How much carbon in my milk?

How much do you think the price of a 2 litre bottle of milk will go up with the “great big new tax on everything”. 10c, 20c, 50c, a $1? As a product of ruminating cattle, emitting methane (a greenhouse with 25 times the global warming potential of carbon dioxide) each and every day, it’s one of the most greenhouse-intensive products on our grocery shelves.

According to dairy conglomerate Fonterra, there’s about 1kg CO2e in every litre of milk. (CO2e stands for CO2 equivalent, so 40g of methane emissions equates to 1kg of CO2e). Most of this comes from on-farm emissions, and the remainder things like chilling at depots and transport emissions.

So if all emissions were taxed, or charged, and the carbon price was $20/t CO2e, that’s 2c per litre of milk, or 4 cents per 2 litre bottle. That’s right 4 cents. Meaningless in the scheme of things, especially in the context of the recent dairy wars that have seen milk shelf prices drop substantially. Even if carbon goes to $50/t CO2e, that would bring it to 10c.

Also, this calculation assumes that agricultural emissions are included, which the government has ruled out, and which was also ruled out in the CPRS until a review in 2015. So if you strip out the on-farm methane emissions from cattle, the price increase would be a small fraction of the calculations above.

The Fonterra two pager also describes some of the abatement activities they and the dairy industry are researching and considering, including capturing effluent for energy generation. All of these new innovations become more economic if carbon ever gets priced (which it already is in NZ). So if we ever start paying the 4-10 cents, we can see what kind of things we’d be funding.

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  1. The whole point of the tax is to be implemented then go up over the long run. It’s the ‘thin edge of the wedge’. It has to go up otherwise it won’t achieve it’s stated goal of forcing people to behave in a way the government wants.

    At any rate, let’s say the price of milk is $1.2 per litre and the carbon tax rises this by .02c. That equates to a 1.7% increase in cost. Yes, you can use really small numbers like 2 cents and say “look how small it is” but most people buy more than just a bottle of milk a week.

    A 2% increase in cost of living is much bigger than you think. If the carbon price was $50/tonne that would be a 4.25% increase in cost of living. All at a time when the cost of living is rising substantially. Yet, you claim this will have no affect? Pull the other one. For a family with costs of $35k pa that’s $700 at LEAST.

    Now, imagine this goes up every year as the government have told us it well? Can anyone spell inflationary?

    And stop with the lie that taxing some things makes other things ‘more economic’. It doesn’t make other things ‘more economic’ it makes the more efficient and better item/energy source LESS economic. Thus hurting absolutely everyone in the process.

    And what will this tax achieve? Absolutely nothing, zip, zero. No matter what you believe it will not do anything for the world and will only hurt the country. All pain for absolutely no gain.

    Why are we doing this again?

    • Here Here

      This tax is a pointless waste of time, destroying productive parts of the economy at a time we can least afford it.

      It isn’t 2007 anymore.

    • Carbon E. Coyote

      You can’t extrapolate the price increase of milk to a percentage increase in CPI or the cost of living. That was one of the points of this blog. If milk has a 2% impact, as the most emission-intensive grocery item, then all other commodities are far less emission intensive and will be a fraction of a percentage point, so a basket of goods (as per the CPI calculation) will be much lower.

      And also, agriculture is not included, so milk will go up by a fraction of a cent if that.

      • So if you can’t extrapolate milk to the price of living and agriculture is excempt, why are you using it as an example? The biggest cost of living factor is going to be power anyway and I suspect that is far more emissions intensive than milk production.

        At any rate, you are stuck between a rock and a hard place on this issue. On one hand you can turn around and say, ‘well look, it’s not going to cost anything so it won’t hurt’. So if it won’t hurt, it won’t change behaviour so why are we doing it?

        Either it substantially raises cost of living, and lowers consumption and emissions or it doesn’t and nothing gets effected so utterly pointless anyway (personally I hope this happens then it’s repealed).

        Hense the first line of my comment, this is the thin edge of the wedge. It’s designed to go up every year, even if it’s not felt now, it will be felt eventually.

      • Also, the point of my comment was that even a 2% rise in cost of living could damage the economy substantially. 2cents sounds very small, but extrapolated accross everything can end up costing quite a lot.

