Liveblogging the budget

Can't wait until tonight's budget? No worries, Zoe at CrazyBrave has already blogged the best bits, in advance:

7.37... We’re going to investigate the tax system - root and branch. We’re going to get the head of Treasury to tell us what bits are rooted and then we’ll get the maths whizzes who organised our branch stacking in NSW and Victoria to fix it all up.

7.38 There will be downward pressure on interest rates. There will be downward pressure on inflation. There will be downward pressure on prices, particularly at the supermarket and the service station. In fact Labor will ensure that downward pressure is so omnipresent it is a matter of some doubt whether the daffodils will manage to raise their sunny little heads next spring.

Well I'll be watching tonight anyway, taking a drink each time Swan mentions Working Families and checking out what's in there for the environment if I'm still sober.

Lessons from Europe's emissions trading scheme

The Pew Center on Climate Change has released a new report examining what went wrong and what has been going right with the EU emissions trading scheme.

The report finds that the scheme has achieved much of what was intended: establishing a European-wide carbon price; causing businesses to incorporate the price into their decision-making; and creating the infrastructure for a multi-national trading program. As for actually achieving a reduction in emissions - it's been modest but improving.

Some of the key lessons:

• Good information is critical. You need accurate data on baseline emissions.
• Suppliers quickly factor the price of emissions allowances into their business decisions under a cap-and-trade program.
• Price volatility can be reduced by including banking and limited borrowing of emissions allowances.
• The relationship between permit allocation, permit markets, and the electricity market must be understood and addressed to avoid unintended consequences.
• The linkage of 28 separate trading programs in the EU scheme provides a valuable prototype for a globally linked carbon market.

Taxing 'Alcopops'

News over the weekend that the federal government has raised the excise on pre-mixed drinks ('alcopops') from $39 to $67 per litre of pure alcohol caught my eye, given my interest in using economic instruments for public policy.

These drinks are sweet and taste less alcoholic than they are and have therefore been a drink of choice for young people, women in particular, and the move is designed to help arrest the increase in dangerous drinking among teens and young adults.

On first thoughts, this seems to me like a sensible move:

1. It closes a loophole where spirits were taxed at a substantially lower rate if they were mixed with soft drinks and put in a can or bottle. So just on a tax efficiency basis it seems justified.
2. This is quite a targeted tax increase in that it focuses on drinks that I understand are largely consumed by young people who - given their lower incomes - are more likely to respond to a price hike.

The alcohol industry has claimed that young drinkers will just switch to beer or spirits. Some will, but I think that switch will be limited by two factors:

1. Spirits are taxed at the higher rate too.
2. Spirits and beer are not complete substitutes for pre-mixed drinks. From my experience, pre-mixed drinks tastse like soft drinks and are extremely easy to drink quickly. Spirits and beer just aren't the same.

I'll try and find some figures to assess my initial thoughts. What do you think of the move?

Other views:

Harry Clarke

Tim Dunlop

We need some clear thinking on plastic bags - Part 2

What planet are our politicians inhabiting?

Here's Queensland Premier Anna Bligh on plastic bags, as reported by the Brisbane Times:

Queensland will oppose a levy on plastic bags at tomorrow's meeting of federal and state environment ministers. Premier Anna Bligh today told state parliament the levy would be another impost on families already struggling to meet rising household costs.

"Queensland does remain committed to completely phasing out non-biodegradable plastic bags," Ms Bligh said. "In this government's ongoing fight to protect our environment, Queensland will push for a total ban on non-biodegradable plastic bags..."

Let me get this right. Putting a 10c levy on plastic bags would hit struggling families too hard, so we'll just ban the things altogether? Well I admit there is a certain logic to that. Maybe we could apply that to petrol too when the emissions trading scheme comes in?

My government understands that effective action on climate change requires an
immediate and substantial reduction in fuel use. However, placing a carbon price on fuels would be another impost on families already struggling to meet rising household costs. My government will not take steps that hurts families. Accordingly, we will push for a ban on petrol use from next year.

Hmm, maybe not.

Federal Environment Minister Peter Garrett doesn't seem to have much in the way of solutions:

"I think all Australians really want to see much less use of these ... plastic bags we get at the check-out and when we sit down with the states today we've got to come up with something which is nationally consistent, which doesn't impose additional costs on families, and which starts to see much less of these bags ending up in the litter stream."

Sounds great Peter. And that something would be?

Meanwhile, the opposition's well-thought-through policy is to hope the problem just fixes itself:

"It's extremely important that we move to biodegradeble bags as quickly as possible," [opposition spokesman Greg Hunt] said. "We need to decrease the number of bags, but let's not ban them or put a levy on families that are doing it tough."

Yeah, we urgently need this serious problem to end but, given the pressures facing struggling families, we must be particularly careful not to do anything that might help fix it.

I'd love to hear Greg Hunt on fighting inflation:

It's extremely important that we reduce inflation as quickly as possible. I call on the Reserve Bank and government to do everything in their power to restrain demand - other than raising interest rates, increasing taxes or reducing spending at a time when families are doing it tough.

