The economic case for reducing emissions

As I’ve discussed before, debates about reducing greenhouse gas emissions in Australia often pit ethical arguments in favour of reducing emissions against economic arguments that support doing nothing.

However, increasingly, there are good national economic reasons for taking strong efforts to start reducing our emissions.

In April, the Australian Business Roundtable on Climate Change put forward ‘The Business Case for Early Action’ on emissions. The Roundtable is a group of large Australian companies representing a cross-section of the Australian economy (including financial, energy and manufacturing companies). A group of businesses asking to be regulated by government? Asking for government to cap or tax their emissions? Why?

The same thing has been happening overseas. Also in April, CEOs of large energy and other companies such as General Electric, Wal-Mart, Shell and Duke Energy made submissions to a US Senate Committee saying they would welcome or accept mandatory caps on their emissions.

The Australian State and Territory governments last week released a very detailed discussion paper proposing a national emissions trading scheme. It also outlines some of the economic advantages of instituting a national scheme that provides some long-term guidance on what Australia’s climate change policy will be – whether by a national trading scheme, a carbon tax, or a long-term emissions reduction target.

So, here are some of the economic benefits of instituting a national scheme to reduce emissions:

Certainty is important for business

In the energy sector in particular, decisions often have long lead-times and long pay-off times. It can take a decade from the decision to build a large power station to the time it becomes operational and the station can operate for half a century.

Not knowing what rules will apply to greenhouse gas emissions in the future significantly increases the risks for investors, who are concerned about the risks of very expensive, long-lived assets. The current atmosphere of uncertainty can cause delays in investment until the policy position is clear. If this situation continues, it could mean higher electricity prices and less reliable supply than if the rules were clearly established in advance.

(NETS Discussion paper)

Delaying action could create economic shocks

The Roundtable’s ‘Business Case’ modelled the impacts of taking sustained action, starting in 2013, achieving 60% reductions by 2050 and also the impacts of the same reductions but starting in 2020. Under the ‘early action’ pathway, economic growth and employment growth would be higher, and the risk of recession and electricity prices lower than the ‘delayed action’ pathway. Of course, you can argue that the ‘no action’ pathway is best of all, but in a world where action is more and more likely to be demanded, adopting a ‘no action’ approach now increases the risk that the delayed action approach will be forced on us.

It’s likely that at some stage in the next few decades there will be a strong response (globally and/or domestically) and the ‘price’ of emissions may jump – perhaps strongly and suddenly. Taking action now reduces the risk of a shock in the future.

Encouraging action by other countries

Climate change will have substantial economic impacts on Australia. It’s in our interests that the world takes effective action to reduce its impacts. Taking active measures now gives us a more credible bargaining position later. Taking measures that help develop effective commercial technologies and institutions to reduce emissions will also make it easier for other countries (especially developing countries) to reduce their emissions. It also makes it more difficult for leaders of other countries to justify a lack of action on the basis that heavy emitters such as Australia are not taking action.

Encouraging commercialisation of technology

Australia is committing considerable funding to the politically uncontroversial route of supporting emissions reduction technologies. To get a return on these investments (in an environmental as well as economic sense), they need to be commercialised and adopted by industry. That is unlikely to happen (domestically at least) in the absence of measures that put a price on emissions and hence provide an incentive to adopt these technologies.

Until we have a strong international agreement to reduce global emissions, the economics for going it alone with a domestic scheme are unlikely to be compelling. But it is important to acknowledge that there are economic benefits of a strong domestic reductions scheme, the economic costs are more modest than is often assumed and there are strong ethical and political reasons for taking a national stand on this issue. Australia’s environment and economy are going to be heavily affected by climate change. In coming years, Australia may be pleading with other countries to take a stronger stand. We’ll be in a better position if we’ve taken a stand ourselves.

tags: emissions+trading climate+change global+warming environmental+economics

An inconvenient truth: Coming soon to a cinema near you

Al Gore's climate change movie An Inconvenient Truth opens in cinemas across Australia on 15 September.

In the meantime, WWF is hosting an advanced screening in Sydney at Dendy Opera Quays on Wednesday 6 September.

For more info about the film check out the Inconvenient Truth website.

(Thanks to Vincenze for the heads-up.)


Update 9/11/06: I saw the film and my thoughts are here: An Inconvenient Truth: My thoughts


technorati: an+inconvenient+truth inconvenient+truth al+gore climate+change global+warming

Australian economics blogs

There's some excellent economics blogs in Australia, from academics and others.

Academics

Harry Clarke is Professor of Economics at La Trobe Uni. His blog examines environmental and urban transport economics and the economics of public health - in particular, alcohol, tobacco and other drugs.

Joshua Gans is Professor of Management (Information Economics) at Melbourne Business School (Uni of Melbourne). His blog mainly looks at economics of technology, strategy and public policy.

Andrew Leigh is an economics lecturer at the ANU's Research School of Social Sciences in Canberra. His blog focusses on public policy economics.

John Quiggin, an academic economist at the University of Queensland, is a long-time and well-known Australian blogger. He approaches economics from a 'social-democratic perspective' so his stuff is a bit more lefty than the usual neoclassical fare.

