Possums Pollytics

Politics, elections and piffle plinking

Some carbon is more equal than others.

Posted by Possum Comitatus on July 17, 2008

It’s a funny world aint it?

One of the fundamental points of having something like a carbon market is to let carbon (or more particularly, carbon emissions resulting from the production of some good or service) to flow to their highest value use.

Those producing higher value goods and services can afford to pay more for the carbon emissions their products create. If all energy inputs were based on their production costs and we wanted to reduce emissions, we’d simply increase the price of carbon permits and let the market sort out the details of which energy source to use for what, in order to provide a good or service that the public demanded. Innovation works best when all things are equal. We’d truly have a system where our goods and services were anchored to the costs of our carbon emissions.

But we don’t have such a system – we have one where some carbon is more equal than others.

Coal is more equal than petrol for instance.

Petrol has a great big excise whacked on it whereas coal has nothing of the sort. If we were really serious about reducing our emission levels, we’d treat all carbon equally and encourage innovation, we’d encourage carbon emissions to flow to their highest value use and we’d have a really easy lever at our disposal to push the market – the price of a carbon emissions permit.

But we don’t live in an ideal world.

It’s a pity we don’t, as the intertubes would have been pretty funny today.

In that ideal world, the Green Paper on the ETS wouldn’t have stated that petrol excise would merely be cut cent for cent to match the increase in costs caused by carbon emissions permits – nope. In an ideal world, the Green Paper would have stated that excise would be abolished.

Imagine the headlines in the newspapers this morning:

“Rudd to slash petrol by 30 cents a litre!”

Imagine the cheering in the streets.

Then imagine the wrist slashing and outrage by the carbon emissions hardliners on the intertubes – they had conniptions over the matching cent for cent excise reduction, the complete removal of excise would have been quite the spectacle!:mrgreen:

It might seem a bit counter-intuitive – how would reducing the price of petrol reduce emissions I hear you ask?

It would create a level platform on which all energy sources compete equally, controlled only by the price of carbon that we set through our emissions permits. As we move through time and increase the carbon price by reducing permit numbers (or increasing their price), the best energy source – which would be the most efficient energy source for any given job – would prevail. The more efficiency we allow, the higher the cost of our carbon permits can be, the lower our total emissions would be, and the smaller our (meaning you and me) total costs to reach those reduced emissions would be.

Markets work, especially when they’re allowed to.

We’d pay more for electricity, we’d pay less for petrol – but only as a result of carbon costs being equalised. Once that happened, once that equalisation washed through the system we’d then be in a position to do carbon emissions reduction properly.

But we don’t live in an ideal world.

We live in one where politics matter – and politics matters on petrol.

It matters for governments because excise provides a big chunk of their revenue, and it matters to consumers because everywhere you drive and everytime you fill up the tank of your Tarago (with obligatory wheelchair and five kids in the back in need be), all you can see are these great big signs pointing our exactly how much the stuff went up compared to last week.

It’s the price visibility of petrol that makes it so sensitive to consumers, and the slush fund it gives to Treasury that makes it so sensitive for governments.

The matching excise cuts for petrol work on the politics – it’s a relatively small cost, it removes petrol from being the bugbear of the system when it comes to public support and it strengthens the possibility of Labor actually getting a system through the Senate because it opens up two possible routes for the legislation to be passed.

The Coalition has their petrol populism taken out from under them and brings them, nay forces them to the table if they want to look like a credible alternative government, Xenophon and Fielding have their own version of the same petrol populism addressed bringing them into the game – and that leaves the Greens. They will be forced to either accept it for the greater good of actually having an emissions trading system, or refuse to accept it and look like a bunch of isolated extremists.

Which should serve as a warning for the Greens; if they play politics in the Senate and try to block any eventual ETS on the basis of the excise cut, a measure that will be popularly supported across the country, they will be massacred by the press and by the electorate. The Greens will, for the first time in a long time, have to start owning the responsibility of their actions.

The overall document is pretty much an acceptable starting gun for a major long term reform – there’s nothing in it to really scare the horses now that petrol has been dealt with, there’s little in it that can be used as a political beat up by the Opposition parties, it’s pretty timid in what it sets out to achieve – meaning change is incremental, something usually necessary to bring the public on the journey. It also seems flexible enough to be easily modified to fit into any broader international carbon architecture should it eventually be developed.

I couldn’t actually find any seriously problematic issues here for the ALP on the politics of it – anyone else have a view?

There are a few stranger bits in it – the direct assistance to the shareholders of coal powered generators on the basis that the policy change will affect their asset values looks a bit of a sop. Actually, it looks quite pathetic. I’m sure the NSW government being a major owner of generators and caught in a shitfight trying to flog them off had nothing to do with it.

[I’ve had my mind changed on this – see Labor Outsider’s at comment number 6 ]

But what really stood out for me was the absence of focus on creating offsets to carbon emissions. Wouldn’t an ideal system of carbon trading have at least some focus on the capability to create carbon permits through initiatives that lock carbon up? I understand this is done through Kyoto, but I’m surprised it wasn’t treated more solidly in the Green Paper.

Humanity’s greatest material capability is figuring out how to produce more stuff cheaper while making a buck out of it – I would have liked to see a little more focus on facilitating that regarding carbon storage, and not just the usual geosequestration and forest sinks, but an actual set of proposed benchmarks that would tell the market what needs to be achieved in order to bring a carbon abatement product to the market, what that market is (if there is one) and how those products would interact more directly with emissions trading. I thought the carbon capture and storage coverage suffered a bit too much tunnel vision – or have I just read that part of the report wrong?

Focusing a little more on net emissions rather than mostly on gross emissions would have been a more fruitful approach I would have thought, particularly for the early transition years.

UPDATE:

For those folks that dont read the comments, it’s probably worth doing here – as is often the case, the comments are far more interesting than the article.

UPDATE 2:

Peter Hartcher over at the SMH makes the same, dreadful mistake that too many people are making on “The Big Question”.

He says:

The trick to easing the strains on Earth’s natural systems is to develop ways of allowing economies to grow in a way that does not generate ever-increasing resource intensity. Countries have to be able to get richer without sucking in ever-greater volumes of energy and water and food. And without pumping out ever-growing amounts of carbon and pollution. The human race needs to work out how to break the link between economic growth and resource-intensity.

No no no NO! Being half right is still being entirely wrong!

Energy drives standards of living, period. Conserving energy solves nothing, absolutely nothing at all – it merely delays the need (and not very well at that) to substitute those energy sources that have large externalities with other, better energy sources that have smaller externalities.

We don’t want less energy.We want, nay we need MORE energy, lots more energy and we need it cheaper over the longer term than it is today once the costs of externalities (like carbon emissions) are accounted for in the per unit costs of energy produced.

The biggest danger for climate change policy in western nations (and it really is only western nations – China, for instance, wont have a bar of this silliness) is that we fall for the line that less energy (or less food for that matter) is “better”.

It’s the wrong answer to the wrong question that if taken seriously will put us a decade behind where we should, and will inevitably end up in policy terms.

58 Responses to “Some carbon is more equal than others.”

  1. Topher said

    I’m not sure if there are any other options besides planting forests or geo-sequestration for carbon storage.

    If someone could come up with one, no doubt people needing to lower their carbon emissions would pay them to implement it.

