Go slow on carbon? Check!

I was at the Melbourne Mining Club lunch yesterday where BHP Billiton Chairman, Jac Nasser, delivered a thought-provoking speech which touched on carbon, among many other issues. A transcript of his speech is available here.

His call for a “go slow” on carbon has resulted in front page headlines in The Australian and the Fin Rev. For the former publication, this of course translated to a pressure on the government to “abandon plans for a carbon tax”, which is not what he said.

But it got me thinking about what would constitute a “go slow”. For those of us who have been tracking this issue since the late 1990’s, Australia’s pace has seemed sufficiently slow to meet such a criterion. From the early part of last decade when it was first considered, to when it was ruled out by Howard in 2004, then picked up by the Labor States, then ruled in by Howard in 2007, then proposed and dumped by Rudd, and now the proposals under the current government, we’ve been on a long journey. At all times through this journey, the principle has been that it is in Australia’s interest to do its proportionate part in global efforts to reduce emissions.

Yes, this is in the context of the global pace of abatement efforts, which have also been slow. The failure of Copenhagen to meet expectations for a global binding agreement catalysed a different international approach, where now individual countries commit their own targets and also their own policies to meet these targets. Sort of like a bottom-up rather than top-down approach. China’s approach, as outlined in its most recent Five Year Plan, is substantially different to that of Europe or the US. Each country’s approach is informed by the particular political, social and economic circumstances of that country.

The fact that some other countries have walked away from carbon pricing does not demonstrate that it is the “wrong” answer. Much like increasing globalisation or major tax reform, many things that may be the right answer economically are the most difficult to achieve politically. Clearly in the US context, a hostile Congress made it impossible to pass such legislation. Instead, the US will embark on a more traditional regulatory approach. However, this will be a more costly (economically, if not politically) approach to reducing emissions.

We have already seen in Australia the economic cost of not embarking on the carbon price journey. In its absence, successive State and Federal governments have put in place other policies. These include renewable energy targets, energy efficiency schemes, certificated abatement schemes focused at sub-sectors of the economy, feed in tariffs for solar, specific spending commitments from budgets, and a raft of non-price regulatory regimes on greenhouse emissions. Each of these have has a minor impact on electricity and other prices (the impact will increase over time) and so have been easier politically to achieve. But in terms of abatement achieved per dollar of expenditure, it has been a high price to pay. In the absence of a carbon price in the future, we risk a proliferation of such economically inefficient schemes, the cost of which would be a drag on the economy.

Nasser called for a sector-by-sector approach, starting first with energy. While this has the benefit of addressing the issue of investor certainty in that sector, it doesn’t solve the political problem. If you start with just the energy sector, then electricity prices will go up, subjecting the policy to the same “great big new tax” criticism that the current carbon price proposal is subject to.

It’s also inconsistent with CEO Marius Kloppers’ call last year for a broad based system: “covering the broadest possible range of both carbon emission activities and low carbon energy option in any plan ensures the largest base for emissions reduction”. One of the problems with the European ETS is its limited coverage, and they are addressing this to some extent by broadening coverage in its third phase from 2012 through to 2020.

The other issue with an energy sector only scheme is that a good proportion of the emission intensity trade exposure comes from higher energy prices which are an “indirect” emission rather than a “direct” emission. Aluminium is a good example, where its exposure to a carbon price comes principally from higher electricity prices. So the EITE issue still needs to be dealt with.

In a sense, the provision of free permits to EITEs, as proposed under the CPRS and the current design (details yet to emerge), provides a “go slow”. Bearing in mind that the CPRS design included direct and indirect exposure, if EITEs are compensated somewhere between 94.5% and 100%, their exposure to a carbon price is quite low and the risk of carbon leakage is therefore also quite low. The pace at which the assistance is reduced over time can essentially control the pace at which Australian industry is exposed to the carbon price.