    • If we can take $50/tonne equates to 5% increase in cost of living, then by extension $100/tonne equates to a 10% rise in the cost of living.

      Going from ‘Powerplants – Characteristics and Costs’ submitted to US congress pg 45, 0.4tonne CO2/MWhr for coal, then at $100/tonne CO2 solar thermal, wind and nuclear are all cost competive with coal.

      I don’t know if you noticed, but oil prices are up 10% (in Aud) just from the start of this year.

      It is a relatively small price to pay for energy security

  2. I’m sorry, but I just read the Australian’s daily (hourly?) carbon tax scare story, and it says the carbon tax will cause blackouts. So my milk might be still be affordable, but I’ll be drinking it in the dark!

    Threat of carbon tax blackouts: secret report

    (Its a “secret report” on the front page of The Australian)

  3. So if there is barely any effect on prices as you claim, how exactly will this serve as a mechanism to reduce carbon dioxide emissions and promote alternative technologies?

    You cant have it both ways; either prices rise significantly to change consumer behaviour, or they dont and there is little change in behaviour.

    So which is it?

    • Carbon E. Coyote

      Good question. You have to distinguish the retail impact and the wholesale impact.

      At a retail level, it’s the change of behaviour from the price increase, which I agree will be minimal for milk, but possibly more meaningful for something like electricity. This change in retail behaviour will result in minimal greenhouse savings; but that’s not the main point of a carbon price.

      At a wholesale level, the producers see a carbon price and it’s in their strong economic interest to find ways of avoiding it, such as the initiatives outlined in the attachment. Same with electricity, even if there’s no behaviour change at retail level, the wholesale impact is that the economics of power supply change towards lower emission intensive generation.

      • “the wholesale impact is that the economics of power supply change towards lower emission intensive generation”

        But if those power generation sources are absurdly expensive (which they are, 50 times more expensive in the case of solar) no matter what, prices are going to rise substantially for the consumer.

        It seems this whole idea is based on the fallacy that making one thing more expensive, means other things become ‘economical’. Which is nonsense. If you make something economical and efficient more expensive through taxation, all it does it makes that thing less economical. It doesn’t make the competing product MORE economical.

        This whole thing is absurd and makes absolutely NO economic sense no matter how you try to spin it.

        • 100% MattR!

          Solar and Wind technology are significantly funded and supported by oil companies because they know these are only a pseudo science and not a real alternative.

          An update on Fusion which has tremendous potential and appears not to be very far away from commercialisation. It’s cheap, clean and practical.

          There are also significant advances being made in overunity magnetic motors due to the availability of new rare earth materials. I’ll keep people posted until I see something more concrete.

          • I’d love it for fusion power to become commercially available and cheap over the next few years. It’s clean and it’s essentially unlimitted. Win win.

        • You’ve nailed the issue Matt.

          A carbon tax does not alter behaviour until the cost of current generation plus tax is greater than the cost of alternate energy. Given the diffuse nature of wind and solar power, you dont achieve the same economies of scale in large-sale power plants as you do with coal, nuclear or gas-turbine. So even switching to these generation sources on a large scale does not result in substantial economies of scale and cost savings.

          Input prices necessarily need to be maintained at that higher level. You are not making alternative energy more economic, you are reducing the economic advantage of traditional energy until it is just as uneconomic.

          If wholesale/input prices increase, it necessarily follows that either margins will contract or consumer prices will increase. You cannot have substantially rising wholesale prices that do not impact on margins and eventually consumer prices.

          Replying to The Nod below, there are also a few promising plasma fusion projects (ie not Tokamak, which is attempting to do the virtually impossible). See Focus Fusion as an example.

          • Pete, the energy industry is going to find it hard keeping the genie in the bottle.

            It’s going to be interesting to see what transpires in the coming few months.

  4. Methane is not a strong greenhouse gas in our atmosphere, the estimates were based on measurements made in a dry lab atmosphere. Because water vapour absorbs the same wavelengths as methane the atmosphere is already saturated in that region, except in very dry regions such as antarctica. (which has cooled for the last 30 years)

    If humans have contributed to methane production it is most likely due to land clearing practices, as grassland is the preferred environment of termites and termites produce huge quantities of methane.

