Thursday, August 20, 2009

Renewable energy target expected to pass today

Some good news following last week's defeat in the Senate of the Australian emissions trading scheme. The Senate is voting today on the big increase in the mandatory renewable energy target (MRET), and it's expected to pass after the government and opposition reportedly reached a compromise yesterday.
The target - 20% of electricity from renewable sources by 2020 - wasn't in doubt, but there was debate over the assistance to be given to electricity-intensive induestries.

The MRET was originally included as part of the CPRS (emissions trading) legislation, but the government agreed to split it as it was clear that the MRET could be passed and there was no use condemning it to defeat by insisting on it being a joblot with the CPRS.

This is good news. The new target is a big increase from the previous one and this gives some certainty to investors in renewable energy at a time where there's still considerable uncertainty about the timing and form of the emissions trading scheme. (And depending on what happens with the CPRS, it's possible that MRET, not emissions trading, will be the real driver of emissions reductions for Australia over the next decade).

Update: The scheme has indeed now passed. Also, Sam Wylie at Core Econ has a nice summary of the scheme.

Monday, August 17, 2009

Sustainable House Day - 13 September

13 September is Sustainable House Day. Greenies around Australia open their homes and share their stories and tips for making your home greener. Learn and be inspired.

Friday, August 14, 2009

Game theory and Kyoto negotiations

I'm not a huge fan of simple game theory analyses of international climate change negotiations (even though I've been guilty of using them myself) because they tend to model each country as being an individual acting in its own interests, when the political reality is rather more complicated.

For example, simple prisoner's dilemma game theory would predict that no countries would take unilateral action on climate because it's not in their national self-interest - the only action would come in the form of a comprehensive international treaty. But domestic politics - for better or worse - often produces results that don't accord with national self-interest.

Anyway, Peter Wood has taken a neat look at the US position in international climate negotiations through a game theory lens. He incorporates domestic politics and looks at it as a 2-stage game where the need to get agreement in the Senate once negotiators get home will have a big impact on what those negotiators will want to get at Copenhagen. It's common sense really but interesting all the same.

Australia's Kyoto negotiation team prepares for Copenhagen (Dilbert - Scott Adams)

Thursday, August 13, 2009

Wind power: plus ca change

Some common sense observations about wind power's potential in the UK from The Times: it deserves attention as fossil fuels diminish, it has low capital costs, it's plentiful, it's intermittent and there are challenges with power storage, but this is only a problem if it's intended as baseload supply.
In view of our diminishing returns of coal and petroleum, the utilization of wind-power deserves careful attention. The available water power in this country is very limited, and the development of it generally requires so great a capital outlay that the standing charges more than equal the cost of the coal required to produce the same results by means of gas or steam...

Wind-power, on the other hand, is almost unlimited, and the capital outlay for its development compares favourably with that required for gas or steam. The intermittent and varying results obtained from wind-mills, however, confine their usefulness to industries in which the storage of power can be simply effected, and this feature is always met with in some form or other...

It is only when windmills become are used for providing a constant supply of electric current that storage becomes costly and troublesome, and conditions must be favourable to enable wind to compete successfully with other sources of power in this case.

The punchline? It was written 100 years ago - 1909.

Wednesday, August 12, 2009

Making cycling safer: The Idaho Stop Law

One area where I think public policy could really help sustainability in Australian cities is by making cycling an easier transport choice. Sydney strikes me as crying out for measures to encourage cycling. Cycling could really be a big part of the trasport mix here - yes some of the city is hilly but you've got probably 3 million people living within very easy cycling distance of the CBD. But it's just not a cycling friendly city.

One very simple measure I've just heard about is the Idaho Stop Law, in place in Idaho since 1982. Quite simply, cyclists can treat stop signs as give way signs (they must give way but needn't come to a complete stop) and red lights as stop signs (they must stop but can then proceed if nothing's coming).

In the first year it was introduced in Idaho, cycling injuries apparently dropped 14.5%. Michael Giberson at Knowledge Problem suggests part of the reason this law improves safety is that it reflects what many cyclists do anyway and so it aligns the expectations of cyclists and drivers.

