power stations will suffer, as investment in new gas, solar, etc. becomes more economically viable because of the tax.
- If one of the owners of the existing coal fired power stations folds, that doesn’t mean that the power station closes, it just means that it will be on-sold to someone else at less than replacement cost.
- There’s no reason to believe that the current owners of coal fired power stations are the only people able to invest in non-coal power stations.
- It’s absolutely inappropriate that the current owners of coal fired power stations be given free permits, because they’ll pass the costs onto consumers anyway.
Paulus Says:
Yes, “if VC + ETS > Marginal Revenue, then plant closes down” is true. But that’s not what they’re whining about. The VC in the equation for Victorian brown coal plant is pretty close to zero. There’s not going to be any plant closure in the short term (months to years). They’re actually whining about the loss of their sunk costs, which they should have reasonably expected a decade ago.
SJ
“It’s absolutely inappropriate that the current owners of coal fired power stations be given free permits, because they’ll pass the costs onto consumers anyway”
They are in the process of passing this cost on right now with the upcoming 20% electricity price increase. This is well ahead of there being any cost to themselves (the CPRS isn’t passed yet). End benefit to the public? Nil. This price increase applied nationally will yield 7 billion dollars to the power distributors. That is just 2 billion shy of the projected receipts for the entire CPRS. Does this guarantee CO2 emission free electricity? Only marginally. This increase will yield 210 billion dollars of EXTRA profit to the power distributor companies over the next 30 years. This amount is more than sufficient to replace the entire infrastructure with solar renewable electricity.
That is the principle problem with this piece of crap legislation that Rudd has thrown up. There is zero certainty that anything relevent or good will come out of it.
Yep, BilB, the last sentence there worries me. I still prefer a more direct approach where everyone can see what’s being done and the benefits from it.
The increase in Qld is 16% BTW and was justified on “increases in production costs”.
I listened to some of the Senate debate on the CPRS last night on the way home. I have never heard so much utter drivel in my life. If that is the intelligence level of our senators, then it is a national embarassment. The CPRS is crap and should be trashed immediately, but that is no justification for arguing the case with worse rhetoric than one might expect from primary school students.
“210 billion dollars …is more than sufficient to replace the entire infrastructure with solar renewable electricity.”
Can you show your working there please BilB, in a manner even the most challenged of Australian Senators can get his head around?
Danny,
The LP archive is temporarily unavailable, but here is a summary:
Alternatives
I have put together an argument for a specific function 3.2 cents per retail kilowatt hour (unit) levy on all electricity. The full proceeds (7 billion dollars per year) being put only to the building of a new renewable energy infrastructure. I have demonstrated that this is more than sufficient to build 60 gigawatt of peak load capacity by 2030 and would be able to be extended to 100 gigawatts by 2040. Such infrastucture would be producing power at around 6.5 cents per unit and possibly cheaper. Such a programme would alos realistically include geothermal, wind, wave, and emerging alternative energy technologies.
A 3.2 cent per unit levy on retail electricity sales would cost the average family of 4 around $5 per week (less for pensioners and smaller families). The proposal calls for the diversion of subsidies for solar photovoltaic panels to be installed free for pensioners (500 watt capacity) as well as for low income families (2000 watt capacity), along with highly subsidised solar water heaters for the same group. In the so doing low income families and the aged are not financially disadvantaged, in fact they receive a net income improvement.
For 95% of businesses such a cost increase is a neglible impost on cash flow. For the 5% who may be affected more severely it is likely that they are not globally disadvantaged, but some adjustments would be possible. And that just leaves the aluminium smelting industry.
This programme would provide a permanent solution for up to 50% of Australia’s CO2 emissions, this including transportation which would be encouraged to move to all electric (see supercapacitor technology initiatives for extended viability).
This programme would provide a base solution to the carbon emission challenge, and provide a better atmosphere of hope in which to address the more complex challenge of the other 50% of CO2 emissions.
When the archive is up again I will supply a link to the full discussion. But interesting the idea was taken to task by someone who felt that a 3.2 cent per kilowatt hour levy would cripple the economy and create cataclysmic devastation. Since that time the 20% (16% in Queensland) electricity price increase was announced without anybody noticing or feeling a need to comment.
