Conservation news - the Night parrot

Australia has a poor record of conserving mammal species but quite a good record for, at least, not allowing bird species to become extinct.

22 Australian mammals have become extinct since white settlement. A few extant species survive only on offshore islands where they are protected from introduced predators such as cats and foxes. Many survive in small numbers in very narrow habitat ranges on the mainland - only about 30 Gilbert's potoroo survive at a single location, Two People's Bay near Albany in Western Australia.

On mainland Australia (i.e. Australia excluding its offshore islands) only a single bird species has almost certainly become extinct since white settlement - the Paradise parrot has not been seen since 1927. One cannot get too excited about this, or exaggerate our conservation success, since many bird species have suffered a really dramatic contraction of their ranges and, taking a populational rather than classical species viewpoint, our record has not been that good.

One of the rarest and most mysterious birds in Australia - the Night parrot - had long been considered very close to extinction. Then, in 1990, a road-killed specimen was found in north-west Queensland - the first sighting since 1912. Then, in 1996, a pair of live Night parrots were observed at a secret location on Newhaven Station in the Northern Territory. Now it is reported that a further dead specimen has been found in far western Queensland. This suggests strongly that the species does still survive over a very large range but probably with exceedingly low population density. Forshaw's book Australian Parrots surveys all the claimed sightings - Forshaw conjectures that the Night parrot might even be reasonably common but, as I say, spread over a huge range at low density. Despite this, very little is known about the species.

It is good news that an interesting Australian bird seems not to have been wiped-out. It is the only Australian parrot species that is active and feeds at night and is hence a uniquely valuable part of our natural heritage.

Lorne

Staying in Lorne, Victoria for a couple of days. Lorne is a coastal resort about 140 kms south of Melbourne. Its a work-related visit but hopefully can visit the Otway National Park and have a swim at the Lorne beach. If I do swim it will be my first at a Victorian beach for quite a few years. The luxury of growing up near great Sydney beaches like Dee Why and Long Reef has left me with a prejudiced view of beaches in the rest of Australia. I'll have to adapt!

Thinking about alcohol policy

I've taken a bit of flak for what are claimed to be my illiberal, paternalistic views on drugs policy. Last October I presented a paper to the Australian Professional Society on Alcohol and Other Drugs Annual Conference in Cairns. This provides what I think is a fairly liberal position that pretty much reflects my views. Comments are very welcome.

Abstract: A liberal economic perspective for thinking about alcohol policy is provided. This is based on ideas of market failure rather than on paternalistic public health approaches of minimizing the gross costs of alcohol consumption. Apart from avoiding paternalism, the liberal approach helps to design effective alcohol regulatory policies. It emphases information, self-control and externality motivations for policy. Proposals to levy taxes in this setting, based on alcohol content rather than value, face limitations when there are possibilities to substitute other intoxicants. There are also equity issues that reflect the fact that it may be poor people with alcohol dependencies and inelastic demands who purchase low-value, high-alcohol content beverages.

Introduction

This paper examines the policy case for intervening in alcoholic drink markets. It also analyses the form that interventions should take. The perspective rejects paternalistic wowserism which opposes drinking alcohol because of its claimed high gross costs. To the contrary, the liberal approach adopted supposes that alcohol yields consumption benefits in terms of its taste and effects, as well as costs, and that society’s objective is to maximize the difference between all benefits and all costs. Consuming alcohol is, for the most part, assumed to be a social, recreational activity - one way of dealing with the pressures of the day and of enhancing the enjoyment of life. The presumption is that, for most people, using alcohol is an informed, rational individual choice. In most cases this choice has relatively harmless implications for the consumer but, even if substantial harm is caused, that is not in itself taken as a necessary indication that use of alcohol should be restricted. The presumption is that individuals are generally the best judges of their own welfares. Thus, provided the potential for harm is recognized by users, and costs of such harms are borne by consumers themselves and assessed rationally by comparing benefits obtained to costs at the margin, restrictions are redundant. In short, the analysis starts from the presumption that alcohol consumption provides net benefits to most adults who drink based on informed individual choices.

Moreover, alcohol is a drug that, for most adults, is both legal to consume and socially accepted. It is also consumed by a significant proportion of the population in diverse settings.

The analysis recognizes that the consumption of alcohol has important costs, particularly when consumed at high levels or when consumed in a risky way. Alcohol consumption has seriously harmful physical and mental health effects, can lead to anti-social and even dangerous behavior such as drink-driving and violence, particularly within the family unit. These costs become important to an economic liberal if they are not borne by the individual alcohol consumer.

There are numerous government policies devised to regulate and restrict the terms under which alcohol is purchased and consumed. This paper provides a framework where such restrictions can be assessed in a consistent setting.

Medical and Non-Economic Approaches to Policy

Much of the community’s focus on alcohol consumption looks at the adverse health and neuro-psychiatric consequences of drinking alcohol. This is the gross ‘cost of illness’ approach to estimating the costs of alcohol consumption: see Godfrey (2004). There is concern with the health costs of excessive drinking either when this occurs on a regular basis or episodically and with alcoholic dependence. There is also concern with social problems associated with drinking, in the workplace and in the home, with violent crime and intentional cause of injuries associated with drinking and with drinking on inappropriate occasions such as immediately prior to driving a vehicle. Particular interest is directed at drinking among youth: see e.g. RACP (2005), WHO (2004).

This work is valuable in articulating health cost implications of alcohol consumption and is often used to support a dramatic headline that points to the costly consequences of drinking alcohol. But this recognition does not help much in designing policy. To what extent should alcohol consumption be restricted? What are the costs, in terms of foregone benefits, of restricting consumption?

That drinking alcohol is risky behavior does not in itself suggest much about the desirability of drinking or the extent to which it should be restricted. This involves assessing the costs and benefits of alcohol consumption and making an evaluation of the case for restrictions based on these. The question is how to value the costs and benefits. Economics does this by assigning monetary values to the costs and benefits individual consumers experience through alcohol consumption as well as any costs and benefits that spillover to society as externalities because of this consumption. Policy analysis then seeks regulations and interventions which maximizes the difference between social benefits and costs.

Free market exchange by rational private consumers will maximize this difference between social benefits and costs if there are no external costs or benefits. Rational individuals then choose to consume whatever maximizes their welfare and advance society’s welfare. If there is a net external cost, however, free market exchange will not achieve this maximization since rational individuals, in making their consumption decisions, consider only the private costs they face. A restriction to reduce consumption to the point where net social benefits are maximized then makes sense provided the cost of the policy restriction is less that the net benefits lost by not employing it. This establishes a case for policy activism with respect to alcohol consumption. Moreover, looking at things in this way provides a conceptual and quantitative guide to the desired extent of the restriction.

From a liberal perspective, if consumers are aware of risks and costs of activities (whether they are drinking alcohol, smoking cigarettes, driving a car or bungy-jumping) there is no a priori case for restricting an activity unless there are net external costs. Simply identifying that costs and risks are associated with the consumption of alcohol does not suggest anything about the case for restrictions if one assumes that individuals are best equipped to make the choices which drive their welfare. Focusing on gross costs suggests only extreme, prohibitive policies.

One can reject the hypothesis that people make their consumption choices rationally on the basis of good information. Indeed some people may be viewed as having self-control problems in relation to alcohol consumption and may fail to identify harmful consequences of consumption. In part these are arguments for providing people with better decision-making skills and with access to better information.

Use of economics can help with policy design. Simply to recognize that consumption of a substance causes social harms does not in itself suggest efficient ways of addressing or reducing such harms.

