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.

An Environment Protection and Biodiversity Conservation Act primer: Part 2

Yesterday, I looked at the limited scope of the Act and why it is inappropriate for dealing with cumulative impacts, in the context of the Australian Environment Minister's decision to refuse consent to a windfarm which could harm the endangered orange-bellied parrot. Today I look at how imposing conditions under the EPBC Act allows for win-win outcomes and some lessons for us from this situation.

Win-wins are commonplace under the Act

The media reports on this issue seem to have assumed or implied that the Minister had only two choices: to approve the windfarm or to reject it. Harry Clarke has pointed out that there was a straightforward win-win solution here: the parrots can be successfully bred and returned to the wild, so the windfarm could be allowed with the condition that it pay for a breeding and release program that returned a few parrots each year to the wild population.

Similarly, Chris Tzaros, who co-ordinates the Orange-bellied Parrot Project said he was surprised by the Government's decision, saying he thought Bald Hills could have been safely approved with a conservation management plan.

As I understand it, either solution was well within the Minister’s power, which makes you wonder whether the decision was more political than environmental. The Minister can approve project with all sorts of conditions.

The Age reported that the Minister's decision was only the fourth time an environment minister has invoked the EPBC Act to veto a proposed development, out of 2745 developments referred to the Government since it came into force six years ago. I spoke to one of the main EPBC Act decision-makers in the federal Department of Environment and Heritage last year about the success of the Act and this statistic. He made the point that many hundreds of projects had been modified substantially by conditions imposed by the Minister which made a huge difference to their environmental impacts. In his view, this was the real power and success of the Act.

He also commented that projects were never refused outright unless they were so inherently destructive that no conditions could be applied that would moderate their impact. In most of those cases, the projects were illegal under State law anyway and had been submitted only to make some kind of political point. This sounds very different to the situation with the Bald Hills windfarm project.

It's unclear why sensible conditions were not considered by the Minister in this case.

Some conclusions

Whether the Minister’s decision was politically-driven or not, it was certainly a bad one for the environment and in terms of social costs and benefits: it will likely save one bird every 109 years while sacrificing an otherwise viable development. And, in my opinion it represents appalling administration of the Act:

• It uses the Act inappropriately to address a cumulative impacts problem by prohibiting a development which will have a truly trivial affect on the problem;
  
• It does not consider imposing conditions which could actually have done something positive for the orange-bellied parrot while allowing an important renewable energy development to proceed.

There are reports that a legal challenge to the Minister’s decision is being considered. I would have thought such a challenge would have some legs. I think there’s questions about whether a windfarm that could kill on average one parrot every 109 years is a ‘significant impact’, as is required under the Act. I think there’s also an argument that the Minister’s consideration of the ‘cumulative impact’ of other sites, rather than just looking at the marginal impact of this development means that he has taken irrelevant factors into consideration, which would invalidate his decision. (I should point out that that’s not an argument that would be very popular with green groups, who have been pushing consideration of ‘cumulative impacts’ under the EPBC Act).

One last thing

Getting away from our discussion of the Act a little, but it would be remiss of me not to point out some pretty naughty out-of-context quoting by the Minister. In his media release he quotes this half of a paragraph from the report Wind farm collision risk for birds – Cumulative risks for threatened and migratory species (pdf) as being the reason for his decision and he even puts it all in bold:

Given that the Orange-bellied Parrot is predicted to have an extremely high probability of extinction in its current situation, almost any negative impact on the species could be sufficient to tip the balance against its continued existence. In this context it may be argued that any avoidable deleterious effect - even the very minor predicted impacts of turbine collisions - should be prevented.

He fails to quote the very next sentence though, which puts rather a different complexion on it. Let’s read the sentence now in its original context:

In this context it may be argued that any avoidable deleterious effect - even the very minor predicted impacts of turbine collisions - should be prevented. Our analyses suggest that such action will have extremely limited beneficial value to conservation of the parrot without addressing very much greater adverse effects that are currently operating against it.

Hmm. I guess saying "I have today made this decision which I’m advised will have extremely limited beneficial value" probably doesn’t sound quite as good in a press release, does it?

An Environment Protection and Biodiversity Conservation Act primer: Part 1

(OK, not the catchiest title, I’ll admit).

The recent debate over the decision by the Australian Environment Minister to refuse consent to a wind farm because of its possible impacts on the endangered orange-bellied parrot has prompted me to say a few things about Australia’s primary piece of environmental legislation, the Environment Protection and Biodiversity Conservation Act (EPBC Act).

In case you missed the story, orange-bellied parrots are highly endangered, with less than 200 left in the wild. They migrate between Tasmania and Victoria each year. The proposed wind turbines, on the Victorian coast, are in the vicinity of the parrot’s migration zone. Though no birds have ever been sighted near the site there is, according to reports provided to the Environment Minister, a possibility that windfarm turbines in coastal Victoria might kill one bird every year. With the population so endangered, the Minister made the decision not to allow an additional windfarm to go ahead.

The best summary of the political context for the decision – which is important if you want to understand the decision – is this article in the Age. I recommend reading it.

I want to make some comments about the EPBC Act, because an understanding of the Act is also important if you want to understand what has happened here.

Scope

First, the scope of the Act is quite limited. Under the Australian Constitution, the States have general power over things such as the environment. The federal government has power over certain specified national issues, such as defence, trade and foreign affairs. Most of the federal government’s powers to affect the environment derive indirectly from the foreign affairs power: the federal government has entered into environmental treaties – such as the Convention on the Protection of Biological Diversity and the World Heritage Convention – and therefore must have the power to meet its obligations under those treaties. So its power over the environment is mostly limited to certain areas relating to its treaty obligations.

Under the EPBC Act, you need the Environment Minister’s approval for a project if it significantly affects a matter of "national environmental significance". These are:

• World Heritage values of World Heritage properties;
• wetlands of international importance;
• Commonwealth listed threatened species and ecological communities;
• listed migratory species;
• Commonwealth marine areas;
• nuclear actions; and
• listed National and Commonwealth Heritage places.

It is worth pointing out that the federal government would normally have no power to prohibit a windfarm. It has that power in this instance because the windfarm may have a significant impact on a threatened species.

This is relevant because if the federal government wanted, politically, to gain some control over windfarm policy in Australia, it would have to do so in a roundabout way, such as prohibiting any windfarms that happen to get caught in its jurisdiction and then putting pressure on the States to negotiate with it on a national policy. That is what some people have suggested this decision is really about and it is interesting that the Environment Minister has recently called for a national code on wind energy.

Inappropriate for cumulative impacts

An interesting aspect of this decision is that the Environment Minister has refused the proposed 52-turbine windfarm at Bald Hills but has approved substantially larger projects nearby – including one that, according to the Age article (and presumably under the curious licensing scheme of the Act), he has expressly authorised to kill three of the parrots each year.

The Minister has claimed that it is precisely because he has approved these other projects that he can’t approve this one:

The orange-bellied parrot was at such dangerously low levels in terms of population that any additional wind farm in this particular area would have an impact on the survival of the species. The fact is we have had a massive increase in investment in wind farms: 400 turbines have been built in the past four years and there are 145 more in the pipeline. That has cumulatively a new impact on the environment which we have for the first time sought to assess.