The only points in the argument that are contestable are the cost per gigawatt hour for the solar alternative installation and the ongoing running costs. I argue that the costs as projected by treasury are entirely inacurate as they do not reflect an understanding of the basis for the costs to date and the manner with which the industry will handle them in the future.
interesting the idea was taken to task by someone who felt that a 3.2 cent per kilowatt hour levy would cripple the economy and create cataclysmic devastation. Since that time the 20% (16% in Queensland) electricity price increase was announced without anybody noticing or feeling a need to comment.
It’s interesting that price increases for climate change / policy reasons are seen as a business killer while price rises for other reasons happen all the time and are absorbed.
What DD and Jacques said.
Now forgive me, but is “the dye is no doubt caste in favour” a joke that went over my head, fascinating typos, or a spellchecker in Improbable Homophone mode?
I’d just like to query whether everyone supporting what Jacques said is including his preference for “a simple flat carbon tax”.
Taa, BilB, Looking forward to that, practical financing strategies are what is needed for the transition to happen. I lean towards leveraging some of the nation’s superannuation resource to finance new green power companies to provide for the mandated renewable energy target.
If we leave new power generation to old power companies, they will just lay-off their old debt and put it on the price of the new power.
eg “Four Victorian power plants .. privatised by the Kennett government in the 1990s … Australian and global banks have loaned somewhere in the vicinity of $5 billion to the four power stations … no way the bank debts..banks are stuck with the loans and will have to make provisions for loss…banks know what is ahead and some have begun talking .. banks will take control of the stations one by one and run them in administration… try and reduce their exposure by accessing the power stations’ cash flow. The best way to do that is to lift prices”
QED.
BTW, in the course of looking that up, I see a precedent for super funds buying into power generation: Motor Trades Association of Australia (MTAA) Superannuation Fund and Statewide Super are 15+% owners of Loy Yang A.
I’ll put my hand up to that, Brian. Technically I favour a revenue-neutral carbon tax on the order of $30-$50 per tonne initially (though I’m open to suggestions it may have to be much higher), phased in over 5 (or more) years, possibly tied to temperature measurements so that it can be raised if warming accelerates and lowered if temps fall.
Yes, it has all sorts of problems, but I think they are less than those of the CPRS. See here (PDF) for an idea of where I’m coming from.
Long term, I believe switching to taxing resources and consumption is better than our current hodgepodge of taxing effort/work, taxing wealth, taxing saving and investment, taxing trade and transactions, and all the exemptions, deductions, offsets, credits, etc.
Global warming isn’t real, says Senator Fielding
Hmm, now that’s a surprise…
I think Fielding is an idiot who wouldn’t recognise rigorous science if it reared out of his mini-trolley without a shirt and bit him through the gap in his bottle costume.
Personally, I think his laughable stance on climate change is politically motivated. He’s repeatedly demonstrated that he wants to stay in the public view at almost any cost, and being the fringe-dweller on this gives him media exposure. Also, look at his blog – mostly his threads get a handful of comments, but climate change threads get triple figures. That means the topic is an attention-getter, maybe a vote-getter, and he needs all he can get.
But I hope he does prevent the Senate passing the CPRS legislation – it needs a complete re-working, if not dumping in favour of the simpler, better, carbon tax.
I bet if Fielding named all of the “government” persons and the top scientist with whom he had spoken to draw that conclusion, there would ba a wave of denial of another kind.
Danny,
The discussion starts around here
http://larvatusprodeo.net/2009/02/27/quibbling-at-the-margins-of-the-cprs/#comment-647913
The main purpose of the idea is to show that specifically targeted policy can be both efficient and effective. Not that I am a great fan of the 80/20 rule as applied by accountants, in a crisis it makes real sense to put 20 percent effort where it can achieve 80 percent of the objectives. The CPRS as concocted by the Rudd administration is the reverse. 80 percent disruption and confusion to achieve 20 percent or less of the required objective.
Yep, Paulus@19, what sj@23 says. Given the short-run inelasticity of electricity demand, MR is gonna be not much less than average revenue anyway. It’d have to be a huge ETS to make running existing plants unviable, but given the large fixed cost of new plant only a relatively modest ETS is enough to deter new coal-fired plant construction and make the market value of existing plants lower.
