12 July 2011

It's finally announced, Australia will have a carbon tax of $23 per tonne of CO₂ emitted.  This is said to be the highest such tax in the world but it will be limited to 'about 500' of the biggest emitters.  The Government says that it can't reveal which  these are to the public because commercial privacy laws prevent it from naming them. 

Some companies have already 'gone public' and it is clear that prominent among them are the major thermal power generators and perhaps airlines.  Some like BlueScope Steel (previously BHP Steel) will be granted a grace period before the tax comes into effect. In this case it is publicly announced that the company has been granted a two year grace period with possible extensions, limited to its core (iron and steelmaking) emissions.

The Greens and the Government have taken to calling companies investing in technologies that release large amounts of CO₂ the 'Big Polluters'.  Yet it is these technologies that provide us with electricity, basic metals, building materials and transport.  Ultimately it is consumer demand for these products and services that determines their production.  The businesses that supply these products and services are not the culprits; we are.

But the government says we will not be out of pocket!  This is an extraordinary claim. If it is true I can continue to run my electric heater or air conditioner and not be out of pocket!  The Government will tax the power station they will put up the electricity price to compensate and the Government will give the money to me to offset the extra cost.

Of course this is an oversimplification.  Some people will be compensated.  Others will find that they effectively pay more; else who pays for all the extra bureaucrats needed to administer the scheme?

Now the price has been announced people are looking at their own domestic budgets. The Government has promised to give it all back - and then some - but admits that about a third of households will not be fully compensated; although a smaller percentage 'of the most needy' will get overcompensated.  Clearly most people think they will end up in the uncompensated or less compensated groups and want to know what the others did to deserve their handout.

Tax or no Tax prices will rise

Electricity and fuel prices will continue to rise, even without the tax, due to resource depletion;  ever increasing world energy demands; and in Australia the cross-subsidy of renewable energy under the renewable energy target scheme (see below).

Clearly the government counting on the increased relative price of selected 'carbon intensive' goods and services to cause people to change their consumption patterns.  In which case why are they being compensated when they wont spend the money on the things that costs more?  Is this, in reality, another hand-out (economic adjustment) in anticipation of the recessionary impact of the tax?

And how will the tax work to change industry behaviour?

The businesses that have apparently been singled out are those with very large plant or other productive assets.  While these now mainly reside in the hands of the private sector by an economist this can be viewed as a management convenience.  Indeed some of the assets were, not long ago, in public hands.  Seen on an economy wide basis, these airlines, power stations, as well as steel,  aluminium and cement plants are assets of Australian society at large. 

The tax is designed to cause the earlier than otherwise projected closure of the more emission intensive assets; and their competitive replacement by technologies that are less emission intensive. While some may be in a position to employ more efficient newer technology; a large proportion have assets with working lifetimes measured in many decades.  Some may not break-even for a decade or more after the initial purchase and are only now entering their profitable phase.  Premature closure of such plant is implicitly costly to Australian society taken as a whole.

For example, it transpires that all coal burning power will pay the tax.  But because brown coal will be worst hit, the Victorian generators are to get compensation to keep them in business; nominally to facilitate transfer to less polluting technology. How's that going to happen? Is Yallorn going to import gas?

The whole point of the tax is to cause old polluting (particularly brown coal) plants to close in favour of new gas facilities in an optimised location - probably not Yallorn and, possibly, not even in Victoria. These facilities have already enjoyed the bulk of the coal research investment including a gasification pilot plant (using Chinese technology) under two previous Federal Governments. Given how quiet that went I presume it was not a glowing success.

Fundamentally there is the chemical reality and associated energy equation that makes brown coal less energy intensive than black; and inevitably less efficient. This loss translates to more CO₂ per kWh delivered. No matter what you do black coal will do it better - you can't beat the underlying physics and chemistry.

In the past we didn't care it was still price competitive, despite the additional CO₂. Now we do and they have to go first, followed by the less efficient black coal plant followed eventually by the gas plant.

But Julia has now subverted this process so that some black coal plant may fail first. Qld and NSW black coal generators are calling foul! They are in the same east coast energy market, that runs on very pure market lines with 6 minute energy trading. Suddenly black coal is being taxed to subsidise brown!

This may be a price we are prepared to pay to reduce greenhouse gas but we need to ask: what is the potential for lower emission alternative technologies to be found or developed to replace them? 

This varies significantly across the various industries.  Those with newer plant are already employing close to the world's best practice; and in other cases the likely impact of the tax will be to curtail any further investment, in anticipation of closure when present plant reaches the point of unprofitablity. 

There really is no practical, commercial alternative lower emissions technology to those already in use for making iron or aluminium.  If these technologies are made uneconomic by the tax, Australia will simply import its future iron and steel and aluminium requirements from similar plants overseas; resulting in around the same global carbon emissions outcome.

Electricity

Of most concern is electricity.  This is discussed at length elsewhere on this website.  We are already paying significantly more for electricity to subsidise wind and solar energy schemes.