  2. Kris said

    And geosequestration is still pie in the sky stuff, whereas planting trees actually works for sucking carbon out of the atmosphere, in that carbon is stored in the tree while it lives, mostly in the wood.

    Focussing on net emissions is sensible as you suggest Possum, but including carbon offsets in an emission trading system would mean that planting trees would potentially become more profitable than growing food crops, and that retaining forest would become more profitable than logging them.

    That’s a whole world of political trouble re farmers, murray darling basin, and pulp mills in Tassie that unsurprisingly the ALP wouldn’t want to touch with a 50ft bargepole. Its politially much easier to outsource the carbon offset component to Indonesia by paying them to stop deforestation and keep the carbon in their trees, rather than trying to do it at home.

  3. fred said

    “And geosequestration is still pie in the sky stuff,”
    Yep lets ignore the fantasy land stuff as a real short term answer.

    “whereas planting trees actually works for sucking carbon out of the atmosphere, in that carbon is stored in the tree while it lives, mostly in the wood”
    and concentrate [at least partly] on a known solution to the problem which is cheap, low tech, and actively answers the problem in a 5-15 year time slot.

    BUT, there’s always a ‘but’, did you notice Penny say that tackling deforestration, whilst tacitly admitting its the cause of 11% of the problem, is ‘too hard’ [not an exact quote].
    Really?
    Now I’m an irrigator on the River Murray, or I was before my water source disappeared, and I post around the place about how the simple answer to the lack of water in the Murray is to dramatically cut water irrigation immediately and permanently.
    Which is bleedin’ obvious but ain’t happening.
    Nobody ever asks me what do I irrigate so I’ll tell you…..native trees local to the region.
    BUT [there’s that bloody word again] I can’t do it successfully without water cos the last 1,000 trees I [and the wife and dog] planted in the last 2 years died because of the drought.
    So give me SOME water, maybe 10,000 litres per year [thats not a huge amount is it? about the same as one hectare of orange trees requires], and I willl gaurantee to plant and water to [potential] maturity for one year 1000 trees a year, give me more water and maybe some money for workers and I’ll organize millions of trees over 1000s of square kms of degraded soil eroded salt causing unproductive tax dodging minimal productivity rainfall drying land.

    “Too hard”

    Rant over [except don’t tell me about local reveg schemes, I’ve been heavily involved in several such ‘funded’ by govt for years and left such cos …..].

  4. Kymbos said

    You’re right, Possum, but at this stage carbon sinks have so much uncertainty surrounding them. There’s no real international benchmark, but the approach of following Kyoto (new forests planted after 1990) is about all you can do. This approach ignores degradation of existing forests, at Australia’s insistence, due to concerns about bushfires pushing our emissions up (if I’m not mistaken).

  5. Sir Ian Upton said

    I wouldn’t worry too much about this Green Paper on ETS. More details will be available just as soon as its complexities are explained to Penny Wong. Let’s be patient.

  6. Labor Outsider said

    Nice piece possum

    A few points:

    – On the politics of the scheme, the muted response from the Opposition is as clear a sign as any that the Government has the politics right. Indeed, the Green Paper was written by many of the same people that wrote the PM’s Task Group Report (Martin Parkinson headed up the Secretariat to that) and its recommendations are almost indentical. I think that makes it almost impossible for the Opposition to mount strong opposition to the policy as the ALP merely has to say that it is more or less the same policy that Howard took to he previous election, except they will start earlier. The hysterical reaction from the people over at LP and the Greens will also help the government to sell their policy as safe and prudent, not to mention the bucket loads of money that will be available to be spent through things like the Electricity Sructural Adjustment Scheme and the Climate Change Action Fund. As for the greens, they have a tricky decision. Do they bank on some lefitish ALP voters drifting to them because the ETS isn’t strong enough? Or do they think that some of their own support is soft and taking an obstructionist line will damage it?

    – on petrol, you are correct Possum that the existing excise means that petrol already has an effective carbon price built in of over $100t CO2e. The problem here is that there are multiple justifications for taxing petrol. First, you might want to tax it as a way of funding the provision and maintenance of roads and related infrastructure. Of course, proper road pricing might be preferable here. Second, according to the Ramsey rule for optimal taxation, it is preferable to have higher taxation rates on those goods and services that are most inelastic because such taxes are less distortionary. Third, you might want to tax the environmental externality. In reality, our current regime is an odd mix of all three and is likely to remain that way.

    – on other aspects of the policy, what has puzzled me is the lack of understanding of the economics of how compensation for existing coal-fired power generators is related to the effectiveness of the scheme. Compensation for the loss of value for existing assets affects the distributional implications of the scheme – not incentives to abate – incentives to abate are driven by the size of the change in relative prices – which in turn will be influenced by the overall scheme cap. The goal of the scheme is not to make the economy suffer in the short-term by forcing through an adjustment that is is not able to deal with without large scale job shedding and financial turmoil. The goal is to send a long-term price signal that raises the incentives for investment and research and development of low-emission technologies. Most of Australia’s power stations have been around for at least 10 years. Much of the existing capacity will need to be replaced over the coming decade. When generators consider whether to invest in coal fired power stations, gas or renewables, they will make those decisions based on their expectations for the profitability of each fuel source. One off assistance for existing assets will not affect that.

    – more generally, there is a big difference between compensation for electricity generators and tariff reductions. First, electricity is an input into everything the economy produces – that means that you don’t want to stuff around with it too much. The NEM is very complicated and many generators are highly leveraged – do you really want to risk the consequences of large changes in balance sheets in the current economic climate? Think of it this way – some of the arguments for deep cuts in emissions are based on the precautionary principle – what if climate change is much worse than we think? I think a similar principle applies when forcing the electricity industry through a great deal of restructuring. Perhaps it will all be fine – but do you want to risk it? Second, Garnaut’s argument that firms weren’t compensated for tariff reductions is just plain wrong. We just called them structural adjustment packages. The automotive industry has receive billions of dollars over the past two decades to readjust – so it can hardly be explained that they were just cut loose.

    – finally, with regard to offsets, I think the government will give this greater consideration over time. They probably think that the treatment and verification of carbon sinks, soil degradation, land use change, etc needs more detailed and comprehensive treatement, which won’t be done by 2010. Note that offsets will be available through voluntary reforestation.

  7. Excise isn’t a carbon tax. It’s a tax on the other nasty effects of petrol – road accidents and localised pollution from all the other nasties in petrol. It was created before we started worrying about global warming. If petrol has two costs associated with it and coal has only one (providing its properly scrubbed for sulphur) then it makes sense for petrol to be double taxed.

    On the topic of carbon storage, many people have big hopes for char http://en.wikipedia.org/wiki/Agrichar

    I’ve spoken to enthusiasts who make it sound like a big part of the solution, but some people thought that about ethanol. I’m reserving judgement at the moment, but its certainly worth a look.

  8. onimod said

    I just think it’s fantastic that a green paper has generated the input it has. Mind you, there was a bit of a lag in the blogosphere – did anyone else notice it? Quiet before the storm?
    I think the fact that we’ve got a scheme to criticise is a great step forward. At least there is a starting point for all the public lobbying, and politically it’s a great thing to implement it all without scaring the bejezus out of everyone. The emitters know damn well that the pain is coming, and fast, but there just aren’t enough faults for them to commit to the fight.
    The reaction on the ASX is a good measure of what the business world though – they’ve either already factored it all in or it’s business as usual.