Rationale for Intervention

There are three main market imperfections that create a case for restricting alcohol consumption. A fourth motivation for policy, paternalism, is a real-politic reason.

1. Information. Efficiency in market exchange requires that the purchaser of a product understands fully the characteristics of that product. With respect to alcohol an issue is whether consumers understand that ethyl alcohol is a neurotoxin - it destroys brain cells – with, in fact, very few health benefits, see Fillmore et al. (2006). It is also unclear whether consumers understand the genetic basis for alcohol self-control problems.

The information difficulties are compounded by advertising and promotion of alcohol which links consumption to sporting and social prowess. There is strong evidence that such advertising has strong effects on consumption, particularly for youth (Saffer and Dave (2003)).

Finally, there might be particular age, ethnic or socio-economic groups in the community that have poorer information than other groups.

The failure to provide good information about the negative consequences of drinking alcohol is a market failure since information is a public good. Markets will develop to promote alcohol consumption since this benefits particular industry groups but there are no such private incentives to provide information that presents the negative consequences of consumption.

On the other hand there is some evidence that some young people overestimate some risks associated with alcohol consumption – particularly the risks of becoming alcoholic. This overestimation leads to less drinking than would occur were the risks accurately perceived: See Lundborg and Lindgren (2002). The same result has been observed with respect to smoking – smokers tend to overestimate the adverse health consequences of smoking: See Viscusi (2002). To the extent this is true public information campaigns that seek to encourage accurate perceptions of health costs should be oriented towards calming people’s fears of the consequences of drinking rather than attempting to heighten their awareness of health risks.

2. Self-control issues. Alcohol consumption can be addictive and people may have problems curtailing their consumption. There are high levels of alcoholism in the community and evidence that people take efforts and expend resources trying to control their alcohol consumption.

Self-control problems can be triggered or initiated by impulsive behavior and those who do have persistent problems controlling their alcohol consumption may have demands reignited by advertising and other cues.

There are particular issues of self-control among young drinkers who have high impulsiveness and those who have particular genetic predispositions to smoke.

3. Externalities. Alcohol consumption creates private costs for individuals and more general social costs for those close to alcohol consumers and the broader community. Drink driving is a serious cause of traffic accidents (a good discussion is Phelps (1997, chapter 15)) and violent behavior by those intoxicated is a serious issue in the broader community.

Other alcohol-linked externalities include fetal alcohol syndrome and generally the damages caused by a drinker to family members. In some situations economists ignore intra-family costs on the basis that family units are regarded as making consumption decisions. This is clearly not the case with most alcohol consumption so family costs should be regarded as a third-party impact.

In addition, in countries like Australia with a publicly-funded national health scheme the medical costs of alcohol consumption are nor borne only privately by the individual. Above-average medical costs will be met partly from the public purse. For this reason alone there can be a public interest in restricting use of alcohol.

4. Paternalism. Finally, although it does not at all fit into the liberal, ‘market failure’ category of reasons for intervention in alcoholic beverage markets, it must be admitted that there are strong moral and emotional arguments against excessive alcohol consumption. Some would oppose certain levels of alcohol consumption even if well-informed consumers, without self-control problems, did bear all the costs of their consumption.

This could result in alcohol taxes being set above their externality-correcting levels to reduce alcohol consumption. It could also motivate public health campaigns to be launched to decrease alcohol consumption not because external costs are being generated but simply because reduced alcohol consumption is a social objective.

For policy design purposes such arguments do not help. They do not take one far in considering a rationale for policy. On the basis of paternalism, alcohol consumption is opposed because one group in the community – doctors, scientists, religious leaders - assesses it to be undesirable. On the other hand considering paternalism might be a useful descriptive way of understanding some actual government regulatory policies – perhaps inefficient policies - that do operate.

Policy Interventions

Given the ‘market-failure’ reasons for seeking to restrict alcohol consumption what are the policy options for regulating alcohol use?

1. Information-related policies. The public sector may need to intervene to provide accurate information about the negative consequences of consuming alcohol and to restrict advertising that emphasizes inaccurately optimistic positive consequences of consumption.

The negative consequences of alcohol consumption include information on self-control issues and on genetic information that might suggest possible future problems.

A difficulty here is that there might be disagreement about the health consequences of consuming alcohol. The debate over the possible health benefits of consuming alcohol in reducing heart disease is a case in point: see Fillmore (2006a). Apart from providing accurate information on health consequences there is also then a case for investing in the provision of improved knowledge on the health consequences of consumption.

In addition, as already mentioned, the case for warning people of the health risks of alcohol consumption is weakened if people already exaggerate the risks. If particular at risk groups or particular health concerns arise then these should be targeted rather than general alcohol health warnings given.

2. Self-control policies. Policies for improving self-control include helping to demonstrate that alcoholism can be a consequence of recurrent drinking. There can also be provision of means for individuals to improve their self-control by promoting such things as personal rules or heuristics that consumers can use to control their drinking behavior. In particular, since problems with alcohol consumption primarily stem from excessive consumption, personal rules relating to the number of ‘standard drinks’ one consumes per week, numbers of alcohol-free days that should be pursued per week or, in some cases, the pursuit of total abstinence can be useful. These are primarily information policy issues.

Self-control can also be improved by restricting the availability of alcohol in various ways – by limiting the availability of alcohol outlets, by restricting trading hours and by limiting the promotion of advertising that might trigger cues to drink. Such policies also increase the non-price user costs of consuming alcohol.

For particular age groups who are prone to excessive alcohol consumption there can be a case for outright bans on consumption. Minimum age laws or restriction of the availability of alcohol to people with particular ethnicities such as Australian aborigines in particular locations are candidate policies.

With respect to drink-driving issues the installation of ignition interlock devices can be understood as a technique improving the judgment and self-control of drinkers in their ability to safely drive after consuming alcohol.

Finally, those with self-control problems should be made aware of the existence of treatment options and of self-help groups such as Alcoholics Anonymous.

3. Externality policies. Economists focus on externalities as a primary source of social costs in relation to substance abuse. The most standard economic prescription is to levy a tax which internalizes these external costs.

Externalities such as drink-driving induced accidents cannot be dealt with by a simple tax directed toward alcohol consumption since the externality here stems from the combined activities of drinking and driving. Moreover, we know that the probability of an accident, given a certain level of alcohol consumption, increases with age: see Phelps (1997, p. 516). Inevitably highway patrols and booze buses are used to detect drink driving with alcohol-involved driving being penalized by fines and penalties rather than taxes on alcohol consumption.

It is only if alcohol-related externalities are related to the overall level of a population’s alcohol consumption (the ‘populational health’ view, see Young (1998, p.115) that simple uniform tax policies make sense. The theory is described in the graph below.



Here the market demand for alcohol q is illustrated along with the private marginal costs of consuming different amounts of alcohol. The demand curve measures the marginal benefits from alcohol consumption for all alcohol consumers. The private marginal cost curve c(q) includes the internalized private health costs, the costs of traffic accidents borne by the drinker, the alcohol purchase costs and so on. The social marginal costs of consumption are also illustrated. These comprise both the private marginal costs borne by consumers and the external social costs generated including the health costs borne by other people, the traffic accident costs born by others and the cost (in dollar terms) of violence and anti-social behavior to others. With a free market operating consumers will consume to the point where their private marginal benefits equal their private marginal costs – they operate at q2 and pay price p2 for their consumption. Because social costs exceed marginal benefits over the range q1 to q2 consumption this imposes net social costs or deadweight losses (DWLs) to the community from drinking equal to the dollar value of the area ABC.