Interestingly, and contrary to every media report that I’ve seen, the report on impacts did not say that the Bald Hills windfarm could kill up to one parrot per year, it said that, in total, all existing and proposed windfarms in Victoria and Tasmania could kill up to one parrot per year. The contribution of the Bald Hill windfarm itself to this number is trivial. (The Minister never claimed that the Bald Hills windfarm would kill one bird per year either – I know journalists don’t read reports but surely they could at least read the Minister’s one-page media release). Incidentally, if you look hard enough and do a simple calculation, the report cited by the Minister does contain the actual number of parrots estimated to be killed by the proposed Bald Hills windfarm: one every 109 years.*

This illustrates one of the major limitations of the Act: it is a project-by-project approval scheme. Project approval schemes are good at dealing with the particular local impacts of individual projects. What they are not good at is dealing with cumulative impacts: where each project has only a small additional impact but many projects will collectively have a major impact. And yet the EPBC Act is meant to deal not with local impacts but with matters of national significance. Green groups have been calling on the government to use the EPBC Act to prohibit or modify projects – such as coal-fired power stations – that have relatively large greenhouse gas emissions. In my opinion, the EPBC Act is ineffective for this: you need national policies that cover energy, transport, etc, not tinkering with projects one by one.

(Economic instruments are perfect for addressing cumulative impacts: this is one of their major advantages).

Tomorrow I'll talk about how imposing conditions under the EPBC Act allows for win-win outcomes and some lessons for us from this debacle. I'll also point out how the Minister selectively quoted from the Report he relied on to imply that the Report said almost the opposite of what it actually said.

* Page 30 of the orange-bellied parrot chapter of the report (PDF here) sets out the most likely survivorship rate of the population at Bald Hills: 0.9999392. I have used the calculations set out on pages 32 and 33 to arrive at a figure of 0.00912 parrot mortalities per year, which equals one every 109.6 years.

Can we strip carbon directly from the atmosphere?

The Prometheus science policy blog has an interesting discussion on the economics of carbon dioxide "air capture". From a bit of reading around the topic (eg, this PDF), the idea seems to be that you build big carbon dioxide scrubbing towers near a site appropriate for geosequestration. You pump air through the towers and chemicals remove the carbon dioxide from it. The CO2 is then pumped away and stored underground. This is an extension of the geosequestration (carbon capture and storage) concept, but instead of capturing carbon dioxide as it's released from power stations, you capture it directly from the air. The advantage is that you don't have to compress the carbon dioxide and transport it from a power station to an appropriate geosequestration site.

Apparently the likely costs of this technology are in the range of US$200-$500 per tonne of CO2. This is a lot: the cost of replacing a coal power station with a wind or solar one are in the range of $50 - $100 per tonne of CO2 avoided (and coming down) and even this cost seems to be far too high to be politically palatable. (Let's also remember that renewables have other benefits such as reducing air pollution and reducing reliance on exhaustible forms of energy).

Have you heard of this technology? Do you have any thoughts? Is this sci fi kind of stuff?

My thoughts are that this kind of technology - mainly because of its price - has a very limited role to play. One possible role is that if it becomes clear that the damage of global warming is likely to exceed $500 / tonne and other methods haven't been effective or fast enough, then maybe - maybe - we can erect these towers to avoid a climate catastrophe. In that sense, this technology could represent a sort of last resort.

In the meantime, there's a whole lot of relatively low-cost solutions we can be implementing now.

What do you think?

"The environment must be the centre of policy worldwide"

So says Gordon Brown, the UK's Chancellor of the Exchequer, in an editorial in the Independent today.

Brown says that the UK will be setting out international climate change proposals at the UN, G7, IMF and World Bank forums coming days:

So today at the UN in New York, Britain will call for the first global emissions trading scheme to cut carbon emissions. Tomorrow at the G7 meeting in Washington I will tell the world's richest countries that Britain will invest in a private- public institute for new research into alternative sources of energy and new environmental technologies - and ask other countries to join us in a lobal network researching into better uses of energy.

I think it's quite remarkable for a nation's leader on economic policy to be placing the environment squarely in the centre of economic policy:

For too long too many governments thought their objectives began and ended with economic prosperity and jobs. But I believe that the world needs a new paradigm that moves the environmental challenge to the centre of policy...

We can and should demonstrate that economic growth, social justice and evironmental care can and must advance together. For years no international consensus has been possible that recognises how our global duty of stewardship to the environment can be discharged while delivering economic and social progress.

But I believe that global economic goals and global environmental goals are converging and can reinforce each other and that the basis for a new global consensus which all countries should be challenged to join lies in new detailed and substantive policies.

Brown sets out four environmental / economic linkages:

First, higher energy prices will and must now encourage the development of new cleaner sources of energy...

Second, we can now demonstrate that scientific advance can bring forward new environmentally friendly technologies that can provide jobs as well as wealth for the future...

We can also show that new market-led mechanisms such as carbon trading can change the behaviour of companies and communities...

And we must demonstrate the benefit of public investment in the environment.

It will be interesting to see what the UK proposes over the next few days and whether this bold rhetoric is matched by some real action.

More dodgy analysis: moderate drinking might not be good for you

One of the aims of Oikos is to expose dodgy analysis on environmental and economic issues. Economic data is particularly susceptible to problems because it rarely comes from controlled experiments but rather from observing the real world, where all sorts of unexpected or unseen causes can confound the results.

If we want to see how strong environmental protection affects a country’s economy, for example, we need to work out what ‘strong environmental protection’ means and how to measure it (and ditto for a country’s economic performance). We could then compare a country’s environmental regulation over time with its economic performance over time. Or we could compare different country’s economic performances and level of environmental protection. The problem, of course, is that it’s difficult to isolate the real effect of environmental protection as there are an enormous range of things that can affect economic performance.

Let’s assume that we do a study and find that generally, the stronger the environmental regulations in a country, the stronger the country’s economic performance. It’s a big leap to go from this finding to the conclusion that strong environmental protection assists economic performance. It could be (and more likely is) that a strong economy gives us sufficient wealth to be able to direct more to protecting our environment.

The same problems exist in other social sciences and in population health research. The most effective research is to set up randomised trials – where participants are randomly assigned to a treatment group or a control / placebo group – this can give a very good measure of how effective the treatment is. Unfortunately, these trials are expensive and can take a long time. Sometimes they’re impossible (or extremely difficult) to perform.

Take, for example, the effect of alcohol on heart disease risk. It would be ideal to randomly assign participants to a heavy drinking group, a moderate drinking group or a non-drinking group, get them to follow that regime for a few years and then measure their levels of heart disease over the next decade or so. But that’s not feasible. For a start, no-one would agree to be in the non-drinking group. So instead, we need to observe people’s drinking behaviour over some years and their heart disease risks. We could get this data cheaply and fairly easily for example by surveying patients admitted to hospital with heart conditions and comparing that to a survey of drinking habits of the general population.

The problem is this: If we find a link between drinking patterns and heart disease, how do we know that it is the drinking habits that have caused the different rates of heart disease? It may be, for example, that the incidence of heart disease affects drinking habits (having a heart attack may prompt you to cut down on your alcohol intake) or it could be that some other factor causes both (perhaps having a stressful job or lifestyle encourages you to drink and increases your risk of heart disease).

This is exactly the problem that a recent study of alcohol and heart disease has uncovered. It’s become accepted wisdom over the last few years that moderate alcohol intake reduces your risk of heart disease. That’s not necessarily wrong, but this study suggests that many of the studies that this finding has been based on are flawed:

Researchers at UCSF pored through more than 30 years of studies that seem to show health benefits from moderate alcohol consumption, and concluded in a report released today that nearly all contained a fundamental error that skewed the results…

The common error was to lump into the group of "abstainers" people who were once drinkers but had quit.

Many former drinkers are people who stopped consuming alcohol because of advancing age or poor health. Including them in the "abstainer" group made the entire category of non-drinkers seem less healthy in comparison.

Without the error, the analyses shows, the health outcomes for moderate drinkers and non-drinkers were about the same.

The first lesson for us I think is to read scientific and economic research with a critical eye. The second lesson (one which I am ignoring right now!) is to read primary sources and not just media reports of studies, if the results of those studies are important to us. I don’t think journalists ever read the studies they write about.

The third lesson is that drinking a good red is its own reward.

