Monday, August 25, 2008

Adjusting to carbon pricing - yes it hurts, but not that much

The BCA, Saturday's Australian and many of the weekend newspapers have finally twigged to the notion that charging for carbon emissions will cause discomfit.  It will. Indeed, the objective of levying a carbon charge is to generate discomfit.  The type of discomfit that will motivate firms and consumers to use less energy, to switch to non-polluting sources of energy and generally to reorient their behaviour so that it alligns with social costs. Some supporters of  activist climate change policy in seeking to encourage community acceptance of carbon pricing have played down its costs but yes they are there.

The costs are not - as Ross Gittins points out this morning - overwhelming costs. Large polluters who will feel the effects of carbon pricing can pass those costs onto consumers, can reduce waste and can seek less polluting technologies.  The sky will not fall in. Incidentally the proposed emissions trading scheme sets a maximum price for emissions that limits the scale of required firm adjustments.  Big business should stop behaving like rent seekers with a belly ache.

38 comments:

Rose said...

Not all costs can be passed on. For example, state instituted electricity price caps will continue after the introduction of the CPRS. I imagine there are many other state laws and regulations that will distort the policy intentions of the CPRS. If there is discomfit to be had, it should be spread throughout the community, as it is everyone's responsibility to reduce their carbon footprint.

Spiros said...

I doubt that even the business council think they will be taken seriously. But they probably had to do it to appease their members, or some of them at any rate. (The BCA's policy contradicts many of its members' policies.)

The danger is by being so ridiculous now they have dealt themselves out of being taken seriously later when the legislation is being negotiated.

Anyway, you've got to give them marks for chutzpah.

Anonymous said...

Large polluters who will feel the effects of carbon pricing can pass those costs onto consumers, can reduce waste and can seek less polluting technologies

harry, when are you going to understand that the " large polluters" is us... you and me and everyone else who uses electricity.

And how do you go about seeking less polluting technologies without nuke power in the equation?

Here's an idea. Lets stick all our academics on energy producing peddle pushers for 12 hours a day.

jc said...

Have you read the BCA report before you criticized them Harry?

The sky will not fall in.


Everything’s relative. Impose a marginal cost and the effect is that does who don’t are able to gain an advantage. This what the BCA was talking about. Industries like aluminum will move offshore as they have already they may have to and the net effect will be even higher remissions if they move to places like China or India.

Incidentally the proposed emissions trading scheme sets a maximum price for emissions that limits the scale of required firm adjustments.

What is the top price to reach the cap, harry? Do you even know? At 40 bucks a ton without the big nations moving into a scheme will kill our industries that we have a large comparative advantage in.

And please don’t suggest Aluminum is subsided because that doesn’t appear the case. They are able to buy lots of cheap energy because they buy it in bulk and helps the energy producers with meeting their own marginal costs through constant baseload demand.

Big business should stop behaving like rent seekers with a belly ache.

How are they rent seeking, harry. By being asked not to be placed at a disadvantage to overseas producers? Good one Harry

jc said...

sorry

Previously posted without edit.


Have you read the BCA report before you criticized them Harry?

The sky will not fall in.


Everything’s relative. Impose a significant marginal cost and the effect is that it places those industries at a disadvantage relative to others that don’t have the burden.

This what the BCA was talking about. Industries like aluminum will move offshore as they have already said they may have to and the net effect will be even higher emissions if they move to places like China or India.

Incidentally the proposed emissions trading scheme sets a maximum price for emissions that limits the scale of required firm adjustments.

What is the top price at the top of the cap, harry? Do you even know? At 40 bucks a ton without the big nations moving the scheme kill our industries that we have a large comparative advantage in.

And please don’t suggest Aluminum is subsided because that doesn’t appear to be the case. They are able to buy lots of cheap energy because they buy it in bulk and helps the energy producers with meeting their own marginal costs through constant base load demand.

Big business should stop behaving like rent seekers with a belly ache.

How are they rent seeking, harry. By being asked not to be placed at a disadvantage to overseas producers? Good one Harry.

Spiros said...

Who says the price is going to be 40 bucks? The BCA plucked that out of their backsides, no doubt to make their story scarier for the gullible. The government has not announced any price yet. FWIW, the carbon markets have the price at $20. Rudd the Cautious will probably make it $10.

jc said...

And you know this because you're channeling Rudd, Spiros.


You're still not telling us how we're going to create baseload, Spiros.

Joel said...