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An ETS has two advantages over a carbon tax:
- the really big one is that it can be traded internationally. Theoretically a perfectly uniform international carbon tax would serve the same purpose but the practicalities of that are harder than an ETS, especially as most countries have already gone for an ETS.
- the secondary one is that a carbon tax sets the quantity of CO2 emitted indirectly by putting a fixed price on it. An ETS fixes the quantity directly and lets the price float to meet that quantity. So an ETS should be more acccurate at meeting a quantity goal.
Jarrah @ 33:
That’s a really interesting idea, and could put a lot of accountants out of work, to be redeployed in doing something useful.
It seemed to me that too many people were saying what dd and Jacques Chester said when it seemed to me that they would have different attitudes to the Tax v ETS issue, borne out by dd @ 38.
I didn’t have a view on whether the complaining companies had a legitimate case or not and as of right now still don’t.
It seems to me we now have a bit more information and some different views. I’ve got to go now, but tonight hope to read the whole thing from the top again.
Gotta go.
Taa for heads up BilB, I can’t give it due attention just yet, but in meantime … What do you base “employment for Solar energy production is similar or slightly higher than it is for coal production” on?
In the course of chasing up Brian’s China Light and Power ( parent of Truenergy) reference, I was reading about their Yallourn ( brown coal mine and power station) operation, and formed impression these monsters must be gigantic in employment terms ( this lot shifted a river to get at more coal seam), which explains lots to me about the politics of coal.
In contrast, my reading of Ausra’s (Nevada component manufacture, California collection field) solar thermal operation gives impression of an elegant- highly robotised at component manufacture site (CNC machines?), then ikea-ish flatpac deliver’n'assemble- operation that, once assembled and connected, was pretty low maintenence. Compared to shifting mountains of dirt over and over again.
I’d love to see a detailed study of employment prospects embedded in the various renewable technologies. Any recommended sources?
The bind for CSP is mirror cleaning, and general maintenance. The information for the experience to date is 2 people per megawatt, or 2000 people per gigawatt. Mirror cleaning is to be automated and the suggested running staffing level is 500 per gigawatt. This is one of the key variables in the electricity unit price for CSP. The mirror replacement rate is 1% per year.
Recommended sources? I prefer phoning industry players directly.
Perhaps I haven’t fully digested the arguments here but it seems to me that the power “industry” are objecting to proposed new laws that might make their business (generating electricity) less profitable, meanwhile the proponents seem to think that this is just a bluff and the “industry” will come round and start generating more carbon neutral electricity.
I like the look of BilB’s analysis for replacing the carbon polluting plants with carbon neutral capacity but it really begs the question of why everyone seems to avoid the obvious conclusion? Business is in it to make a buck and electricity is pretty much a essential for life. The term “inelastic demand” pretty much sums up the situation. When the governments of the day sold state owned infrastructure in return for cash that helped them balance their books, they pretty much handed the users of electricity over to the capitalists who want as much profit as they can get.
In much the same way as I have seen arguments in the US contend that the government there has no choice but to bail out the banking system because failure would be utter devastation, we are now looking at more corporate blackmail that sees significant swags of public money disappearing into the private sector for NO measurable return.
Public ownership of essential public infrastructure might sound like some dirty socialist agenda but it certainly removes the greedy self serving capitalists from the picture. The long term challenge of providing carbon neutral non-polluting electricity generating plants is obviously too demanding to be left to those who are only interested in maximising short term profits and it represents a real opportunity for the government to redress some of the recent destruction of public assets.
Just to note, re: threatened systemic failures of us being able to switch on whatever we want, whenever we want, for as long as we want-
Arrow energy has just announced all three of the (Braemar 2 power station, near Dalby) 150MW gas-fired generation units are fully commissioned and in commercial operation, that over the next 12 months they’ll be ramping up to 5 PetaJoules/annum of nearby (agricultural land covered) coal seam gas going up in CO2.
Egg nishuners and tumble dryers all round folks, there’s plenty more where that came from.