Other economists

Institutional economics is a blog by Stephen Kirchner, a financial market economist based in Sydney. It has a macro and international focus, looking at economies, capital markets, monetary policy and similar wacky stuff.

Others

Catallaxy and Club Troppo I guess you'd describe as broadly right-of-centre political group blogs but they have some good economic pieces in between the usual political, um, discourse.


technorati tags: economic-blogs economics-blogs australian-economic-blogs australian-economics economics

Why won't someone do something about fuel prices?

Australia always seems to be a bit behind the US and so it is that the frantic whingeing about fuel prices has reached our shores.

After seeing our venerable politicians and wise TV commentators going on and on about this over the past few days (Beazley reckons Howard has 'taken his eye off the ball' in letting fuel prices get so high) and getting that ridiculous chain email "Boycott Mobil, they'll HAVE to lower their petrol prices, then their competitors will have to lower theirs too", I thought I'd post something on this topic this morning. Then I noticed that the Sydney Morning Herald had done it for me with two good articles.

Brendan Bouffler in Heckler presents a blunt demand and supply analysis:

The rise in the price of fuel seems to be a worldwide phenomenon driven by a worldwide increase in demand for oil products. Think: China gets the FJ Holden craze.

But given there is a somewhat fixed supply of oil, it pretty much follows (I learned about this "supply-and-demand" thing at high school) that the price goes up when people want to buy more of the stuff than there is to sell. Think: bananas.

He thus suggests possible demand-side and supply-side solutions:

Hence the best collective action we can take to bring prices down is to buy less of the stuff. Take the bus once a week, or walk to the shops every now and again instead of driving. God forbid, ride a bike to work if you don't live in Dee Why. If you do, car pool...

If you want supply to increase (to satisfy your apparently unrelenting demand), you probably only have two choices:
- Write to councillors advocating that more oil refineries be constructed in your suburb or
- invade OPEC nations, and Russia.

Ross Gittins weighs in too:

ONE thing I hate about politicians is the way they pretend to indulge us rather than level with us. They rarely tell us the unvarnished truth about what problems they can fix and what they can't, preferring to string us along. They act as though they can fix everything, which encourages a culture of complaint and a focus on the alleviation of symptoms rather than a search for fundamental solutions.

Take all the whingeing about the price of petrol. No pollie's prepared to tell us that since the problem is a global shortage of oil, the rise in price is a healthy development because, by encouraging both producers and consumers to adjust their behaviour accordingly, it offers the best solution to the problem.

He also makes some good observations about the related issue of traffic congestion:

...traffic congestion isn't the problem. Actually, it's the solution to the problem - the only solution the public finds acceptable.

The real problem is that we all want to live together in big cities and travel to and from work or school at pretty much the same time of day. Now, it makes economic sense for us to live in cities and it makes social as well as economic sense for us to want to work when others are working.

But the problem is greatly compounded by our desire to live in low-density suburbs and to travel in our own cars - by ourselves.

So the demand for road space at peak times of the day greatly exceeds the supply of space available. The result is traffic congestion, which is merely a way of rationing the space on a first come, first served basis. It's a queue, in other words...

When demand exceeds supply we have to ration. And when you won't ration by price (which is what economists advocate) you have to ration by queue. So congestion isn't the problem, it's the solution to the problem - the only solution we're prepared to accept, our unending complaints notwithstanding.

I think some things are best handled by governments and some things left to markets. But if there's anything markets are good at, and governments bad at, it would have to be coming up with solutions to high energy prices.


technorati: fuel+prices petrol+prices supply+and+demand traffic+congestion ross+gittins

Environmental economics blogs

I'm updating my list of links to other blogs and thought I'd take the opportunity to highlight some that I enjoy.

Today: environmental economics blogs. When I started blogging only late last year, there were only a couple of blogs devoted to this area (as far as I'm aware). Now there's a handful.

Environmental Economics
These guys have the self-confidence to call their blog simply 'Environmental Economics', and rightly so. It's authored by US academic environmental economists John Whitehead from Appalachian State University and Tim Haab from Ohio State University (with contributions from other US economists) and provides relevant, regular and very readable articles.

Ecological Economics
I'm an occasional contributor to this international group blog with the aim of providing a somewhat greener alternative to the mainstream (and, dare I say, conservative) Environmental Economics.

Environmental and Urban Economics
A more serious academic-style blog by Matthew Kahn of Tufts University (Massachusetts), it contains the full text of interesting articles with some brief commentary.

The Commons
Devoted to 'free market environmentalism', this blog is a bit hit-and-miss. The 'property rights are the answer to everything' perspective is interesting but the posts are more likely to be rants about how global warming is a myth than discussions of markets, property rights and environmental protection.

Robert Metcalfe (UK)
Robert is a student at London School of Economics and provides a UK perspective on environmental economic issues.

Brad Ewing (Ohio)
Brad is an economics and ecology student at Ohio State University. He posts some interesting articles and has a useful list of resources.

Conservation Finance
Lots of food for thought on the 'business' of biodiversity conservation.