"For example, state instituted electricity price caps will continue after the introduction of the CPRS."

Yes, but according to IPART, who set the regulated tariffs in NSW, CPRS costs are a pass-through event. Meaning, the extra costs arising through increased government charges can be passed through above the rate of the existing tariff. So the argument is rubbish.

"You're still not telling us how we're going to create baseload, Spiros."

I will. G-A-S. There, I did it.

JC said...

Joel

There isn't enough gas to burn it and produce energy... it's too costly and too valuable to use that way.

Australian domestic use of gas is still not based on the world traded price because of very long term contracts. Change it to the world price like it soon will and energy use will be almost prohibitive.

That's a silly idea.

I assume of course that Dudd wouldn't be stupid enough to the the carbon rate that high anyway. If he set to where gas would be "affordable" to use 90% of our industry would be dead in the water.

jc said...

And harry:

we produce 327,000 (1000) metric tons of co2 per year.

at 40 dollar per ton mitigation cost is going to be $13 billion p.a. that works out to 1.3% OF GDP.

Have you done the rough numbers to figure this out 100 years?

That's a hell of a lot of money, harry to shave off the growth rate.

I presume you have looked at it, haven't you?

Joel said...

You're comment about gas being too expensive does not stand up to the recently announced gas fired baseload powerstation to be build in the next few years in the Hunter. The reality is that the increased cost of electricity (no-one should be under the illusion that electricity prices will not rise) will make gas affordable.

Yes, one power station in the Hunter is not a whole industry, but other countries seem happy to use gas for baseload power.

The only reason Australia does not is that we have such a cheap (exluding social costs) alternative under our feet to use instead.

WA have gas prices much closer to parity with world prices, yet again they have much higher usage of gas for electricity production. Why? No coal.

Gas is too valuable to use for electricity generation? Does it have special magical properties that we are not privy too? Is the state of the planet not too valuable to destroy when there are other viable options?

Joel said...

"Have you done the rough numbers to figure this out 100 years?"

Please note the fundemantal function of the CPRS/ETS/whatever it's called today.

Raising the cost will reduce the gas released so reduce the amount raised over time... so the extention of 100 years is both impossible (anybody who could claim an accurate picture of the economy in even 10 years is a fool) and irrelevant to the discussion.

Anonymous said...

Sorry, it does hold up Joel.

Gas is three times the price on the international market compared to domestic prices. that crap in the hunter wouldn't be a goer unless there were heavy subsidies that way.

Wait until we start paying the world price as the contracts run out.

There's not enough gas to burn it up, unless of course we set the cost of carbon at a high rate.

jc said...

You're talking about Sydney Gas limited, Joel. It's a dog and has been a dog since inception. The "gas" you're the run off from the coal mines, so it wouldn't operate without the coal mines going.

Liquefied petroleum gas is a non starter because it is very rare and too expensive.

Spiros said...

Joe, no one but you and the rent seekers reckons the carbon price is going to be $40.

Ane even at $40 your calculations are way off. For a start, agricultural emissions (15% of the total) won't be priced. And half the permits are going to be given away to trade exposed industries.

And you don't need functioning coal mines to get coal seam gas. You just need coal which we've got in spades.

Joel said...

I'm talking about Queensland Gas.

It's coal field gas, shipped in the planned pipeline from southern Queensland down to the Hunter. You don't need to mine the coal to get the gas, you need to stick a long pipe in the ground and siphen it off.

http://www.smh.com.au/news/national/nsw-flicks-the-switch-to-gas-power/2008/05/27/1211654031556.html

Post the link to the subsidies and then get back to us please. The only government assistance for this project is the CPRS. Carbon abatement in action as we speak. Business are on the ball, why are so many bloggers five years behind?

Business support the scheme, there just asking for some cash because that's their job.

jc said...

Joel:

I was aware of Sydney Gas as I was an investor in the convertible notes so I did know a little about it.

yes there was state subsidies to SG to produce "clean" energy but it still tuned out to be a miserable failure in the end and had to be bought out.

It's extremely dangerous as coal gas is very unstable and the reduction in Co2 is rather minimal.

Sydney Gas was getting the methane from used coal mines.

QS may work as a result of the ETS subsidy but I still have my doubts and I hold the point that there isn't enough gas around.

You want proof of subsidies? Get it yourself, Joel as I'm not your secretary. SG was working with a mandate from the NSW government.

jc said...

