Monday, May 29, 2006

Global warming: legislating for temperance

Last week I looked at Garrett Harding’s ‘tragedy of the commons’ idea. In an unregulated common, each individual gains all the benefit from intensifying his or her use or pollution of it, while only facing a portion of the cost of that intensification. So everyone has an incentive to use and pollute it more, to the eventual detriment of all.

The tragedy of the commons is an example of what game theorists call a prisoner’s dilemma. I won’t go into detail (check out the wikipedia entry for a good explanation) but the general idea is that the game is set up so that it is in each player’s individual interest to cheat, so they all do, but that ultimately leads to everyone being worse off than if they’d all co-operated.

It seems to me that the current international negotiations about climate change are the ultimate prisoner’s dilemma. It is in each nation’s best (economic) interests to have each other country do something about limiting greenhouse gas emissions, but not do something themselves. If you take on costly measures to reduce your emissions and everyone else does too, that’s good. But better is if you avoid the cost and let everyone else do the work. Worst is if you take on the cost and no-one else does – you cop the economic hit to your industries of emission costs and you still get hit with the costs of global warming. So, individually, it’s in each country’s best interests to do nothing. Of course, collectively, that spells disaster for us all.

The way around this is by not acting in our own selfish interests, but getting together and agreeing on measures for every country to reduce its emissions – as Harding said ‘mutual coercion mutually agreed upon’.

In the early 1990s, 189 countries came to this realisation and signed the United Nations Framework Convention on Climate Change, which came into force in 1994. This provided for general measures such as compiling and sharing data about emissions and climatic changes. In 1997 this was turned into more concrete obligations through the Kyoto Protocol, which 84 countries – including the US and Australia – signed. The Protocol came into effect last year when ratified by countries with more than 55% of global greenhouse emissions. It has now been ratified by 163 nations. The US and Australian governments have had a change of heart since signing the Protocol and have said they will not seek to ratify it, which means they are not bound by it. The only other countries which have signed and then failed to ratify are Croatia, Kazakhstan, and Zambia.

So Kyoto has a good coverage of countries with only very few dissenters. Nevertheless, I think it’s fair to say that Kyoto looks vulnerable. The Australian and US governments have not only not joined - they seem to want to undermine it. The have claimed that Kyoto is unfair and ineffective because it does not place emissions limits on developing countries. Developing countries say it would be unfair to do so because they need to emit more in order to develop. They suggest that if industrial countries want them to reduce their emissions, they should assist them in developing cleaner energy. (That is already part of how Kyoto works – countries can gain credits by investing in emissions reduction projects in developing countries.)

And this impasse might be getting even more entrenched. Few countries have yet taken strong steps to reduce emissions and the countries which look like they may not be going to meet their obligations are rethinking their commitment – not least because they see the US and Australia getting away with thumbing their noses at the Protocol. Canada’s new government has taken some pot shots at the Kyoto Protocol and says Canada will not meet its targets, although for now it has said it will remain in the Protocol for the next commitment period beginning in 2012. The first round of obligations has set a very modest target of a 5% reduction from 1990 levels among industrialised countries. Even that may not be met and when developing countries are considered, total global emissions will have increased since 1990.

Meetings have just taken place in Bonn to start talking about targets for the second period, starting in 2012. These will need to be much stricter targets and the political will to take these on might be waning with Australia, the US and developing countries not taking on targets and countries such as Canada, New Zealand and Japan having trouble meeting even their first round targets.

To speculate about the way forward, the glimmers of hope seem to me to be:

  • National action will become less important as local, state and regional governments and communities take bolder measures;
  • International aid will be increasingly targeted at clean energy, helping to restrain emissions growth in developing countries;
  • There will be modest technological advances which help decouple economic growth from emissions growth.
But ultimately I think our biggest saviour may just be peak oil. Oil’s not going to run out any time soon but it seems like it will get gradually more expensive to produce as the cheapest sources are exhausted. I don’t know if oil prices will stay at current levels, go up or go down, but I doubt they’ll return quickly to less than US$30, where they were only a couple of years ago. At current levels, a whole range of alternative energy sources become commercially viable (see this article from The Economist).

Harding’s solution to the tragedy of the commons was to all agree to limit how many cattle we graze there. We’re having trouble doing that, so it might be a good thing that we seem to be slowly running out of cows.

Friday, May 26, 2006

Stay tuned...

Apologies for lack of action here this week: work and uni have been duopolising my time. (Getting a Playstation probably hasn't aided my productivity either.)

Will try and make up for it over the weekend...

Friday, May 19, 2006

An anti-wind-power conspiracy?