  9. Labor Outsider said

    Onimod

    Good point on the ASX….its a non-event….and there is a good reason for that….the governemnt’s various assistane packages basically take away the income effect of the relative price change, leaving only the subsitution effect – the welfare implications of the substitution effect are unlikely to be much more than 0.1 or 0.2 pp of GDP per annum….and this was known before hand….there may be more of a reaction when the government announces its targets – but extrapolating from the cautiousness of the Green Paper – those will be moderate….

  10. […] Possum Comitatus notes that while petrol is being effectively exempted from carbon pricing and coal isn’t, petrol currently has a sizeable excise on it and coal doesn’t. His assessment of the politics is “The overall document is pretty much an acceptable starting gun for a major long term reform …… I couldn’t actually find any seriously problematic issues here for the ALP on the politics of it.” […]

  11. EconoMan said

    I was going to come on here and comment, but I’m glad i read what was there first. Labor Outsider is spot on in #6.

    I would add more emphasis to the role of petrol in funding road maintenance, petrol use being a reasonable but not perfect proxy for road use (but perhaps not road damage). But even here, Labor Outsider has it with the first-best response — road pricing.

    Also, check out Core Econ’s analysis of the problem with giving permits to trade-exposed polluters, rather than compensating them with production subsidies.

    (It’s also nice to see some analysis from people that actually appear to understand economics. Ramsey pricing for example.)

  12. Don said

    So give me SOME water, maybe 10,000 litres per year [thats not a huge amount is it? about the same as one hectare of orange trees requires], and I willl gaurantee to plant and water to [potential] maturity for one year 1000 trees a year, give me more water and maybe some money for workers and I’ll organize millions of trees over 1000s of square kms of degraded soil eroded salt causing unproductive tax dodging minimal productivity rainfall drying land.

    Come now, Fred, 10,000 litres is maybe 2,200 gallons. We live on rainwater here outside of Armidale NSW, and we’ve got a 10,000 gallon tank which is almost always full from the roof, we live in an 800 mm rainfall belt, though you wouldn’t know it lately, and we don’t have teenage children anymore, and we are careful. The toilet is a restricted throat model, seven and a half pints flush if I remember correctly, which I’ve got bricks in the cistern of, no dishwasher, a small shower rose so you have to run around in the shower to get wet, but what the hell.

    2,200 gallons over twelve months is nothing. We’ve got a ten square house, with a two square shed, and we’re laughing.

    Stop bloody whinging.

  13. Harmless Cud Chewer said

    I think the problem with this debate is that it sidelines the one and only thing that does matter. And that’s the technological changes that need to be implemented and exactly how they should be made to happen.

    It’s all very well to argue the merits of trading versus tax, but both of these are at best blunt instruments to bring about the thing we really need. And thats decisions being made by individuals (home owners and power station owners) to implement new, more efficient, and renewable technology.

    And as much as I can forgive Rudd and his ministers playing politics (god, I cringe every time I watch Garret getting a sound bite), what would really convince me that the guy is a true technocrat and that his government is evidence based, is for the government to lead by example.

    Be the first to either build or underwrite a series of mid scale power stations (200MW). Geothermal, solar thermal, wind and solar tower. Lead the way by showing private industry that there is a point to all of this and that its worth investing in such things themselves. And in doing so creating the supply chain and the skills needed. And doing it now rather than in 2018, which is my prediction as to when carbon trading actually motivates the ‘market’ to build the needed infrastructure rather than just fidgeting.

    Put it another way. Ultimately, if the government doesn’t lead the way, it will take a further doubling of electricity and fuel prices for people to en-mass start adopting technologies that already exist (solar heating, a hybrid car.) But when this does happen, and inflation hits 6 percent, you can imagine the politics. If Rudd doesn’t act in a material way (build stuff, invest in stuff) before then, he’ll wish he had.

  14. Rates Analyst said

    Poss,

    Not sure if you come aross it, but the economic “Theory of the Second Best” describes this Petrol / Coal anomaly very nicely.

    Bit busy to go into details, but try here for a first start.

  15. Labor Outsider said

    Possum

    Did you read Laura Tingle’s piece in the AFR today? I thought it was a very perceptive piece – not only in its assertions about the ALP strategy to marginilise the greens – but the error of subjecting the update of the cap each year to parliamentary oversight….

  16. Phil said

    Nice piece Possum.

    I hate to sound simplistic, but unless the Greens block the petrol excise cuts, no party will be hurt from this ETS. The fact is that less than 10% of the population have any idea what an ETS is and unless someone stands in the way of cheaper petrol, most will take it as something needed but not needed to be understood. I see no bounce or dip for any party from this.

  17. On petrol, count me in on proper road pricing.I’m glad you mentioned Ramsey, it highlights the perversity of what will be going on in the private transport sector.

    Petrol has different price elasticities of demand depending on geography – if you’re lucky enough to live in a place where there are transport alternatives to driving, such as public transport or being within walking distance of commercial and public services, demand for petrol is more elastic…obviously.

    But if you live in the boondocks, while demand over a certain volume of petrol consumption might be more elastic, below that level it is nearly completely inelastic for all practical intents and purposes – if you need petrol to obtain groceries and commute to a place to earn an income, you’ll pay whatever it costs until the opportunity costs of relocation are hit.Similarly, outer-metro suburbia with poor access to transport alternatives face the same problem.

    So while carbon permits are meant induce eventual higher prices, they are running up against solid inelastic demand by large chunks of the population – which will act as a bit of a serious impediment to carbon pricing doing an efficient job at reducing carbon emissions in this sector. Driving less will only go so far, which means the shift to more fuel efficient vehicles becomes a big factor to reducing fuel consumption in these places with little transport alternatives. But When you look at the spatial distribution of income in Australia where access to transport alternatives correlates with income – we are effectively relying on those with the not only the least capacity to pay to shoulder the largest burden, but the least capacity to upgrade to more fuel efficient cars to shoulder the greater financial burden.

    Ramsey is perfect for efficiently taking tax, but when the aim isnt to generate tax efficiently, but to modify behaviour efficiently using tax (or an equivalent) – there’s an anti-Ramsey effect. Using tax (or equivalents) to modify behavior is more optimal when applied to goods with higher price elasticities of demand than lower.

    And petrol dont have it for too many.

    On using excise for recovering the cost of externalities – we hardly ever apply that to any other good.We dont tax lipids even though fat kills and injures a magnitude of order more people every year than road accidents. We dont tax ladders, or hot water, or furniture even though they are some of the largest causes of home injuries.

    We tax fuel with excise for little other reason that it’s easy for the government to do so, and it’s easy for the government to get away with it.

    But what happens if an electric car that you could charge up from the power point were to hit the market tomorrow? Coal would have an unfair advantage against fuel unrelated to the true underlying cost structure of each energy source.

    I still reckon abolishing excise completely and placing energy on a level market is the preferable option for better long term results.

    Especially since, at the end of the day, while emissions might be the the point of the exercise, energy itself is the dominant issue.

    For 16 comments, there’s a lot of good stuff to respond to here! I’ll need a bit of time.