Comments

  1. CoC – You could include this graphic with your post. Possibly one reason (among many) that Go Slow may be preferable to Going Full Force.

    http://wattsupwiththat.files.wordpress.com/2011/05/climate-alarm-cycle-model.jpg

    “In the absence of a carbon price in the future, we risk a proliferation of such economically inefficient schemes, the cost of which would be a drag on the economy.” Assuming there is a proliferation of the schemes you list and that they are economically inefficient. These are mostly implemented by authorities in order to appear concerned with these issues and to appease the vocal sectors that demand their adoption.
    These scheme are very different in nature and concept from programs that directly target pollutants – progams which are comparatively effective and verifiable. Politicians can barely commit themselves to carbon tax proposals.

    Not for a moment do I seriously think these schemes more expensive and “a drag” on the economy than a fully operational carbon tax regime with all its attendant costs.

  2. It just looks like more of the same to me. As Author Clive Hamilton, is his book Scorcher, says, one can find the following arguments in all denialists’ manifestos:

    * There is no evidence of global warming.
    * If there is evidence of global warming, then it is not due to human activity.
    * If global warming is occurring and it is due to human activity, then it is not going to be damaging.
    * If global warming is occurring and it is due to human activity, and it is going to be damaging, then the costs of avoiding it are too high, so we should do nothing.

    Delaying is just a variation on the old theme.

    • Clive Hamilton preaches about reducing the worlds population to 200 million and suspending democracy. Why would you quote him?
      Obviously you don’t have any understanding of the CAGW theory or you would know that the whole argument is weather or not the small amount of warming from CO2 is amplified by more water water vapour being retained in the atmosphere, or weather increased evaporation results in more clouds and rain.
      The observations clearly show that water vapour is either stable or declining and so the the theory is clearly falsified.
      At the same time satellites are showing that the earth is emitting more radiation as it warms up, which can not be caused by greenhouse gasses. The cause is the observed 4% decrease in cloud cover that happened in the 1990s and was responsible for 75% of the observer warming. This leaves a paltry 0.1degC in 30 years of satellite observation that could be due to C02, 6 times less than the IPCC prediction.
      But hang on, some idiot said it is worse than we thought!
      By the way all scientist are sceptical of CAGW, because you are not an scientist unless you have an open mind!

        • modern science is a methodology, it can’t say anything!
          Observations on the other hand are rather useful for falsifying BS theories like AGW. An extremely good site for viewing these observations is http://climate4you.com/

          • An extremely good site for viewing these observations is http://climate4you.com/

            That site is run by Ole Humlum, a U. of Oslo physical geographer of Danish origin, who’s done glacier work on Greenland and Svalbard (e. g. in Holocene 15(3)). He’s got a rambling 34-page essay online in Norwegian, a hodgepodge of historical factoids on climate with some hand-waving about Henry’s law and isotope ratios to suggest that the atmospheric CO2 increase is mainly from natural sources. He recently featured in a Norwegian newspaper debate with Eystein Jansen about the IPCC and the skeptics. Humlum, and a co-author who also ought to know better, wrote inter alia:

            Recently the UN’s environment organization, which is behind the [IPCC], announced that it’s wrong that the temperature on our planet has risen so steeply the last hundred years. After 11 years, a cornerstone argument of the [IPCC] that it’s never been warmer than today for thousands of years, is falling. It is now well-documented that the Middle Ages [sic!] was a global phenomenon and considerably warmer than the last decade, which is only marginally warmer than the 1980s. [Aftenposten, 16 Oct 09, transl.]

            ‘Nuff said.

        • The Loaded Dog

          In lieu of the suspension of democracy as promoted by lunatics such as Hamilton I always refer armchair “scientists” such as yourself to sites like as Watts Up With That.

          http://wattsupwiththat.com/

          That’s where serious scientists hang out.

          Happy reading…

          • The wattsupwiththat site is a denialist ghetto, probably funded, like most denialist sites, by Big Oil and other polluting industries.

            You may remember hat FoxNews and WattsUpWithThat pushed a falsehood-filled Daily Mail article on global cooling that utterly misquotes, misrepresents work of Mojib Latif and NSIDC. No?

            Anthony Watts, who owns the site, is a meteorologist (a former TV weatherman), not a climate scientist.