Today's Sydney Morning Herald has an interesting article about the misinformation campaign to discredit windpower in Australia:
Leaked minutes from a meeting in the chilly confines of Canberra's political corridors show the Prime Minister had called on some of Australia's biggest contributors to global warming - including the coal and uranium miners Rio Tinto and BHP Billiton - to help the Government devise a way to pull the rug from under the wind industry, but still be seen to be tackling climate change.
It also contains a run-down on the myths and truth about windpower.

Thursday, May 18, 2006

Does Australia need nuclear power?

Gary Sauer-Thompson forcefully argues the negative in the Public Opinion blog. Aside from the environmental and health risks, they're uneconomic without subsidies and they'd make only a marginal impact on our greenhouse emissions.

Global warming: A tragedy of the commons

Garrett Harding’s classic 1968 article The Tragedy of the Commons is well worth recounting when we think about the climate change problem:

The tragedy of the commons develops in this way. Picture a pasture open to all. It is to be expected that each herdsman will try to keep as many cattle as possible on the commons. Such an arrangement may work reasonably satisfactorily for centuries because tribal wars, poaching, and disease keep the numbers of both man and beast well below the carrying capacity of the land. Finally, however, comes the day of reckoning, that is, the day when the long-desired goal of social stability becomes a reality. At this point, the inherent logic of the commons remorselessly generates tragedy.

As a rational being, each herdsman seeks to maximize his gain. Explicitly or implicitly, more or less consciously, he asks, "What is the utility to me of adding one more animal to my herd?" This utility has one negative and one positive component.
1. The positive component is a function of the increment of one animal. Since the herdsman receives all the proceeds from the sale of the additional animal, the positive utility is nearly + 1.
2. The negative component is a function of the additional overgrazing created by one more animal. Since, however, the effects of overgrazing are shared by all the herdsmen, the negative utility for any particular decision­making herdsman is only a fraction of - 1.

Adding together the component partial utilities, the rational herdsman concludes that the only sensible course for him to pursue is to add another animal to his herd. And another.... But this is the conclusion reached by each and every rational herdsman sharing a commons. Therein is the tragedy. Each man is locked into a system that compels him to increase his herd without limit -- in a world that is limited. Ruin is the destination toward which all men rush, each pursuing his own best interest in a society that believes in the freedom of the commons. Freedom in a commons brings ruin to all.

The tragedy of the commons idea is interesting in its (mis)appropriation by both the left and right. The left tend to use it to point out flaws in capitalism and markets, while the right use it to argue for private property and against public ownership. The tragedy of the commons certainly shows that unregulated or unfettered markets don’t always produce good outcomes, but not markets per se. On the other hand, the commons idea does not suggest that public ownership is a problem – only that unregulated common ownership is a problem. As Harding states in the article, there are several possible solutions, only one of which is private property:
What shall we do? We have several options. We might sell them off as private property. We might keep them as public property, but allocate the right to enter them. The allocation might be on the basis of wealth, by the use of an auction system. It might be on the basis of merit, as defined by some agreed-upon standards. It might be by lottery. Or it might be on a first-come, first-served basis, administered to long queues. These, I think, are all the reasonable possibilities. They are all objectionable. But we must choose--or acquiesce in the destruction of the commons...

The earth’s atmosphere is the ultimate common resource. And, of course, private property is not going to be an effective solution to this problem: how do you allocate and enforce property rights to a stable climate when the problem is suffered by and contributed to by the actions of every person on the planet?

As Harding says:

In a reverse way, the tragedy of the commons reappears in problems of pollution. Here it is not a question of taking something out of the commons, but of putting something in--sewage, or chemical, radioactive, and heat wastes into water; noxious and dangerous fumes into the air, and distracting and unpleasant advertising signs into the line of sight. The calculations of utility are much the same as before. The rational man finds that his share of the cost of the wastes he discharges into the commons is less than the cost of purifying his wastes before releasing them. Since this is true for everyone, we are locked into a system of "fouling our own nest," so long as we behave only as independent, rational, free-enterprisers.

The tragedy of the commons as a food basket is averted by private property, or something formally like it. But the air and waters surrounding us cannot readily be fenced, and so the tragedy of the commons as a cesspool must be prevented by different means, by coercive laws or taxing devices that make it cheaper for the polluter to treat his pollutants than to discharge them untreated. We have not progressed as far with the solution of this problem as we have with the first.

The solution as Harding describes it is "legislating for temperance" or "mutual coercion mutually agreed upon". In the next post I’ll look at how international agreements – notably the Kyoto Protocol – are measuring up to the need to legislate temperance in greenhouse gas emissions.