Raising the cost will reduce the gas released so reduce the amount raised over time... so the extention of 100 years is both impossible (anybody who could claim an accurate picture of the economy in even 10 years is a fool) and irrelevant to the discussion.


Sorry Joel, but you’re the fool in this case.

Placing a deadweight cost on the economy of about 1.5% will cost us dearly over the long term. We have a pretty good handle that the economy can grow at around 3.5% over the long term as that has been the case for decades. So it is up to you to prove otherwise. Mitigation will cause a deadweight loss of about 1 to 1.5% of GDP over the very long term.

So yes, we can predict in the long term.

And stop thinking we can use gas to run our economy. That’s a stupid idea as there isn’t enough around. If you think it’s a great idea go to a friendly investment bank and put up the proposal as they’re always looking for the good deal.

Joel said...

JC,

Let me say it again. Sydney Gas is not involved in this project. Follow the link. We all love to hear how knowledgeable you are becauase you bought some shares in soe other business that had nothin to do with the point... actually no. We don't really care very much at all.

"You want proof of subsidies? Get it yourself, Joel as I'm not your secretary."

Anon stated that it would only go ahead with subsidies, so that must be fact. I was asked anon to do his'her own homework. Not asking you to do mine.

"If you think it’s a great idea go to a friendly investment bank and put up the proposal as they’re always looking for the good deal."

Again, follow the link. Here it is again: http://www.smh.com.au/news/national/nsw-flicks-the-switch-to-gas-power/2008/05/27/1211654031556.html

$700million for the generator and $850 for the pipeline, expected to kickstart further investment. BGs $13billion approach for Origin sure isn't for a few retail customers. It's for their investment in the gas fields.

As an investor in the energy sector you would be aware of that of course JC.

JC said...

Are you thick, Joel or just pretending to be.

There isn't enough friggen gas and once gas gets to the world price it will be too expensive.

Got it.

Spiros:

Stop throwing words around you don't know the meaning of.

No operator of a coal fired plant is rent seeking or operates on subsidies. It really really just how ignorant of economcis you really are.

Anonymous said...

from JC's favourite site Wikipedia.

In economics, rent seeking occurs when an individual, organization or firm seeks to make money by manipulating the economic and/or legal environment rather than by trade and production of wealth.

How anyone with any understanding of economics could not call what the BCA is doing rent seeking is quite simply ignorant

jc said...

Homer:

Don't be a coward and post under a consistent name. We're not about the BCA, you incoherent fool. We/re talking about the energy firms which are not subsidized and not presently rent seeking.

You're even worse when pushing for Nazi economics and extolling its vitues , Homer.

Joel said...

JC

Wow, that's an amazing form of arguement there. Instead of backing up your position with facts, you resort to personal abuse.

Show us that there is not enough gas. Where is the research?

Show us how you came to the conclusion that gas will be too expensive when prices achieve world parity. As I said before, the rest of the world use gas for baseload power.

Or is it more your style to make flippant comments then abuse anyone who raises the faults in your argument?

I'll get it when you show it.

Joel said...

"We're not about the BCA"

We are talking about the BCA, as the peak body for businesses they are arguing for business. They are the rent seeking businesses.

jc said...

Wow, that's an amazing form of arguement there. Instead of backing up your position with facts, you resort to personal abuse.

That’s because you and homer are stuck on stupid.

“Show us that there is not enough gas. Where is the research?”

I don’t know what more I can to do to help you understand the concept of rarity. Gas is a rare commodity rarer than oil. It’s so rare that when we find it we generally use it for cooking although Australia is an exception mainly because we aren’t using the world spot price. If we were we wouldn’t be using it for heating as it is too expensive.

Show us how you came to the conclusion that gas will be too expensive when prices achieve world parity.

Christ, there are very few gas-fired plants around the world. There are even less gas fired plants than there are oil fired.

“As I said before, the rest of the world use gas for baseload power.”

And if lots of places went that way you would be pricing energy in diamonds. I don’t really care if you don’t believe me.


I don’t need to prove it to you as you can do your own homework. I’m just telling it the way it is. I just hope other people are more open than you are and don’t play make believe. And Queensland gas will fail by the way.

jc said...

We are talking about the BCA, as the peak body for businesses they are arguing for business. They are the rent seeking businesses.

No they are not. You simply don't understand the concept. Nearly all members of the BCA receive no subsidies, are profitable, employ lots of people and pay dividends. in other words they are decent and competitive businesses.