            If you are interested in real climate science and not politicised claptrap, try http://realclimate.org

          • The Loaded Dog

            “The wattsupwiththat site is a denialist ghetto, probably funded, like most denialist sites, by Big Oil and other polluting industries.”

            Ha ha ha. Watts Up is funded by big oil.

            Is that the best you can do?

            Please.

            Face it. It’s over. You guys are LOSERS. No one listens to your alarmist rantings any more. So 1990’s.

            Try to convert some other gullible fool you religious nutter.

    • So I guess the 61 megabytes of global warming research data of emails, documents, and computer code released by whistleblowers, that exposed climate scientists, at the University of East Anglia in Great Britain, of manipulating scientific data to “hide the decline” in global temperatures was nothing more than a staged event?

  3. Perhaps if these so called experts were not always so wrong with their predictions maybe the public would less skeptical about global warming.

    • No, no, no, you have it all wrong. The PREDICTIONS ARE RIGHT!!!
      Its the observations that are wrong! 🙂

        • Us nutters (physical scientists, rather than computer mathamagicians) are not worried about trying to change the mind of true believers like skeptic and yourself. Were only interested in convincing the vast majority of humans who have the capacity for rational thought. The field of climate science is a joke and is bringing the whole of science into disrepute. We are not happy!

        • If I was a betting man, I’d put my money on Piers Corbyn of http://www.weatheraction.com

          An astrophysicist and meteorologist with an 85% accuracy rate at predicting global weather patterns and earthquakes(highest in the world) emphatically debunks global warming.

        • The Loaded Dog

          “10 out of 10 for effort”

          Wasted effort that is – like your bloody tax.

          Try dropping in at your local basket weavers convention.

          You should get a sympathetic ear there.

  4. Nasser completely contradicted himself throughout.

    He said this in his speech:

    “So the reality is we have to do two things at once: we have to cut carbon emissions and at the same time find ways to meet the increasing energy needs of emerging and developing economies. The sheer size of projected energy demand means that we will have to use many different sources. Each source has different costs and environmental impacts. It is difficult to predict winners and losers, with subsidies generally causing distortions as opposed to success.”

    In other words, it costs more to centrally plan. Then he said in his press conference that we should stick to electricity first through a “sectoral approach”. In short, use central planning.

    With all due respect, this is incoherent. These guys will say whatever, whenever for the benefit of shareholders. Why do we treat them like some private prime ministership?

    • Ideologically, most CEO’s are capitalists, but in practice they are all socialist.

      In other words, in public they say the free market is awesome (and thus defines my awesome salary), but in private to the Minister of the Day, we need protection from the free market.

      • Alex Heyworth

        They are like the Country Party of old. Privatize the profits, socialize the losses.

      • Does it correspond that ideologically most Labor politicians are socialist, but in their hearts, capitalist.

        And a perfect marriage is achieved when, post their political career, they fall into the waiting arms of the capitalist (but secretly socialist) CEOs?

        Seems to be a right of passage, for even the most strident of former union leaders and party hacks…

        • Politicians are predominately opportunistic and ‘service to self’ orientated.

          “Ninety percent of the politicians give the other ten percent a bad reputation.” – Dr Henry Kissinger

    • “With all due respect, this is incoherent. These guys will say whatever, whenever for the benefit of shareholders. Why do we treat them like some private prime ministership?” Agree with you. Why are the CEO’s of various corporations called on by the media to opine on matters they have no knowledge of. To cut some slack for Nasser, speech would have been written by ex-journo or someone with a marketing and communication degree. Enough said.

      Regarding incoherence and why they are treated like some private primeminstership – both are guilty of incoherency and both spruik to their constituents and tell them what they think they want to hear. But mostly because the standard of journalism is lower than a cockroach’s belly and demands nothing more. One more thing, politicians grovel at the feet of these CEO’s. I’ve always thought pollies have seen the CEOs as higher up the food chain, professionally something they never could have been.

      • ” One more thing, politicians grovel at the feet of these CEO’s.”

        Could it also be because the hand that feeds them, could one day shelter them?