Photo credit: Infidelic Flickr stream (creative commons licence)

Tuesday, August 11, 2009

The oppostion's rival carbon plan: greener, cheaper, smarter?

Malcolm Turnbull yesterday released an alternative carbon plan: "greener, cheaper, smarter". Sounds great. And finally some opposition policy on climate change. Well, not quite. The plan is a report by economic consultants 'Frontier Economics' commissioned by the oppostion and independent Senator Nic Xenophon. And it seems that it's largely a rehash of previous submissions that Frontier made both to the Garnaut review and government's green paper, on behalf of electricity generators.

So in terms of opposition policy announcements, this one's a whimper rather than a bang. They could have pretty much randomly selected any submission made to the Garnaut review or green paper and said "Here's a great idea, why doesn't the government negotiate with us and listen to alternative views like this? Not that it's Coalition policy. We haven't decided what we think of this yet".

But it promises really big things: twice the emissions reduction of the government's proposed carbon pollution reduction scheme at less than two-thirds the cost. Wow, the CPRS must have left some whopping great low-hanging fruit unpicked for those numbers to stack up.

Anyway, I spent last night reading it - badly, badly written as it is. There's 3 hours of my life I won't get back. At least some of the graphs were nice.

When people that really understand the economic modelling of emissions trading costs (not me) get to the bottom of this report I expect it to be thoroughly discredited or else I will learn some useful economic lessons - because I could not for the life of me see how the savings can be achieved. Because this scheme is not radically different to the CPRS; it's a minor tweak.

Very briefly, the idea is for special treatment of the electricity sector - because that's the sector affected most intensely by emissions trading. So instead of requiring electricity generators to have credits for all their emissions, they'd only require them for emissions above a 'best practice' baseline. That baseline would be progressively tightened, so rather than an immediate big electricity price rise, you get a gradual rise. As a result you get less revenue from auctioning permits but you also spend less compensating households and businesses for higher electricity prices. You also reduce the incentive for consumers to save electricity, but the report reckons this won't make much difference because consumers can only respond slowly to electricity price rises anyway: people won't go out and buy LED downlights and turn applicances off standby overnight.

All this is fine as far as it goes, but where do the massively higher emissions reductions at a massively lower cost come from? And the report's 86 pages are pretty hazy on this.

It's not because these tweaks makes it cheaper for firms and households to reduce emissions - rather, according to the report, it's "mostly due to a reduction in the economic distortions arising from the Government's revenue churning" when the CPRS means higher electricity prices, compensated for by other measures (eg, lower income tax). If you reduce the impact on electricity prices, much of that compensation isn't needed.

Well colour me sceptical. Nowhere could I see in the report an explanation of how collecting revenue from permits and using that revenue to reduce other taxes and increase welfare payments costs 1.5 times as much as keeping electricity prices low and collecting the revenue from existing sources instead. Why exactly is taxing electricity so wildly inefficient but taxing incomes just fine?

And how does shielding electricity from the full effects of the scheme allow us to double our target? Well, again, the report hints at this without really explaining it. What the report says is that international carbon trading means that the carbon price in Australia is the same regardless of our domestic target. We're a small country - we don't affect the international carbon price. Fair enough.

So, just to pick a round number out of the air, assume we emit a billion tonnes of carbon a year and the government wants to reduce that by 5% (down to 950 million tonnes). Assume also that the international carbon price is $20 a tonne and we can trade internationally.

So the government issues a 950 million permits. Let's say the government gives half of them away to industry and auctions or sells the other half at the international carbon price of $20. Each firm will reduce emissions where that will cost them less than $20 a tonne and will buy permits at $20 for emissions that it would cost them more than $20 a tonne to reduce. The government gets nothing for the half it gives away and gets $9.5 billion from the half it sells / auctions (475 million @ $20). Industry pays $9.5 billion plus the costs of reducing emissions that are cheaper than $20 a tonne to reduce.