The standard economic prescription in this situation to remove these costs is to levy a Pigovian tax t which raises the price of alcohol consumption to p1 and leaves alcohol consumption where marginal private benefits equal marginal social costs.

Determining the size of this tax depends on assessing the scale of the unpaid for social costs and how these are linked to consumption at the margin. It also depends on the elasticity of demand of consuming alcohol – the more responsive demand is to the tax the smaller the tax can be. Selvanathan et al. (2004) provide price elasticity estimates of -0.3, -0.4 and -1.3 for Australian beer, wine and spirit consumption respectively. For alcoholic beverages as a whole the estimated price elasticity is -0.6 suggesting that a 10% increase in price would cause a 6% reduction in consumption.

Clearly if the social costs are related to the alcohol content of drinks then it should be designed to reflect this fact – it should be a volumetric tax related to the alcohol content of particular types of alcoholic beverage and not an ad valorem excise levied on the value of the alcoholic products sold. Light beer in Australia is already taxed at a lower rate that full-alcohol-strength beer in accord with volumetric principles (Commonwealth of Australia (2005, chapter 5)).

The distinctive feature of this economic approach is that it does not focus on the gross costs of consumption, GC. Thus it does not focus on the total medical, road accident costs and so on that can be attributed to alcohol consumption. In the figure these would be represented as the area 0q2BE. Nor does it focus solely on the non-internalized net costs less benefits (NC) of alcohol use – the medical or road accident costs not borne by alcohol consumers less consumption benefits as given by the area ECB. Instead the economic approach recognizes that alcohol consumption yields benefits to consumers that are given by the area under the demand curve.

The approach seeks to enforce a tax-inclusive price and a level of alcohol consumption that maximizes the net social advantage here the value of the benefits consumers derive from alcohol consumption less all the costs consumers impose irrespective of whether they are internalized or not.

Conclusions and Final Remarks

The economic approach to the costs of alcohol use focuses on the external costs of consuming alcohol not gross costs. The approach recognizes that alcohol provides benefits to consumers and that those costs of consuming alcohol borne by consumers themselves are irrelevant from the viewpoint of society. The economic approach to alcohol policy is based on the utilitarian precept that alcohol consumers should bear the full costs of their consumption and, given this, that society should then maximize net social benefits from consumption.

The advantages of this approach are that it implies a clear guide to policy design. Information should be provided to consumers so they correctly assess the costs and benefits of alcohol consumption including the self-control problems that can develop with alcohol consumption. Self-control difficulties themselves can be addressed with appropriate policies for treating such difficulties and by adjusting measures of the benefits from alcohol consumption. With such adjustments alcohol pricing can force the price of alcohol towards its full social cost (Godrey (2004)).

Despite the strong theoretical reasons for adopting the economic approach it has, in fact, only rather seldom been applied. The main studies are for the United States (Manning et al. (1989), Pogue & Sgontz (1989), Heien & Pittman (1993)) and New Zealand (Barker (2002)). Anderson and Braumberg (2006, p. 68-69) in reviewing these studies comment on the difficulties of implementing them given the problems of defining what are external costs and particularly in recognizing the private component of health costs in a country with a public health system:

‘…externality studies …evidently omit any consideration of the broad range of costs borne by the individual drinker, and are more useful when conducted alongside rather than in place of more common social cost studies. This is particularly true given two contentious results of the assumptions in many externality studies – first, that any harm within the household (such as to the drinker’s partner, or children) is counted as a private cost; and second, that drinkers are both fully rational and fully informed of the risks when they decide to drink’.

This is a political criticism that rejects the liberal ethic underlying the economic approach. The claim that harm within the family needs to be included as a private cost is rejected in this paper as families don’t make drinking decisions, individual consumers do, so there is no reason to treat such costs as private. The second point suggests that a group of non-drinkers can better judge what a consumer wishes to consume than the consumer themselves. This might sometimes be so but clearly not always. To a liberal it is a questionable basis for public policy.

References

P. Anderson & B. Braumberg, Alcohol in Europe: A Public Health Perspective, Institute of Alcohol Studies for the European Commission, 2006. http://ec.europa.eu/health-eu/news_alcoholineurope_en.htm.

F. Barker, ‘Consumption Externalities and the Role of Government: The Case of Alcohol’, Working Paper 02/25, 2002, New Zealand Treasury, http://www.treasury.govt.nz/workingpapers/2002/twp02-25.pdf

L. Cameron & J. Williams, ‘Cannabis, Alcohol and Cigarettes: Substitutes or Complements?’ Economic Record, 2001, 77, 236, 19-34.

D. J. Collins & H.M. Lapsley, Counting the Costs: Estimates of the Social Costs of Drug Abuse, Commonwealth Department of Health and Aging, Canberra, 2002.

Commonwealth of Australia, Review of the Schedule to the Excise Tariff Act, Industry Discussion Paper, Canberra, 2005.

K. Fillmore, T.R. Stockwell, W. Kerr, T. Chikritzhs & A. Bostrom,. ‘Has Alcohol Been Proven to be Protective Against Coronary Heart Disease? Response to Eight Commentaries’. Addiction Research & Theory. (In Press) 2006a.


Fillmore, K., T.R. Stockwell, W. Kerr, T Chikritzhs, & A. Bostrom, ‘Moderate alcohol use and reduced mortality risk: systematic error in prospective studies’. Addiction Research & Theory, 14, 2, 101-132. 2006.


C. Godfrey, ‘The Financial Costs and Benefits of Alcohol’, Paper presented to the European Alcohol Policy Conference: Bridging the Gap, Warsaw 16-19 June 2004 (available at http://www.eurocare.org/btg/conf0604/papers/godfrey.pdf).

D.M. Heien & D.J. Pittman, ‘The External Costs of Alcohol Abuse’, Journal of Studies on Alcohol, 54, 1993, 302-307.

P. Lundborg & B. Lindgren, ‘Risk Perceptions and Alcohol Consumption Among Young Adolescents’, Journal of Risk and Uncertainty, 25, 2002, 165-183.

W.G. Manning, E.B. Keeler, J.P. Newhouse, E.M. Sloss & J. Wasserman, ‘The Taxes of Sin: Do Smokers and Drinkers Pay Their Way’, Journal of the American Medical Association, 261, 1989, 1604-1609.

C.E. Phelps, Health Economics, Addison-Wesley, 1997.

T.F. Pogue & L.G. Sgontz, ‘Taxing to Control Social Costs: The Case of Alcohol’, American Economic Review, 79, 1, 1989, 235-243.

Productivity Commission, Australia’s Gambling Industries, Volume 1, Melbourne 1999.

E.A. Selvanathan & S. Selvanathan, ‘Economic and demographic factors in Australian alcohol demand’, Applied Economics, 36, 2004, 2405-2417.

T. Kue Young, Population Health, New York, Oxford, 1998.

Royal Australasian College of Surgeons, Alcohol Policy: Using Evidence for Better Outcomes, RACP, Sydney, 2005.

H. Saffer & D. Dave, Alcohol Advertising and Alcohol Consumption by Adolescents, NBER Working Paper No 9482, National Bureau of Economic Research, 2003.

W. Kip Viscusi, Smoke-Filled Rooms, University of Chicago Press, Chicago, 2002.

J. Williams, R. Pacula, F.J. Chaloupa, H. Wechsler, Alcohol and Marijuana Use Among College Students: Economic Complements or Substitutes? Health Economics, 13, 9, 2004, 825-843,

World Health Organisation, Global Status Report on Alcohol 2004, World Health Organisation, Geneva, 2004.