Everything is connected: wetlands and bird flu

I'm probably preaching to the converted here but here's another reminder that things are connected in ways we don't always understand and the environment isn't just something "out there" that we can ignore: environmental problems far away can have surprising impacts on us.

A United Nations (UN) report just released says restoring the world's wetlands may be critical to preventing outbreaks of avian flu, as their revival will keep migratory birds from mixing with domesticated fowl. It says the degradation of wetlands has forced wild birds, some carrying the deadly H5N1 strain, into alternative habitats. That increases the risk of the spread of the disease to poultry and, in turn, humans:

"The loss of wetlands around the globe is forcing many wild birds onto alternative sites like farm ponds and paddy fields, bringing them into direct contact with chickens, ducks, geese and other domesticated fowl," the report said.

The report, which has been presented at a two-day conference at the Nairobi-based UN Environment Program (UNEP), notes that contact between migratory birds and their domesticated cousins is a major cause of the spread of avian flu.

That includes the H5N1 strain, which is potentially deadly to humans. "We know there is a very tight link between the conditions of ecosystems and the likelihood of threats to human health," David Rapport, a Canadian professor of ecosystem health and the lead author of the study, said.

Birds and windfarms

In Australia last week, the conservative federal government invoked a rarely-used power to block a proposed windfarm, citing the need to protect the orange-bellied parrot.

Windfarms are an interesting political issue, often pitting local environmental concerns against global environmental concerns, as this quote from the story indicates:

Environment Minister Senator Ian Campbell has rejected a $220 million 52-turbine wind farm because of a perceived threat to the endangered orange-bellied parrot.

There are only 200 of the birds left in the wild and Senator Campbell has received a report that predicted one could be killed every year.

Mr La Fontaine [from the Wind Energy Association] says the Minister's view is too narrow. "The Minister is rightly concerned that the bird is to become extinct by 2050 but if we don't do anything about greenhouse challenge and how Australia addresses climate change the world is in danger of losing a quarter of all it species," he said.

Harry Clarke suggests that economics can provide a way out of the apparent impasse. That seems sensible to me, when the political alternative is that the potential death of one bird a year stops a $220 million renewable energy development.

Selling sustainability

Check out the advertisements above. They were commissioned by the Australian Conservation Foundation to sell sustainability:

It's not every day that advertising companies are approached for advice on reducing consumer product sales that cost the earth. For an industry that does a wonderful job at stimulating our desire for the latest consumer product, it was a whole new concept. Now you can judge whether the ad industry can also do the hard sell on sustainable living. The advertisers were asked to use their powers of innovation to design a billboard to promote the messages Live More, Spend Less and Living Light is the New Cool.

The other two were:

• a picture of the earth as the meat in a hamburger, with the slogan Stop consuming our planet

• a picture of a logged and burned patch of forest with the slogans Buy now pay later and We can't afford the cost of overconsumption

So which, if any, make you feel enthused about Living Light?

To my mind, only one even comes close: the barcode. The others are dismal.

Advertisers are experts at associating a product or cause with things that we want to have or who we want to be. They promise us luxury, contentment, popularity, tranquility, glamour, romance, fun - if we buy their product. I haven’t seen many ads that offer us only guilt. Why is the environment different?

Why are you interested in environmental issues? Because you’re passionate about nature? Because you’ve visited places that are beautiful and think we can make our backyard a little more beautiful too? Because you can envisage a world that’s healthier and fairer and feel good about trying to give the world a little bump in that direction? Or because you want to ease some of your guilt about existing and eating and breathing and buying nice clothes? I don’t know anyone who does it for the last reason.

Have you ever seen an ad for Diet Coke that says "Stop eating sugar you big fat slob"?. Hardly. They show slim active people having fun and imply that’s what we’ll be like if we drink Diet Coke. Manipulative? Maybe. Effective? Certainly.

I applaud ACF’s initiative and these advertisers for having a go. But quite frankly these ads don’t cut it. If we’re going to play the advertising game we need to play it right.

Roll up… for the Magical Mystery Tour

Western Australian transport blog On the Broad Gauge reports on recent innovations in Perth’s bus service: they don’t publish a timetable and they don’t travel any fixed route at night.

What do you think? Innovations and flexibility in public transport are a good thing and I think we will need more tailored solutions. I can certainly see both benefits and problems with these ideas. I suppose time will tell whether people see these as improving or diminishing the service they get.

Some thoughts on global warming

First, if anyone needed reminding that environmental issues are economic issues, two of today’s news reports underline that fact. Researchers are worried that salinity is going to have large impacts on Australia’s premier wine region, the Barossa Valley, and a report of large-scale coral deaths from warming waters in the Caribbean reminds us that this is what could lie in store for the Great Barrier Reef. Besides their natural value, these two areas represent two of Australia's biggest and most profitable exports (agriculture and tourism).

Secondly, I talk quite a bit on this site about the power of markets and I often make the assumption that if governments re-jig incentives (eg, try and make consumers or businesses face the full economic costs of their decisions) markets will respond and come up with solutions (renewable energy, more energy-efficient products, etc) – governments don’t need to engineer the solutions themselves. But incentives work with or against existing consumer preferences and these I think drives markets much more powerfully. What’s made hybrid cars much more popular and 4-wheel-drives (SUVs) less popular over the last few years is not really increased taxes or oil prices (see this post from the Environmental Economics Blog): it’s that they’re seen as green and cool. So we can try to change institutions but changing popular perceptions is more important.

Where I’m going with this is I see it as an incredibly positive step that – from what I can see people (and businesses) are taking personal responsibility for the global warming issue and doing what they can to help in small ways. There seem to be a variety of personal emissions offsets businesses where you can offset your personal or business’s contributions to greenhouse emissions by buying ‘credits’ from a business that they will use to invest in renewable energy or carbon sink projects. In this vein, Kate from the Veggie Friendly Blog reports that she recently attended a ‘carbon neutral wedding’! The demand from consumers for greenhouse-friendly products will really move markets for renewables in the coming years I think.

Solar power can make you very, very rich

Australian environmentalists have been claiming for years that the Australian Government’s failure to support solar power research and development (and, more particularly, its commercialisation and adoption) has led to commercial solar opportunities moving overseas, with Australia missing out on being part of a large and profitable industry. The argument is that Australia is particuarly well-placed to be leading the solar industry, with bounteous sunshine, plenty of remote locations (where solar power would be the cheapest source of electricity) and undisputed research expertise in this area.

I have to admit I’ve thought of these claims largely as green rhetoric: ‘you won’t listen to our environmental concerns so we’ll throw in a line about money and hopefully you’ll listen to that’. But as of last weekend, I’m much more convinced.

On the plane back from Thailand on the weekend I flicked through Forbes Asia. The cover story was ‘The World’s Richest People’. The first person featured was the richest man in China, Zhengrong Shi. What I read astounded me.

First, he’s an Australian citizen. Second, he has made his fortune in less than five years. Third, it’s from solar cells. Fourth, he developed his expertise at the University of New South Wales (where I’m studying economics) – the photovoltaics lab there is an absolute world leader in the technology and has been for years.

His story is remarkable and suggests to me exactly what the greens have been saying - that Australia is not converting its research expertise into the commercial opportunities because of a lack of government vision and support. Check this out:

Shi grew up in Jiangsu Province, on an island in the Yangtze River, and received a master’s degree in laser physics before leaving home for Australia in 1988. There he studied under Martin Green, whose laboratory at the University of New South Wales set a string of efficiency records for solar cells, raising the amount of sunlight energy that can be converted into electricity from 18% in 1983 to 24% in 2004. For the moment that attainment is a phenomenon of the lab only; commercial cells typically deliver 16% to 17%.