Now, suggests Frontier, assume we double the target for reducing emissions from 5% to 10%. So instead of issuing 950 million permits, the government issues only 900 million. But the international carbon price stays the same, since Australia's decisions don't affect it. Now, each firm will still reduce emissions where that will cost them less than $20 a tonne and will buy permits at $20 for emissions that it would cost them more than $20 a tonne to reduce. So the cost to each firm is still the same. But now since the Australian government has issues fewer permits, it gets less revenue and indsutry buys them instead, at the same price, from overseas. The government now gives half away and sells the other half for $9 billion. Industry pays $9 billion to the government, $500 million for overseas permits and still pays the same to reduce emissions.

In effect, Australia's decision to lower its target is just the decision of a small supplier on a world market to supply less of a commodity - the world price doesn't change, the supplier just makes less money and other suppliers make more.

All this is fine, but the result is that the government gets $500 million less in revenue and that money instead goes overseas. That's $500 million less that the government has to cushion the financial impact of the CPRS on households and businesses. Frontier's report accepts that but says it doesn't matter: "This effectively represents a transfer from the Government to international markets, though in practice the magnitude of this transfer will be relatively small (see discussion later)". Unfortunately, there's no discussion later that I could find and I don't see why this should be small at all. In fact the transfer represents the total of any shift in the target multiplied by the carbon price. In other words, the government pays 100% of the cost of meeting any additional target by buying foreign permits.

Frontier does not explain the following, and to me it just doesn't seem explainable: Why does a reduction in emissions of 5%, spread over a range of industries, sectors, government and households, and with each of these groups making adjustments to the way they do things that reduce the costs they face, impose a huge burden on the economy - while reductions of a further 5% paid for completely by government buying permit, impose costs of a "relatively small" magnitude. It just doesn't make sense.

Now maybe I've missed something here but I've read the report and I'm still very unsure of how Frontier's proposed tweaks to the CPRS save money or allow for increased targets.

For the opposition to present this as an alternative to the CPRS strikes me as another big non-contribution by the opposition toe the climate debate.

Elsewhere: Joshua Gans (and more from Joshua), Peter Wood, Harry Clarke, Robert Merkel, Ben Eltham.

Monday, August 10, 2009

Idle thoughts

An article in the August issue of Energy Policy suggests that people idling their cars (leaving the motor running when stopped) accounts for a surprising and mostly unnecessary 1.6% of US greenhouse gas emissions.

Drivers who were surveyed on average thought that a car could be idle for almost 4 minutes before it was better to turn the engine off (in fact, it's more like 10 seconds).

There are lots of resources out there on how to reduce your fuel consumption (in the US they call it 'hypermiling') - and turning your engine off when stopped for a while has to be one of the easiest.

The NRMA reckons that if you're stopped in traffic for any length of time you should turn the key to the 'accessory' position (not completely off) and shift automatic transmission to park or neutral. This way, when the traffic starts moving again, the engine starts straight away. Vehicles fitted with this feature as standard typically reduce fuel consumption in urban areas by up to 15% (see its PDF petrol saving tips).

Sunday, August 09, 2009

What I've been up to...

Hi all,

Well Oikos is back. Welcome readers old and new!

Oikos is a blog I started in November 2005, while enrolled in a Masters in environmental economics and not long after moving from an environment NGO to a government environmental agency.

The blog's focus is at the intersection of the environment and economics. Both ecology and economics derive from the Greek oikos, meaning household.

I'll mostly be looking at environmental policy on Oikos for now, with environmental economics, environmental markets and climate change a major focus. I'll also talk a bit about related topics I'm interested in (eg, prediction markets and behavioural economics).

2009's been a busy year so far. Work has certainly had an environmental markets focus, with involvement in establishing a market for biodiversity offsets. I've finished my last coursework subject at uni (evaluating impacts of policies using econometric and experimental methods) and my thesis (relating to carbon trading and prediction markets) while kind of stalled right now, is almost finished. And I've been busy organising my wedding too (the big day's next Jan)!

Anyway, I feel it's time to get Oikos back up and running and continue the environmental policy debate. Please join me!