Developing countries & climate change policies

I have been thinking about climate change issues in developing countries like China. The following notes provide some preliminary thoughts. I'd welcome comments.

Developing countries like China have low per capita energy consumptions, low efficiencies of energy use and, because of their population size, high aggregate greenhouse gas emission levels. They are also experiencing rapid economic growth. Currently they are not bound to control their carbon emissions by the Kyoto Protocol or other regulations. Indeed these countries are subject to low levels of environmental regulation generally.

What this suggests is that energy consumption and carbon emissions will be subject to two influences as these countries develop. Improved energy efficiencies will tend to reduce per capita consumptions and emission levels while increasing incomes are having stronger effects in driving both consumptions and emissions higher. China has already stated it will attempt to control carbon emissions by seeking to pursue ‘no regrets’ options of improved energy efficiency. But in the longer term we would expect that higher living standards will drive per capita energy levels towards levels enjoyed in developed countries. The short-term pursuit of ‘no regrets’ options is a sensible strategy since it both enhances cost efficiencies and reduces pressures from short-term emission growth. Longer-term developing countries can develop or purchase from developed economies less polluting coal or other electricity generation technologies as developing incomes increase and the capacity to employ less pollution technologies increases.

An obstacle to better longer term emission policies in developing countries is that currently these nations enjoy comparative advantages in a number of manufacturing areas because of the combined role of their low wage costs and the low prices they levy on use of the environment. As their economic development proceeds and wages increase, and as environmental restrictions in developed countries become more stringent, there will be increasing pressure on developing countries to rely on their low priced environments to preserve their comparative advantages. Indeed, it is in their self-interest to seek stringent environmental regulation in developed countries but to retain a lack of environmental controls for themselves.

While one can criticise the environmental stance of countries like the United States for not ratifying the Kyoto Protocol and for generally permissive policies towards carbon emissions eventually governments in the United States must respond to local public opinion. But neither local consumers nor international public opinion will have the same role in limiting pollution in countries like China if there continues to be a lack of accountability through the democratic process. While local environmental conditions are among the worst of any country the benefits of economic growth are being consistently favoured over the environment.

This is potentially a very dangerous outcome since within 20 years China will be the world’s biggest emitter of greenhouse gases. Moreover, China is one of the countries that will be most adversely affected both by generalised global warming and the direct harm it is carrying out on its citizens through local pollution.

Finally, the failure of China and other developing countries to implement effective carbon management policies reduces the incentives of industrial firms to practise effective carbon management in developed countries. Rather than investing in research or in new less-polluting technologies manufacturing businesses are encouraged to relocate in countries without stringent carbon controls. This has a global impact of reducing the international community’s ability to adjust to climate change or, equivalently, it increases the costs of adjusting to such change.

Countries like China, Australia and the United States which do not tax or limit their carbon emissions are imposing an external cost on the international community. An enforcement mechanism that countries could develop to pressure these countries to address the issue of climate change would be a countervailing tariff administered by the WTO similar to that proposed by Stiglitz on all goods that involved a significant carbon content. Countries that imposed a globally determined carbon tax would be exempt from such tariffs on their exports and could use the revenue as a significant source of income.

Under-valuing catastrophic risk

Tim Flannery reacted to the recent 4th IPCC report by claiming that its middle-of-the-road forecasts ignored the potential for very steep temperature rises of 6 degrees C (with probability 0.1) and for very rapid melting of the Arctic Ice Cap in 5-15 years. In short he claimed the IPCC understated the possibility of catastrophic risks. Flannery was dismissed as an alarmist (and worse) by right-wing commentators.

But Tim is worth listening to for 2 reasons:

1. In dealing with uncertainty in a global warming context it makes sense to look at extreme catastrophic outcomes that might happen. Even if there was only a small probability of a catastrophic climate outcome that devastated the world that would be an event that should be taken very seriously by decision-makers. Extreme events must be accounted for if their expected costs are very high because society is more concerned with extreme climatic events than averages. For example, we are much less interested in knowing in average temperature will rise by 3 degrees C than in knowing whether we will experience extreme heat waves, droughts or storms.

In other words, we should not only be trying to nail down forecasts of temperature ans sea level changes but also look at the probability distributions od such forecasts with an emphasis on long-tailed events.

2. There is increasing evidence from various sources that the IPCC report was conservative in undervaluing catastrophic outcomes. New Scientist this week voices several concerns. Generally the IPCC emphasized rigorous research so research deemed controversial or not yet incorporated into climate models was excluded.

The political benefit was to leave little room for the climate change sceptics but there was, simultaneously, the dangerous cost that legitimate findings may have been frozen out with many of the more scary scenarios for climate change - those that scientists discuss among themselves - 'being left on the cutting room floor’.

Climate scientists came together 2 years ago to discuss ‘dangerous’ climate change at a conference organised by the UK government in Exeter. They identified potential positive feedbacks and ‘tipping points’ not included in current models of the earth's climate system that could accelerate global warming or sea-level rise. These included:

• the physical collapse of the Greenland ice sheet,
• rapid melting in Antarctica,
• a shut-down of the Gulf Stream in the Atlantic,
• the release of CO2 and methane from soil, the ocean bed & melting permafrost.

Yet last week's IPCC report largely ignored these possibilities.

One concern is that the ice sheets of Greenland and Antarctica could disintegrate causing sea level rises of metres. But the IPCC restricted itself to noting that sea levels are rising 3.1 centimetres a decade - still twice the rate of the early 1990s. Current climate models assume that the ice sheets will melt only slowly, as heat works its way down through ice more than 2 kilometres thick.

But many glaciologists believe ice sheets fracture as they melt, so water can penetrate to the bottom within seconds, warming its full depth so break-up of the ice sheets happens long before thermal melting. Indeed, the rate of ice loss in Greenland has unexpectedly doubled in the past decade and the permanent Arctic sea ice is contracting by 7% each decade.

Moreover, there is research showing that world sea levels are rising 50% faster today than predicted in the last IPCC report in 2001 This could be the first sign of a dramatic acceleration of sea level rise as ice sheets disintegrate. But the IPCC last week reduced its estimate of worst-case sea level rise in the coming century from 88 to 59 centimetres. Controversy over such forecasts continues at Deltoid.

Researchers at the UK's National Oceanography Centre, Southampton also felt overlooked. In 2005, they reported that the Gulf Stream slowed by 30% 1957-2004. But the IPCC summary insists that ‘there is insufficient evidence to determine whether trends exist’.

Water vapour is increasing in the atmosphere, the IPCC says thanks to more evaporation from the oceans. Weather systems are changing, with more intense droughts and tropical cyclones at low latitudes. Rainfall, when it occurs, is heavier because the warmer air holds more moisture. However, the IPCC fail to take up warnings made of ‘carbon-cycle feedbacks’ - the release of greenhouse gases from warmed soils, forests, permafrost and sea beds. It does note that CO2 is accumulating at a rate 1/3 greater than 20 years ago.

The IPCC's predictions of significant warming in northern latitudes should give urgency to assessing potential methane releases from Siberia and the Arctic. But, these fears were not in the IPCC report.

Any committee requiring politicians to agree is going to take time arriving at a consensus. The IPCC’s climate scientists had to run the gauntlet of government delegations, who had to approve every word of the summary prior to publication. By and large, the IPCC scientists insist they ‘faced down political interference’. The prize of having governments formally sign off on the report will, they hope, make any compromises worthwhile.