Victoria and South Australia have announed that they'll go ahead with a levy (starting with a pilot) and ban respectively.

Australians currently use some 40 billion plastic bags a year. Leaders who suggest that we can motivate a big change in people's behaviour in a completely painless way are lying to us. Let's be honest, there will be costs. The question is, are those costs worth the environmental benefits? If plastic bags are the serious problem that all these leaders say they are, then the answer is clearly yes. It then just remains to choose the option that has the greatest impact at least cost. For my money, that's a modest levy.

We need some clear thinking on plastic bags - Part 1

I've been observing the debate about plastic bags for years but haven't posted anything on it.

I'm agnostic about whether something really needs to be done about plastic bags in particular.

Good environmental policy, it seems to me, looks at the best ways of fixing identified problems - rather than targeting certain products.

So what are the problems with plastic bags? As I understand it:

• they're a large componenet of litter;
• they're a reasonably important component of waste / landfill;
• they get into waterways where they harm marine life;
• they're made from a non-renewable resource.

To my mind, a more sensible starting point is to look at each of these problems separately.

Let's start with threats to marine life. What are the big threats? What's the most effective way to reduce their impact? Will getting rid of plastic bags make a big difference? These are the questions we should be examining.

Let's look at litter. What are the problems it causes? What are the main components? What are the most effective ways to reduce it?

Ditto for landfill and ditto for non-renewable resources.

I suspect that there's more effective measures to deal with these issues by looking at all contributors to a problem than singling out one product.

I also suspect that plastic bags are being targeted because they're a visible consumer product. The only concrete regulatory measure that the Howard government announced to reduce greenhouse emissions was phasing out incandescent light globes. Now it's a start and probably worth doing but will make an extremely modest contribution. I suspect they chose that because it's something everyone sees and has experience with - people will notice they're dong something. Similarly, Australian governments have had difficulty coming up with solutions to water shortages other than water restrictions on households. Again, a modest measure that looks to the average person like you're doing something, but really does little to fix the underlying problem.

Targeting plastic bags without examining why also creates confusion. Are biodegradable bags a good alternative? Queensland seems to think so. But my understanding is that they take months or longer to break down and in the meantime they create the same litter problems and danger to marine life that plastic bags do. And while they use renewable inputs (eg corn starch rather than petroleum), there's no guarantee that the overall environmental impact of those inputs is any lower: growing corn has its own problems in terms of resource use (think cleared land, water use, petroleum-based fertilisers, petroleum-fueled tractors) and waste (think fertiliser and pesticide runoff - what does that do to aquatic and marine life?). So deciding on alternatives really depends on what we're trying to achieve.

It's tempting to look at energy waste and think 'let's ban old-school light bulbs', to look at water problems and think 'let's water the garden less' and see litter and think 'let's ban the bag'. And yes, we all need to do our bit and those measures probably do some good.

But the challenge for good policy and what will produce real outcomes is to do the hard thinking about what are the real causes of the problem and what are the most effective measures we can come up with to deal with them - not just to go with whatever grabs our attention.

Earth Hour this Saturday night - is it all just a waste of time?

It's the second annual Earth Hour this Saturday night and the wise cynics are once again gleefully reminding us how stupid we are to turn out our lights for one hour in the deluded belief that we're doing something about climate change.

Their triumphant, but I think misguided, crowing about how naive we all are kind of reminds me of a scene from the Simpsons:

Homer takes Lisa to the Springfield Museum and sees the sign, `Suggested donation: $4.50'.

Homer: Eh, what do you mean by `suggested donation'?

Clerk: Pay any amount you wish, sir.

Homer: And uh, what if I wish to pay ... zero?

Clerk: That is up to you.

Homer: Ooh, so it's up to me, is it?

Clerk: Yes.

Homer: I see. And you think that people are going to pay you $4.50 even though they don't have to? Just out of the... ha ha... goodness of their... [laughs] Well, anything you say! Good luck, lady, you're gonna need it!

Lisa's teacher arrives and goes to pay

Homer: No, no! It's a suggested donation. [whispers, smiling as if it's a great revelation] You don't have to pay!

Anyway, last year, before the first Earth Hour, I posted this list of reasons why I'd be turning my lights off for earth hour. It's why I'll be doing so again this year. For me it's not so much about emissions as about connections:

Connection with community

I don’t know if it’s widespread, but I often feel a lack of community in Sydney. And I think a sense of community is wonderful. Events like this connect us. If tens of thousands of people turn off their lights and TVs and sit out on their verandahs, or go for a walk and talk to some of the other tens of thousands of people doing the same thing, I reckon that’s great. Just have a look at some of the events people are organising!

Connection with our own power

Climate change is often presented as a big problem with big solutions needed, to be provided by government and business. To a large extent it is. But there’s a lot that people can do about it themselves, in their households and as part of businesses and communities. When each of us does something personal about the issue, we’re reminded that this is something that we, personally, can influence. And I think that’s very positive and powerful. We don’t have to shake our heads and our fists at John Howard and George Bush, we can do a lot ourselves.

