Today’s Fin led with the news that the upturn in consumer spending has put pressure on the market in RECs, whose price is a kind of scoreboard for the renewable industry cage match initiated under the Howard Government. Rudd’s reforms, discussed previously, saw the inclusion of solar hot water and ‘phantom’ PV certificates, however this effectively destroyed any pretense that a certificate represented a ‘real’ megawatt-hour. For all the heated debates about what should or shouldn’t be part of the Renewable Energy Targets, at least it could be said to have driven investment in renewable energy, even if that ends up doing nothing to Australia’s emissions under the CPRS this is the emissions-floor-also-acting-as-a-ceiling problem of the CPRS that could be addressed through a mechanism like the Additional Action Reserve proposed by my colleague Regina . The Greens, who foresaw the price squeeze, have once again moved to disentangle industry policy from household subsidy; though I suspect the government will have their hands full dealing with residents and developers’ concerns about property values in the wake of the national coastal vulnerability assessment. $2bn at risk of extreme weather and inundation here and there, and you’re starting to talk about serious money. Thank goodness those PV systems go on the roof!
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I see a pattern here: An emissions (or some other externality) pricing mechanism is proposed; a gaggle of rent-seeking occurs; the administrator does whatever they can to make it easy to comply with the regime, including having weak targets, offset mechanisms, free permits and so on; the carbon price collapses or never gets very high to start with; the administrator may then (hopefully) change the rules, tighten the targets, and improve the scheme.
The EU ETS is the classic example. Others would probably include GGAS, the RGGI, the Kyoto Regime (whose compliance unit, the AAU, is barely worth anything), and now the RET. I wouldn’t be surprised if it happens with the CPRS, and Point Carbon is predicting that under the Waxman-Markey/Boxer-Kerry bill the US carbon price will stay at the level of the price floor.
The key issue is whether the administrator improves the scheme when this happens.
EU ETS for sure.
GGAS, which certainly had a fair share of governance failures, is more complicated because it was always Carr playing politics against Howard with the promise of a Federal Scheme. Kyoto flex mechs were political beasts that could never be tamed into benign commodity form. JIs never took off, the CDM EB can’t sneeze without being caught on tape and AAUs were always going to be hot air (Russia) or dodgy accouting (Aus).
The crucial issue is the willingness of administrators to learn from past mistakes and incorporate that into future design. The phases of the EU ETS embody that willingness; CPRS, not so much.
Why does the government keep on suggesting that the ETS is a real market?
Isn’t it totally controlled by the creators, and thus subject to political gaming?
We do not have to guess why some economists think a “market” system will work – that is the name of their game. Evidence to the contrary (such as GFC) is inconvenient and therefore dispensable. When all you have is a hammer, you fondly imagine that everything can be treated as a nail.
I keep wondering if the ETS isn’t just a giant “green tax” – a future political slush fund for pork barrelling.
If Rudd/Wong are genuine about reducing carbon emissions, then why don’t they set up a B2B (business to business) model, rather than controlling everything centrally?
All this is simply more proof that the Huggy solution to CO2 reduction is the only one that will work.
1. Build detention centres with razor wire, savage dogs and strange leather apparatus.
2. Spend lots of dosh showing doco’s of these, complete with squat latrines and communal shower blocks
3. Show more doco’s of the bikie gangs who have been recruited to totally run these institutions
4. Tell the owners of CO2 polluting industries (“trade exposed” or not) that they will be required to spend time (years) in these institutions if they do not meet reduction targets.
Guarantee to fix the problem in 5 years tops.
Huggy
HuggyBunny @4, thanks Huggy you made my day again!
We can all sleep easy tonight, knowing that the problem at last has a solution.
In theory, at least!
Elise
You are Barnaby Joyce and I claim my spotter’s prize …
The “strange leather apparatus” might get them in there voluntarily.
The guvmint should lock them all up, and then have them on tv 24 hours a day. The populace should then be involved in televoting or e-voting members of the senate, house or reps and State parliamentarians INTO the same detention centre, based on Parliamentary performance in preserving real estate values.
This would either lead to a bi partisan approach, or the opposite. Thinking about it, I thing the real result would be Rudd sneakily steering anyone he sees as a genuine threat there.
A good thing about the EU ETS was that it had an initial phase, so (mostly) the mistakes from that didn’t carry on later into the scheme. The main mistake being overallocation.