Tuesday, May 16, 2006

Sydney's water future: some other views

I wrote last week about the new Sydney Metropolitan Water Plan. For anyone who's following this, there have been another couple of articles in the paper this week, offering quite different views on the Plan.

Michael Duffy writes that politically savvy 'monopoly buster' company, Services Sydney, is dragging Sydney Water and the Government kicking and screaming toward greater deregulation of the metropolitan water and sewerage market and, with it, more recycling and better economic and environmental outcomes.

Former Sydney Water executive Charles Essery has a rather less sanguine view, suggesting that the recycling targets and measures in the Plan have not changed since the last version of the plan was issued in 2004, that the recycling plant announcements are window dressing and that desalination will be back on the agenda within a year.

It seems the desalination solution might be dead but it's definitely not buried.

Monday, May 15, 2006

The economics of Kyoto and the business of ideas

The Australia Institute ('TAI') has just released a paper suggesting that the economic costs to Australia of ratifying the Kyoto Protocol and implementing carbon-pricing measures such as a carbon tax or domestic emissions trading scheme have been massively overstated and the economic benefits overlooked:

The current policy of staying outside Kyoto and not pricing carbon carries substantial economic risks. First, it locks us out of the emerging carbon markets, limiting both foreign investment in Australian clean technologies and plantations (through the Joint Implementation mechanism of the Kyoto Protocol) and participation by Australian companies in developing country projects (through the Protocol’s Clean Development Mechanism). Second, by insulating our economy from a carbon price, it retards the development of new clean industries and increases our future dependence on imported technology and expertise. Third, it fails to preserve the competitiveness of Australia’s coal exports (considerably greater in both export earnings and jobs than aluminium production), which will be subject to the emissions
policies and taxes of importing countries. Fourth, it exposes our exports of coal and emissions-intensive products to likely consumer and government preferences against climate ‘free-riders’.
It suggests a carbon tax or emissions scheme be introduced, together with tax rebates for energy-intensive exporters:

How could the competitiveness problem best be deal with? The Australian Government has claimed for some years that seeking legally binding emissions limits for the major developing countries is the best response. This strategy failed in Kyoto and has not borne fruit since. It has seen the Government backed into a corner where Australia now, alone with the United States, refuses to ratify the Kyoto Protocol. This paper proposes a different approach: that Australia ratify the Kyoto Protocol and implement a carbon tax or emissions trading, incorporating offsets that preserve the competitiveness of the industries at risk. Ideally, the offsets would be designed so that they might form the basis of a future multi-lateral solution to carbon leakage. As a full and more respected participant in the international climate negotiations, Australia would be better placed to pursue a multi-lateral approach.
It's an intriguing idea. I can't tell you the assumptions the paper's based on or really examine its conclusions, because the paper costs $21 and I'm debating with myself whether to fork out the cash and read it! It does sound interesting but there's so much material on the economics of climate change which is free and which I haven't found time to read!

Which brings me to the second part of this blog - and I'll admit this is essentially a rant prompted by being asked to pay for something I'm used to getting for free.

There's been some interesting articles and discussions recently on think tanks in Australia and how political groups sell their policy ideas. The gist of these has been that progressive groups and think tanks in Australia need to do better at selling their ideas.

I don't know how many people will read the Australia Institute paper for $21. I suspect not a whole lot. I don't know how many people would read it if it was free - but my guess would be substantially more. Obviously TAI needs to raise money to fund its works, but my question to TAI, the Climate Action Network, the big green groups and other sympathetic business and lobby groups is this: If this report makes a useful contribution to the Australian climate change policy debate, shouldn't you be trying to get it maximum exposure? Surely someone can commission or sponsor TAI to produce reports like this and make them available for free? I could be wrong, but I suspect a few thousand dollars would raise more money for TAI than they'll get from selling copies of the report for $21 each.

The press release has been picked up by some of the media, which perhaps is the main thing, but if you want to influence the debate I would have thought you'd want your primary source as widely read as possible.

Friday, May 12, 2006

The economics of biofuels

The Wall Street Journal yesterday had an excellent article on the technological and economic prospects of biofuels. At today's oil prices, a number of biofuel technologies are competitive with oil.

The article suggests that biofuels could replace about 10 - 20% of US oil needs in the next couple of decades - a modest but still important contribution.

The article is subscirbers-only but luckily for us the Ecological Economics Blog has reprinted some of the really interesting bits.

Thursday, May 11, 2006

Water, water everywhere

There’s been a flood of news stories about water in Australia in the past few days. The federal budget has dedicated $500 million to assist the Murray-Darling basin, there’s been debate about a new large dam in Queensland, and changes to Canberra’s water management regime.