Future IPCC work on climatic risk and uncertainty should address the prospect of extreme catastrophic climatic events. Such events lower the discount rate one should apply in climate change policy modelling. Also, as I pointed out in an earlier post, such events need to be analysed from the perspective of the ability of policies to offset them. Extremely disadvantageous events that cannot be offset suggest lower incentives to embark on policy and a case for delaying action. Extreme events that can be offset enhance arguments for intense and prompt policy activism. I set out the analytics of such arguments here.

A US attack on Iran?

I’ve speculated over the past year about the prospects of the US going to war with Iran. The Economist this week thinks there are good reasons for supposing it might happen despite the US defence secretary’s claim February 2 that ‘We are not planning for a war with Iran’. They advance four reasons.

• Iran's apparent determination to build nuclear weapons, and a fear that it is nearing the point where its nuclear programme will be impossible to stop (see here).
• The advent of Mahmoud Ahmadinejad, a populist president who denies the Holocaust and calls openly for Israel's destruction: his apocalyptic speeches have convinced many people in Israel and America that the world is facing a new Hitler with genocidal intent.
• A recent tendency inside the Bush administration to blame Iran for many of America's troubles not just in Iraq (see here) but throughout the Middle East.
• The predicament of George Bush. ‘A president who is now detached from electoral considerations knows that his place in history is going to be defined by the tests he himself chose to put at the centre of his foreign policy: bringing democracy to the Middle East and preventing rogue regimes from acquiring weapons of mass destruction. Given his excessive willingness to blame Iran for blocking America's noble aims in the Middle East, he may come to see a pre-emptive strike on its nuclear programme as a fitting way to redeem his presidency’.

The Economist regards a US strike on Iranian nuclear facilities as a reckless gamble that would at best delay not end Iranian nuclear ambitions:

‘It might very well rally support behind a regime that is at present not conspicuously popular at home, emboldening it to retaliate inside Iraq, against Israel and perhaps against the US itself. Besides, it is far from clear exactly how dangerous a nuclear-armed Iran would be. Unlike Iraq under Saddam, Iran has a complex power structure with elements of pluralism and many checks and balances. For all its proclaimed religiosity, it has behaved since the revolution like a rational actor. To be sure, some of its regional aims are mischievous, and in pursuing them it has adopted foul means, including terrorism. But the ayatollahs have so far been shrewd calculators of consequences. There are already small signs of a backlash against the attention-seeking Mr Ahmadinejad. Like the Soviet Union, a nuclear Iran could probably be deterred’.

This is not to say a nuclear Iran isn’t dangerous – it is. Iran's nuclear efforts might, for example, provoke a pre-emptive strike by Israel, which is already a nuclear power.

‘For Israelis, whose country Mr Ahmadinejad says he wants to wipe off the map, it is not all that reassuring to hear that Iran can “probably” be deterred. Even if Israel were to decide against such a strike, Iran's going nuclear could destroy what is left of the international non-proliferation regime. It has proved hard enough for Arab states such as Egypt and Saudi Arabia to live with Israel's undeclared bomb; if their Iranian rival got one too, the race to copy might soon be on. On top of this is the danger that a nuclear Iran would feel safe to ramp up attempts to spread its revolution violently beyond its own borders’.

Every effort should be made to stop an Iranian bomb. But a better way than an armed strike is to encourage the talks between Britain, France and Germany and Iran rather than to bludgeon Iran into nuclear compliance. Iran claims its nuclear programme is for civil purposes only so last year, the Europeans called its bluff by offering trade, civil-nuclear assistance and a promise of talks with America if it stopped enriching the uranium that could produce the fuel for a bomb. When Iran refused, diplomacy led in December to economic sanctions by the Security Council.

This is a promising approach. The diplomacy at the UN proceeds at a glacial pace. But Iran is thought to be several years from a bomb. And meanwhile the Americans, Europeans, Russians and Chinese have at last all lined up on the same side of the argument. What is required now is a further tightening of the economic squeeze coupled with some sort of an incentive—most usefully an unambiguous promise from Mr Bush that if Iran returns to compliance with the nuclear rules it will face no attempt by America to overthrow the regime. Even then, America and Iran may be fated to lock horns in the Middle East. But the region, and the world, will be a good deal safer without the shadow of an Iranian bomb’.

Meanwhile Paul Krugman also agrees that what would be a disastrous attack on Iran is increasingly likely – he describes this as the Scary Movie 2 possibility.

Anna Nicole Smith RIP

They don't waste time do they?

The culture vultures are picking at her bones already. Over at Deltoid the newspaper space given to this 'minor American celebrity' is being compared to the lack of space given to reports of 'excess deaths' of 650,000 Iraqis. Clever point Tim! I thought her life and death were very sad. The following image of her proposed casket was circulating on the web today. I guess it should be amusing.

But the more I looked at it the less amusing it became. Again, I just felt sad for her. She was 'fabulously gorgeous' and deserved a much happier life.

Dealing with climate change at low cost

One way of thinking about the economic policy problem associated with climate change policy is to think of trying to move economies toward more sustainable levels of carbon emission at low cost. Despite some alarmism about the costs of dealing with climate change the consensus is that the costs should, in fact, be quite low. John Quiggin has suggested that dealing with climate change satisfactorily will cost 1-3% of GDP.

Without endorsing this specific figure I agree with the general notion that dealing with climate change can probably be accommodated at low cost. Moreover, the economic task is to make this cost as low as possible and, I would argue, market processes can help achieve this objective. As I suggested, in a recent post, capital markets are already oriented to assessing the costs and benefits for individual firms of climate change – markets are supporting those that are well prepared for dealing with hefty carbon regulations and penalizing those firms that are not. The implied resource reallocations from this reorientation of sentiment - this favours firms which are well-prepared - will smoothe the impact of climate change on the economy by producing lower adjustment costs.

The Weekend AFR 10-11/2/07 (19-21, 42, 62 subscription required) takes this analysis further. It argues that a technological revolution akin to the internet revolution will help to ‘cool the planet’. This revolution will reflect both the threats and promises of climate change and should dominate world capital markets for the next 25 years. The task is to accommodate a 50% growth in global energy demands while reducing dependence on fossil fuels by drawing on new technologies, nuclear power, geothermal power and other renewables. This is complicated by the fact that there are pent up demands for energy as companies have delayed new projects partly because of policy uncertainty and, partly, I suspect, because of fossil fuel price uncertainty.

Just as with the internet boom a lot of money will be out there chasing winners. A lot of this will be ‘old energy’ money seeking to adapt to a new world but some will be the hard-earned savings of John Doe's, like your scribe, trying to make a buck. Motivating this greed is an important development that can help resolve the climate change problem.

Among the equity-market bets you can place in Australia that might do well out of climate change problems are:

• Babcock & Brown Wind – wind generation.
• Energy Developments – gas, coal, methane, landfill power.
• Ceramic Fuel Cells – ceramic fuel cells.
• Transpacific Industries – waste management.
• Viridis Energy Capital – gas from landfill.
• B&B Environmental – green power, biodiesel, recycling.
• Dolomatrix – liquid waste technologies.
• Quantum Energy – energy efficient hot water systems.
• Geodynamics – geothermal energy from hot rocks. (Tim Flannery has a small investment!)
• Envirozel – water storage and treatment.
• CO2 – malle carbon sequestration.
• Agri-Energy – ethanol production in the US and Australia.
• Phoslock Water – water treatment.
• BlueScope – plans cogeneration & (regrettably) seeking protection from government.
• OneSteel – seeking to reduce emissions. Increasing use of recyclables.
• AGL – about 41% generating capacity is emissions free.
• Origin Energy – focus on renewables. Has 15% of Geodynamics.
  