With the CPRS there will be some sort of administrative review before mid-2014, which the NGOs are pinning some hope on. The problem is with the scheme caps and gateways approach to setting the target will have 5 years of scheme caps followed by 5 years of gateways (if the government sticks with its present policy); or 10 years of scheme caps and gateways (if the government accepts the Coalition’s amendment, which originated from Brad Page and the ESAA). That would lead to a target range being locked in for 20 years, making the CPRS a real mess to try to fix up.
The ETS is such a mess – an attempt to pacify noisy people (like the UN) while creating an extra smog for the coal interests to hide behind while they rake in more loot – that it’s passing into law would be disastrous.
Hopefully the coastal sea-level stuff in todays paper (in the Herald anyway) will Mobilise the Populace.
Huggy for PM!
Fran @6, nice try!
And if I am Barnaby Joyce, then Fran you must be Zygmunt Switkowski (Ziggy to his friends)?
Hmmm … to be cast as Ziggy or Barnaby?
Gosh Elise, you are a flatterer ….
It is important to manipulate the market to ensure that clean, cheap renewables do not displace dirty, expensive coal. Because digging stuff up and selling it overseas is the way we do things here. Renewables and a manufacturing sector would be UnAustralian.
This submission to Infrastructure Auatralia is recently published, it promotes an inland HVDC transmissionline that would enable Geothermal and Solar. Has some useful data as well.
http://www.infrastructureaustralia.gov.au/public_submissions/published/files/130_evans__peck_SUB.pdf
Huggy
Fran @13, not really Fran.
I doubt our Ziggy is living in rental accomodation, just for starters. I doubt he would be confused about the physics of overflowing washing machines either.
You are hardly close to being Ziggy. Similarly, I am clearly not Barnaby.
Fran, you should stick to arguing your case in future, and leave off your snide attempts at being insulting.
Elise@15
I wasn’t attempting to be insulting. I was intending to be flippant, based on the parallel between your claim and that of Barnaby Joyce. As you were insulted, I withdraw it and apologise.
I probably shouldn’t have done tit-for-tat when you mentioned Ziggy. I assumed we were bantering but now that I know we aren’t, I apologise for that too.
Nevertheless, the parallel between your assertion and that of Barnaby is plain, and you might like to reflect on how that occurred and whether your claim is warranted in any event, given that it is not “a giant ‘green tax‘” (why the scare quotes or whom were you quoting?) still less something for a “political slush fund”. It’s a very modest attempt to ration CO2 with a price signal that is in the form of a tradeable instrument – a security. I happen to think that as an instrument, it is rubbish if the purpose is to cut Co2 emissions, about as useful as tunnelling out of Long Bay with a plastic fork, but there you go. Barnaby thinks that plastic fork is in fact a pneumatic drill that will be haned over to some other escapees. Go figure.
I also can’t imagine what you mean by B2B. That sounds more opaque than an ETS and I think polling would show that. I don’t know how Barnaby would go on that one either.
Huggy @14. Thanks for that link, it was interesting and had some data that I hadn’t been aware of. Do you have any views, though, on the viability of the project?
Perhaps I put too much emphasis on the sentence “the net effect of the uncertainties is that the amount of traffic cannot be assessed with sufficient accuracy to underpin with certainty the viability of a commercial project”, but there must at least be a chance that this would $1 billion (and if that is what its proponents are suggesting at this stage, a cynic would feel that it will actually come in well above that) on a largely under-used line from nowhere very much to nowhere else very much.
It does rely on a couple of very undeveloped technologies (is it still the case, as I remember it from a while ago, that not a single kW of hot dry rock geothermal electricity is commercially generated anywhere in the world?) to provide the traffic.
And for what impact on emissions? Could be completely wrong (technicalities of this sort are not my forte) but the figures quoted suggest the line’s capacity would be about the same as Basslink, perhaps less given the greater distances and greater transmission losses, which is not negligible but a drop in the ocean compared to the total amount of coal-generation in Australia.
I am tempted to observe, too – OK, I will – that it fails the Government’s current main test for infrastructure spending. A billion dollars on a line from one place in the outback to another? Not much profile, pork, or visibility for Ministerial plaques in that.
Fran, the assertion that the ETS is not a giant green tax is a trifle disingenuous. Semantically you are correct of course, in that it is not a tax. Practically, it will add, and is designed to add or there wouldn’t be a price signal, significant costs to any goods or services with an energy input – that is, in effect anything at all, which gives it the effect of a very broad-based tax, whether you believe the estimates of the equivalent of 2.5% on the GST. and it is being instituted for what are undeniably in the popular lexicon “green” purposes, if entirely justified ones.