    Haven’t read the Fin yet LO, I curl up with it at night when my better half brings it home for me.

  18. fred said

    Response to Don at #12.
    I supply both my 27,500 tanks from a roof catchment of about 140 s. metres in an average rainfall area of around 250mm per year, but less last year.
    That is all the water we have had for all purposes for over 18 months [it works out to about 20,000 litres per year]. We already have several water saving/recycling systems, as you do, in operation, eg using greywater for our minimal garden.

    If we want to water our trees through summer to give them a chance to grow to maturity we would need about 2 litres per seedling about 10 times per year. Thats for 500 trees per year.

    The point I was trying to make, perhaps not well expressed, was that for a minimal invesment of water and time persons like myself could do a lot of carbon capture and help reverse what is one of the major losses [the 11% reference] but Penny essentially said combating deforestation is too hard.
    Its not.

  19. greg said

    So Possum, when you get rid of the excise tax how are you going to pay for building and maintaining roads as well as paying for hospital treatment due to accidents? At least an excise tax means that these costs are paid proportional to the amount of fuel you use, rather than just evened out of the entire tax base.

    Removing the excise tax for 3 years is a gimmick. It’s just renaming a few lines on the governments balance sheet – such that the carbon tax gets delayed for 3 years.

    Why not just ask the politicians to be honest about it and say that they’re just hitting a delay button for another 3 years? Good on the Greens for assuming that the public actually has a brain, and is capable of seeing through these populist gimmicks.

  20. Possum Comitatus said

    Greg – how would I fund the consequences of road use?

    By a mix of road pricing (tolls, licence fees, congestion charges and carbon revenue etc) and from the general tax base. I wouldn’t recover costs purely from road pricing because the benefits of roads simply existing are spread wider than those that use roads and the goods that travel on them.

    Let’s take the effects of competition on prices for goods and services as an example. If you need to buy product X and you can buy it at multiple places – the fact that you have the potential to drive to the place that sells it the cheapest keeps the costs down across all stores. You dont have to use the roads to get the benefit that those roads provide, the benefit in lower prices manifests simply by the existence of a capability to use the road to source the cheaper product.

  21. Paul McGarry said

    How would reducing the price of petrol reduce emissions I hear you ask?

    It would create a level platform on which all energy sources compete equally, controlled only by the price of carbon that we set through our emissions permits.

    Sounds nice in theory but it’s obvious bollocks because of the simple fact that energy sources aren’t simply interchangeable.

    What non-excised energy source competes with petrol for 99% of it’s market?
    There isn’t one and there isn’t likely to be one in the forseeable future.

    Technologies that would enable other energy sources to be used (ie electrical or hydrogen storage of energy from some other source) are still a long way from being a widespread practical reality so imagining that they’ll have some unfair advantage over petrol is a waste of time.

    If the day comes when such an energy source does happen to exist then it may make sense to drop excise.

    In the meantime the primary factor in reducing emissions related to petrol will be increasing efficiency. Excise will help reduce emissions by giving added incentive to invest in efficient vehicles. It might also help investment in alternate technologies which might one day justify a rethink on excise.

    Worrying that petrol might be unfairly made uncompetitive when nothing competes with it is ridiculous.

    Furthermore a “carbon tax” is supposed to add the carbon cost to goods, not be the sole arbiter of the cost of a good. Having an additional tax on petrol makes sense if there are additional costs relating to petrol (such as maintaining roads etc).

  22. Howard C said

    For the Greens, it’s about to be 1998.

    Just like Meg Lees and the Democrats, the Greens face a colossal moment in their history and their political relevance. Whether to pass or not to pass.

    If they block the Government’s proposed ETS, they will remain consistent with their previous policies and statements, but will become a impossible choice for many in the electorate. For those who have toyed with the idea of voting Green, this will make it completely out of the question.

    If they pass the Government’s proposed ETS, they will be making a difference and participating in the parliamentary process. But they would face a backlash from within their membership, much like Lees did in 1998, and would have that massive problem to deal with. And the historical parallels would be undeniable – the Democrats passing of the GST was the beginning of their demise.

    It is going to be an interesting few years for the Australian Greens.

  23. Possum Comitatus said

    Paul – all energy sources are ultimately interchangeable.

    Want to run your car on nuclear energy? Use nuclear power to produce hydrogen and run your car on hydrogen.

    Want to run your car on coal – buy an electric car and plug it into the mains to charge.

    Even though both of those types of cars aren’t yet mainstream – they exist.

    Which is actually the point of treating energy sources equally – the point of a carbon trading system isnt to deal strictly and singularly with today’s technology, it’s to move us from high to low carbon emissions by letting technology change to get us there using the price signal of carbon permits as the primary guide.

    Coal already competes with petrol via public transport like electric trains.LNG already competes with petrol and it has zero excise. The market here isn’t automobiles in isolation, the market is physical human mobility in its entirety.

    The system we adopt today will likely form the basic structure of the one we have in 20 years time.So why not let all forms of energy compete on their own merits from the beginning?

    Investing in efficient vehicles is fine – but the changing price of a barrel of oil will drive that all by itself – the excise addition just ramps up the the perversity of the spatial distribution of income being correlated with access to transport alternatives. The people with least access to alternatives tend to be the ones with least capacity to invest in more efficient vehicles.

    Yet petrol efficiency isn’t the end game, its just a transitional measure until new energy sources start competing in the petrol fueled car market – but we dont know what those new sources will be or how they’ll operate. We can guess, but ultimately we don’t know – so why not let them all compete on an equal footing.

    There are additional costs relating to petrol like maintaining roads, but there are additional costs to maintaining rail (that coal doesn’t pay for), or LPG which excise doesn’t contribute to and if electric cars start making an appearance, neither will they contribute to maintaining roads via excise.

    Carbon tax isn’t the sole arbiter of the cost of a good, production costs should be the sole arbiter of the relative cost of the good and the “carbon tax” is just the addition we add to internalise the cost of the externality we’re all worried into the final price of the good. But having various additional costs rather than a uniform cost distorts the system from the outset, and in the future will distort it in ways we do not presently know, as technology adapts to an uneven price signal.

  24. EconoMan said

    Possum, your comments on Ramsey pricing at #17 still slightly miss the point. If you are ‘Ramsey taxing’ petrol you’re not trying to reduce emissions, just raise money in the most efficient way. And that is a legitimate goal, separate to the other legitimate goal of reducing emissions.

    Once you raise ‘100 billion dollars’ (imagine little finger at corner of mouth) from petrol tax, the Govt can spend that on optimal ways to reduce CO2 if it wants, or on hospitals, schools, whateva. The efficient Ramsey pricing of petrol (and everything else) would add to our ability to achieve carbon reduction at the lowest cost to society.

    (I also think you underestimate the elasticity of demand even in the ‘boondocks’, particularly the long run elasticity.)

    But hey, that’s all a first-best world niche issue, and a long way removed from the real world politics of any system we’re gonna get.

  25. Possum Comitatus said

    The point I was getting at Eco was the incongruousness of taxing petrol on the one hand as an efficient means of raising revenue, and additionally carbon pricing it on the other as an extremely inefficient way for modifying behaviour.

    The other problem is what happens in the future – do we start applying excise to LPG, or what about excise to the electricity used in electric cars should they make an appearance, or hydrogen for hydrogen cars should they make an appearance.