The prospects for these alternatives improve dramatically if a carbon trading scheme or carbon tax is set in place. Their prospects will not be improved by a nonsensical ‘free market’ approach to dealing with global warming discussed at Catallaxy on the basis of enforcing property rights on local pollution problems. Markets work only when externalities have been internalised and global warming is the 'mother of all' externalities.

The best policy approach is make the greed instinct work is to embed in the entrepreneurial consciousness the notion that using carbon-based fuels with current technologies will shortly involve greatly increased future costs. This needs to be done clearly now. Waiting for others to act is a foolish 'defect' strategy in a global Prisoners' Dilemma where a possible outcome is that future life on earth might be very difficult. Current actions to implement a carbon trading scheme are a useful start. Such moves, if they enforce a high enough price on carbon emissions, provide the right price signals for:

• Evaluating and investing in nuclear, geothermal and other alternative energy technologies as well as waste disposal technologies.
• Developing cleaner coal and fossil fuel burning technologies in power generation.
• Encouraging firms to invest in energy conservation in cars and other energy-using consumer durables.
• Encouraging consumers to exercise appropriate conservationist constraint in using energy.
• Conducting energy technology and economic research.

All these things interact to drive the greed instinct in the direction of dealing effectively with climate change. Of course one must deal with idiot politicians who value a position of power at low pay rather than dealing effectively with an urgent issue. The Labor Party should throw into the basket of foolish ideas its policy that allows others to use nuclear power based on our uranium resources but not us. Furthermore, State governments which respond to pressures from energy providers to give them exemptions from carbon controls as a precondition for carrying out new investment (as NSW as done for BlueScope) should be exposed for their shameless lack of principle and not re-elected.

Cricket tragedies

Last Wednesday Monash University’s Centre for Policy Studies (COPS) defeated LaTrobe University’s Department of Economics and Finance in our annual cricket match. Conditioned as we are to defeats it still hurts - particularly when Monash bats poorly and scores a total of only 126 – not even batting out all of its 30 overs - and when LTU responds by 'snatching defeat from the jaws of victory' by posting a total of only 115. LTU's run chase was too slow - too many missed opportunities.

Monash’s amiable boss Professor Peter Dixon looked ruffled as LTU’s score approached that of his team but smiled broadly as, yet again, the almost inevitable happened. A review of last year’s defeat was posted on this blog. I didn’t play myself this year but, after learning from Peter that my bowling had terrorized him in the past, I might get back into training for 2008.

Yesterday I went to the First Final in the One Day Commonwealth Bank Series between Australia and England. The outcome was disappointing for Australia since it lost. But England celebrated its third consecutive victory and deserved congratulations – despite the close apparent margin with England winning with only 3 balls to spare – it was by far the better team.

Australia started brilliantly being 1-170 at one stage with superb batting performances by Ponting and Hayden. But they were all out in the 48th over for 252 which did not look enough on a very even pitch. England started disastrously and were 3 for 125 at one stage and then responded as the Aussies usually do. They fought back brilliantly. Paul Collingwood’s 120 was a solid innings that won the game for England. Apart from Brett Lee‘s 3 for 41 the Australian bowling didn’t look good. McGrath looked old and out of it.

The Mexican Wave survived despite warnings that were regularly screened stating that it was banned. There is a loutish stupid adolescent element who damage the game – I thought those who booed Collingwood on getting his century (pictured) need to be sent to re-education camps in a Gulag - but I agree with Yobbo that banning the wave is not the way to go. The wave is a bit of fun.

The crowd was small for the MCG at under 40,000. The banning of the Mexican wave may have played a minor role as may the expectation (proved false) that England would not be competitive. But I also think the facilities at the MCG are appalling – at least for the average mug like me who is not an MCG member. The seating is uncomfortable, the electronic reporting systems are 60% advertising and the food and beverage services are beyond belief. The food is expensive and genuinely disgusting. Not a great deal for the $60 I paid for my ticket.

I enjoyed the cricket but the drones who banned the Mexican wave seem to also lack much business sense.

Jobs threatened by JWH’s IR policies?

Unemployment at 4.5% of the workforce has fallen to its lowest level in 32 years. A year ago it was 5.3%. 300,000 new jobs were created in the 12 months to the end of January. Again there is evidence of a two economy split – WA and Queensland had rates of 3% and 4% respectively while NSW and Victoria had rates of 5% and 4.9%.

The dire tragedy of this situation, to some, is that the economy again faces threats of renewed inflation, labour supply shortages and interest rate rises. The Age describes the RBA as ‘jittery’ after news of these developments. Yet wage growth is steady at only around 4% despite a bubbling resources boom and an investment boom that is operating throughout much of the economy. The housing price bubble has been gently pricked and - if anything - house prices are taking off again.

Employment in those sectors affected by the abolition of unfair dismissal laws has grown (Julia Gillard points out by less than 1% but it is still growth) and the more flexible industrial relations system has prevented a breakout of the high wage increases in the mining sector into other sections of the economy.

Will the Australian electorate punish JWH’s government for running the economy at full employment? Indeed, for daring to run the economy with unemployment markedly below its ‘natural rate’ level. Recall that in the late 1990s natural unemployment rates were estimated to be between 5-11% in what I regard as some of the most staggeringly nonsensical economics our country has seen in decades. Some of our macroeconomists should be cooked down into decorticated canine preparations for peddling this junk.

Will voters prefer Wayne Swan to Peter Costello? Should we scrap WorkChoices? Has WorkChoices caused misery and economy damage? Where is it?

My thinking is that interest rates will fall further rather than rise, that inflation will moderate and lie within within the RBA's preferred range of 2-3%. I also think the economy will continue to grow quite strongly as commodity price growth moderates a bit but that the market for our primary exports will remain very strong. Moreover, my guess is that unemployment will fall further – job growth accelerated over the past year from 1.5% to 2.8% and job ads leapt by 11.8% in December.

While skill shortages are a pain, and probably put a clamp on growth, they are (of course) to be unambiguously preferred to layoffs – they can be met in part by increasing the temporary and permanent components of the skilled migration program and, in the longer-term, by families being induced to reproduce more.

The stories about large numbers of discouraged workers seem just that, stories. Even though the labour force participation rate fell a smigeon over the last month it has shown a secular increase for years. And the claim that increasing numbers of unemployed are 'hidden' among rising levels of those receiving disability pensions is not borne out by the facts. The rise in employment dominates all such trends.

This election will be won or lost to the Liberals on non-economic issues (Iraq, climate change, David Hicks). On the basis of the economy alone it is just no contest.

Google maps Australia

Joshua Gans and Andrew Leigh have got into it and (ever the late adopter) I had to give it a try. Google Maps Australia is a useful, fun way of looking at Australia and for devising travel routes.

Update: A useful help site is here while a site for reprting problems is here.

Changing clothes

I found this amazing. Thanks Bernd.

Agricultural opportunities from climate change?

Malcolm Turnbull is making strong claims about the ability of irrigated Australian agriculture to meet the decline in food production associated with the exhaustion of groundwater resources in India and China. He wants Australian irrigators to increase (not decrease) their production by improving the efficiency of water use. He said:

‘The North China Plain, which had 400 million people, was 75 per cent supplied by groundwater, which would be substantially exhausted within 10 to 15 years’.

