Congestion tolls in Sydney

One interesting announcement in yesterday's NSW state mini-budget was the introduction of "congestion tolls" on the Sydney Harbour Bridge and Tunnel: the toll will vary depending on the time of day. Tolls will increase from $3 to $4 during peak travel times, stay the same during a shoulder period and drop to $2.50 at night.

Time of day tolls can be a sensible measure to reduce congestion: they encourage motorists to avoid driving at peak hour. The demand for road space varies throughout the day so a price that also varies to reflect that changing demand is likely to improve efficiency. Commuters accept variable time-of-day charges for rail in Sydney, so why not roads?

A few thoughts on the new tolls:

• The government should closely monitor traffic densities and speeds at different times of day now and after the toll comes in to see what impact the toll has.


• Time of day tolling should also be applied to other Sydney toll roads such as the M4 and M5 (the government has flagged this) - at least if the Sydney Harbour tolls are effective in reducing in congestion.


• The public is cynical about this change and sees it as a revenue grab (which it probably is). If the government genuinely sees this as a congestion measure and wants it to be embraced, they should consider making it revenue-neutral or, more simply, reducing the night toll by the same amount as the peak toll increases. Alternatively, the additional revenue could be clearly earmarked for additional peak hour public transport so that people have a decent alternative to just paying the toll and continuing to drive.


• Isn't there an issue because the toll is only collected from southbound traffic? So there's no new incentive to avoid the peak hour when you're travelling north...

What do you think of the tolls?

Conflicts of interest in environmental planning

Andrew Norton has an interesting article on some unintended consequences of proposed reforms to Victoria's local government legislation. Reforms desgined to reduce the potential for conflicts of interest could undermine, rather than strengthen, the rights of residents to partcipate in the planning process:

In the future, local councillors may be prevented from voting on the very motions before council they may have been elected to support or oppose.

For example, they will be held to have become an ‘interested party’ if they have lodged an appeal in relation to a council decision, or have made an objection or submission. Say the Council wants to cut down the trees in your street, or redirect its traffic, or let someone build a house that overshadows your garden. You go through the normal proceses to protect your interests, by making an objection. This fails.

So you run for election on one of these issues, win a mandate to act on them, and then because of your earlier steps to protect your interests you cannot vote on the matter. Not only are you deprived of your right to vote, but the democratic will of the people who supported you is also frustrated.

Defensive investments

I'm back from a very enjoyable trip to Ireland and Scotland - and two fantstic weddings. Being on holidays, I was only generally aware that there was a financial meltdown going on and that everything was costing more each day as the Aussie dollar sunk about 30% against the Euro and pound over the course of the trip!

I developed a bit of a taste for whisky in Ireland and (especially) Scotland, which is timely as it appears that fine whisky is one asset that has been appreciating in these tough times:

Roughly 11 months after the launch of a Dutch online trade platform for exclusive single malt whiskies, mostly from Scotland, the World Whisky Index has seen an average return of 26.2 percent, compared to a more than 40 percent decline in the MSCI World stock index.

I'd have some doubts about whether that will continue but there is this upside to whisky as an investment class:

But even if the 80-proof alcoholic drink turns out not to be recession-proof, there is still a reassuring side to this type of investment.

"While shares and obligations can become completely worthless, if bottles turn out to be not very valuable, you always still have the bottle to drink," the spokesman said.

Blogging break

There's been a lot going on in my life lately (in a good way) and unfortunately Oikos has been the victim of that. Ironically I've been spending more time on climate change issues than ever before but my energy in that sphere has been channeled into my environmental economics thesis which has kept me busy indeed.

I'm heading off on a trip tonight and don't intend to blog while I'm away. I need a bit of a break.

Hopefully I'll come back refreshed in a few weeks and it might be time to overhaul Oikos as the site's looking a bit tired (why does it say Oikos twice in the sidebar??).

There's a lot going on in climate change and environmental policy right now and I'd like to get Oikos back up and running as a forum for policy ideas and debate.

See you in October!

David

Why do we pay people to waste our most precious resource?

It's one year today since the contract to build Sydney's desalination plant was signed and ANU environmental economists Quentin Grafton and Michael Ward have run the numbers on whether it was a good deal.  Their conclusion: the net benefit to Sydney households of the plant is negative one billion dollars.  Ouch.  The decision to build it will cost each Sydney household on average more than $700.

What's the alternative though?  Well how about just letting people pay the actual cost of water so that they have an incentive to economise?

When most things get scarce, their price goes up.  This sends a signal to consumers to economise and find alternatives and a signal to producers to find new sources and ways to produce them.  We don't do this with water though.  Instead we subsidise one of our most precious resources - massively.  We encourage industrial water users to recycle their water or else use recycled water rather than water we've spent millions making fit for drinking.  But why would they when it's so cheap?  Cheap because it's subsidised by every taxpayer.