    At some point in the near future we are going to have to make the choice between efficient taxation and behaviour modification when it comes to dealing with how we get revenue to spend on roads (particularly) or other areas which have historically been at the centre of high carbon emissions generation.

    Having spent most of my life in the boondocks – you can only cut back so far on petrol as there are zero easy solutions once you hit the point of distance necessity. If you need to travel 40km a day to get to your job and back plus buy groceries and do the things that life demands be done, you pay the costs for those km regardless of the price of petrol. Other areas of consumption take the hit as the only true alternative is relocation.

    Even the long run elasticity will always be less than the rest of the country simply because of fewer alternative options in the boondocks compared to metro and provincial areas which will never change. The difference is structural.Low population density by necessity creates fewer shareable transport resources.

    But you’re spot on – we’re wallowing in our niches!:mrgreen:

    Although I still think offset and abatement combined with new technology development will carry more of the weight of getting from A (now) to B (the future) than emissions caps.The latter is just the price signal, it will be interesting to see over the next year if the debate suddenly pivots to focus on the first two.It will be a much more pleasant debate – far less of the gloomy “we’ll all be rooned” bizzo.

  26. Don said

    Fred at #18 says:

    I supply both my 27,500 tanks from a roof catchment of about 140 s. metres in an average rainfall area of around 250mm per year, but less last year.
    That is all the water we have had for all purposes for over 18 months [it works out to about 20,000 litres per year]. We already have several water saving/recycling systems, as you do, in operation, eg using greywater for our minimal garden.

    140 x .25 = 35 cubic metres, or 35,000 litres per year if you get 250mm. I admit, taking 10,000 litres from that is out of the question for growing trees. The only option would be a bore or a bigger catchment, such as a huge stand-alone roof which does nothing much except collect rain. It’s been done before, but it is obviously expensive.

    While I commend you for trying to grow trees at the 250 mm isohyet, your land will always be marginal for anything much besides saltbush and eremophila and mallee, I would imagine. The nullarbor is just inside the 250 mm line, and the weather station at Nullarbor gets an average of 246.6mm. Wheat won’t grow reliably at 250 mm rainfall, let alone trees. The 250 mm isohyet is Goyder’s Line, as I’m sure you are aware.

    The point I was trying to make, perhaps not well expressed, was that for a minimal invesment of water and time persons like myself could do a lot of carbon capture and help reverse what is one of the major losses [the 11% reference] but Penny essentially said combating deforestation is too hard.
    Its not.

    I must beg to differ. At 250 mm you might be improving the environment, combating deforestation, lowering the salt table, and reducing erosion, but there’d be precious little carbon capture going on. You need decent rainfall for that.

  27. Ronin8317 said

    Australia exports coal and import petrol. That’s why they’ll always be treated differently. There is the issue of energy security. What if Iran goes crazy and decides to nuke Israel? Or if Indonesia decides to unofficially ‘borrow’ a few oil vessels bounded for Australia to relieve prices at their pumps? As none of the ‘big oil’ companies are Australian, there will always be additional bias against oil.

  28. gandhi said

    Regarding how the Greens are going to manage this issue politically, I find it reassuring that Bob Brown has not leaped onto the TV screens shouting loud opposition to Rudd’s Green Paper proposals.

    I know Christine Milne presented a response, but I expect the real work is going on in the back rooms now (as it should be at this early stage).

    If the Coalition gets behind Rudd’s weak, business-friendly scheme (as I expect they will, despite the usual posturing and waffling now) then it really won’t matter much what the Greens say or do. So I imagine the Greens are now working to convince Labor insiders that more needs to be done: if they can do that, the Coalition might vote against it, and it would only be then that the Greens might face a Lees-style “crisis” as Howard C describes at #22.

  29. gandhi said

    PS: I had better clarify what I mean by “as it should be at this early stage”.

    In an ideal world, widespread public consultation would be considered a valuable thing when developing government policy on critical issues like this.

    But in this world we live in, it will matter very little what bloggers, tree hugging hippies and letter writers think as long as the major parties and their business partners are in agreement. So that’s where the real work needs to be done right now.

  30. Paul McGarry said

    Paul – all energy sources are ultimately interchangeable.

    Again, in theory. In practice it isn’t true, certainly not for vast majority of petrol usage.
    If it doesn’t exist “in the mainstream” (and won’t in the near future) then it doesn’t exist in a way that warrants much consideration.

    Coal already competes with petrol via public transport like electric trains.

    Sure, but part of the money I pay for my train ticket goes towards maintaining the related train infrastructure just like part of the money I pay for petrol goes towards maintaining the related road infrastructure.

    Excise is just a convenient way of raising money, doing away with it would merely mean finding another (probably less efficient) way of obtaining the same amount of money from (primarily) the same people, ie road users.

    Doing away with excise doesn’t magically make things “fairer”. If anything it risks advantaging petrol over other energy forms as whatever you’d use to replace excise is unlikely to as good a job of taking money from the people who actually use roads.

    The system we adopt today will likely form the basic structure of the one we have in 20 years time.So why not let all forms of energy compete on their own merits from the beginning?

    True, but I’m not comfortable with tying Carbon Tax and Excise as parts of the same “system”. Excise have one purpose, a Carbon Tax has another. That both happen to apply to one product is incidental, not a sign that the two things are (or should be) related in some way.

    The other problem is what happens in the future – do we start applying excise to LPG, or what about excise to the electricity used in electric cars should they make an appearance, or hydrogen for hydrogen cars should they make an appearance.

    We deal with the future in the future. If excise becomes an inefficient or unfair way of raising funds then we change to something else that makes sense. Trying to pick a solution now to a possible problem in the future is a waste of time.

    If excise was a reasonable way of raising funds today then a carbon tax appearing tomorrow doesn’t suddenly change that.

  31. Just Me said

    Energy drives standards of living, period. Conserving energy solves nothing, absolutely nothing at all – it merely delays the need (and not very well at that) to substitute those energy sources that have large externalities with other, better energy sources that have smaller externalities.
    Possum

    Yes, and no.

    Energy use and living standard are not linked one-to-one. A unit reduction in energy input does not necessarily require a unit reduction in material living standard, and certainly not in broader quality of life. You can still have high living standards with considerably reduced energy input. That has been practically demonstrated too many times to be disputable. To take one example, the (western) Europeans use around half the per capita energy of the USA, but nobody could seriously claim their overall quality of life is half that of the USA, it is directly comparable.

    Conserving energy (aka increasing energy efficiency) is the single biggest, easiest and cheapest chunk of the solution we currently have at hand. It is not the ultimate solution to the problem, but it is a very important part of it, now and into the future.

    I have read several major reports on energy use, including from those well known greenies the US Army, and they all list conservation/efficiency as the first and most important priority.

    Doing the same with less energy input (or more the same energy input), helps in two ways:

    First it reduces the amount we need right now, which buys us important adaption time, particularly for developing new energy technologies, and an extra decade or two now will make a critical difference. (It also frees up some capital both in immediate bills and reduced requirements for energy infrastructure.)

    Second, it reduces the cumulative amount of energy we need into the long term future for the same standard of living, which reduces the pressure to find more energy over time, and as I am sure you appreciate, that difference multiplies up quickly over long time frames.