The NSW government has also been selling its new Metropolitan Water Plan, with the announcement of two new water recycling plants and the opening of water recycling in NSW to competition.

One new water recycling plant, to be built in western Sydney, will treat waste water from sewage treatment plants and use it for irrigation, environmental flows and dual reticulation use in new housing estates. The proposed plant will apparently be five times bigger than the recycling plant at Rouse Hill, which is currently Australia's largest residential recycling project. The other will, interestingly, be built in Kurnell (where the desalinisation plant was to be built) and supply recycled water for industrial uses on the Kurnell peninsula.

The other ‘announcement’ is that the metropolitan water industry in NSW will be opened up to competition to try to encourage water recycling. This was actually originally announced back in December following an inquiry into water and wastewater in Sydney (good summary here) but the Government has now released new draft rules which will bring the changes into effect. The new rules for water supply and treating waste water will take the current duopoly away from Sydney Water and Hunter Water. Private competitors will have access to pipes mains and sewers to treat and supply recycled water. The result should be cheaper industrial water for business and less consumption of drinking water by industrial users.

I’d welcome comments from anyone who knows a bit more about this area, but it seems to me that these are very positive developments. It seems sensible to open water supply infrastructure not only to users of water but also to potential recyclers and suppliers of water – in the same way that third parties have access to the electricity grid to supply electricity.

The announcements over the last few months of ‘newly discovered’ groundwater supplies and the tapping of deep water in Sydney’s dams has given Sydney some breathing space for its drinking water supply. This means that we can avoid the excessively expensive, energy intensive and environmentally damaging option of a desalinisation plant. But we should use this breathing space to develop water (and stormwater) recycling and water saving measures to ensure that desalinisation doesn’t return to the agenda.

Monday, May 08, 2006

The peak oil transition: difficult but not deadly

There's an excellent article from the Economist on 'peak oil' reprinted at the Ecological Economics Blog.

The gist is that the peak is coming, but not here yet, and that it should be a fairly slow process rather than a crash: oil will become gradually more and more expensive as existing reserves slowly decline and become more expensive to extract. This means that adjustments, while not being easy, should be smooth: peak oil shouldn't create economic chaos.

What are those adjustments? As the price of oil rises, new, more expensive oil sources (eg, tar sands) will become economic, as will alternative fuel sources such as biofuels. On the demand side, more energy efficient technologies and practices will cushion some of the blow.

The ethics, politics and economics of climate change

I have a concern that as environmentalists operating in a capitalist system and a very pro-market political environment, we sometimes tend to tack rather half-baked business arguments onto ethical arguments. We say ‘You should do this, it’s good for the environment. Oh, and it will also save you money’, but we don’t necessarily think through the second part of our claim.

I see this most often in climate change debates. People say things like "It is (economically) crazy for Australia to continue to rely on fossil fuels / have such high per capita emissions / refuse to ratify the Kyoto protocol when climate change will decimate the Great Barrier Reef / Australia’s agricultural industries". I disagree. It is unethical and immoral for a small country like Australia to emit disproportionately high levels of greenhouse gases when climate change will cause such huge global problems. It is hypocritical for a country like Australia to say it won’t agree to binding targets until developing countries with much, much lower per capita emissions also agree to reduce their emissions. And it is politically unwise to white-ant international solutions like Kyoto when Australia has so much to lose from climate change and needs international co-operation. But it’s not economically crazy to continue to emit high levels of greenhouse gases.

The reason is simple: this is a global issue of which Australia presents about 1.5% of the problem (ie, emissions). We capture the full benefit of mining and burning fossil fuels here and now, while the cost in terms of climate change is spread throughout the world and over the coming centuries. On the flipside, if we decided unilaterally to, say, halve our greenhouse gas emissions, we’d face the cost of that, while making very little difference to scale of the problem in the coming decades.

Now please don’t misunderstand my argument. I’m not saying we shouldn’t unilaterally cut our emissions. On the contrary, I believe we should – for moral, ethical and political reasons. In my view, these massively outweigh the short-term economic considerations. (I also believe it would ultimately and indirectly be in Australia’s economic interests, because the enhanced credibility we’d gain by taking a principled stand will assist our ability to pursue international solutions to get other countries to reduce their emissions, and because reducing our emissions will have some spin-off economic benefits that mean it won’t be as expensive as we think). But it is economically naïve to suggest that there’s a direct and immediate economic benefit to Australia from reducing its greenhouse emissions. There isn’t.