Harry Clarke
I'm going to put Harry's blog 'Kalimna' in the 'Australian economics blogs' category, but worth mentioning here as he has a focus on environmental (and urban transport) economics.

Tomorrow: Australian economics blogs.


technorati: environmental+economics

The rise of the electric car?

Cars have transformed history, lives and cities in the past century. Cars have allowed people to travel further, more easily, comfortably and cheaply than previous modes of transport. They have also transformed landscapes, with substantial amounts of land devoted to roads and cities that are larger and more spread-out. Cars inspire passion. The fact that they are inherently individualistic - you travel in them alone or with your family and you can buy one that expresses your tastes and tells people who you think you are – I think does a lot to polarise opinions about them. They are often portrayed as being symbolic of freedom – go where you want to go, but to detractors they can represent a selfish individualism where people enter little metal boxes and disengage with their communities.

The connections between cars and other modes of transport, urban planning, economics, productivity and the environment are strong and complicated. Posts about urban transport policy invariably elicit strong debates on this blog. But some environmental impacts of cars are relatively straightforward, In particular, they are large contributors to urban air and noise pollution and global greenhouse gas emissions.

Electric cars promise to reduce some of these environmental impacts. They can be quieter, more efficient and less polluting. And with high petroleum prices, they have been attracting attention lately.

Pure electric cars run on a rechargeable battery than can be recharged just by plugging them into a power point in your garage. (note we’re not talking here about hybrids – they run on petrol but have a battery that’s recharged from the engine and from braking and they can be thought of just as a much more efficient petrol vehicle). From a consumer point of view, electric powered cars have two main advantages: they’re pretty cheap and they have a much lower running cost (about 1 – 2 cents per kilometre, less than 20% of the cost of petrol vehicles). But they have had two major limitations: low range between recharges and low speed. They’ve been kind of souped-up golf carts.

But new models can go further and longer between recharges and can achieve much higher speeds. USA Today earlier this week looked at two models on the US market: a US$100,000 electric "high-performance" sports car and a US$9,000 "city car".

The sports car version has a range of over 400km (which would allow an easy Canberra – Sydney drive with some detours and a margin of error) and a top speed of over 200km an hour which is a great deal more than anyone should be thinking about doing anyway. The city car has a range of just over 60km and a top speed of just over 60km/hr. Other models to hit the market soon start at US$5,000 for a 40km/h 2-seater with a 50 km range. The technology is advancing rapidly, with speed and range increasing.

What about the environmental impacts?

The biggest environmental benefits compared to regular petrol cars is in local noise and air pollution. These cars are much quieter and cause no particulate pollution in the city because they run on electricity. Of course, there’s air pollution created in generating the electricity that they run on (particularly in Australia where it’s likely to be generated by coal) but there’s still a substantial net benefit in terms of health etc because Australia’s power plants tend to be located in sparsely populated areas and where the particulates disperse before damaging people’s health (as opposed to cities where people breathe within metres of a car’s exhaust).

In terms of greenhouse emissions, electricity’s no better than petrol (unless it’s from low-emission sources such as wind or solar) so electric cars are only beneficial if they’re much more efficient (or if consumers choose to power them from ‘green’ electricity – which I guess is a real possibility for the segment of the market who’d be interested in these vehicles).

So are they much more efficient?

Well yes they are – much more. The typical electric vehicle today uses 0.3 to 0.5 kilowatt-hours per mile (0.2–0.3 kWh/km) while the average car in the US is equivalent to 1.58 kilowatt-hours per mile.

But will people buy these cars? And if so, who?

Well it doesn’t take a marketing genius to figure out people aren’t going to sell their Commodores and buy a zippy electric car that can do 60km at 60kph before the battery dies. But they’re cheap and getting cheaper and really cheap to run. So I can imagine a family getting one as their second car to drive the kids to school and soccer, go to the supermarket, maybe drive to work. The sportscars are going to have a limited market, but they’re pretty cool. They accelerate and handle better than a petrol car and there’s got to be some status in having an electric car, particularly if you sign up to green power with your power company. Very green chic, very sci fi - or something. If only DeLorean made one. That would be cool.

technorati: electric+car

National Tree Day

This Sunday 30 July is National Tree Day (and today is Schools' Tree Day). Vincenze has some ideas.

Carbon tax: the cheapest way to reduce greenhouse emissions

Tim Colebatch has a good opinion piece in this morning's Age, advocating a carbon tax for Australia:

To be pragmatic and rational in this debate, the starting point is that if the scientists are right, then global warming implies colossal risks for mankind, and policies should actively try to minimise them.

Then the task is to achieve the most effective response at the minimum cost. Governments can help foster technology development, as the Howard and Bracks governments are doing - but the real job is to put in place a structure that will see those technologies used...

Suppose we test the technology, we find it works, but (inevitably) at a higher cost than doing things the old way. What happens then?

With the policies we have now, nothing would happen. Companies will not make philanthropic gestures by choosing new expensive technologies over old cheap ones. Without a price mechanism to give firms an incentive to choose (and retrofit) new low-emission technologies, they won't be used.

By harnessing market forces, a broad carbon tax gives you more bang for your buck than alternative policies: it's cheaper, more effective and - I would argue - fairer.