In 1995, three years after finishing his Ph.D., Shi went to Pacific Solar, a joint venture between the university and an Australian utility, Pacific Power, that specialized in a new variety of lower-cost photovoltaics called thin-film solar cells. Shi became an Australian citizen but was lured back to his homeland in 2001 by $6 million in seed capital offered by the city of Wuxi, 80 miles northeast of Shanghai.

Shi’s company Suntech Power, listed on the New York Stock Exchange, has a market value of US$5.5 billion, with revenues of US$226 million last year. Shi predicts that sales will triple in the next three years and puts the company’s success down to “being in a good industry”:

Worldwide demand for solar cells has been growing 30% a year for the past three years, and the good times will likely continue. Solarbuzz, a research firm in San Francisco, predicts that the industry’s sales will climb from $10 billion this year to $19 billion in 2010.

It’s also partly Shi’s Australian-gained expertise in cutting edge technologies that allow production at lower costs and higher sunlight-conversion efficiencies than competitors.

Annual revenues of $226 million less than 5 years after starting with just $6 million seed capital, some Australian expertise and some Chinese entrepreneurial spirit? It makes you wonder: just what share of the global solar industry pie is Australia missing out on?

Around the blogosphere

I’m back from a very relaxing holiday in southern Thailand with my girlfriend Cat. Some posts of note I’ve come back to:

• Pedaller discusses news of trials of bicycle taxis in Sydney and Melbourne.
  

• Doug at courting disaster wonders why law firms are so female-unfriendly.
  

• Daniel O’Connor talks about the importance of scale in arguments about the economy and sustainability at the Ecological Economics Blog.

• John Quiggin has a sensible piece on Peak Oil.

Holiday!

I'm taking a little break so probably no posts for the next week or so.
Catch you all soon.

David

A friendly blog for Sydney and Canberra vegetarians

My former housemate and vegetarian chef extraordinaire Kate has been busily reviewing Sydney restaurants for their vegetarian offerings over the past few months. She's just expanded her snazzy blog and moved it to vits own domain: veggiefriendly.com.au. It will also contain reviews of Canberra veggie friendly places. It's well worth a look.

Whacking Day in the Northern Territory?

This sounds a little familiar:

MORE than 500 people will take part in a giant toad-busting operation in Darwin, Palmerston and the rural area this week. The all-out community attack on cane toads will take part in at least 12 locations in a bid to stop the poisonous pest's march into Darwin.

Community and residential groups, LandCare groups, the Humpty Doo and Palmerston Golf Clubs, most Top End schools, MLAs and other people will be among those out collecting every toad they can find. Every school in the Top End has been sent toad forms for distribution to students to report the numbers of toads found in their local areas. The toad busts will begin tomorrow and hop right through up to and including next Sunday...

MLA's Matthew Bonson and Minister Chris Burns will lead toad-busts in the Rapid Creek area, while Palmerston MLA Terry Mills will head up a hunt at Marlow Lagoon. Other MLAs are expected to take part in their electorates.

Labor’s climate change blueprint: some analysis

Following on from Tuesday's post, here are some of my thoughts on the first few ideas in the opposition Climate Change Blueprint. I’ll try and deal with all the proposals in there eventually!

Ratifying the Kyoto protocol

A lot has been written about this elsewhere and this is just a restatement of an existing policy so I’m not going to do any sort of complete analysis of the pros and cons for Australia of ratifying the Protocol. I’ll just make a few comments relevant to Labor’s policy to ratify if elected at the next election:

The timing is awkward. The next federal election will take place sometime around the end of 2007. The first commitment period under the Protocol begins in 2008. Basically, the beginning of 2008 is not the best time to ratify – we’ll have to meet the targets but we won’t get much benefit of investment in carbon offset measures because these are happening now so they’re up and running in time for the commitment period. It’s also a bit awkward for the opposition to commit now to meeting Kyoto targets that it doesn’t have control over.

That said, it does seem that Australia is on track (PDF) to meet its generous Kyoto targets, and I certainly think ratification is better late than never. What’s really important is what happens after the first commitment period (which must really be deeper cuts plus some obligations on developing countries) and I think Australia’s position in the negotiations for this would be strengthened considerably if it’s shown some good faith by committing to cuts in the first round by ratifying Kyoto. I think that’s important and no-one seems to have talked about it.

Working towards 60% emissions cuts by 2050

A target is good. This target is ambitious but achievable, about what’s needed (for Australia to do its part). I guess the question is, what does committing to this figure mean? Governments will come and go between now and 2050 – who’s responsible? The South Australian government has recently committed to the same target – 60% reduction by 2050 – and to the Environment Minister reporting annually to Parliament on progress against this goal. I guess this is what is envisaged and it’s a good thing. In reality each successive government will blame its predecessor for not doing enough so I don’t know whether setting this target implies that it will be met, but it’s still good to enunciate a concrete long-term policy goal.

Establishing a national emissions trading system

Hm, this is a big one that really warrants a separate post. So all I’ll say for now is that my opinion for what it’s worth is that emissions trading is a good idea and a national system is obviously desirable. I think an effective national greenhouse strategy has to contain either a national carbon tax or a national emissions trading system.

Inserting a climate change trigger in the federal Environment Protection and Biodiversity Conservation Act

Currently, under the EPBC Act, projects and developments that have a significant effect on a matter on national environmental significance must be approved by the federal Environment Minister. This proposal would make climate change one of these matters of national environmental significance.

In practical terms, this would mean that large energy-intensive projects – such as power plants or desalination plants – would require federal government approval. The same would also probably apply to large projects that threaten carbon sinks (perhaps large-scale clearing or the damming of a forest valley?).

This idea has been kicking around for a while – my understanding is that it was first proposed by the Howard government in 2000 (via then Minister for Environment Senator Hill) but was knocked on the head by industry opposition.

I’m mildly supportive of the idea. The better way to deal with problems like greenhouse emissions that mostly come from a wide range of small sources is to implement broad policies such as a carbon tax or trading scheme. But in the absence of those schemes, or perhaps to complement them, it doesn’t hurt to have large sources subject to some environmental impact assessment.

As far as I know, the Minister has only refused consent for two projects in the 6 year history of the EPBC Act. But it has imposed conditions that reduce the adverse environmental impacts of many others. It seems to me that a ‘greenhouse trigger’ would be a good way to ensure that energy-intensive projects take all practical steps to minimise their greenhouse impacts. Its overall effect on Australia’s emissions, however, would be modest. In particular, this would only deal with new sources of emissions - not existing sources.

Labor’s climate change vision

Kim Beazley (Australian federal opposition leader) this afternoon released Labor’s Climate Change Blueprint (PDF) for the next election. From an initial reading, I think it’s very very good.

In summary, its key elements are:

• Ratifying the Kyoto Protocol,
  

• ‘Working towards’ 60% emission cuts by 2050,
  

• Establishing a national emissions trading system,
  

• Including a ‘climate change trigger’ in the federal Environment Protection and Biodiversity Conservation Act. (Currently, under the EPBC Act, projects and developments that have a significant effect on a matter on national environmental significance must be approved by the federal Environment Minister. This would make climate change such a matter of national environmental significance and, in practical terms, would mean that large energy-intensive projects – such as power plants or desalination plants – would require federal government approval),
  

• Increasing the national mandatory renewable energy target,
  

• Investment in clean coal and renewable technologies,
  

• No nuclear power,
  

• Reviewing incentives and disincentives in the tax system (including research and development and depreciation),
  

• ‘Rebuilding’ the national scientific research organisation CSIRO,
  

• Introducing additional first home owners grants for energy efficiency measures,
  

• ‘Assisting States and local governments’ to put in place mandatory energy efficiency ratings for new homes (these are already in place in NSW, Victoria and the ACT),
  

• Making all schools solar powered by earmarking capital works funding for solar and energy efficiency measures,
  

• Purchasing ‘green’ cars for the government fleet if and when there’s an Australian-made value-for-money option, and assisting State government and private fleets to do the same,
  

• Establishing a National Sustainability Council to oversee progress on the nation’s sustainability.