That isn’t to suggest that environmental advocates should shy away from economic arguments. The head-in-the-sand crowd drastically overstates the costs of doing something about climate change and ignores the spin-off economic benefits. It’s our job to point out where they’re wrong. But let’s not pretend that environmental solutions are always win-win-win. They usually involve trade-offs.

Environmental advocates have a responsibility to present the ethical, moral, political and economic arguments for improving our economic performance. But we should also recognise when one of those arguments is weak. In my opinion, some of the purely economic arguments for reducing emissions – at a national level – are weak. We should recognise that, and present the other arguments (including the argument that narrow economic self-interest shouldn’t always win), rather than pretending that there’s no debate. After all, the other arguments are overwhelmingly in favour of acting now and acting decisively.

Thursday, May 04, 2006

What does sustainability mean to you?

If you live in NSW and have an opinion that you can express in 50 words or less, go here and win some quite cool prizes.

More on fuel prices

Yesterday I briefly adverted to the political realities that make environment groups hesitant to call for tax increases on fuel. Those realities are highlighted in this story from the US:

NPR's Morning Edition had an interesting story this morning ("High Gas Prices Quietly Welcomed by Environmentalists") about whether gasoline consumption can be better curbed through regulation or through high prices (particularly a tax). Economists feel that gasoline prices would need to double and remain there (i.e. $7-8/gallon) before behavior would really change, and advocate a gas tax to get us there. The externalities (accidents, smog, global warming, etc.) are simply not reflected in the current price of gasoline. Environmentalists, however, feel that a gas tax is a complete political dead-horse, fearing that it would be extremely unpopular with most Americans, and advocated regulations...

Wednesday, May 03, 2006

High petrol prices are not such a bad thing

The teeth-gnashing and hand-wringing about high petrol prices hasn’t been quite as intense here as it has in the US lately, nor the inevitable calls for the government to ‘do something’ about the problem. Still, it’s been annoying.

So it’s refreshing to see a Ross Gittins column in today’s Sydney Morning Herald putting forward an economic reality-check:

In a market system, a rise in the price of such a commodity prompts a change in behaviour. It increases supply by encouraging exploration for new sources, makes formerly uneconomic oilfields profitable and encourages the development of substitute fuels. At the same time, it reduces demand by encouraging consumers to use petrol more economically and search for cheaper substitutes. Put this reduction in demand together with the increase in supply and you see that a rise in prices should lead to a fall in prices. So allowing retail petrol prices to move in response to market forces is the best way to minimise the long-term rise in prices likely to come from the developing world's increasing demand for oil.

There's evidence that motorists really are changing their behaviour in response to the higher prices of the past year or two. Despite the continuing growth in our economy, the quantity of petrol sold in Australia last year fell by 8 per cent. In the purchasing of new cars there's a marked swing away from four-wheel-drives and other gas-guzzlers and towards smaller cars. There are even signs of a modest switch back to travel by train and bus.

The column also makes the climate change / petrol price link:

With the evidence of global warming getting stronger, we need to be limiting our use of petrol and other fossil fuels in the interests of the environment. So, if anything, the tax on petrol needs to be higher, not lower. The recent report on international tax comparisons showed that, in the December quarter of last year, we had the third-lowest level of taxation on unleaded petrol among the 30 members of the Organisation for Economic Co-operation and Development - 49 cents a litre compared with the average of $1.15 a litre. That gap is likely to continue widening because of John Howard's decision to abandon the annual indexation of the excise on petrol in 2001.
The column then takes a pot shot at 'politicians and greenies':

It really is remarkable, the way we can have our regular bouts of indignation over the price of petrol without anyone thinking it relevant to mention greenhouse gases. Politicians and greenies who profess to be terribly concerned about our failure to sign the Kyoto Protocol keep their mouths firmly buttoned.
Are you kidding? People make the link all the time - any time anyone mentions a carbon tax, they're talking about higher fuel prices to reduce greenhouse emissions. What politicians and green groups don’t do is say explicitly "High petrol prices are good and they should be higher" because that would leave them open to easy pot shots from their opponents ("This shows how out of touch X is. Families are hurting and all X can say is that it’s a good thing") and they’re not that stupid. What they do say is things like we need to remove subsidies on motor vehicles, we need to provide better public transport options, we need better town planning, we need to promote the development of alternative fuels, etc.

Of course it’s easier for journalists and bloggers to be less circumspect and I think that if Gittins looked at the discussions at Grist, the Oil Drum, Environmental Economics blog or pretty much any link from this blog, he’d see that people’s mouths are anything but buttoned on the fuel price and climate change issue.