    Neither is efficiency a one-off gain, as technology improves, so will possible efficiency gains, though not infinitely of course.

    Conservation/efficiency is not The Answer (nothing is), but it is a major win all round, and we should be giving it very high priority in the early phase of dealing with the energy issue. Our failure to do so 30 years ago is a major factor driving the current energy crisis.

  32. steve said

    Is it true that road costs are basically paid for out of fuel excise? My understanding was that Rego and traffic fines were the source of most road funding.

  33. Possum Comitatus said

    Paul,

    I agree with most of what your saying – I’m not wedded to this argument, I’m just enjoying exploring the issue.

    If we are setting up an ETS as the framework to encourage change, then most of the framework we design today surely isn’t actually about today, but tomorrow, and the next day, and future years?

    So even though today, energy sources aren’t practicably interchangeable (except for LNG and via substitution of transportation forms like rail), isn’t one of the major purposes of the framework for transport to encourage interchangeability for the future?

    Dont we want low emissions alternatives to replace petrol?

    If that’s the case, then we come to the excise question and its relationship to road funding generally. If we expect energy sources to change in the future, and we expect excise to fund not only road maintenance but the negative externalities of road use, wouldn’t we want in place from the beginning some system that accommodates the decrease in excise revenue from petrol (as the number of petrol fueled vehicles reduce in the future) by having excise on new fuel forms that are used for roads?

    But what happens if some of those new energy sources are extremely difficult to apply excise to? Placing fuel excise on transportation that uses electricity as an energy source would be extremely difficult, whether it be straight from the grid or hydrogen fuel cells.

    The alternative for dealing with excise up-front is, as you say, to deal with the future in the future.But to do that would require that we either start imposing excise on some products at some future time (but probably only some products as others would be too difficult) and face the problems of distorting the cost of some low emissions fuel that can have excise imposed compared to other low emissions fuel types where it’s impractical to impose excise, as well as distorting investment incentives for new transport energy sources.

    Or we simply move to a road pricing approach and dump excise completely.

    The latter would seem to be the more efficient and effective approach which would avoid a lot of possible problems.

    So why not start to phase that in now, move to abolish excise now and let the ETS take the weight of penalising fuel use – but on an equal footing to other forms of energy that, over time, will be expected to become more practicably interchangeable.

    On the political side of it all – the biggest single problem for an ETS system and the effective carbon price is petrol and the perception of it’s price in the electorate. Petrol politics is ultra-sensitive.This cent for cent matching on excise that’s been introduced have wont be going anywhere anytime soon. If petrol gets to $200 a barrel, the community outcry will be so big that any government will probably decrease the excise take.

    So if we know that petrol prices are going to be on a long term upward trajectory anyway, if we abolish excise completely and move to road pricing – the political problem of the ultra sensitive area of the ETS for consumers – petrol prices – would effectively be solved. Petrol would be 30c cheaper from the moment excise was abolished (good for getting everyone on board the ETS), the carbon price could be set without regards to petrol politics, all sources of energy would be treated on the basis of their emissions and we wouldn’t have to worry about distorting some energy prices in the future over which one gets excise applying to it – increasing certainty when it comes to investment in those alternative sources.

    That’s my thinking anyway – the sort of long view take. But so saying, I agree with nearly everything you’ve said!

  34. Possum Comitatus said

    Just Me,

    Sure energy and living standards aren’t a fixed ratio, but they move together and one drives the other. Having large quantities of energy available allows us to do more things, allows us to generate more economic activity then if we had a smaller amount of energy available.

    Dont get me wrong here, I agree with you that energy conservation is the biggest lowest hanging fruit for short term emissions reductions, and it’s invaluable as an easy thing to concentrate on for the transition period between our current high and future low emission energy sources. I also agree that once the efficiency gains are made they tend to stay with us, producing ongoing permanent benefits.

    But there’s a lot of opinion hanging around that frames reduced energy consumption as the end game, as one part of the solution.But reduced energy consumption isnt really a part of the solution, more efficient energy consumption sure, but not reduced – our civilisation will continue to demand higher and higher levels of energy to drive our continually expanding quantities of technology. That means new low emission energy sources producing ultimately increasing amounts of energy for consumption. That’s the energy end game.

    How many times do we hear about nostalgic returns to the urban village – the sort of low energy, walk to work, grow your own garden utopian dream? How often do we hear calls to reduce our consumption of everything?

    The former is all very good and well, but requires vast urban redevelopment which requires vast quantities of energy to undertake. Even once those sorts of communities are set up, the ideal of ignoring the basic rules of division of labour (where we all grow our own food stuff in community gardens etc) soon makes way for the fact that the division of labour actually works. These communities, which are making a big comeback in the US at the moment despite the real estate bust, may well be more energy efficient than most other places, but they still have the same growth in energy demand as everywhere else – just off a lower base because they are using better, newer technology in building materials and design. 21st century civilisation is built on using large quantities of energy.

    As for the anti-affluence, “reduce consumption now” calls – affluence is good, consumption is good. The more we can consume for a given dollar, the higher our standard of living by definition. We don’t need less consumption, we need more consumption but with less negative externalities attached – which is where our real focus should be on this part of the equation, not on reducing living standards by reducing consumption… that’s just silly, and ultimately, delusional.

    Steve,

    Excise is supposed to fund road maintenance and mostly goes to those sorts of areas Federally – although there was that big stink back when John Anderson was transport minister and it was discovered that a large chunk of the excise revenue wasn’t going where it should be.Rego and traffic fines go to the States – though I’m not sure how each state deals with that.

  35. David E said

    Firstly, I apologise if this point has already been raised – ain’t had time to fully read the responses.

    Regarding Poss’s point that the carbon market will only work if it’s effectively a level playing field and therefore removing excise from petrol :

    As I understand it, the coal (energy) industry is massively subsidised informally and formally. If correct, it therefore follows from Poss’s argument that not only is petrol excise removed, but that subisidies to the energy industry are similarly removed – otherwise the playing field is far from level.

    And another point regarding using less energy – surely it is simply efficient in the capitalist model to do more with less. In other words, using less energy per capita is still a worthwhile goal, for both economic and environmetal reasons – even if it is simply buying time until more environmentally friendly sources come on stream. (I could also make the larger point that contiunued and continuous economic growth in terms of using resources other than energy ie food, water etc is really the equivalent of a perpetual motion machine – a fantasy, unless the world’s population starts to shrink pretty quickly – but that’s a whole other can of worms!)

    Cheers
    David

  36. imacca said

    I’d say that the policy we have seen so far is a good start. Its only a start, but thats where we are at politically in dealing with climate change as the other mob ignored it for years.

    The Government seem to have the politics of it right in terms of getting something done, not provoking such a backlash that they get tossed out after 1 term around, and giving some room in the debate for the minor parties and independents in the Senate to show they have relevance helping the Government to continue to get things done withing limits. Politically the last point there may be very important as the Government will have to deal with a finely balanced / hostile Senate for all their 1st term at least.

    Anyone see that David Evans opinion piece in the Oz this week? I have to admit that i sit up and take notice of an article like that simply because of the authors history. There are other theories about what causing Glaobal warming, ( i actually find the astronomical ones about orbital inclination fascinating) but in terms of carbon emmissions i also think David Evans position is functionally irrelevant.