I’ll try and give a more detailed analysis of what these measures mean in the next couple of days, but on first view, this looks to me to be an excellent mix of policies: comprehensive, sensible, flexible, harnessing market forces, and likely in combination to be a reasonably effective response.

Manufacturing controversy

A great Doonesbury cartoon (via the RealClimate blog).

Should public transport be free?

An economist advocating free public transport, or even that we should be paying people to use it?

That’s what Professor Joshua Gans does in his blog. Professor Harry Clarke provides a response in his blog.

This debate was sparked by a front page article in Melbourne’s Age newspaper suggesting that Melbourne’s public transport could be made free at a cost of around $340 million a year, boosting usage by 30% and reducing pollution, greenhouse emissions, accidents and congestion in the city.

Interestingly enough, public transport advocates don’t necessarily support the idea, believing that the money could be better spent improving the service than making it free.

Update (Tues 7/3):

Joshua Gans has an op-ed piece on this in today's Age.

New ecological economics blog

I’m going to be a contributor to a new ecological economics blog. The idea of the blog is to present some alternative views to more conventional environmental economics blogs (notably the Environmental Economics Blog) which, I should say, themselves do a good job presenting alternative views to conventional economic blogs and free market blogs (such as the Commons Blog).

Ecological economics differs from environmental economics in its emphasis on the economic system operating within an ecological system and the need for multi-disciplinary approaches to the issues that this throws up. Environmental economics, on the other hand, is really a branch of conventional neoclassical economics and tends to take as a given the assumptions inherent in neoclassical economics – including seeing the environment as a source of goods and services, rather than a system within which the economy operates. There’s a lot of common ground between environmental and ecological economics but the different approaches come to a head when you examine macroeconomic issues such as physical limits to economic growth. Environmental economics tends to assume that economic growth can and should continue indefinitely. Ecological economics suggests that economic growth has finite limits because eventually you reach limits to natural capital that human capital can’t necessarily substitute for.

If you’re interested in this area, check out the International Society of Ecological Economics' online encyclopaedia, which has some interesting articles on these issues.

Does the US Endangered Species Act work?

The US Center for Biological Diversity has just released an important study assessing the success of the US Endangered Species Act: the primary piece of legislation to protect biological diversity in the US.

As the report states, the purpose of the Act is "to prevent the extinction of America’s most imperiled plants and animals, increase their numbers, and eventually effect their full recovery and removal from the endangered list. Currently 1,312 species in the United States are entrusted to its protection".

The report goes on to point out that:

Opinions abound on whether and to what degree the Act has accomplished its goals. Most are politically driven, some are anecdotal, and a few attempt to wring long-term implications out of short-term data which are simply not adequate to answer the most basic questions about the effectiveness of the Endangered Species Act. Are species population numbers increasing or decreasing in response to being placed on the endangered list? Is progress toward recovery consistent with or slower than the recovery period outlined in federal recovery plans? … while the Endangered Species Act has existed for 32 years, long-term population trend data have never been systematically gatherer and analyzed for a large, unbiased sample of species.

The study attempts to rectify that by presenting population trend data and narrative accounts for all endangered species that historically or currently occur in eight northeastern states.

The study's timing is good as the future of the Act is being debated and critics seem to take it as a given that it hasn't achieved its aims.

Their results suggest that the Act has been successful in achieving its objectives:

• No species has become extinct after listing.
• Most species have improved since listing, with 93% of species increasing or maintaining a stable population since listing.
• Seven of the 11 species whose recovery plans aimed for recovery by 2005 had been delisted or at least ‘downlisted’ (ie, downgraded from ‘endangered’ to ‘threatened’).

One limitation of the study in my view is the lack of a control group with which to compare these species. It would be very interesting to see how the recovery of listed species compares with the recovery of species which, while threatened, have not been considered sufficiently endangered to warrant protection under the Act. This would go some way to assessing whether protection under the Act in itself aids recovery or whether, for example, general environmental improvement from other causes has been more important in the recovery of these species. Similarly, it would be interesting to see data on how these populations were progressing before they were listed (presumably they weren't preforming well if listing was required).

Of course, a control group would add its own difficulties in interpreting the results as measures stemming from recovery plans under the Act (eg, habitat protection) could have spillover benefits for other (non-listed) species. And data on species whose position is less precarious may be harder to come by as these species have not been the focus of conservation and research attention.

As far as I’m aware, no similar study has been done to assess the success of the similar threatened species legislation that exists in each of the Australian states and territories. There have been assessments but they’ve been more the type that the report describes as politically-driven, anecdotal or short term. Such a study would be of great value in Australia.

Physical limits to economic growth?

There's an excellent summary at Daniel O'Connor's Catallaxis blog of the physical limits to environmental growth debate. Daniel makes the often-overlooked point that economic growth can arise from physical or non-physical sources (for example, the consumption of more resources or the more efficient use of existing resources). So, to the extent that economists ignore physical limits to the consumption of resources, their analysis is is flawed. But equally, environmentalists who claim that sustainable growth is an oxymoron are not necessarily right because economic growth can occur without additional consumption of physical resources.

Anyway, Daniel explains it much more lucidly than me, so check it out.

What to do with toxic consumer products?

Something I’ve been concerned about for a while is the nasty toxic chemicals in lots of ordinary household electrical products that wind up in landfill. Pretty much anything with a rechargeable battery has these nasties and apparently 70% of the toxic heavy metals in landfill comes from electronic products.

There is very little being done about this problem in Australia as far as I’m aware, with responses limited to a few voluntary industry schemes. The mobile phone industry has a scheme where anyone can take old mobile phone batteries to any mobile phone retailer for recycling and apparently Sony recycles any household batteries if you take them in to their stores or offices).

Europe has always been the leader in this area with requirements that manufacturers take responsibility for dealing with the products they’ve produced when they’ve reached the end of their useful lives.

Now it seems California may leapfrog ahead of the game:

California would require manufacturers to phase out the use of hazardous materials in making cell phones, iPods and other electronic devices under a bill introduced by a state lawmaker.

The bill unveiled Thursday by Assembly Member Lori Saldana, a Democrat from San Diego, would apply to any electronic or battery-operated device. The bill, which was introduced Wednesday, would require manufacturers to stop using the substances in devices sold in California by 2008.

"We know that the manufacturers of these products are able to produce them without including harmful toxic materials," Saldana said in a written statement. "California deserves to be included among the markets that receive this cleaner stream of consumer electronics."

California already requires manufacturers of video displays in devices to phase out the use of toxic materials.

What’s the best way to deal with this issue? The European option has always seemed very sensible to me: make manufacturers responsible for taking back and dealing with what they produce. That way they can choose how best to deal with heavy metals – either not use these materials in the first place or use them and then re-use or recycle them at the end.

However, if consumers will inevitably dispose of these in household garbage anyway and if, as Saldana claims, manufacturers can make these products without harmful materials (at little extra cost?), then it makes more sense to simply ban these materials altogether.

It will be interesting to see if these laws pass and – if so – whether the so-called ‘California effect’ means that other countries get non-toxic iPods too. California is sufficiently wealthy and populous that consumer product companies cannot afford to ignore the market entirely so its regulations affect regulations elsewhere. So, if Apple wants to sell its iPods in California, it must decide whether to make two products – one for sale in California and one for the rest of the world – or to make all iPods comply with the new California law.

Car parking levies – do they reduce congestion?

Melbourne has this year introduced a levy on car parking spaces in the city centre and owners of car parks will have to cough up the first fee next week. The fee is a flat fee of $400 per space per year, doubling to $800 next year and then rising with inflation (indexed to CPI).