    There is also work being done on a vaccine so that cows don’t produce methane, The main benefit being that the cattle then gain weight 30% faster than normal.

    Oh well enough science lessons for today!

    • Why do you suppose there are big changes in the fossil record occuring at previous spikes in methane concentration in the atmosphere?

    • Have you read about the methane contribution of termites. Pulled up a figure that was 150Mt (USA?)?

      Would be interesting to see what the calculation for Australia is.

    • And what will the mark up be. 2c increase in costs for the producer could equal a 10c increase in cost for the consumer.

  5. The number of passionate comments this topic invariably brings in shows there is a big chuck of ideology in how people want to look at these issues. Probably fair enough – but what is interesting is that it is same pressure that has turned adjustments away from a neutral tax position (distortions if you like) from being a useful economic control into an abused political tool. Tax is one of the other big levers in responding to macro economic challenges, but what we have ended up with is lots of useless (and sometimes clearly bad) tax distortions, an absense of useful ones and a clear lack of flexibility in the sytem to respond quckly to economic challenges. Perhaps its time to have a body somewhat like the Reserve Bank that feeds into the economics of tax distortions and can be viewed as an objective contributor?

    • Recently I’ve started considering the idea that the government shouldn’t be allowed to set taxation levels and that they should be set by an independent and objective body with no ties to any political party.

      When democratic governments have the ability to tax AND spend our money on what they like, they have an ingrained incentive to take money from the minority and give it to the majority. Milton Friedman covered this extensively, I think he called it something like the ‘tyranny of the middle class’. It explains things like the massive amounts of useless middle class welfare we have in our economy.

      If an independent body were given the power to set tax levels and government spending was limited to stay within it (or the amount of borrowing was limited) then governments would be forced to spend money far more wisely and we would be faced with a giant new tax based on nothing but ideology.

    • Carbon E. Coyote

      I have read Lomborg. The issue I have with his view is that his whole book accuses (possibly with some justification) greenies of being alarmist, but then after accepting the science on climate change he takes a very alarmist position (without any considered economic analysis) on the economic cost of responding to it.

      In the link you posted he says that we should just invest in green energy. Well, as I blogged earlier this week, that’s a very expensive way to go about the problem, and will cost far more in taxpayer funds than an approach based on a price signal.

      • Huh, The link clearly states that we should invest in R+D to develop clean energy that is cheaper than current energy sources.
        He also correctly points out that worst case scenario cost of global warming negative impact is about 0.5% GDP, ie the environmental cost per tonne of carbon is in the $2-12 mark.
        Charging more would simply destroy the worlds wealth.

      • “re in taxpayer funds than an approach based on a price signal”
        I sincerely doubt about this statement.

        Your price signal implies that green energy will be funded by private borrowing which is expensive and by far the main cost to the industry : most of the money is going to the financial industry instead of the manufacturer/maintenance on the life of the project.

        In contrary is publicly funded (like NBN) the initial cost would be the same but as the borrowing cost would be far less (state borrow cheaply) the total cost of the project would be far lower and therefore the final cost paid by the energy consumer which is also a tax payer would be far lower.

        of course in this case the financial industry will not get the expected bonanza.

        • I dont care about carbon reduction as nothing we do could have any meaningful effect on the warming especially with a growing population but the societal advantage to move to a green economy would be tremendous (i.e against dutch disease ) and far outweigh the cost.

      • Evolution is an amazing thing.

        Modern, post Modern and contemporary leanings show that human beings utilise technology for their benefit.

        We do wake up sooner or later to what we do and then remedy the situation. Well almost.

        Developing countries are the countries that need the assistance to their population.

        Allow then the growth without disease, with fresh water, cleaner technologies and seek political reform and democracy.

        Get rid of the plastics in the ocean, allow the albatross a free feeding ground then, if that can be managed, evolve through to the next process of clean energy.

        Without the land, oceans and rivers clean what is the point?

        In the meantime get rid of the greed and vested interests groups. Greed is a despicable force that most beings revolves around, the centrifugal force that drives humanity, yet the single most destructive and divisive emotion.

        • “In the meantime get rid of the greed and vested interests groups. Greed is a despicable force that most beings revolves around, the centrifugal force that drives humanity, yet the single most destructive and divisive emotion.”