Elise, sorry, not attempting to answer for you of course since I have no idea what your answer would be. I just get a bit annoyed at the way cost impacts of emissions reductions get so often played down, and the language used is part of that.
Sometimes wonder too when a quote becomes a scare quote. just when when one disagrees with it?
Wozza, No I don’t have a view on the viability, I put up the link to demonstrate that there is alot of thinking going on. I think the geothermal that will get up first in this country “mines” hot artesian water and sends it back down.
There are some big players (Siemens etc) who want to build large solar thermal plants in that region.
No it’s not aroad to no-where.
Big profile big pork.
Huggy
Wozza @18, thanks for your comments. You explained it well.
Sometimes I am too cryptic, not intentionally but because sometimes things look obvious to me although they are not obvious to others.
My other weaknesses include a tendancy to use metaphors, and to look at general principles and wider implications rather than specifics. Hence my comments about a “green tax” when we all know that it is not a tax by name; rather by effect.
People who are literal and specific probably find this approach opaque and cryptic.
It isn’t intended that way. I find it easier to work from looking at concepts and patterns, rather than making a new independent rule for every situation.
To briefly answer Fran, B2B is basically how a market in real commodities works. The ETS involves the government deciding arbitrarily on the cap, how many permits are auctioned, how many free permits are issued, how much subsidy is given and to whom, etc, etc. That is NOT a B2B system or a real market, in my books. It is a manipulatable artifact of the government, and as such is very susceptible to political gaming and rent seeking.
Wozza@18
Well firstly, Wozza, it’s not “giant” but triffling and secondly, the difference is not simply semantic. Government revenues can be charges for services (which are clearly not taxes), or as in this case, rather like the fees charged for access to the airwaves for broadcasters, a collection on behalf of the commons. In this case though because it creates a tradeable instrument — it’s even less like a tax. You can’t trade tax burdens in a general market.
The most salient objection to calling it a “green tax” though isn’t that it debauches the language, though it does, but that it’s borrowing from the language of the opponents of action on climate change. Calling it a “giant green tax” is a way of dressing up filth merchant politics as fiscal commentary for people who read The Telegraph with their lips moving.
I am not any clearer on how the rubber hits the road. Are you saying that there should be open slather on emissions based on CO2-emission rights not being ‘a real commodity’? (presumably on the basis that ecosystem services outside of extraction and dumping are worthless to businesses and humanity doesn’t count)
The ‘cap’ is not decided ‘arbitrarily’, nor were/will free permits be determined arbitrarily. It will be a political haggle — an arm-wrestle in which the public has no seat at the table.
I’d like an ETS in which the cap was very low (reduce by at least 25% by 2020 on total1990 emissions (not per-capita ones) and all permits were auctioned with no provision for EITEIs. A basic cost of $100 per tonne would apply to all businesses who failed to buy adequate certificates in the marketplace.
I’d be happy for the RECs not to apply in that environment and for the market to sort it out.
Then the money raised would go into properly audited schemes to offset emissions, or allow low to middle income households to reconfigure for low emissions. We’d begin reconfiguring the cities and restoring our forests and building up public transport and quality public housing stock and so forth. We’d nix the money for CC&S and develop geothermal in partnership with those equipped. We’d buy out the oldest coal plants at the bottom of the market, and accept tenders to retool them with efficient gas turbine plants. (Yes I accept nuclear isn’t on the agenda here in the next ten years and that is what I’m mainly thinking of).
Some of the money would go into a retool of urban water systems to reduce the distance water has to be pumped and lower losses and we’d build small urban-based pumped storage around it — the only “slush” you hear is the water up and down the pipes), so as to make it possible for the wind wwe’re committed to to be stored efficiently and allow us to deal with slews in ways that in turn allow us to make best use of the most thermally efficient CCGT.
Some of the money would go into building demonstration LFTR and IFR plants so people can make up their minds about its usefulness and that even if we don’t have them here, we can sell our expertise overseas. If the rest of the world ramps up nuclear, then the fact that Australia doesn’t won’t hurt the total picture very much, and that in itself might change the debate here.
Fran @22, You keep talking about “the money raised…”.
Presumably you are talking about the money raised by the government?