    If fear of global warming pushes us into converting our economies from carbon emmitting non-renewable energy to low carbon renewables, thats a good thing in itself and will have to happen sometime anyway.

    There is evidence that global warming is happening (look at the Arctic, Antarctic ice shelves)for whatever reason or reasons and even if CO2 isnt the “REASON” for the warming it is likely a contributor. Climate is a wnderfully complex system and i dont believe that anyone has perfectly modeled it. I reckon we will get more than a few surprises as the climate changes as to what happens where and when.

    Also, CO2 affects more than temperature. Had a look at the increase in the acidity of the oceans lately? Thats directly related to CO2 concentration in the atmosphere and if that keeps going the way it is, then bye bye coral reefs, and a lot of the little tackers in the ocean that either produce the oxygen we need to live or are some of the basic bottom end components in the ocean food chains that provide a lot of our food. Increasing ocean acidity is BAD FOR US and may yet kill us off all on its own. Reducing carbon emmisions will help with that even if it doesnt help much with global warming.

  37. Just Me said

    But reduced energy consumption isn’t really a part of the solution, more efficient energy consumption sure, but not reduced – our civilisation will continue to demand higher and higher levels of energy to drive our continually expanding quantities of technology.
    Possum

    I don’t think that is correct. Yes, it is true that per capita energy consumption has risen dramatically over the last few decades, and is arguably the single biggest factor driving the rise of material living standards, but it does not follow that per capita demand always will rise, (and indeed, as David pointed out, it can’t- nothing can grow without limit in the real world). There will be a slowing down and relative levelling off in per capita energy demand over the coming decades, for a variety of reasons, including increasingly efficient technology, various forms of market saturation, (for example, the energy required to heat/cool a given house design doesn’t fundamentally alter over time), plus the general increase in energy cost will change the individual consumer’s purchase and usage behaviour.

    I think there is a lot more flexibility (elasticity?) in the system than you might, and it does not necessarily come at the cost of reduced overall quality of life, that depends heavily on how intelligently we respond.

    I do agree that demand for energy is in a massive growth phase (globally speaking), and will be for some time, but it neither will nor can go on like this forever.

    Don’t get me wrong, nobody would be happier than me if tomorrow we discovered a cheap, reliable, clean, convenient, and endless source of energy, it would solve a huge chunk of human problems. But it ain’t gonna happen. We are going to have to learn how do a lot more with a lot less, and not just with energy but also with other basic resources like water, etc.

  38. Yaz said

    “We don’t need less consumption, we need more consumption but with less negative externalities attached – which is where our real focus should be on this part of the equation, not on reducing living standards by reducing consumption… that’s just silly, and ultimately, delusional” (Don’t know how to ‘do’ italics)

    Poss,
    Though I love your work, I couldn’t disagree more. Just Me is arguing this much better than I can, but I think the delusion is that we need to consume more. There are obvious cases, like food, where in Australia this is simply not true – instead it is killing us.
    In terms of other stuff, it is less clear, but I personally don’t want to work more hours to pay for more appliances/gadgets that take up room in my bag/kitchen/loungeroom, and only occasionally give me any joy. I’m sitting at a computer typing this now, but there are many occasions when I want to throw the thing out of the window, because it crashes, freezes or is just plain frustrating (worse than a younger sibling, frankly).
    The stuff that often makes us happy such as face-time with friends, dancing, bushwalking, whatever, often doesn’t involve much consumption, and certainly doesn’y get qualitatively better with greater consumption.
    And David E’s comment about perpetual motion machines is spot on. Where is all this stuff going to come from. We’re not out there mining asteroids (how much fuel and materials have we used to bring home a few moon rocks?!?) so we’re stuck with what we have here. The wealth we really have, such as biodiversity and topsoil, we treat as if it were worth less than an iPod shuffle.
    So what are you talking about? What does a rising standard of living actually mean, unless you are literally starving or homeless? I can’t see where it is rising to, or why, though I CAN see that it is an article of faith for most modern governments…

  39. janice said

    Like Imacca at 36, I think the Government is wise to put out a cautious policy at this stage – to do otherwise would most probably see it turfed out at the next election and we’d be back to square one and doing nothing.

    I must say I agree entirely with the arguments put by Just Me (wish I could put my own thinking into debate even half as well!)

    From the beginning of this ETS debate, I’ve thought that there is too much emphasis put on global warming which has confused and sidetracked people into debating whether global warming is real or not, rather than focus their minds on the reality that the planet’s oil supplies will eventually dry up, and the air we breathe will be so polluted that the myriad of life ending ailments we will suffer will no longer be able to be blamed on cigarette smoking. To me, the big issue is the urgent need to drastically reduce carbon emissions and get real about changing to renewable energy sources. If global warming is caused by our polluting ways or not is, in my opinion, not the issue but the need to reduce our energy demands and be frugal in our consumption of other resources such as water is paramount.

  40. Greg said

    “But what happens if some of those new energy sources are extremely difficult to apply excise to? Placing fuel excise on transportation that uses electricity as an energy source would be extremely difficult, whether it be straight from the grid or hydrogen fuel cells.”

    Not sure how it works in Aus, but in NZ – there is only excise on petrol. For diesel vehicles transport funding is levied via “Road User Charges” (RUC) which take into account the vehicles weight and kilometers traveled. So it is possible to have both excise and other road pricing systems co-existing. Why do you think this would be extremely difficult? Seems to work in NZ – if petrol becomes less popular at some stage the excise can be dropped and all vehicles can use RUC.

    I still don’t understand why you seem to want to tie carbon tax and transport funding+externalities together into one tax. Whats the benefit?

    Re: electric cars currently also use the RUC system, I assume all alternative fuel vehicles must. See Gavin’s website – he built his own EV for around AUS 10K. http://kiwiev.com/

  41. gam said

    But if you live in the boondocks, while demand over a certain volume of petrol consumption might be more elastic, below that level it is nearly completely inelastic for all practical intents and purposes – if you need petrol to obtain groceries and commute to a place to earn an income, you’ll pay whatever it costs until the opportunity costs of relocation are hit.Similarly, outer-metro suburbia with poor access to transport alternatives face the same problem.

    i think this is overly simplistic. you haven’t taken into account that not all vehicles use the same amount of petrol. hence consumers are able vary the amount of petrol they need, even in the absence of public transport, by buying more efficient cars, carpooling (even americans can manage this, why is it nearly non existent here?) etc. this has happened before, during the 70s oil shock, and it’s happening now. this leads to my second comment, that pricing is an excellent modifier of behaviour, as seen by the jump in sales of 4 cylinder and diesel cars.

    i agree with you that markets do work, but let’s not pretend that they are rational or take into account externalities that can turn out to have detrimental effects in the long term, which is the whole rationale of pricing carbon. the ETS is a means to price carbon, not an end of itself. i think this tends to be overlooked in the debate. you also have the not insignificant problem of making sure any excise cut doesn’t just wind up as extra profit for companies that sell petrol. in an ideal world, that’s where govt. policy would come in. again i agree that there will be people who will reach the point where they must spend x amount on petrol because they have no other option (public transport, better car etc.). i just think that the vast majority of people are not at this point, regardless of the whinging about petrol prices. i do agree with you that without creating some more options, particularly public transport, the effects of higher petrol prices as a lifestyle modifier will be less effective than otherwise.

    ps
    yes i own a car, i spend less than $100 a week on premium unleaded petrol and do more than 400km/week. no it’s not the most efficient car i could own. and no, it is not a hybrid or a diesel🙂

  42. Possum Comitatus said

    Just Me and Yaz,

    With consumption, most durable goods tend to get cheaper over time and we tend to buy more of them. Look at how many TVs, computers etc we have now in an average house compared to even 10 years ago. We buy more healthcare, we buy (on average) higher quality housing, higher quality cars, more recreational activity, more everything and generally of higher quality. That “stuff”, or rather the basket of that stuff that we can buy for a given amount is the definition of our material standard of living.