So why don't we do this?  According to NSW's Water Minister Nathan Rees, that system "would result in gross inequalities and be a nightmare for business":

Any form of sound business planning would be impossible if water prices fluctuated from month to month and season to season.

The current system isn't too equitable either.  Is it equitable that low income earning taxpayers who do their best to save water subsidise big water users to fill their pools and keep their lawns looking lush?  In any case the extra revenue from actually charging wealthy water users for the water they use can be used to provide assistance to low income households.

As for the business certainty argument, businesses deal with price fluctuations all the time.  I'm sure the cafe downstairs from my work would be happier if coffee bean prices didn't fluctuate, but they don't ask the government to nationalise the coffee trade to deal with it.  The prices of rent, employees, petrol, commodities, food and every other business input fluctuate weekly or daily.  And if it's critical for a particular business to know the price of water in advance, I'm sure purchasers and suppliers could negotiate to lock in a price in advance for a set period.  That's what futures markets do with commodities around the world.

The federal government is putting a price on carbon emissions - a challenging and complicated task that involves working out the emissions from a huge range of business activities and creating new and untested markets.  So why can't we allow a realistic price to be placed on one of our most precious resources?  The alternative is pouring an extra billion dollars into an environmentally questionable desal plant that we don't really need.

Thoughts on the green paper - Part 1: petrol

The government’s green paper on emissions trading is now available. The government’s new phrase for its emissions trading scheme is “carbon pollution reduction scheme”.

The first thing that’s captured everyone’s attention – not surprisingly – is petrol. With all the hoo-ha about petrol prices recently, the government’s proposal is to include petrol in the ETS / CPRS but to reduce the petrol excise by an equivalent amount for at least the first 3 years of the scheme. This is not very different from leaving petrol out of the scheme. And this has the Greens and others up in arms.

There are two ways to look at this – from a practical perspective or from a principle perspective. Either way, my view is that cutting the petrol excise isn’t good but isn’t really all that bad either.

The practical implication of cutting excise and therefore neutralising the impact that the scheme has on the petrol price is that – to meet the target – the price of everything else in the scheme has to go up by more. Then again, the price of petrol has gone up so much recently that that’s done a lot of the work that the scheme will do anyway. But power bills will go up by more than they otherwise would to pay for the cut in petrol excise. Which of these would cause more pain? Who knows. The opposition, motorists and the media seem to be clamouring loudly for lower (or at least not higher) petrol prices but electricity prices haven’t gone up yet – presumably there’ll be some clamouring when that happens too.

Looking at the ‘principle’ of cutting the excise – well this really depends on whether the excise now is too low, too high, or just right (I don’t know which it is). Roughly speaking, the excise on petrol should be enough to cover the costs that it places on the community: motorists shouldn’t be expected to be subsidised by other taxpayers and so the excise should cover the cost of building roads, dealing with car accidents, dealing with air pollution, etc. There’s also GST on petrol as there is on everything else. Anything much more than that is seeing petrol as a revenue raising tool. Seeing as the ETS is going to raise plenty of revenue anyway, there’s a case for easing other taxes. So if excise currently goes beyond the social cost of petrol plus 10%, I reckon there’s a case for cutting it if you’re going to include petrol in the ETS. If the excise doesn’t go beyond that, then there’s no principled case for cutting it. I’d be interested in any comments as to which side of that line fuel excise currently falls.

One other comment I’d make is that I’m not sure about the idea of cutting it for 3 years then reviewing the situation. I’d prefer the government to say that they’re cutting it for 3 years only. Seeing we’re apparently talking about a cut of about 5c a litre and petrol prices fluctuate by that amount weekly, I don’t think people could complain too much if the government said “Petrol excise is going up by 5c in 2011: you’ve got 3 years to get ready”. That seems like a more than generous concession to me and better than just deferring the issue and the uncertainty around it by 3 years.

What do you think?

Government's green paper on emissions trading out today

It's being launched by Climate Change Minister Penny Wong at the Press Club at 12.30.

I'll put up a link when I have one and hopefully some analysis tonight.

Garnaut Review out today

The draft report of Professor Ross Garnaut's Climate Change Review will be released at 12.30 today here.

For overseas readers, this review has been described as the Australian version of the Stern Review. The report will look at the economic impact on Australia of climate change and the design of a domestic emissions trading scheme (ETS), as well as suggestions for Australia's role in international negotiations. The findings will be a major input into the government's ETS which is to be unveiled by the end of the year.

The next 6 - 12 months are likely to be a time of furious debate in Australia about what the ETS should look like. The debate has begun with whether and how petrol should be included in the scheme.