It's cheaper than, say, subsidising renewable energy or research into 'clean coal' because, by simply setting a price on carbon emissions and letting industry take whatever measures they like to respond to that price incentive, industry will take the cheapest measures. As Colebatch says:

[A report commisioned by the Victorian government] ranked renewable energy as the most expensive option apart from carbon capture and storage(!). Far more cost-effective are improving the efficiency of energy use, making existing generators more energy-efficient, switching from coal to gas, and shutting down heavily polluting plants (such as Hazelwood) to install energy-efficient ones.

Instead, we have Hazelwood given an extended lease of life, with no retrofit to use clean coal technologies, while Victorians will subsidise the development of a wind industry here.

It's more effective because you're providing an incentive to reduce emissions whatever their source. Setting a minimum target for the use of renewable energy is good but promoting renewable energy is only one part of the equation. Using our existing energy more efficiently is at least as important.

And it's fairer because it looks at all sources and equally penalises emissions from all industries. Rather than targeting renewables or coal, it provides a price incentive that applies to all energy sources and all energy uses.

Essentially it allows people to make their own choices about how best to reduce their emissions. If carbon is priced equally across different energy sources, sectors and industries, consumers and businesses can ultimately choose how to respond without the costs of those choices being distorted by different policies applied to different sectors.

New Australian environmental law blog: ozelaw

I've set up a new group blog dedicated to Australian environmental law, called ozelaw.

The aim of the ozelaw blog is to bring news, commentary and analysis on environmental law in Australia.

I've set up the ozelaw blog because there doesn't seem to be much in the way of online sources of up-to-date information and, in particular, discussion and comment on trends in Australian environmental law.

Hopefully the ozelaw blog will become a forum for those interested in environmental law and environmental policy in Australia to learn and share their thoughts and experience. Hopefully it will also be a useful resource for people looking for general information on Australian environmental law.

The blog is in its early days and we're just starting to get a few contributors together but there's a few posts up including one on Friday's decision by the Australian Federal Court to allow the Humane Society International to bring an action challenging Japanese whaling in Australia's Antarctic waters.

I don't intend to do much writing there as I'm already pretty busy with this blog, work and uni (and, you know, having a life and stuff). So hopefully the blog will gather some good contributors and some momentum of its own.

Anyway, if you're interested in environmental law, have a look.

Water trading is the new paradigm

Two news stories in the last 24 hours illustrate the extent to which water management issues in Australia are increasingly becoming the province of water trading markets rather than direct control and regulation by government.

In NSW, the government is achieving its environmental aims of returning environmental flows by purchasing these flows directly in the market:

The New South Wales Government has begun buying water from the Macquarie and Lachlan valleys to return to the Macquarie Marshes. The Riverbank program will see $105 million spent on buying back water from licence holders over the next four years to replenish the state's wetlands. Environment Minister Bob Debus will visit Dubbo today and says expressions of interest are being sought from licence holders wishing to sell their water.

Meanwhile in Victoria, farmers are complaining that water trading is "destroying local farms":

The Parliamentary Secretary responsible for water, Malcolm Turnbull, has met farmers in Shepparton. They have told him they cannot compete for local water which is being sent down the Murray to irrigate vineyards and almond farms, and that they enjoy tax breaks through managed investment schemes (MIS).

This second story illustrates one of the limitations of markets: as I’ve observed before in relation to water markets, they only deliver the most efficient allocation if the economic system in which they operate does not include other inefficiencies (such as unequal tax treatment). If that is not the case, introducing trading can actually lead to a less efficient allocation than before.

A global carbon tax?

Nobel Prize-winning economist Joseph Stiglitz has an article out today in which he:

1. suggests that the US is in breach of its World Trade Organisation (WTO) obligations by unfairly subsidising energy; and
2. proposes a global carbon tax as an alternative to the global emissions trading system in the Kyoto Protocol.

The article is summarised neatly in the Ecological Economics blog and by Harry Clarke and the WTO part of the argument is discussed (by me) in the ozelaw Australian environmental law blog, but the article itself is only 4 pages long so it’s worth reading in full.

The global carbon tax idea is not new but it’s nice to see its exposition by an economist with Stiglitz’s profile.

Peak Oil in Australia

ABC’s Four Corners program had an excellent story last night on Peak Oil: what flows from the fact that world oil production is peaking and that the ‘low hanging fruit’ of cheap and easily accessible oil is running out?

The main messages I took away:

• Global oil production will inevitably peak and start declining in the coming years or few decades at the most;
• There is still plenty of oil but what remains is getting more and more expensive to extract;
  Some of that increased expense will be offset by improving technologies as higher oil prices encourage investment in oil production;
• Oil consumption is rising;
• Oil prices will rise;
• Rising oil prices will make alternatives commercially viable. These alternatives include biofuels, tar shales and coal liquefaction (renewable energy and nuclear didn’t get much of a mention). These alternatives all have disadvantages, including serious environmental impacts.
• There is a substantial lead time in developing alternative liquid energy sources. This leads many analysts to fear that we won’t respond quickly enough to the peak oil problem, possibly leading to large and sudden price hikes, shortages and economic dislocations like those seen in the 1970s oil shocks, but potentially on a larger scale.
• Working on the demand side of the issue – ie, reducing our need for oil consumption through more efficient technologies and urban planning – is necessary to reduce the likelihood and severity of economic shocks.