          Why don’t we get rid of eating and breeding while we are at it? I mean, you are asking us to do away with a base instinct why not just get rid of all of them?

          You know, other people have tried to get rid of ‘greed’ too. Their names were Lenin, Stalin, Pol Pot, Mao etc…

        • Greed unfortunately is a natural result of human evolution.
          Most people haven’t woken up to the fact that if you make the world worse for one person it actually make the world worse for everyone, including yourself!

  6. It often appears that the debate re the effectiveness of a carbon tax is misdirected (perhaps deliberately at times). ie people say if price doesn’t go up much or if people are going to be compensated then how will it change behaviour?

    It was something that I wondered about actually. However, I read a good article explaining this on the Business Spectator I think. Correct me if I’m wrong, but while the point of a carbon tax is to change behaviour, the main focus is to change the cost of production so that a power producer will look to cleaner alternative power sources that because of the carbon tax are now cheaper than their existing power source.

    ie if for example the cost of coal rises from $40/unit to $50/unit, and there is an alterntive that can be produced at $45/unit (because it is less carbon intensive say), then there is a real cost incentive to move to that alernative…

    As for the retail end, even if a person is 100% compensated for increases in cost due to a carbon tax, you would think that there would still be an incentive to reduce the power cost anyway (say because things like low energy appliances become more attractive) and possibly end up better off….

    • Carbon E. Coyote

      That’s exactly right.

      You might have read that here rather than at Business Spectator?

      • perhaps I did, but I thought it was the climate spectator section of the business spectator…?

        Its frustrating to see how easily the debate can be hijacked away from the actual details. Oversimplification for polical purposes is I guess the primary purpose.

    • So when you switch over to the renewable energy where does the money come from to pay for the increased cost, since the government will no longer be collecting the carbon tax?
      The consumer can only get a rebate for artificially taxed cheap energy, not for expensive renewable!

      • Good question.

        I’m not sure, but I will have a guess, I would assume that the shift to renewables would happen gradually and therefore the revenue would also be reduced gradually. The reduced revenue would I guess then cause a gradual reduction in compensation. However, I would think that this would all happen over time so that consumers would have the time and increasingly growing incentives to put in place the tools to reduce their energy use and therefore not be negatively impacted by the reducing compensation…

        However, that is a punt. I’m sure others could answer much more comprehensively….

        • Carbon E. Coyote

          The price of carbon goes up quicker than the emissions come down, as I pointed out in an earlier piece.

          So there will still be revenue from carbon emissions. When the price is high, only those activities that create the most value per unit of emissions will continue, and power generation from new coal plants and existing old inefficient plants will not be among these. And this will occur over a long period (ie decades).

    • Yes

      It’s so that people who can’t understand the concept don’t have to. And then engineers can get on with the job of installing the least cost energy systems given the new conditions.

      Only problem is the people who can’t understand still get a vote :S

  7. “Also, this calculation assumes that agricultural emissions are included ”

    rofl … I was brought up on a dairy farm and the amount of methane produced exceeded the daily extraction of gods gift. In fact we enjoyed listening to the rumbles and having a candle nearby that could be brought into play at the rear to destroy any methane. Our methods never appreciated though ….

    So we had better quickly learn to tax these animals …

    • I’m just waiting for the Govt to introduce compulsory methane detectors in each and every house in Australia.
      Every time an explosion of gas from a homeowner is made, Gillards voice comes over speaker system and says

      “The Commonwealth Govt is serious about climate change, due to current regulation of methane expelled into the atmosphere, we have detected a volition inside your household. We have fined you $10 to save the planet. This money will be compensated to a low income worker who cant afford the Methane Expel Tax, so they can enjoy their nightly can of baked beans.”

      • The politicians will then demand a pay rise to pay for the excessive CO2 they emit while talking. The breathing tax will be especially high as the aim is to stop people from communicating!

  8. Why introduce a tax that will cost substantially more than the problem ever will.
    The Cost of global warming is estimated at 0.5% of Global GDP.
    The UN advocates the solution is to give the third world 6% of GDP while not doing anything about emissions from china india ect.
    Why can’t people see the economic lunacy of this?
    Why make the price of milk 1.5% more expensive for nothing?