    Over any sufficiently long period of time we expect that consumption to grow as technology not only makes the manufacture of those goods cheaper through efficiency (allowing us to purchase more of them), but produces higher quality goods as well. The idea of “peak consumption” – where we are consuming all that is possible and need not consume anymore, where we’ve reached the peak of our consumption – it’s been around in one form or another since the 1950’s in the US, and it’s never really played out as being true.

    Is it different this time? Maybe, but probably not. We’ll continue to invent new and better things, but will we stop purchasing more of them as they get relatively cheaper?

    The thing that’s always amused me about the levels of total energy production since the 1st industrial revolution (and by that I mean all energy production, not just electricity) is that over a sufficiently long period of time, society will find a use for any surplus energy.When steam engines were invented, we suddenly found massive amounts of things we could apply it to, when electricity was deployed through the grid, we kept inventing more ways to apply it to more areas. We invent new, more energy intense industrial techniques to produce more sophisticated and high tech materials and widgets.

    Have we really reached the point where we don’t need more energy? Or is it still the case of if we had more energy we would quickly find ways to utilise it?

    If it’s the latter, our energy demand over any sufficiently long period of time will still grow – even if we simultaneously become more efficient in the ways we use it.

    Greg,
    I don’t think it would be difficult to have both road pricing and excise, just that it would be difficult to have excise on some fuel types. I think road pricing is inevitable over the next 20 years.

    If, over time we move to proper road pricing for vehicles using fuel other than petrol as a way of taxing road use to pay for the costs of road use – why have two systems (both excise and road pricing)? If we introduce road pricing for just some forms of transport and not others (depending upon their fuel source), it increases the costs extracting tax per vehicle just through scale. It also makes us run into problems of treating hybrid systems. Would a petrol/fuel cell car for instance have the same charges applied to it that a purely electric vehicle does? Or should it be less because it also contributes excise via the petrol price – and if so, by how much?

    Through the inevitable transition period from using excise to fund roads through to using road pricing to fund roads, we’re going to have a dogs breakfast about what should apply where. The other problem will be on equity grounds – people with the least capacity to invest in new cars using alternative fuels not only tend to be poorer, but also tend to live where public transport is least accessible – those people will be slugged, effectively paying twice for using roads compared to wealthier folks that will only pay once.

    So instead of going down the route of keeping the less efficient tax on petrol (less efficient than road pricing) and having the added cost of using the tax/welfare system to compensate low income earners and people living in regional areas (which will inevitably happen) as well a the arguments over the treatment of hybrid vehicles – why not just simply move to proper road pricing (a more efficient way of generating revenue for roads) for everyone, abolish excise and treat petrol on the same footing we treat other forms of carbon emitting fuels?

    It would solve a whole bag of problems before we ever get to them.

    Gam,

    Sure, different vehicles use different amounts of petrol – but for any given vehicle of any given level of fuel consumption, the problem of differing price elasticities of demand over the curve, for different geographical areas, still remains.

    Peoples behaviour has really started to change over the last 6 months. You’re on the south side of Brisbane aren’t you? On the northern side of Brisbane, on the Shorncliffe line, public transport is pretty much at full capacity. A couple of years ago there was hardly anyone on it all. Peak hour traffic volumes seem to have reduced substantially as well. The drive into the city now takes 25-30 minutes again rather than the 45 it used to only 6 months ago.

    What’s it like on your side of the city?

  43. Alastair said

    Surely if major emitters receive almost all their permits for free, they’d have little incentive to raise the price of their products in a way which would hurt demand. This would not reduce consumption of these greehouse-gas intensive products and it would not change consumer or industry behaviour to use cleaner solutions.

  44. dylwah said

    G’day Poss

    nice post and thanks all for the thread, i guess that all i want to point out is that the govt spent 500 odd pages explaining very little, they may have got the politics right and put the greens in a bind, but they are themselves facing a greater challenge in that the previous govt was really a sitting duck on AGW issues and now you couldn’t slip a white paper between them.

    my first incling of the danger came from Rove on Sun night when he had a clever little fake add that not only highlighted the confusion surrounding the ETS/CRAPs but also lampooned the govt’s apparent lack of committment to renewable energy sources.

    i’ve found it a little hard to concentrate durring this thread as i have Paul Kelly’s Only 40 miles to saturday night’ http://www.youtube.com/watch?v=Cx9m-mtGvpg earworming it’s way through my head. Now that is an inelastic demand for petrol.

  45. Harmless Cud Chewer said

    I’m still a trifle disappointed that the public debate, and indeed the debate here, seems to be focused on market issues rather than considering the possibilities that lie in the government itself actually purchasing new technology. Actual power stations. Genuine research spending. Serious high speed rail networks. etc. I guess my engineering bias is showing, but surely there is way to discuss, even to analyze the shall we say, economic efficiency of governments actually leading the market with their own spending?

  46. Political Nomad said

    “The goal is to send a long-term price signal that raises the incentives for investment and research and development of low-emission technologies”
    –Labor Outsider

    Except that we do not have the luxury of time to avoid trigerring the tipping point (at which point the world will continue to heat up regardless of how much humans cut emissions). We require action in the order of 40% cuts (on 1990 levels) by 2020. If politicians would merely be honest enough with us to admit that, then we could begin to implement the massive changes that will need to be made in order to secure the planet’s future. Although there are incredibly difficult (and seemingly insurmountable) challenges to overcome, these are the sorts of cuts that are required, and anything else is simply mucking around on the edges, playing politics.

    Thats why the greens won’t support this policy.

  47. Greg said

    “why have two systems (both excise and road pricing)?”

    As I understand it this actually being planned anyways, as road wear increases with weight much more than fuel consumption does, so heavy trucks are to be priced based on weight/distance. But for light vehicles only distance needs to be counted. It’s actually more costly to collect the road user charges as the distance must be verified. Since there are very few heavy petrol vehicles it’s cheaper and more practical to just apply an excise on petrol, and to skip the distance auditing step.

    “The other problem will be on equity grounds – people with the least capacity to invest in new cars using alternative fuels not only tend to be poorer, but also tend to live where public transport is least accessible”

    I guess this is a good reason to fund public transport from excise and road user charges.

    “We want, nay we need MORE energy”

    Actually – I just want light, heating and to travel from A to B. I’m quite happy with less energy as long as I can still get and do these.

    An electric motor is about 80% efficient versus a internal combustion engine which is lucky to average 20% on the road. Now if only there was a level playing field – i.e charging infrastructure, qualified mechanics, cheap second hand vehicles, and no existing sunk costs in ICE vehicle manufacture.

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