Correction: ramping up to 15 PetaJoules per annum
DavidH, totally agree with your comments about the drivers for commercial operation of power stations. They are not keen on Carbon Taxes in any form, and not really interested in alternative technologies. New technologies are rarely embraced by the incumbent dinosaurs, who fight with every strategic weapon at their disposal to avoid change.
Agree also with comments that it is largely the coal miners that are pushing the “clean coal” story, and funding CSIRO researchers in order to make the smokescreen look kosher. The oil industry rarely justifies CO2 injection (geosequestration, as the new terminology goes), even with the prospect of increased oil recovery to offset costs, because it is damn expensive. And how will the coal-fired power stations offset costs for “clean coal”? It will just be an additional significant cost to operation.
Totally agree with BilB that this is likely to be the 80/20 rule in reverse – 80% of the costs for 20% of the results. Even if the biggest polluters were taxed, the result would be the costs passed on to the consumer, along with the costs of compliance (monitoring, reporting, consultant fees, lobbyist fees, legal fees, etc). The government would have to mount an equivalent army to check up on all the companies, and to fight their resistance efforts. The taxpayer would pay for this out of their taxes. Meanwhile, where is the incentive to embrace new technology, if the companies can just pass on costs? Oh, yeah, the government will legislate for that too. What a dog’s breakfast…
The problem with the CPRS is that the economists assume that markets work efficiently. They clearly don’t. If we have no alternatives available, then we will just wind up paying higher costs. To give an example, the crude oil prices went up by a factor of about 3 times in 2008. According to efficient market theories, it should have driven a massive increase in exploration and production of oil. Well it didn’t. It just produced massive profits for oil companies. It should also have driven consumers to alternative non-oil-based technologies. If we only could have bought something…
Maybe a longer period of elevated prices will indeed promote the development of alternatives, but the economic shock of higher transport prices would drive high inflation and probably damage the economy in the meantime. It is a very inefficient way of promoting change. That, in a nutshell, is my concern with using pricing as a lever for promoting change. It is too indirect and too slow acting.
Perhaps it would be better to legislate DIRECTLY on the thing they are wanting to change, namely greenhouse gas production? Perhaps they should simply stipulate that power companies not emit more than x ppm of CO2 per unit of electricity? Similarly they could stipulate that from some date, cars should not emit more than x ppm CO2 per kilometer travelled, or more simply that their fuel consumption must be below x litres/100km. Then leave the companies to figure out what technology they will use to meet the targets. Wouldn’t that be a much more efficient and direct way of addressing our carbon footprint, with less opportunities for gaming the system?
Minor correction, cancel ppm in my previous post. It should be x kg of CO2 per unit of electricity (kWh), and x kg of CO2 per kilometre for vehicles.
By the way, has anyone noticed that there are diesel-electric hybrid motors under development that could do about 2 litres/100 km. Now that’s what I call a useful example of the 80/20 rule! We could potentially get an 80% reduction of a typical 10 litres/100 km, for a modest increase in vehicle cost, giving major reductions in carbon emissions and future fuel bills.
Elise, to be dramatically more efficient a diesel-electric hybrid would have to beat Porsche’s 1l/100km experiment. Current mileage records are well over 1000 miles/gallon but our car fleets are handicapped by a toxic combination of legislation and advertising that requires very large, extremely powerful one person motor vehicles. At the other end of the scale a locally produced “bicycle” with the legal 200W power assist will do almost 60kph on the flat with just the motor (no human power). But something like that as a “car” with a 500W motor would require dramatic legal changes as well as road use or design changes (either would work, you just need to separate out heavy vehicles from light ones).
We also need a new efficiency measure… how many litres per 100km does my electric assist bicycle get? Joules/m (kilojoules per 1000km) makes sense, except that the thousand-fold difference in efficiency might offend motorists.
Moz, I’d be ecstatic if everyone would migrate to an 80/20 solution to our current position.
I’d be not holding my breath over migrating everyone to electric-assist bicycles.
That would be a bridge too far and a fork in the road…hell might freeze over first?
“CLP (China Light and Power) has plans for a 154MW solar plant in Victoria” …
not any more it doesn’t: ‘TRUenergy pulls plug on Solar Systems’