Back in April the Independent Pricing and Regulatory Tribunal (IPART) has announced that electricity prices for the average New South Wales resident will increase by 17.6 per cent from July.  Sydney customers now pay on average about $230 more each year, while rural customers face an extra $316 in charges. IPART said it recommended the increases because of costs associated with energy firms complying with the federal government's Renewable Energy Target (RET). The RET requires energy firms to source power from renewable sources such as solar or wind. For an explanation click here

The Prime Minister eloquently explained that the high Australian per capita energy consumption translates into very high carbon emissions (she seldom mentions carbon dioxide).  But the reason for this is seldom explained.  It is because Australia is rich in carbon resources.  These have been, and continue to be, the basis of our relative economic prosperity.  This has included the domestic processing of a wide range of mineral and agricultural resources.  Unlike many overseas competitors we are relatively poor in hydroelectricity resources with little scope for significant expansion; except in Tasmania; but of course they have Bob Brown to stop that.  And largely for economic reasons, with a large dose of pot banging and demagoguery, we have not had the need to adopt nuclear power that, for example, supplies over 80% of France's electricity and a significant proportion of that in several other EEC and Asian countries. For further discussion click here.

Unlike the climate sceptics I have no doubt that mankind is affecting world climate in many ways.  I been talking to anyone who will listen about the central problem facing the future of humanity since the mid 1960's.  Climate change, species extinction, and environmental degradation are the chief symptoms of this problem; runaway human population growth.

The Cap and Trade alternative

As I have discussed at greater length elsewhere a cap-and-trade scheme is potentially administratively simpler than a tax; and a lot harder to subvert for political purposes.  Provided that any practical commercial solutions are allowed it allows industry to find its own solutions; for example nuclear power.

If all consumers of fossil and other carbon based fuels are caught, keeping track of production and sale of fuels is easily audited and appropriate penalties non-compliance can ensure effective industry self-regulation.

Similarly the monitoring the fossil content of imported goods and services can at least attempt to ensure that those originating from countries not imposing a carbon price are suitably taxed; to avoid unfair domestic competition.

Instead of vilifying 'big polluters' we need to recognise that our economy requires electricity, steel, aluminium cement, transportation and so on.  Existing economic activity should initially be capped at present levels at no cost to the enterprises or to the consumers of their goods and services.

There are then two options:

1. the cap can be lowered by, a percentage each year until a target is reached;
2. or it can be held at present levels with any growth above the cap being paid for at some very high cost

All enterprises and individuals in the economy would need to pay a high cost for any consumption of carbon based fuels exceeding the prevailing cap. 

Enterprises thus have a strong incentive to purchase carbon credits released by those that close down or that improve their carbon efficiency in excess of the new target.  In addition certain alternative energy generators, and those enterprises verifiably sequestering carbon, would thus create new credits to be sold within the scheme. While similar schemes now apply in many places many of these have proven to be seriously economically distorting due to exemptions and inappropriate allowing of tree plantings and other dodgy practices and credit earning activity. 

Provided that the cap is appropriately set there is no need for the government to be involved on a day to day basis and no taxation revenue to redistribute.

This is discussed in more detail elsewhere.

So I'm not fundamentally opposed to a properly implemented cap-and-trade scheme to cap greenhouse emissions.  I say 'fundamentally' because to avoid seriously distorting our economy this needs to be imposed on all economic activities, without exception. To achieve this global scope requires a bipartisan agreement as there needs to be no special pleading by independents or Greens; or compensation to marginal electorates or interest groups. 

And businesses need to have all possible solutions and technologies available to them to meet the economic challenges thus imposed.  These need to be constrained only by the legal constraints of potential liability for injury that may result.  Thus a wind farm may be sued by those injured by noise pollution or a nuclear plant for consequential damages following an earthquake.  Research into nuclear fusion should rank alongside that attempting to make solar or geothermal energy economically practical.  Neither politicians nor journalists should be deciding what is, or is not, a good technology.

But will Australia's little domestic initiative be sufficient to fix the world's coming crisis?  Of course not. Our domestic contribution is minuscule.  But Australia continues to feed the voracious appetite of this ever growing humanity.  This is not only ever-expanding in numbers but in its increasing per-capita demand for resources. 

Again, this is discussed extensively elsewhere on this website.  Thus anything we achieve at home is quickly swamped by our relatively vast exports; not only of coal and gas; but of iron ore, alumina and other minerals.  These generally require someone else to burn vast quantities of carbon to reduce them to metal and/or process them in to final products.

I have repeated the following diagram several times.  It shows how Australia really impacts world climate both for better (uranium) and for worse (coal and gas).  Note the tiny proportion of coal production that goes to domestic consumption (< 18%); and of course none of the uranium.  As our exports expand this is an ever shrinking proportion of our total contribution to world climate impact.  Whatever we do at home is largely irrelevant and valuable only in so far as we can hold our head up and show a good example in World forums; and so that Kevin is 'not spat upon at the Rialto';  he gets enough of that at home.