Essentially it applies to all commercial spaces. Residential spaces are exempt - as are visitor spaces, loading bays, disabled spaces, spaces provided free by bodies such as schools, hospitals and churches, and some others.

The stated aims of the levy include reducing peak hour traffic congestion, pollution and greenhouse gas emissions in Melbourne’s CBD and encouraging the use of public transport.

This got me thinking: Do car parking levies really work? Is this likely to make any real difference to Melbourne’s city traffic congestion?

It’s difficult to find any hard data on the effect of car parking levies – most of the information comes from self-serving submissions by car parking operators and property owners asserting that car parking fees make no difference to congestion and will make all businesses flee the city in terror, taking their jobs and money with them etc etc. I imagine it’s very hard to isolate the effect of car parking levies from the host of other influences on traffic in cities.

The relevant stats that I could uncover suggest the following:

• There is a response from commuters to higher car parking charges: a Vancouver study (PDF here) suggested that each $3 increase in parking fee reduced the probability of driving to work alone (as opposed to carpooling or using public transport) by about 10%. Another study from the University of California (Berkely) (PDF here) suggested an average price elasticity of demand for parking of –0.32 (which if my maths is right would suggest that a doubling in price would reduce demand by about a quarter). There must be some Australian studies on this surely?
• In Sydney, according to some figures, 7.7% of vehicles travelling through the City of Sydney each day use off-street parking (which would be affected by a levy - another 7.5% use on-street parking and 85% is through-traffic). This figure is probably higher now that the cross-city tunnel has diverted some of the through-traffic out of the city. Still, if we’re generous and say that parking levies are passed onto parking users and result in 25% of those users switching to other modes of transport, that still only reduces congestion by about 2% (although it might reduce peak hour congestion by substantially more than that because many more peak hour users are commuters who will require parking).
• Everyone agrees it’s a solid source of revenue. There’s some bickering about how fair it is, but taxing people who drive to work in the CBD of a large city seems intuitively a pretty progressive tax (many of my acquaintances work in the city and few of them drive to work – those who do are certainly the wealthier ones).

Here are my thoughts on its likely effects on congestion:

• Demand for parking is fairly inelastic – it will take a large increase to induce much change in behavour.
• A parking levy will mostly be passed through to consumers (because demand is inelastic).
  
• This increase in price will have a small impact on demand for parking, encouraging some drivers to use other modes of transport. (A very high fee would have a substaintially larger effect of course).
  
• If it is true that about 8% of city traffic uses off-street parking in the city (92% of city traffic is just through-traffic or uses on-street parking), a parking levy will have a very small impact on congestion overall. (We need other measures to catch these other drivers – tolls for driving through the city and obviously fees for on-street parking).
  
• However, it might have a higher impact on peak hour congestion, as a greater proportion of peak hour users are commuters who will park their cars all day in off-street parking.
  
• It is a solid source of revenue. It is progressive, targeting relatively wealthy individuals, it is relatively non-distorting (because it targets a product the demand for which is inelastic) and any ‘distortions’ probably act to counteract market failure due to the unpriced public good of driving in the city. It’s easy to administer. It also has a ‘polluter pays’ effect which gives me a nice warm feeling (though I acknowledge that there are probably better ways of targeting the polluters here).
  
• If car park levy revenues are used to improve public transport, that is something that could have a substantial effect on congestion. Part of the reason for the inelasticity of demand for parking is that public transport is not a perfect substitute for car travel but if its reliability, speed, comfort and convenience are improved, it becomes a better substitute.

In summary, car parking levies seem a good source of revenue to direct towards public transport but on their own are probably a relatively ineffective method of reducing inner city traffic congestion.

Spooky monetary economics

Here at Oikos we like to go easy on the analysis and focus on the big issues.

The latest post at Institutional Economics talks about the Reserve Bank of Australia's recent statement on monetary policy. I'm sure there was some insightful analysis there (something about relative valuation levels coming back down to earth or something) but I missed it because I was fixated by the above graph of the ratio of Sydney house prices to house prices in other Australian capital cities over the last 12 years.

Has anyone else noticed the top half looks just like a map of the top half of Australia??

SPOOKY!

Happiness and wellbeing in Australia: some dodgy analysis

There was a bit of a flurry in the media and the Aussie blogosphere yesterday with the publication of the latest "Australian Wellbeing Index", which for the first time compares happiness across Australian federal electorates.

Comparing anything between geographical areas always brings out our latent tribalism, parochialism and schadenfreude.

The (Melbourne based) Age crowed:

VICTORIA is the happiest state in Australia and some of its most contented people live in Melbourne's wealthiest suburbs.

while the Sydney Morning Herald lamented:

IS IT aircraft noise, John Howard's long reign, or being overworked and underpaid that makes the so-called chardonnay socialists of Sydney's inner west the most disgruntled people in Australia?

A new survey that compares the wellbeing of people in all 150 federal electorates reveals the safe Labor seat of Grayndler… tops the national list for all-round unhappiness.

Here’s my guess: it’s not aircraft noise, John Howard or being overworked. In fact, I doubt whether Sydney residents are disgruntled at all – it’s just the way the survey is compiled. Here’s a clue in the SMH article:

The scorecard, known as the Australian Unity Wellbeing Index, is based on how satisfied people feel with seven areas of their life - standard of living, health, relationships, what they are achieving in life, safety, community connection and future security.

It shows the happiest electorates tend to have a lower population density, a high proportion of people over 55, more females, more married people and less income inequality. Importantly, they have a strong sense of "connection to their community".

Hm. An index that rates people’s happiness based partly on ‘community connection’ then finds that happy people tend to have a strong sense of ‘connection to their community’.

If we actually have a look at the report on the index itself, we see why that might be.

Subjective wellbeing is measured by the Personal Wellbeing Index. This comprises seven questions that ask "How satisfied are you with ------>?" The specific items people rate are their standard of living, health, relationships, what they are achieving in life, safety, community connection, and future security. The numerical rating scale offers 11 choices from 0 (completely dissatisfied) to 10 (completely satisfied). The PWI is the average rating across the seven items (domains).

There’s the rub. The index arbitrarily decides the 7 things that makes us happy and weights them equally. So there’s a big danger of circular reasoning: we decide that community connection contributes to 1/7th people’s happiness, so we ask them about how happy they are with their level of community connection. Then we tally up the results and, wow, people who rate their levels of community connection satisfaction low tend to be 1/7th less happy.

Here’s a suggestion. People in the inner city of Sydney don’t care too much about connection with community, at least in the traditional sense of having a chat to your neighbours over the back fence. If they did, they wouldn’t live in a fairly anonymous city of 5 million people. But the study decides that, for everyone in the country, community connection makes up one-seventh of our happiness.

Further, if you look at the results across different geographical areas, they’re actually all reasonably close together. Grayndler, the lowest in the country, scores 69.43 and Wide Bay, the highest, scores 78.55. Here’s another thing: because happiness with health and relationships are fairly randomly distributed across electorates (with some notable exceptions), these don’t contribute much to differences in the index. Which just increases the emphasis in the index on things that do differ, like ‘community connection’ and ‘safety’. Satisfaction with safety contributes another 1/7th to one’s subjective happiness, according to the survey. And, again, perceptions of safety are naturally going to be lower in ‘the big city’.

Now it may very well be that community connection does correlate well with happiness on other measures – but this study can’t tell us that, because it starts out with that assumption embedded in it. So drawing the conclusion from this study - as the Age and SMH do - that connection to community is an 'important' contributor to our happiness is completely invalid. It contributes exactly 1/7th to our happiness - because the survey decides at the outset that it does.

Now, I think surveys like this that move away from our obsession with GDP are a good thing, and I think this survey makes an important contribution to our understanding of happiness and wellbeing. The survey report contains some really interesting analysis of things that are correlated with this particular measurement of happiness.