This echoes messages presented at a Crawford Fund Conference in 2006.

I am not knowledgeable enough about Australian agriculture and about the possibilities for improving water conservation to make anything like a definitive comment on this claim. But I point out that irrigated agriculture is already putting enormous pressure on current Australian water supplies in the Murray Darling Basin. Even with dramatically improved conservation of water these supplies will come under increased pressure from climate change. Without attempting to address CO2 emissions rainfall in the MDB might change drastically although the direction of change is very unclear. The CSIRO don't know - they forecast up to either an increase of 40% or a decrease of 60%. A study is now underway to narrow down forecasts.

While we should be aware of business opportunities in agriculture that arise from global warming we should also think about the need to develop anticipatory, adaptive policies for addressing it. An Australian action plan to consider such changes has been prepared. Generally, the environmental and biodiversity implications of expanding irrigated agriculture need to be considered alongside the business opportunities.

Fart taxes

According to the Times of India

‘A recent FAO report entitled 'Livestock's long shadow', stating that the world's 1,530 million cattle contribute more to global warming than its 900 million cars and commercial vehicles, came as a shock to many. The UK was reported to be seriously debating a 'fart tax' on all cattle and sheep to try to reduce their numbers. In 2003, New Zealand had proposed a similar NZ$10 tax per animal that had been bitterly opposed by their huge farming community.’

The ‘fart tax’ proposal was of particular interest to India because it has 18% of the world’s cattle. While this account is humorous to those who find flatulence humorous, the FAO report does show that it is both industry and agriculture that are contributing to global environmental issues such as global heating. This has important agricultural policy implications.

Aussie tobacco-growing industry disappears

The Australian tobacco-growing industry has ended with an industry-government buyout of all producers. All cigarette products consumed in Australia will now be imported. The advantage for the anti-smoking lobby is that the price of illegally-grown tobacco ('chop-chop') will increase so taxes levied on legally-sold cigarettes will have a bigger impact in reducing smoking and its health costs.

Of course the illegal tobacco-growing industry in Australia might expand when the possibility of illegally diverting supplies from legal tobacco growers ends. Also, some illegal tobacco might be imported. There might also be the substitution of herbs (marijuana?) and other products for legal tobacco which will lead to yet another round of discussions on health effects.

Indeed, on substitutions I was interested to read in W.J. Peasley's enthralling The Last of the Nomads that the desert-based nomadic aboriginals in WA collected their own native tobacco from the bush which they chewed and stored behind their ear for repeated consumption.

Update: I checked on commenter FXH's query and it does seem, apart from the ACCC exemption, to be illegal to grow tobacco - not just to sell it.

Women: Know your limits.

An instructional video clip for women with an economics twist.

Thanks Sir Henry.

China's rapid growth an environmental disaster

Courtesy of J.F. Beck I found this argument from Spiegel on the massive global environmental damage that is due to China. China is a global environmental villain that funds its 10% GDP growth partly by imposing external costs on the rest of the world.

• Air pollution from China damage the atmosphere in San Francisco & Germany.
• China’s grasslands, since the early 1980s, have been turned into a desert the size of the US state of Connecticut.
• China is home to 16 of the world’s 20 most polluted cities.
• 278 out of 661 Chinese cities are without a sewerage treatment plant.
• 340 million Chinese people are without access to clean drinking water

China will be the world’s biggest CO2 emitter in a few years– already it accounts for over 15% of emissions. Yet China demands that developing countries not be forced to cut greenhouse gas emissions.

Interestingly, China is a country that will be most adversely affected by climate change. It is endogenously driving its own fate. One would think China should have a stake in cutting emissions to secure its own future. It’s a sad picture that throws new light on the Chinese ‘growth miracle’ and the glory of living in this 'worker's paradise'.

Becker-Posner on global warming & discounting

There is a useful discussion at the Becker-Posner blog site on choosing a discount rate in global warming exercises. Posner favors choosing a relatively low rate to offset the possibility of catastrophic risks while a more orthodox Becker favors discounting at the rate of return on capital.

Early studies of the costs of warming (such as Nordhaus) used a 3% discount rate (declining over time to 1%) while the recent Stern Review uses a rate of close to zero. Because many of the benefits of dealing with warming are in the distant future Stern provides much higher estimated damage costs of not dealing with warming than did Nordhaus. Nordhaus also predictably derives much less binding taxes than does Stern.

Who is right here? Well Posner has a point. He is concerned that low probability catastrophic events (such as extreme temperature rises) could have such disastrous outcomes that it makes sense to put considerable weight on them because their expected cost is so high. This point is also made by John Quiggin and argued more formally in an essay by Robert Pindyck. I tried to summarise elements of the discussion here.

If you ignore such catastrophic risks and assume that the rate of return on capital will remain at around 3% then Becker’s discussion makes sense. If the expected damages in 50 years time from climate change is $2 trillion then at 3% the value of those damages today is $500 billion so if current costs of mitigation were anything above $500 billion it would be a move bet to mitigate. For example if it cost $800 billion to mitigate today one could invest this at 3% and transfer this to those impacted on by warming in 50 years. The transfer would amount to about $3 trillion so future generations would be better off with this transfer even if they had to tolerate the costs of warming.

My intuition is to broadly back Posner’s view. The 4th IPCC Report does raise the possibility of even more dramatic possible increases in temperature than envisaged in the 3rd report. The range of possible temperatures to year 2000 has increased and the maximum possible forecast increase has risen to 6.4o C which could be catastrophic – it exceeds the range of warming experienced at the present time since the last ice age. Should society risk all to enjoy a 50% higher payoff (from $2 to $3 trillion) in 50 years? Certainly not if the risks of catastrophe are large enough and if current policies can mitigate the chances of extreme climatic outcomes.

Uncertainty over forecast future climate changes reduces the discount rate that should be applied and thereby increases the case for taking decisive action now.

Climate change mitigation & the case for carbon trading

The 4th IPCC report on the scientific basis for global warming has been released and is being assimilated. It is an important document because it narrows the range of uncertainty over climate change as a policy issue. This gives conservative politicians, of all persuasions, incentives to act. There is a need to devise sound global policies which involve emerging countries such as India and China and domestic policies to achieve emission targets at minimum cost.

A basic tool for greenhouse gas management is a carbon tax or an equivalent carbon trading scheme as advanced by the Prime Minister John Howard. A tax can be levied to close the gap between the social costs of carbon emissions and their private costs. If the tax is set appropriately it will yield an efficient level of emissions. If we can observe emission levels by individual polluters, one can alternatively set this efficient emissions level as a target, allocate it among polluters, then allowing them to trade their quotas into their highest valued uses.

Although a carbon tax can, in principle, be designed which has the same effect as a quota there are well-known advantages to the Prime Minister’s scheme if, as is plausible, we are uncertain of how polluters will respond to a tax, but wish to guarantee that Australia will meet its CO2 targets. Moreover, this trading process will mean that those firms which face the lowest costs of limiting their carbon emissions will do so. Firms with high mitigation costs will buy quotas from these low cost firms so cleanup is done at minimum community cost thereby achieving an economically efficient outcome.

According to the AFR this morning (subscription required) the carbon trading market in Australia could be worth $4 billion annually.

To be clear a carbon trading scheme will provide the same signals encouraging nuclear power, other non-polluting technologies and energy conservation that a carbon tax would. It also has the political economy benefits of being less objectionable to polluters than a tax transferring revenue, in the first place, to government. The claim that quota schemes require monitoring of emissions is a weak criticism since so too does successful implementation of a carbon tax.