Connection with nature

Again, this might be an inner-city dweller neurosis, but I feel a disconnection with the real world living in the middle of Sydney. I get home, turn the lights on, turn the heater on in winter and have my own comfortable cocoon. We all rely on the environment for our health and wellbeing. But it’s easy to forget that. It will be nice to sit out on the balcony and look at the moon and listen to the breeze in the trees and watch the fruit bats fly past and think about the world. Maybe we’ll even be able to see the stars.

Connection with ourselves and each other

As much as I love Iron Chef, it will be nice to have some quiet time to think and talk to Cat. Maybe we’ll have a candlelit dinner at one of the restaurants which are turning their lights off for Earth Hour.

Business

It’s easy for households to switch off lights and appliances during earth hour. It’s much harder for some businesses, despite the fact that at 7.30 on a Saturday night, many businesses aren’t open. This exercise has been a useful learning exercise for many businesses (including my workplace) that you can’t assume that everything is switched off on a Saturday night. (Have a look at office buildings in the city at night and be dazzled by all the empty offices with all their lights still on).

They have had to put measures in place to achieve this and hopefully those measures will continue to bear fruit in terms of energy and emissions savings long after earth hour is over.

I had a great Earth Hour last year - it was quite cool to see lights go out in so many other apartments. For the people who go through with their oh-so-rebellious, witty and contrarian 'Illumination Hour', although I mock them and they mock me, I genuinely hope they enjoy that too - at least we share the recognition that the issue deserves attention and that symbolism can be important. There's nothing wrong with celebrating electricity - go for it! - but I'll be reflecting on simpler things this Saturday night. I'd encourage you to be part of Earth Hour too.

Why don't TV networks advertise their competitors' shows?

Here's my random thought for today: why don't TV networks ever promote their competitor's shows?

Now I'm sure you're thinking that's one of the most stupid ideas you've heard lately. And it probably is, but it's not quite as stupid as it sounds.

The potential audience for any particular show is people who would otherwise watch another free or pay TV channel and people who otherwise wouldn't watch TV at that time at all.

Consider a deal where two networks ran three ads for a show on the other network. If successful, they'd take viewers from each other - but they should roughly cancel each other out - and, importantly, they'd also take viewers from other networks not in on the deal as well as people who would otherwise wouldn't have watched TV at all on that timeslot.

They should both win from such a deal. It should grow both their markets.

So why do you think we don't we ever see it?

Garnaut review - emissions trading scheme discussion paper

Professor Ross Garnaut's blueprint for an Australian emissions trading scheme was released last Thursday (pdf). I haven't got past the exec summary yet, but Robert Merkel has an excellent discussion at Larvatus Prodeo today, and econobloggers Harry Clarke, Peter Martin and Joshua Gans had some thoughtful comments over the weekend. And it's received a lot of press over the past few days.

The big issue appears to be whether to auction permits or hand them out to exsiting emitters. More on this from me later, but it seems the debate has finally moved beyond the myth coming from the electricity industry that they need to be issued with free permits or else electricity prices will rise, disproportionately hurting the poor who spend a greater proportion of their income on energy. Electricity prices will inevitably rise under an emissions trading scheme: to a large extent, that's the point. Giving handouts to existing generators in the hope that they pass some savings on to households and not just their shareholders is naive - particularly when their competitors (new entrants to the market) will have to buy permits on the open market. And it's not necessary: the best way to compensate poor households, surely, is to use the revenue gained from auctioning permits to target tax cuts at lower incomes.

On that point, I notice that petrol producers have run the same line in recent days: petrol should be exempt from an emissions trading scheme because families are struggling enough with petrol prices already. Aside from the fact that these kind of suggestions wholly undermine the aim of a trading scheme, there's better ways to help out struggling families than subsidising their energy use. How about reducing their overall tax burden? They can spend their savings on petrol if they so desire but how about we leave it up to them what they spend it on, rather than what petrol or electricity companies think they should spend it all on (oddly enough, petrol and electricity)?

EPA: US can halve greenhouse emissions for the cost of a cup of coffee a day

Alright, that's a bit of an exaggeration, but a report very quietly released by the US EPA (there's remarkably little mainstream coverage of it) has found that if emissions were cut by 56% by 2050, US GDP would grow by 80% between now and then, compared to 81% if emissions were allowed to increase on a business-as-usual basis.

And that comparison doesn't count the costs of allowing emissions to grow unabated.

It seems to me that the US is in a unique position when it comes to fighting climate change: it's the only country where taking unilateral strong action would pay off for it. That's because its emissions are such a big chunk of the global total (more than a quarter) that it can have a real impact on its own - and it faces some big costs from climate change. So if any one country should be leading on this issue, it's the US. And yet, it's the country that up to now has done the most to delay a global solution to the problem.

The EPA's analysis follows other analyses (eg, the Stern Review in the UK and recent McKinsey reports on the cost of abatement in Australia, the US, the UK and Germany) that show that strong action on climate change is compatible with strong economic growth and can be achieved at a more modest cost than is widely anticipated.