After seeing some of the alternatives to oil such as oil sands / tar shales and coal liquefactions, and their destructive environmental impacts, I take David Roberts’ point that peak oil is not a silver bullet that will save us from global warming via reduced oil consumption. It’s probably more a crossroads, where we can choose a renewable-energy-dominated or a coal-dominated energy future. My guess is that we’ll muddle through with a bit of both – things won’t be as bad as we fear but nor will we grasp the opportunity to make much of a transition out of fossil fuels and into renewables.

Nevertheless, there’s certainly a lot of commonality to the peak oil and global warming issues. And I think that a carbon tax – which will encourage investment in energy efficiency and renewable energies – and discourage consumption of fossil fuels and greenhouse gas emissions – is looking more and more sensible from an energy security perspective as well as an environmental one. The single most effective way to position ourselves for a future where energy is more expensive must be to price it more appropriately now.

Back

I'm back from a relaxing week at the south coast of NSW where I managed to resist the temptation to turn on the laptop. Actually it wasn't very hard.

Anyway, the blog should return to its normal regularity in the next couple of days.

Environmental impact assessment: is it efficient?

For anyone who's still interested, some more thoughts on whether it's worthwhile to carry out environmental impact assessment for large projects that make a relatively minor contribution to a large problem...

Following last week's discussion on EIA, I think it’s useful to look at the economics of EIA, that is, compare the economic costs and benefits of assessing projects, granting or refusing consent and imposing conditions.

The costs are:

• the cost of the assessment process: the cost to the project proponent of engaging consultants to do an initial assessment of the environmental impact and prepare an environmental impact assessment; the cost to government of considering the impacts, making its own enquiries where necessary and making a decision about consent and conditions; and the cost to third parties of informing themselves about impacts and making submissions to government.
  
• the cost to the proponent of the project being refused or the cost of taking extra measures to comply with conditions of consent.

The benefits are the reduction in external environmental costs imposed on the community by the proposed development. Those benefits arise either because (in extreme cases) the development is refused consent or because conditions are imposed which ameliorate negative impacts of the development.

EIA is therefore efficient from a cost-benefit point of view when the negative externalities that are removed because of conditions (or consent being refused) are greater than the cost to the proponent of complying with the conditions plus the cost to government, the proponent and other interested parties of going through the EIA process.

The benefits are therefore likely to outweigh the costs when the negative impacts of the development are easily identified and can be reduced at a reasonable cost. The EIA process for the bald hills windfarm (see my earlier post) was a classic case where the EIA process could have been efficient but where the decision in my opinion was not. The relevant environmental impacts were the impacts on the orange-bellied parrot and could be estimated as the death of one bird on average every 109 years. I don’t know the cost of the assessment process but the cost of the decision was very substantial: the Minister refused consent to a substantial and otherwise commercially viable energy development. Whether the benefits of that decision outweigh the costs can be debated but, as Harry Clarke has pointed out, the costs of the decision are certainly far higher than the costs of imposing conditions on the development that could have had a far greater benefit for the survival of the parrot: the parrot can be bred in captivity and returned successfully into the wild at a quite modest cost: one that the windfarm could certainly have afforded. This measure could quite cheaply have benefited the parrot population by two or three individuals per year. Compare that to an expensive decision that benefits the population by, on average, one individual every 109 years.

When the environmental impact that you’re worried about is greenhouse emissions from downstream use of a product, I doubt that EIA is an efficient way to attempt to reduce those impacts. First, as discussed last time, the impacts from this particular development are difficult to assess so the assessment process is likely to be difficult and costly. Secondly, the conditions that can be imposed are unlikely to deal with the problem. The only substantive way to reduce emissions from burning the coal from a mine is not to mine it (other than – perhaps - placing some conditions on how it’s processed to, say, reduce the fuel’s moisture content). So the only effective decision the government can make is to approve or not approve the mine. Conditions about how the fuel is used etc really need to be placed on the user of the fuel. As discussed yesterday, since power stations can source their coal from anywhere, it is questionable whether refusing consent for a mine would reduce greenhouse emissions in any case.

Cumulative impacts

A closely related issue is that of ‘cumulative impacts’. This is the ‘death by a thousand cuts’ problem: each development has only a small, possibly trivial, impact on its own but collectively the impact is serious. Assessment of each project on its own fails to protect us from these serious cumulative impacts.

The solution, according to the applicants in the Isaac Plains case, is that the ‘cumulative impacts’ contributed to by a proposed development should be considered by the decision-maker. As I’ve discussed before, this is the basis on which the federal Environment Minister made a decision earlier this year to refuse consent to a windfarm: it would have an impact on the orange-bellied parrot that is trivial on its own. But the impact, in combination with existing and under-construction windfarms, was so serious that the proposed development should be refused: enough was enough and the Minister had to draw a line somewhere.