The options

What would a solution look like.   Why not dam the northern Rivers - starting with the Clarence in NSW?  It's well located relative to the grid and has very adequate flow rates - better than the Snowy. And the water can also be redirected inland. Of course some prawn and fish farms would be rather dry but at least towns down-stream would no longer flood.

Maybe coal seam methane? Of course even the very limited trials of that in Qld and northern NSW are already causing significant environmental damage. We just need to multiply the present industry by about a million. But why not destroy a bit of previously untouched rural habitat in the interests of world carbon politics (well actually, a good bit of northern NSW and Qld)?

What about carbon sequestration (Carbon Capture and Storage)?  I've dealt with that elswhere. Click here...

The originally proposed cap-and-trade scheme has long been subverted. Its impact would have been to apply economic pressure to find real solutions - not greenie shibboleths; something dreamed up a Grade 8 clerk in Canberra; or polling sensitive ones, as determined by a political apparatchik in Sussex St; or Liberal party headquarters.

Under a rational and bipartisan government carbon elimination policy what might the future look like?

Almost every qualified commentator has already suggested the elements that would for apply in an Australia without coal.

In terms of electricity:

• optimised wind and/or solar - due to variability limited to about 20%;
• a bit of hydro, plus pump storage, mainly for peak smoothing (as permitted by the greenies); and possibly a tiny fraction of other alternatives (unless geothermal can be made to work eg using a refrigerant like SO₂ instead of steam - because at the present it's dead in the water);
• there is also a place for some gas co-generation, for example in commercial buildings and cities and possibly in residential communities;
• the bulk of the remainder, probably around 60%, needs to be nuclear; maybe, in the more distant future, fusion. 

As can be see in the diagram above Australia already exports about three times our total domestic energy needs as uranium oxide to be used in other, more progressive, economies.

Transport is a bigger problem.

After getting electricity weaned off carbon, the first priority would be to move as much as possible to electric traction. This is not an option at present because electric trains and cars actually release more carbon in Australia than similar conventional ones kW for kW.

Getting electricity off carbon needs to be achieved before these technologies do any more than move the pollution somewhere else.

A new tax for transport fuel is the best way to make the transition from oil - once we get electricity sorted out. This needs to recognise that most transport fuel is imported and needs not to discriminate against domestic production. Fuel tax is best charged at the pump and existing taxes can simply be increased taking into account the possible impact of peak oil on that proce in any event.

Once lower carbon electricity is achieved we need to get a high voltage traction freight network going down the East coast and ultimately across to Perth. A separate very fast passenger network is needed to replace much of the domestic air transport. All cities over half a million need a suburban metro, possibly complimented by light rail.

But none of this makes sense as long as we get over 60% of our electricity by burning coal and gas.

Population

On the subject of population its difficult not to get annoyed. I have not heard it mentioned once in this debate; by either side.

Since the United Nations World Population Year in 1974  many leading scientists, and a handful of politicians, have been warning that we are heading for a serious disaster; of which increasing energy demand and corresponding exponential increases in carbon dioxide emissions is but a symptom.

In 1974 the population had alarmingly just past 4 billion; having been under 2 billion less than fifty years earlier.  Ten years ago we passed 6 billion and later this year we will pass 7 billion.  While more developed countries have responded by lowering fertility, the principal constraint in the third world is an estimated 25 premature deaths per minute, every minute, due to malnutrition, poverty and disease.  Soon, as we approach 9 billion, this is projected to climb to over a hundred per minute preventing further growth.

In this context the destruction of the natural environment species extinction and increased energy demand are all inevitable and it now seems almost impossible to prevent catastrophic climate change befalling our grandchildren or great grand children.   This will occasion enormous loss of life and the possible collapse of civilisation.

The only hope seems to rest in our ever advancing scientific, evidence based, knowledge and technological capability.

For example:

• some entirely new energy technology, such as nuclear fusion, or a practical and economic means of tapping geothermal energy might allow us to stop 'burning stuff' as our principal source of energy used in: transport and manufacturing; physical labour substitution; and metals reduction; as well as domestic and commercial temperature control; lighting; and supplying electrical and electronic devices;
• new understandings and developments in biology and genetic manipulation might help us to produce more food and biologically based  materials while reducing our impact on natural ecosystems;
• developments in electronics, computing and communications technology might facilitate the more rapid transmission of evidence based knowledge and understanding; bypassing hierarchically controlled and generationally imposed traditional belief systems that are at the root of so many of the world's problems; and
• new advances in medical science may provide additional means of humanely limiting population expansion if all girls and mothers could exercise effective reproductive management and decide the sex of their babies; combined with properly moderated voluntary euthanasia this might allow us to slowly, and in a controlled way, move back to more sustainable, say 1900's population levels, without consequent collapse of the world economy, as a result of reducing first world consumer numbers and general population aging prior to stabilisation.

Jump to my earlier article on the same subject:  Click here...