    • “Why introduce a tax that will cost substantially more than the problem ever will.”

      lol … simple reason self interest, greed.

      next question?

  9. Greenhouse gases by volume (excluding oxygen & nitrogen)are made up of approximately:

    95% water vapour,
    3.6% Carbon Dioxide,
    0.4% Methane (CH4),
    0.9% Nitrous oxide (N2O), and
    0.1% CFC’s (and other misc. gases)

    Methane – even at a 25 times greater greenhouse effect than CO2 – it’s still less significant.

    Livestock farmers find this whole carbon scheme absurd.

    A farmer once said to me jokingly, ” I’m glad not to have a volcano in my backyard, ‘cause the government will try and find a way to make me pay.”

    • You’ve missed ozone out of the most important greenhouse gases.

      In terms of contribution to the greenhouse effect:

      Water vapor 36 – 72 %
      Carbon dioxide 9 – 26 %
      Methane 4 – 9 %
      Ozone 3 – 7 %

      Using volume only to prove greenhouse ability is fairly useless, especially when you consider nitrogen (N2) and oxygen (O2) make up 99% of the atmosphere by volume.

      Methane is only shortlived in the atmosphere (around 12 years). It then breaks down to CO2 and water vapour.

      However methane spikes have been responsible for quickly changing our climate in the past (with very distinct changes in the fossil record occurring at the same time).

      • “You’ve missed ozone out of the most important greenhouse gases.”

        Oxygen and nitrogen are not considered greenhouse gases. Ozone is a bit of a stretch considering it is created when solar radiation splits O2 and the free oxygen molecules recombine with other O2 molecules.

        “However methane spikes have been responsible for quickly changing our climate in the past (with very distinct changes in the fossil record occurring at the same time).”

        So what do you suggest caused this? An explosion in dinosaur numbers creating a massive feedback loop causing everything on the planet to die? Or maybe cavemen became sociopathic pyromaniacs once they discovered fire?

      • Since the methane spike was not observed you can’t tell if the climate change caused the methane spike or if the methane spike caused the climate change.
        We know that changing ocean temp will alter the partial pressures of gasses in the atmosphere, so why presume that increased methane was the cause and not the effect?

    • “The purpose of the carbon tax is to encourage more research like this.”

      Seems to me like the ‘purpose’ is pretty much whatever it’s supporters want it to be.

      • Hehe,

        It is bizarre isn’t it?

        The mainstream science is now clearly in the favour of those that believe climate change has been a natural phenomenom, with the Ku Klux Klimate-changers still clinging to weak science that reached it’s zenith nearly a decade ago and has been dismantled since.

        Yet the KKKlimate-changers will still sneer at dissent, with nothing more than a “no it’s not, you are wrong!”, and feel convinced their words carry as much weight as Jehovah, completely unaware of their scientific illiteracy. One stands out here in particular.

        One only has to look and the calibre of scientists who resigned from, or protested about, the IPCC in disgust because of people pushing weak science to pursue an agenda, rather than science leading the agenda.

        • “The mainstream science is now clearly in the favour of those that believe climate change has been a natural phenomenom”

          You keep saying this – can you point me to one mainstream scientific body which has this viewpoint ?

          Perhaps a national scientific academy or 2 ?

          • Sorry penny but there is no such thing as “mainstream science” as there is no such thing as “scientific consensus”
            Opinion forms no part in science as science is a methodology.
            Of course you are correct when you say that science disproves CAGW since the scientific methodology of comparing actual observations with the predicted observations of the theory clearly falsifies the theory!

    • Well there you go ,a Dairy Cow,has
      a better chance of entering a Pub ,
      while smokers banned ,wait at the door…and
      pay for it…keep an eye-out for..Bull-Bars
      Wonders never cease…moo

  10. Ahh… I get it!
    So, if a carbon tax is so good for us and the economy, let’s make it $1 million per tonne! We will then be the most efficient economy in the world!