But you also have to recognise its limitations and the most important one is that when you have a survey that has arbitrarily chosen questions, categories and weightings, you introduce arbitrary biases and you have to be very cautious of how you interpret the results.

No doubt the researchers are aware of this. But the media pundits who want to use it as a geographical scorecard aren’t. So let’s also be very cautious of their analysis.

Australian government censoring climate scientists?

Why does Australia always seem to follow everything the US does?

A few weeks ago there was furore in the US about allegations that the Bush administration censored leading NASA climate scientist James Hansen.

Now, ABC online reports that three CSIRO scientists have accused the Australian Government of trying to censor their public comments about climate change.

One says he was asked not to write in a government publication about the potential for millions of people to be displaced by climate change. Another says he was told not to make any comments indicating he disagreed with government policy on emissions. A third says that government censorship "happens all the time" and that he was recently told by his corporate centre that the Prime Minister's department had requested the CSIRO "not say anything about ethanol".

The Environment Minister denies these claims and says he'd welcome a CSIRO investigation into them. The story is on Four Corners tonight and should be interesting viewing.

It all reminds me of the cartoon above, which I saw on the US Environmental Economics blog.


**Update**

Well I watched the show last night and, I don't know, it seemed like a bit of a beat up. What seemed to clear to me from the show was:

1. CSIRO is petrified that if it annoys government, it might lose funding.
2. CSIRO management tells its scientists what they can and can't talk about when they're representing CSIRO (eg, presenting at conferences on behalf of CSIRO). It may be that scientists also feel they can't make any adverse comments in their personal capacity, but there was no evidence of that in the show.
3. The form of those restrictions seems to be that they can talk about science but not government policy. For example, they can talk about the impact of emissions and the need to reduce them but shouldn't comment on what the government should do to reduce them.
4. It wasn't clear from the show what the case was where the science is part of the policy debate. For example, it's one thing to tell scientists (as was alleged in the show) not to advocate carbon trading - that's not really a scientific debate (although there are scientific issues involved). It's a different thing to tell them not to talk about the pros and cons of ethanol from a scientific point of view (which was also alleged) - this is a policy debate but the science is right at the centre of it.

Now, I don't think what CSIRO is doing is a good thing at all - I think the organisation should be big enough to handle its scientists expressing their professional views about policy options. But it's not really a scandal. There was never any suggestion in the show that scientists were ever asked not to talk about the results of their climate research. Nor was there any evidence that these directions came from government or indeed from outside the organisation itself. This is quite different from what was going on in NASA.

In my view, we should be very worried if the government or CSIRO is censoring the science but there are enough groups running with the policy debate to not be too worried if CSIRO scientists aren't participating in it. CSIRO really needs to sort out, however, what their apparent policy of "talk about science but not policy" means when the science is central to the policy.

Anyway, the full transcripts of the interviews are online at the Four Corners website, so have a look and decide for yourself.

Biodiversity trading

Photo montage: UniServe Science

I've been meaning to write about biodiversity trading and banking schemes for some time now, because such a scheme is being proposed in New South Wales.

Anyway, I will be writing about this lots over the coming months because it's a concept that really pushes the boundary of what trading schemes can achieve - people are justifiably sceptical of the very idea of 'trading' biodiversity - which means that it's both exciting and controversial.

For now I'll just flag it and point you to the NSW Department of Environment and Conservation website which contains an interesting background paper on the concept and a discussion paper outlining the current proposal.

Enjoy your weekend!

Public transport - some good news from Melbourne

Beth reports that Melbourne City Council last night released its draft transport strategy and it contains some good news for public transport in the city centre.

Picture credit: City of Melbourne

Conservation vs logging: Battle of the dollars Part II

As I reported earlier, the Tasmanian Land Conservancy has purchased a large tract of land in Recherche Bay from its private owners, saving it from logging. What would environmental economics say about this development?

The ‘Coase theorem’ represents the traditional economic solution to environmental conflicts. Coase argued that if property rights are well-defined and enforced, bargaining between parties ensures that the optimal outcome is achieved, regardless of who holds the rights. According to one description of the theorem:

Many disputes over resources stem from the fact that no one owns them. Or -- nearly as bad -- everyone owns them, as in the case of public property. However, these disputes could be resolved if the unclaimed resources were divided up as private property. Now if someone wants to use your property, you could charge them a fee. Or if they abuse your property, you can sue them. Assigning property rights greatly enhances the ability to resolve disputes over the use and abuse of resources.

The Recherche Bay deal is perhaps an example of how this idea might work, sort of: environmentalists have gotten together money to buy an area of Tasmania’s historic Recherche Bay to protect it from logging by the notorious Gunns company. I’ve been following this story for a couple of months now and it’s been interesting. (Check out the reports in the weeks leading up to the deal on ABC news online.

I’m excited it’s succeeded but is it a triumph for free-market environmentalism? I’m not so sure. In my view, it’s succeeded despite the barriers to an optimal solution that a ‘free’ market throws in its way: a playing field that in this case is tilted against private conservation.

Here are some of those barriers.

Transaction costs

It’s a big deal for conservation groups to raise money from thousands of people to buy such an area. They need to advertise and lobby and beg and cajole to get it, they need to collect the money and hold it safely and issue thousands of receipts. They need to set up a trust to buy the land, work out how to manage it in perpetuity, work out who will negotiate with the landowner and so on.

Free-riders

If conservationists buy and save this area, who pays and who benefits? The generous benefactors pay, all sorts of other people benefit. I’ll benefit because I’d like to visit there one day and I’d like it there to be trees there when I do. I’ll benefit just from the warm inner glow I get knowing that a special place won’t be logged. Neighbouring residents benefit from. Historians and people of French and Australian heritage benefit from being able to visit or perhaps just watch a documentary about an unusual place where the French explored and almost made a decision to colonise Australia.

But will all these people pitch in their $5 or $10 or $100 to save the area? Not likely. Many of the beneficiaries may not even be aware of the benefits they receive. So it could well be that preserving this area is worth well in excess of the amount that conservation groups can raise.

Tax treatment

Tax treatment for conservation in Australia is complicated. It is improving, but there are many aspects of buying land for conservation that are not tax deductible. Donations to the trust that buys it will be, but payment for the land won’t (I think) nor the ongoing cost of managing the land for conservation.

So a group of conservationists face high transaction costs, free rider problems and difficult tax issues. On the other hand, where one logging company wants to buy the land to log it, it faces much lower transaction costs (only one party to organise and negotiate), very few free riders (it pays but also keeps the profits) and using land for primary production attracts very concessional tax treatment.

The property rights solution works sometimes but usually there’s too many embedded biases for it to produce an optimal outcome on its own.

In a later post I’ll talk about ways we can reduce some of the barriers to private conservation.

Conservation vs logging: battle of the dollars

Environmental economists’ ears prick up when they hear about conservationists buying out areas of land to protect them from logging or mining. In an economist’s ideal world, resources are used best when they go to those who will value them most, which means the highest bidder.

So it's interesting (and exciting as an environmentalist!) to hear about the purchase by Tasmanian Land Conservancy of the stunning Recherche Bay in Tasmania, which was due to be logged this year.

I've been following this story for a while and it's been full of political intrigue.

Stay tuned for some thoughts from an economic perspective.

Moving beyond Kyoto?

Nicholas Gruen has a nice piece at Club Troppo on the economics of climate change, the politics of Kyoto and the idea of an international agreement to impose domestic carbon taxes as an alternative to targets and international emissions trading.

Hooray, there’s uranium in our water!