Which they are then going to spend on good works?
Who decides which good works, which electoratal district and when they will be promised or executed?
“It will be a political haggle…” That, Fran, is exactly my problem with the whole dog’s breakfast.
Possibly some infrastruture fund with a set of criteria, the assistance of the Productivity Commission and a timeline …
Fran @#21, OK, as I understand it, the essential difference between your position and mine is that you believe that certain words, however pertinent to describing the situation under discussion, must not be used because they are the language of teh enemy. Whereas my point is about the desirability of honesty in facing up to the consequences of policy action, and the substantive meaning of words used in describing that action. This is clearly not a point that will bother anyone capable of describing the costs of emissions reduction as “trifling”.
I concede that mine is a position of naive idealism in this sort of conversation. Tribalism is far more important to the Australian left than honesty or good policy outcomes. In any case, it is clearly an unbridgeable gap not worth further argument.
Wozza said:
,blockquote>Fran @#21, OK, as I understand it, the essential difference between your position and mine is that you believe that certain words, however pertinent to describing the situation under discussion …
ignoring what I said above …
So …. not pertinent …
and as it goes, playing into the hands of those who are deliberately distorting matters to serve a hostile agenda.
Hmmm
And yes, it is trifling, though it shouldn’t be because the thing we are trying to protect — ecosystem services, is no trifle.
This article by Terry McCrann links the CPRS to the GST and asserts that it is in reality a tax. McCrann’s article has been picked up by the bush telegraph.
As I understand Barnaby Joyce he is concerned about the impact of the CPRS on the price of everything. So he opposes the CPRS as an accountant, quite apart from his views on AGW.
An article in yesterday’s Fin Review states the following:
Please don’t infer any views on my part from the above. I’m simply passing on information.
Wel yes Brian, as Terry McCrann is an opponent both of mitigation and the rationale for it, he would say that …
Fran @28, for goodness sake, could you please stop assuming that everyone who has problems with the proposed ETS is anti-mitigation, anti-AGW, etc, etc?
That applies also to your snide comments towards my comments on the ETS on other threads.
You need to get out of that bunker mentality. It really is possible for people to want meaningful action, but dispute one proposed method of doing so.
You keep insisting that everyone has to accept Rudd/Wong’s proposed method. A form of “my way or the highway…”
Elise, I didn’t assume he was an enemy of mitigation. I knew it from his text.
see also: Skeptics in Australia (p31)
You might also like to consider what this little piece says about McCrann’s attitude to climate change
Of course I accept that, and in your case, I regard you as genuine, but I see no efficacy in what you proposed above.
Also, I see no maintainability in tax-based or other ad hoc containment-through-regulation programs.
If we had a very different system on a world scale — say one in which the major sources of CO2 were very largely in public hands, then such a system would work quite well, but that’s not the world we live in.
Fran, two points. I’ve been trying to tell some country folk that their anti-AGW attitudes get in the way of their message about difficulties caused by the CPRS. McCrann’s anti-AGW beliefs are well-known, but he and Joyce have a separate point about the effects of the CPRS. Their concerns are shared by some folks who are not burdened with an anti-AGW position.
Secondly, the post was about the RET. I recall John Quiggin at the Senate hearing telling Christine Milne that the MRET, as it was at the time, was useful insurance until the cost of carbon under the CPRS was at a suitable level, when he saw it as not being required.
I didn’t realise that the RET was linked to a market instrument, susceptible to poor design to the extent that it becomes dysfunctional.
Really disappointing. If there is a way of stuffing things up the present mob seem to have a talent for finding it.
Brian @27: Your financial review quote gets to the guts of the problem:
You would have to be crazy brave to invest in clean electricity while the government supports crazy schemes which mean that the competitiveness of clean electricity depends on speculative markets and a government that has form for making vote buying decisions without thinking through the implications. We are talking about long term, low margin investments that will take many election cycles to pay back the investment.
In addition, all clean electricity investments will be exposed to technical risks. Clean technology is developing rapidly so there is areal risk that lower cost technology will force down the price before the investment is paid back. Think geothermal, G4 nuclear, kite power solar PV as well as the rate at which wind power and solar thermal costs are dropping.
I realize that I am heading for the cracked record award but, at this stage, investment in clean power would become a lot more attractive if the government set up a series of contracts for the supply of clean power. Contracts that gave some form of price and sales guarantees lasting for at least 10 years from start-up.