  11. But when it comes to environmental impact:
    CO2 is 0.0039% of the atmosphere.
    Human contribution is about 2.5% of natural CO2 emissions
    Australia is producing 1.38% of human emissions
    And we will reduce that amount by 5%
    Using IPCC sensitivity figures of 4 degree temperature increase for a doubling of CO2 in the atmosphere and their predicted rate of warming for the century, then Australian 5% CO2 reduction by 2050 will amount to delaying that warming by 2 weeks.
    The cost of this is what? $7 billion per year over 38 years = $266 billion? OK, most of that is supposed to be churned back into compensations.
    It is good that so many have full faith in the combined wisdom and integrity of our politicians.

  12. The carbon tax has nothing to do with carbon.

    If we were worried about carbon we’d stop exporting coal. Even the Greens now are the Browns allowing more coal mines. It makes no difference what we do on coal either as Indonesia is developing one of the worlds biggest coal mines, and Nathan Rothchild has invested $200M of his own money it in.

    As Julia says the less well off will receive more money to compensate – how is that going to help CO2? Why not increase the GST for coal and use the margin of that increase to fund green energy like others are doing.

    This is a tax grab, and we are the debt slaves… They can’t tell the truth on any policy so we’ll get our chance to boot them out in a few years.

    I’m all for investing in green sustainable energy, but can anyone honestly say this government will implement a reasoned intelligent solution?

  13. You a huge part of the cost and inefficiency to come from the carbon tax or cap and trade systems – the accountants and lawyers. This is going to create a 2nd set of books. So on top of having to not only prepare and maintain your financial books you’ll need to prepare and maintain your carbon ones and all the overhead and cost that entails. I imagine all your ERP and finance systems in your business will need to be updated (and that always costs a fortune) to support that.

    Then you’ll have to hire accountants and auditors and lawyers to come in and audit those books at tax time because like any tax. Plus you’ll need more government workers at the ATO to process it all.

    There is an entire army of unproductive people this is going to create and mandate – and once they are in place it will be very hard to change. Not to mention that if they see they can do it for carbon what will be the next ‘pollutant’ that they’ll decide we need the next set of books for?

    • Carbon E. Coyote

      You obviously haven’t read my earlier post

      This not actually a tax, it’s a fixed price (for 3-5 years) emissions trading scheme. For some this sounds like semantics, but calling it a tax leads you to the wrong conclusions.

      Firstly, it won’t be collected by the ATO, it will be collected by a regulator under the DCCEE, which would be just a ramp up of what it currently does under the MRET (regulating a certificated scheme). Secondly, we have been monitoring and measuring emissions for years now, under the National Greenhouse and Energy Reporting Act (2007) which was brought in by the Howard Government. Thirdly, it only applies to those organisations emitting more than 25ktpa CO2e, which is roughly 1000 companies, and most of these already have the knowledge and capability to measure and report it.

      So this is no bonanza for lawyers/accountants as you claim.

  14. There is a good article by Paul Murray in the weekend paper (sorry, couldn’t find link).

    “Fuel for Sceptics:

    “…The new McCarthyism is not to brand your opponents communists, but simply to tag them as ‘deniers’. Or ‘polluters’.

    Even the most successful businesses in the country – on which our enviable economy is built – are now fair game for this blackguarding.

    Companies that continue to emit carbon dioxide legally, like every human being each time we exhale, are now rounded up as ‘Australia’s top 100 polluters’.

    This is simply shameful. And a sign of real political immaturity.”

    Murray notes that Climate Commissioner Will Steffen has nothing new in his report, apart from some questionable claims about sea level rises. Also that no media reports included a substantial caveat Steffen put on his work:

    “At several places in this report, I have made my own syntheses and judgments based on large bodies of work where there is no clear consensus in the peer-reviewed literature”

    Murray: “So in the absence of scientific consensus, is it now acceptable for the Government’s Climate Commission to make it up?”

    It’s called spin. Used to be called propaganda. That’s what it is. The Enviro/Political complex (engineered by Big Finance).

    Definitely a few McCarthyist leanings by some commenters at MB.

  15. Well, clearly Australians need to pay indulgencies to atone for their climate sins and crimes.

    Why, each Australian breathes out 0.3 tonnes of CO2 each year, and therefore collectively contribute 6.6 million tons of CO2 annually.

    At $20 per tonne carbon tax, will our citizens also owe our government $132 million for the sin of breathing?