I’m not sure about this. In principle, a project should be assessed on its own merits. You should compare the costs of this project with the benefits of this project and determine whether the project should go ahead or what conditions should be attached. It seems inappropriate to compare the costs of this project and others like it with the benefits of this project and others like it and then determine whether the project should go ahead or what conditions should be attached – it just seems to be asking the wrong question.

That said, the alternative is not particularly attractive either. Consider a threatened plant affected by development. There are 100 hectares of the plant left. A development proposes to clear 1 hectare of it for some modestly beneficial community infrastructure. The modest community benefits are deemed to outweigh the environmental costs (it’s only one hectare) so the development is approved. Similar developments are proposed again and again and the equation is the same. Imagine that soon there’s only 30 hectares left. Suddenly a project that will bring enormous benefits to the community is proposed but it will involve clearing 10 hectares: a third of the entire distribution of a now critically endangered species. The choice is now difficult: miss out on huge community benefits or push a species to the brink of extinction. Perhaps the choice could have been avoided if, earlier on when 100 hectares were still left, a decision had been made that the cumulative pressures on this plant were likely to be huge over the next few years and so only projects that had either very large benefits or negligible impacts on the plant would be considered.

It is difficult to do this when approving individual projects though. At which stage do you decide that although the benefits of this project exceed the costs of this project, you’ll nevertheless reject the project because, if projects like this keeping being approved, in a couple of years we’ll reach a stage where it’s too costly to approve any more?

The cumulative impacts problem is a big one and EIA is one way of dealing with it. A better way in my opinion is to deal with it at more strategically: either through planning law (eg, zoning certain areas to protect threatened species so that these conflicts don’t emerge) or economic instruments (providing economic incentives to protect and rehabilitate threatened species sites).

And those instruments are a discussion for another day...

Save the whales

The International Whaling Commission wrapped up yesterday and Vincenze and Harry Clarke have good pieces on the issues behind the debate.

Climate change litigation in Australia

Last post I presented the factual scenario underlying a Federal Court decision that was handed down last week. To recap, the federal government is empowered by the Environment Protection and Biodiversity Conservation Act to consider the environmental effect of proposed developments. Specifically, it is required to consider whether a proposed development is likely to have a significant impact on a matter of national environmental significance (which includes world heritage areas among others – see my EPBC Act primer).

Two coal mines were proposed in Northern Queensland, near a World Heritage area containing rainforests and coral reefs. The coal mined from these new mines is mostly intended to be exported and its burning will create annual greenhouse emissions equivalent to one-quarter of Australia’s current annual emissions. Emissions lead to climate change which are predicted to have a devastating impact on tropical rainforests and coral reefs in Australia.

Blake Dawson Waldron has a good summary of what is not a terribly well-written judgment. The applicant in the case argued:

• the Minister’s delegate had not properly considered the ‘downstream’ indirect impacts, ie, damage from climate change from emissions from burning the coal;
• the delegate had not applied the precautionary principle; and
• the delegate had not properly assessed the ‘cumulative impacts’ of coal mining.

As far as I can tell from the judgment, the judge decided that:

• the delegate had considered downstream impacts and he probably didn’t have to anyway;
  
• the precautionary principle isn’t relevant to this decision;
  
• the delegate was not required to look at the cumulative impacts.

Today I’d like to make a few comments and observations about the role of environmental impact assessment (EIA). Tomorrow I’ll look a the economic efficiency of EIA, the use of the precautionary principle and how to look at cumulative impacts.

Environmental impact assessment

As an environmental lawyer, one of the reasons I’m so interested in economic instruments for environmental policy is that environmental law (and traditional environmental impact assessment) does a pretty lousy job at resolving environmental conflicts in many cases. Often it’s just not the right tool.

The reason is that most resource and environmental conflicts involve many players - many sources of a problem, many people affected by those sources: many potential winners and losers. Environmental impact assessment tends to work well when there's one big project that has one or two big impacts that are well defined and understood.

Should governments assess the environmental impacts of projects before approving them? Well, sometimes. Should it assess the greenhouse implications of proposed developments? I’m less sure.

Consider the analytical process of assessing the environmental impact of greenhouse emissions from the burning of coal produced at a proposed coal mine. It’s extremely difficult. What additional emissions will be produced because of this mine? It’s hard to say. If the coal is to be exported, presumably it is to satisfy existing demand. It’s quite likely that the coal burnt would simply have been sourced from some other supplier. If the proposed mine is very large, it’s possible that the additional supply could reduce the world market price of coal, encouraging more to be burnt. But the world market for coal is enormous.

What impact will those additional emissions have on global climate change? What impact will any such increased climate change have on Australia?

Look, it’s not hard to draw conclusions that burning coal produces disproportionately large greenhouse emissions that aggravate climate change causing harm to environments in Australia and around the world, and that burning coal should therefore be discouraged. But the role project-by-project environmental impact assessment is to examine the environmental impact of a particular project. It’s relatively easy to examine impacts on a local environment from a new coal mine, but it’s extremely difficult to examine impacts (locally or globally) from downstream greenhouse gas emissions.