You, Homer and Spiros can continue trashing their reputation but it isn't going to work because in the end lefties really don't understand the commercial world as very few have ever worked in that sector.

Joel said...

"And Queensland gas will fail by the way."

Treasured advice from someone who invested in Sydney Gas.

jc said...

I got my money long before it went it bad (didn't actually go bust), joel. I was in the IPO for the converts.

But thanks for hoping.

Christ, it is impossible getting though your brain isn't it.

Gas is rare, if the world stated moving to Gas the price would skyrocket. I really don't see why it doesn't sink in. Are you that cognitively disadvantaged.

Joel said...

Oh Great Oracle JC,

Please enlighten us to how you come to your learned conclusions. If you wish to convince us of your statements, please give us more evidence than:

" 'cause I said so and if you don't believe me then you are are stupid head"

Unless of course you are God... hold on... JC... oh shit! Sorry big fella I didn't realise! My apologies.

I understand what rarity is, I just haven't seen any evidence that there is not enough gas to fire a few baseload power stations for the next 15-20 years or so. On the contrary, with gas fired baseload stations being planned, I see evidence otherwise.

jc said...

Joel:

They are being "planned" but being planned doesn't necessarily mean they will be constructed.

The price of gas has moved up to very high levels because even though people use gas for cooking demand across the world has outstripped supply.

There simply isn't enough gas around to burn it for energy. I know this is too hard for you to get your head around it because of your preconceptions, but there it is.

The Australian consumer is currently enjoying gas prices about 1/3 of the world price because of very long term contracts. Once that ends we will feel the pinch there as well.

This is why a UK firm has put in a bid for Origin as they have largish gas reserves and will soon move to a world price for gas.

I really don't know, why you can't understand this.

jc said...

In fact I very much doubt that gas could be used here in oz even with carbon priced at 40 bucks a ton.

Spiros said...

There is heaps of gas in the north west shelf, which can be profitably transported to the east coast and used for electricity production as soon as there's a carbon price.

Ditto, the Timor Sea.

Joe, it's just as well you're not a gas company analyst.

jc said...

For christ sake. It's really hard getting through to lefties at times.

Heaps of gas doesn't mean hugely abundant amounts, Spiros.

Look, Doodlechops the current world price of gas on a BTU basis is about as expensive as oil... possibly a little higher even.

Most gas used is to light up stoves/some heating in oz and tiny little amounts to run cars.

There's very little used for electricity production.

The reason is that there isn't a lot around and because more people are using it to light up stoves around the world.


So what would happen to the price if lots of countries started the use gas to fire up power plants.

As I said, you wouldn't earn enough per year to pay the power bill.

I hope that finally gets through.

And yes Spiros, I know a little about the gas market as Santos is a great stock to trade.


But keep trying guys. One day you may even get there.

jc said...

There is far less gas around than there is oil, doodlechops.

Spiros said...

Hey Joe, since you trade Santos, you might be interested in what Santos CEO John Ellice-Flint said on 20 February this year in a speech called “Climate Change – the way forward for the Energy Sector”

He said

"Gas-fired power generation can play an important role in helping economies
transition to a lower carbon footprint at a reasonable price and while newer
technologies mature."
https://www.blogger.com/comment.g?blogID=22031270&postID=3663125134037002977
You get the full speech at http://www.santos.com/FileGroup/library/Santos_World_Solar_Cities_Congress_Feb_08.pdf


You have no idea champ, none at all.

jc said...

Flint was "asked to leave" Spiros , you dill. He was asked to leave despite running a firm in the vortex of the biggest bull run in energy history. So I would suggest you offer up another source as your ignorance is really becoming an embarrassment.

Like you, he had no idea either.

Look Chump the price of gas has skyrocketed over the past 3 years. It’s even done better than oil. There is less gas around than oil in terms of current reserves..

Where do you think the carbon price would have to go if lots of countries settled on gas as the energy source for power conversion?

This isn’t hard to understand yet you seem to have a cognitive problem with it. We can’t use gas, as the price will rocket seeing there simply isn’t enough around on a BTU equivalent. That stuff is precious and we will be using it for cooking for a long time.

there are people like you and Joel who think gas prices will be maintained at 1/3 of world spot prices. keep dreaming tiger.

Spiros said...

Joe, for the final time. It's not the price of gas that matters. It's the price of gas compared to to the price of relevant alternative fuels. That means coal.

When carbon is priced, gas fired electricity will look very attractive.

jc said...

Or nuclear power, chump, which is the second best option after coal.