There is no reason why the government could not have the first contract signed before the next election and preparations underway for the next contract. There is no reason too why the size of the first contract couldn’t be large enough to have us on our way for a 25% emissions reduction by 2020 if no other action can be started before the next election.
John D, it was all set up for you. I was thinking of paging you!
Brian @32
Wise advice. If they position themselves as being amongst the reckless wreckers a great many will shrug their shoulders or see it as special pleading if they complain of copping blowback from the CPRS.
I’m not sure why the differing drivers of the concerns of the polluters advocate McCrann and the ignorant and unhinged rural populist Joyce are germane. I don’t approve the current CPRS either of course, but my concerns are about 170 degrees (if not 180) from those of McCrann and Joyce.
At to the RET system, that really is a dog’s breakfast and I’d just as soon turf it, assuming we had a proper ETS. If you were going to reconcile a RET-driven system with our current arrangements, you’d have to do it through a combination of footprint-based regulation and state-based outsourcing of new RET capacity. That wouldn’t affect the non-stationary energy drivers of emissions of course, so you’d need a whole suite of other regulations covering transport, agriculture and forests, building etc
John D @3
You encapsulate the problem, but one could (and I would) draw precisely the opposite conclusion from it.
Locking into 10 year contracts when technologies are rapidly changing is a recipe for over-adoption of technology that will be soon outdated, and therefore rapidly become even more commercially uncompetitive than it already is. That is, the costs of what is clearly going to be a very costly process of emission reductions in any circumstances will be even higher.
If Governments are going to throw money around in this area (and for me it is certainly an if, but let’s say) there is good argument that they should throw it at R&D, commercialisation, even equity investment in companies – that is, accelerate the development of the technology, not lock themselves (and their taxpayers) into unnecessarily inflated energy prices for a decade.
What do you suggest we do, then, Wozza? Nothing? Surely anything which reduces CO2 emmissions is beneficial no matter how outmoded it will become.
Here I’d disagree DI(NR). Reducing CO2 is oin the same metric as anything else. While there’s plenty to be said for reducing CO2 as early as possible, if in practice the technology was outmoded in ten years time and not upgradeable then all this means is that the cost of reducing CO2 is higher than via some more apt suite of approaches.
What we want is the cheapest and earliest and greatest volume CO2 emissions possible, ceteris paribus.
The problem is, Fran, that most of the technology we have available now for useful reductions in CO2 emmissions will probably be outmoded in 10 years time. It’s a bit like upgrading your computer: how long do you wait for the ultimate solution? It’s far better to adopt a less-than-optimal, but still effective, solution now than wait for a moment that never arrives.
I’ve actually pretty much given up any hope that we’ll do anything about it anyway. I’ve already apologised to my children for the world they’ll inherit.
I don’t agree. The “technology” for reafforestation will still be very current in ten years time. So too would Brayton Cycle gas plants, assuming we went that way. So too would electric vehicles be pertinent since the back end — the energy sources would be upgradeable. Vanadium flow batteries and dual personality pumped storage that could do desal would also be very pertinent in ten years time.
We won’t of course have got very far on building new more efficient public transport, or improving the quality and thermal efficency of our public housing stock and raising city densities but these would all be pertinent too. In 10 years time we might have made a start on getting Gen III Thorium and Gen IV (IFR) nuclear plants to replace the now fully amortised 40-year-old coal plants we will still have. So I don’t accept the premise that it will be all out of date in ten years time.
Hardly any of it will be — lighting perhaps, since what he might do now for street lighting could be high pressure sodium whereas ten years from now we might look at LEDs. In the end though I’d be very happy if our current street lighting, in areas where it was deemed stille to be necessary, given that motor vehicles and houses are much better lit than they were 70 years ago, was rapidly switched over to motion sensitive HPS. But really, the difference in efficiency between the two is probably not going to make much difference.
I’d also like to see our power poles progressively eliminated and the power undegrounded, at the same time as optical fibre went in and water pipes were replaced and the system reconfigured to support much more localised water capture and treatment. Maybe in those areas you could put in motion-sensitive LEDs at street level that could give street and housenumber data. Wouldn’t that be nice — and efficient?
Hey Hey Australia: Tesla Roadster Breaks EV World Record: 313 Miles on Single Charge (501 KM) The 10th Annual Global Green Challenge
The Global Green Challenge (a kind of spin off from the World Solar Challenge) in Australia…