Does that mean we should ignore greenhouse emissions when assessing large projects of this nature? No. But I think we should do it modestly. And it may be that coal mines are not a good target. If it was coal-fired power station, it would be a little different. We could compare its emissions to alternative projects: If we refuse consent to a new coal-fired power station would a lower-emission gas-fired station be built instead? That’s a relevant consideration. We could examine the technology it uses and its likely emissions compared with other new plants being built. We could place conditions on it that require cost-effective measures to be undertaken to reduce its emissions or perhaps even offset them.

It may be that the government can and should consider some of these measures with a coal mine. But it’s more difficult to say 'what is the impact of this project?'.

The difficulty with using project approval to carry out this function is it’s just not very efficient. Hundreds of developments are referred to the federal government each month. Should proponents detail greenhouse emissions for each project and suggest measures to minimise them? Well it’s certainly arguable that they should.

But much more efficient is simply to price greenhouse emissions appropriately, via a carbon tax or emissions trading scheme. Give developers and incentive to reduce emissions themselves. Let them come up with ways to reduce emissions, rather than the government imposing them as conditions.

Of course, this argument is a little trite. It’s all very well to advocate pricing mechanisms, but we don’t have them yet. Isn’t environmental assessment of emissions better than nothing, which is our current alternative? Well yes, I’ll certainly admit that – and that’s why environmentalists are bringing cases like this one. But it’s far from perfect.

What do you think?

Should government project approvals consider greenhouse emissions?

I’m interested in getting readers’ thoughts on the following scenario:

Two coal mines are proposed in Northern Queensland, near a World Heritage area containing rainforests and coral reefs. The coal mined from these new mines is mostly intended to be exported and its burning will create annual greenhouse emissions equivalent to one-quarter of Australia’s current annual emissions. Emissions lead to climate change which are predicted to have a devastating impact on tropical rainforests and coral reefs in Australia.

The federal government is empowered to consider the environmental effect of proposed developments. Specifically, it is required to consider whether a proposed development is likely to have a significant impact on a matter of national environmental significance (which includes world heritage areas among others – see my EPBC Act primer).

Should the government consider the possible environmental impact of emissions from the burning of coal mined from these projects? More generally, should governments be approving or not approving very large coal mines and similar projects based on their greenhouse emissions (or emissions from use of the products they produce)?

The Australian Federal Court on Thursday handed down its decision on this in Wildlife Preservation Society of Queensland v Minister for the Environment. ABC online and Sydney Morning Herald have reports on the decision. The decision itself isn’t very illuminating but I think the issues behind it are fascinating and important.

I’ll give you some of my thoughts in the next couple of days, but I’d really appreciate any of your thoughts in the meantime.

Climate change: the jury is still out?!

I’ve been thinking lately about the disconnect between the available climate science, which strongly indicates that global warming is happening and is dangerous, and the many people who still believe and proclaim that global warming is an environmentalist conspiracy.

The Washington Post recently had an excellent article about the public’s relationship with the science of global warming – it’s a long one but definitely worth a read. And it’s a common theme at the RealClimate climate science blog.

Obviously there’s a lot of reasons (Vincenze suggests a few) but I just want to look at one today: the incentives many people have to engineer – or at least overstate – conflict.

Imagine you’re a climate scientist. Lucky you: you’re an expert in one of the most important fields for the future of this planet. But there are thousands of other scientists just like you and you want to stand out and be known and respected for your ideas. You’re 99% sure that global warming is happening and likely to get worse – because 99% of the data you’ve seen and papers you’ve read point in that direction. But you think there’s a 1% chance that everyone’s wrong. Isn’t it your duty to test the majority thinking? If it is true, it will stand up to some scrutiny. And maybe - just maybe - it’s all wrong. Or at least a bit wrong. You could be boring and go along with everyone else. You could be one of the many faces at a climate conference. Or you could be controversial. And interesting. Maybe a little infamous even. And have journalists seek out your unorthodox views. And maybe be the person getting flown to those conferences to give the wacky dissenting talk.

Now imagine you’re a journalist. You’re writing a story about climate science. You want to be accurate but you also need to be entertaining. So you want some conflict. You also want to be balanced. You could interview two climate scientists from the 99.9% that agree that global warming is a serious threat. That’s a bit dull. Or you could interview one scientist from the majority and one wacky contrarian. That will spice things up. And you’re being balanced by getting all the opposing viewpoints, right?

Now imagine you’re a government Minister. You could accept and publicise the global warming threat. You could introduce measures that will cost taxpayers and industry to reduce a danger that will mostly affect people who haven’t yet been born or live in other countries. Or you could downplay the global warming threat and suggest that the jury is still out. After all, it’s irresponsible to hit taxpayers and industry when we’re not even totally, absolutely 100% certain that there’s even a problem, right? Then you could reduce taxes and spend your revenue on more popular things like new roads.

Now imagine you’re having dinner with some friends. They’re all blah blah-ing about climate change. "It’s so important". It’s so terrible". It’s so boring. You could just go along with them all and nod seriously. Or you could liven things up a bit. You could point out that while everyone’s talking about ice caps melting, snowfall has increased in central Antarctica over the past decade. You could mention that everyone was worried about global cooling in the 1970s. You could make insightful sociological observations: environmental worries are a lot like fashion – it’s a constant obsession but the environmental fad of the day is always changing.