It’s a funny world. ABC news online last week reported on an ‘exciting’ accidental discovery of high levels of uranium in groundwater in Western Australia’s wheatbelt and two days later reported that high levels of uranium in water near Alice Springs is suspected of contributing to kidney damage in the local Aboriginal community:

A group carrying out research into salinity in the Western Australian wheatbelt has stumbled on unusually high concentrations of uranium in the local groundwater.

The Cooperative Research Centre for Landscape Environments and Mineral Exploration made the discovery and has now received financial support from two hopeful junior exploration companies. The centre's chief executive officer, Steve Rogers, says while uranium mining remains under a State Government ban, mining companies are still keen for clues to potential deposits.

Dr Rogers says apart from the mining potential, the find has broken new scientific ground."We compared them to a database from the United States Geological Survey and the concentrations we see are higher than anything that anybody has ever seen in the United States, remembering that these are concentrations of uranium that are actually dissolved in water," he said. "So this is very exciting from our point of view."

My questions:

• The Cooperative Research Centre for Landscape Environments and Mineral Exploration is established, regulated and mostly funded by government. Why is public money going towards exploring for a mineral that would be illegal to mine?
• How is finding high levels of a highly toxic radioactive substance in water in an important agricultural area that produces a lot of our food ‘exciting’? Particularly when that substance is suspected of causing renal damage when dissolved in water sources.
• What does the excitement and funding from exploration companies say about the attitude of the mining companies and government bodies that make up the CRC to Australia’s laws? Is their attitude that those laws can be changed to suit them if the right pressure is applied?

Illegal fishing in the southern seas

My friend Doug has an interesting post today about the difficulties of policing illegal fishing of patagonian toothfish in the southern seas.

Solar powered backpack

I want one!

The Kyoto vacuum: markets step in

It's been disheartening to say the least to witness the attitudes of the US and Australia to action on global warming.

The failure to commit to the Kyoto Protocol might not be so bad if these countries had some other realistic suggestions for global action. Judge for yourself, but in my view the Asia-Pacific Partnership on Clean Development and Climate is not a realistic alternative. Its focus on a few technological fixes is either naive or dishonest (let's face it, it's dishonest).

We need governments to commit to regulating their industries to reduce emissions sharply and fairly quickly. Industry isn't going to do it on its own.

Nevertheless, it's been encouraging to see alternatives emerging to fill the vacuum of political leadership that we're suffering at a national level. Lefties would call it people power, righties would call it the market, but however you see it, consumers or citizens are stepping up to the challenge and demanding change - and businesses are starting to respond.

Two developments this week have caught my eye.

Yesterday, the Carbon Disclosure Project entered its 4th stage - and it's much bigger than the last one.

The Carbon Disclosure Project or CDP is an initiative on behalf of fund managers who together manage more than $30 trillion. That's a lot of cash. They've written to 1,933 of the world's biggest companies (up from 500 last year) requesting detailed information on their activities and policies with respect to climate change.

Why are fund managers interested in this? Because climate change is going to be big business - it's effects are going to threaten some businesses, the demand for emission reductions are going to threaten others, while demand for clean energy and carbon offsets is going to present enormous business opportunities.

According to Reuters:

"There are business risks and opportunities (from climate change) that have implications for the value of investments in corporations worldwide," said Paul Dickinson, CDP project coordinator.

The investors have demanded disclosure on companies' risk from extreme weather events, often associated with climate change, and about their emission of carbon dioxide... and for their strategies to cut emissions.

Detailed information on emissions is seen even more key this year given high energy prices, increasing the attractiveness of companies which are less carbon and energy intensive, or which have active programs in this direction.

"It's a question of institutional investors taking a well-informed view of the profitability of companies based on energy consumption and (carbon) emission performance," said Dickinson. "You could take a view that climate change will be good for green technology companies... [while] unprepared companies could find themselves in the firing line of policy as political demands harden on the need for CO2 cuts [and] a blase attitude to climate change could also risk reputational damage.

And earlier this week came news from the US of the first State-based emissions trading scheme (in Illinois). It's voluntary (I'll leave it to you whether that's good or bad) and basically allows farmers and other landowners to earn credits by adopting various conservation measures. These can then be sold to companies and organisations who have committed to reducing their greenhouse impact by offsetting their emissions.

Essentially the scheme just represents a credible certification program and a sort of clearing house for funding of conservation projects. It's being overseen by the Chicago Climate Exchange which already runs a similar national program (I think the novelty of the Illinois one is that it has government sponsorship and involvement).

There's a growing number of these sort of initiatives (I'll research and report on the Australian ones in the next few weeks) and I find it very encouraging. I don't think it's a substitute for national political leadership but I think it will be a precursor to political action, once our pollies wake up and see that there is a political will for this, that business can do it and that there are feasible mechanisms. Then just watch them claim these initiatives as their own.

The real environmental vandals: accountants

It seems to me that many environmental problems are caused by accountants.

Ross Gittins has a piece in today's Sydney Morning Herald about the running down of our public infrastructure. It's been fairly easy to observe in Australia in recent years what he describes:

WHAT happens when politicians keep promising the electorate new and better government services, but also reinforce the belief that we're already overtaxed - and, for good measure, adopt the attitude that it's a terrible thing for governments to borrow? The short answer is, something's got to give. To make that inconsistent trio of propositions add up, there's got to be something somewhere that's being squeezed. Something that's not terribly noticeable. A path of least resistance.

For some time now, the more alert among us have suspected that the meat in the sandwich may be public works. That the politicians may be making heroes of themselves and proving they can do the impossible by quietly running down the quality and adequacy of public infrastructure.

Well, maybe the more alert among us - or maybe just anyone who's caught a bus or train in the past few years.

Gittins describes how a lot of public infrastructure, particularly at local government level, is being quietly run down to save money. These assets are depreciating at a rate of $1 billion a year but Councils are only setting aside half this amount for their repair and replacement.

The situation is "akin to a family that doesn't make sufficient provision for replacing worn-out parts, let alone saving enough to buy a new car when it reaches the end of its economic life" - which is the point where repairing the car is more expensive than replacing it. And the present backlog of $6 billion to bring assets up to a satisfactory standard is "equivalent to driving a vehicle with serious structural and mechanical problems that have not been attended to".

This raises the question, why?

Because, although in some cases it may be obvious to the public that council assets are run-down or even dangerous, for the most part the problem is hidden.

The issue has been easy to ignore because infrastructure typically has a life of 50 to 60 years and only a small proportion has required renewal so far. Councils have been able to fund the operation and routine maintenance of assets, with a limited amount of renewal. The crunch is still some years off. "By the time infrastructure condition is at such a bad state as to be noticeable to the community, it will long have passed the optimal time for renewal".

It seems to me there's something much bigger than public infrastructure that's being squeezed right now. Something big and not very noticeable and harder than infrastructure to account for.

It's assets that we take for granted because, unlike a sewer or a dam or a road or a railway line, they don't have a monetary value ascribed to them. But they have an enormous value.

These assets are rivers, forests, catchments, oceans, ecosystems. All over the world they're becoming seriously degraded. I think people notice it and think it's a bit of a shame. But what policy makers, governments and business are not really noticing is the huge drain on our wealth that it represents. These ecosystems are not just nice to look at and visit, they provide our resources and absorb our garbage. Eventually they'll get to the stage where we have to spend massive amounts of money repairing and replacing them. If we can do so at all.

But right now, they're just quietly being run down.

This is one reason why environmental economics is important. Putting a dollar value on a forest or river is kind of gross. But putting a dollar value on the economic services they provide is the only way to realise how much wealth we're squandering by running the level of those services down.

Which brings me back to accountants. It's not really their fault of course. But if a company tried to count the profits from selling stuff they manufactured while leaving out the hidden costs of depreciation of the equipment they used to manufacture it, their auditors would jump on them. Companies account for depreciation of their assets.

So where are the environment's auditors? When are we going to start accounting for the environment, for our natural assets?