Now imagine you’re concerned about climate change. You want to find out more and you want to do your bit. You read the newspaper and notice that the two scientists interviewed disagree on whether it’s happening and how bad it will be. You watch the news and notice the politicians disagree on whether it’s happening and what if anything to do about it. You go to dinner with your friends and one of them makes some interesting arguments about Antarctica getting snowier and environmental worries always being there and never amounting to anything. You weigh up the information you have and – well, the debate seems pretty evenly balanced – doesn’t it? It seems like the jury is still out.

'An Inconvenient Truth' coming to Australia

Al Gore's film about global warming, An Inconvenient Truth, has made quite a splash in the States and will be screening in Australia.

It's showing this weekend as part of the Sydney Film Festival and then at the Melbourne and Brisbane Film Festivals. In Sydney it's showing at the State Theatre on Saturday 10 June at 12:10pm. More details here. (I'll miss it as I'm in Canberra this weekend).

Its general release is unfortunately not scheduled until 14 September. (Why are we still four months behind other countries for cinema releases?)

Another environmental film showing at the Sydney Film Festival is The Last Valley, a doco about the struggle to save the last old-growth rainforest in East Gippsland, told from the point of view of protestors and loggers. Sounds interesting and the director will be there for a question session afterwards. Check it out on Wednesday 21 June at 5 pm at the State Theatre.


Update 9/11/06: I saw the film and my thoughts are here: An Inconvenient Truth: My thoughts

"Killers for conservation"

Earlier this year I wrote about the new trials to allow hunting of feral animals in NSW State Forests. Yesterday I watched a report on the Sunday program looking at the trials so far. The full transcript is on the show's website.

It was a fairly balanced piece, considering the reporter started (in a 'by the way' kind of manner) with the following disclosures:

These men are part of a campaign being waged in more than 100 state forests across NSW. The targets are carefully selected, no native fauna will die today, but ferals are fair game. These men are killers for conservation... Robbie Lynn manages this territory for the Game Council... Lynn and I go back thirty years. As teenagers we hunted pigs, rabbits, foxes and kangaroo, anything we could get our sights on. The places we roamed back then are now all but closed to shooting, such is the poor image of the hunter... There are now 1000 hunters who are venturing into the forest for the first time. Our groups are townies. Kym’s a vision editor for the Sunday program, Larry’s a landscape gardener and Dick owns his own business...

The program played up the political elements of hunters vs greens, the hunters-as-tourists angle and the safety issues. But it didn't delve very far into what I think are some of the crucial issues: Do hunters actually assist with the feral problem? What other activities are restricted when forests are closed for hunting?

My impression is that allowing hunters into forests will have extremely modest benefits. According to the program:

there is still another [feral pig] for every man woman and child in Australia [ie, about 20 million]. Here in the safe haven of state forests, there are 18 million wild cats and countless dogs, deer and foxes. Conservation hunting is the latest tactic in a battle to control these booming populations...

Robbie Lynn: "they’re going to have to do a few trips and start working hard before they get a good result, but we’ve got 31 forests and it’s only been open 8 weeks I think and there’s been over 50 pigs shot through the forest so far"...

After three days in Nundle our hunters have each spent more than $300 in the town on accommodation and food. It’s been modest return in hunting terms, a pig, a few foxes, some rabbits.

Clearly hunting is going to have very little impact on the feral problem. One of the farmers interviewed has a property adjoining a State Forest and summed it up:

Shooting is probably the least effective form of broad scale control that we have. But saying that, it’s better than nothing. Probably one step above no control. It will have an impact but it will not have a major impact on the overall population, but it will help.

Given the minor benefits it brings, I think the questions we need to consider are:

• Is there any net conservation benefit at all? Hunting reduces numbers slightly, but land managers have commented that it interferes with other more strategic control measures (eg, it disperses animals). Some environmentalists suspect that if hunters can't find ferals they'll shoot native animals instead and there are reports of hunters bringing ferals into forests in order to hunt them. (It's irrelevant now but of course most of these animals were brought into the country by hunters in the first place - which puts hunting as the solution in an interesting light).
• What other activities are displaced by allowing hunting in forests? I understand that the forest is closed during hunting (for obvious safety reasons) meaning that other recreational activities such as fishing, walking, etc are not available. What is the cost of that?
• Given that the conservation benefit is limited at best and there are costs on other users of the forests, should we admit that this is a recreational activity, not a conservation activity, and charge hunting fees or auction hunting permits - the revenue from which could be used for feral control activities that are actually effective?
• Given the limited benefits, the costs and the risks to safety, should we allow it at all?

Update - further info

• The Game Council's information page on hunting in NSW State Forests. (Does anyone know of any good sources for the arguments from the other side?)
• Federal Department of Environment and Heritage report on options for managing feral pigs.
• The Pest Animal Control Co-operative Research Centre has lots of information at feral.org.au, including a report on management of feral animals.

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.

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...

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.

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.

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.

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.

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.

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.

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.

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...

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.