Because the effects of a carbon trading scheme on a firm's marginal production costs are analogous to the effects of a tax it is pure rhetoric on the part of PM Howard to insist that because he is choose a tradeable permits scheme over a tax that he is not 'selling out' the workers in the mining and power generation industries. An effective carbon trading scheme will have the same effect on electricity prices as an effective carbon tax.

PM Howard has signalled that a national carbon trading scheme will go ahead within 3 years provide there is a reasonable expectation other countries will follow suit. An announcement on the specific form of the scheme is expected tomorrow.

Meanwhile, I have been sporadically following the press debate in Australia on IPCC. Alan Dupont in The Australian sees climate change as a ‘security issue’ that threatens ‘mega-death and contribute to state failure, forced population movements, food and water scarcity and the spread of infectious diseases’. He claims climate change policy should be integrated with foreign and national security policy. Mirko Bagaric argues, to the contrary, that immediate issues of extreme poverty should have priority over speculative issues associated with warming since warming is a problem for affluent not poor countries. He further claims that because our ‘sympathy gland’ has finite size that more pressing issues of poverty in developing countries should be emphasised. This is a version of the Lomberg thesis and seems misguided since, in my view, the main costs of global warming, which could be cartastrophic, will fall heaviest on poor people in developing countries.

Happy birthday!

Happy birthday Kalimna! You are 1 today. Over the past year there have been 607 posts here, an average of 1.7 per day, with around 180 daily visitors looking each day at a total of 350 page views. This performance won’t break records but it is a start.

I initially made a resolution to give blogging a trial for a year and then to rethink options. And I will continue, though my efforts may be scaled back. Joshua Gans celebrated the 1st birthday of his Core economics blog just 2 days ago and remarked that he seldom spent more than 30 minutes per post. My guess is that I spend closer to 45 minutes per post - maybe I am less productive than Joshua - so posting takes 1.5 hours each day. This is hard to sustain particularly as I spend time looking at other blogs and websites. I also have a job, family, my yabby and….you know the rest...

I have had some well-intentioned grizzles about the emphasis on work-related posts but work is an important part of my life and posting on work-related topics reduces implicit costs of blogging. I have also had several less well-intentioned grizzles that have been consumed, chewed over and externalised.

I gave this blog the name Kalimna rather than Harry Clarke’s blog as I thought I might want to take on partners (the name is also a favoured non-native rhododendron hybrid, the intended name of Clarke Mansions and a reasonable Penfolds wine) but I have come to realise that I prefer to run my own show and have occasional guest posts so, from today, I’ll revert to a more straightforward title.

So reader, consider today to be a birthday celebration and use the chance to voice your concerns, criticisms and praises on any aspect of my blog. Its an open post.

Finally, thanks to readers and particularly those who commented on my postings. You helped make blogging an enjoyable or at least stimulating experience for me.

DJ's vs.TAI on 'sexualising children'

David Jones Ltd is suing the The Australia Institute for saying that DJ’s advertising eroticized and sexually exploited children. DJ's was furious with the TAI claims which it denied. It demanded the TAI remove references to DJ’s on its website. The TAI in turn describes the DJ’s response as ‘corporate bullying’ and refused DJ’s demand – though looking at its website today I found no reference to DJ’s in the published part of the article on sexualizing children. I found the argument by Andrew Bartlett to be as sensible a response as I encountered on the original controversy – sexualizing kids is a dangerous activity and deserves public discussion. Little girls, and boys, should not be eye candy.

But I was surprised that DJ’s sued – the Myer stores who were also mentioned in the TAI report have not. DJ’s claim they have suffered lost sales but I think, regardless of the truth of the claims, almost no-one pays attention to the views of a minority group like TAI. Perhaps it was middle class mums, who dress their kids up as fashion accessories, the main customers, who DJs think might be sensitive to the claims of parental abuse. Or maybe DJ’s are just offended by the accusation that they are sexually exploiting a vulnerable group – it’s a claim many of us, as parents, would experience acute discomfit with.

On the other hand the beauty of children is something undeniable – the Konrad Lorenz theory of beauty holds that beauty in an adult’s face stems from the way it mimics the features of a child. Pedophilia is believed to influence the sexual preferences of up to one quarter of men and this creates potential hazards for children, particularly young girls.

More important that adult Lolita fantasies are the damages being done to young children who are encouraged to grow up early rather than being allowed to just be children. It is pathetic to see barely-pubescent young girls actively seeking attention with exaggerated dress styles.

So this issue does deserve public discussion although it would be better done in a broader setting than the present legal action. But there are substantial taboos against discussing the issues of sexualizing children so don't hold out your hopes for a non-sensationalist discussion. Current discussions of this legal action are at Larvatus Prodeo and Catallaxy.

Lazy weekend

I’ve had a lazy few days – went bird watching at Yellingbo State Nature Reserve today with son and then ‘swimming’ in the backyard pool – ‘swimming’ means lying in the water!. Pottered around the garden Saturday and managed to stretch 40 minutes work into an afternoon, again with more ‘swimming’. Felt too lethargic to do much more than read newspapers. In the press I followed the IPCC Report and posted briefly on that.

Glanced at a few local blogs today but not a lot caught my attention. In a comment on this blog, observa points out that Immigration Minister Kevin Andrews will put a proposal to Federal Cabinet to cut Sudanese migration. Sensible.

Elsewhere foolish comments by visiting British psychologist Oliver James aroused the ire of Jason Soon at Catallaxy. Tim Blair took an earlier shot. In my view O. James and Germaine Greer should hook up and live their remaining dreary days at a windswept British coastal resort where they write 'psychobabbilistic' treatises on the poverty of Australian intellectual life.

I was annoyed about Cricket Australia banning the Mexican wave – its the hoons at the MCG who throw objects who cause problems not the wave which is innocent Aussi stupidity.

But the ‘one day’ series has hotted up - with New Zealand showing good form tonight – though Ponting and Hodge for Australia were superb and eventually clinched the match for Australia.

Even England, bloody England has finally (after 10 encounters) won a match against Australia. I’m off to the First Final this Friday and want to see a fight not a wimpy capitulation – the prospects look better for this than a week ago.

Global heating & IPPC 4

I’ve been trying to get my head around the Intergovernment Panel on Climate Change (IPCC) report ‘Climate Change 2007: The Physical Science Basis – Summary for Policymakers’ document. Among the better commentaries I saw were the New York Times and a good summary in The Australian. Warming is definitely occurring and, with probability = 0.9, it is anthropogenic. The warming will continue for centuries but its worst effects can be dealt with by reducing emissions – though the IPCC are not concerned here with policy.

Labor’s Kevin Rudd made yet another of his ‘fork in the road’ pronouncements and engaged in petty politics. Give us a break Kevvie. I find it hard to take the Labor Party seriously on the climate change problem given that they rule out the nuclear option. Howard returned Rudd’s fire by pointing out this obvious anomaly.

In the local blogosphere Tim Lambert at Deltoid seemed more interested in covering up a forecasting error he made than in discussing the report. John Quiggin was concerned with oil industry attempt to fund research that criticized the report. Andrew Norton makes a pretty good post on the topic – he criticizes John’s critique as ‘McCarthyism’.

But in all these commentaries there is not actually a lot on the substance of the report itself. It is an interesting document and rather complex. Some risks such as melting of the polar icecaps are downplayed. Patrick Michaels at the Cato Institute draws optimistic conclusions from the report's empirical findings. Our understanding of global warming will evolve and policy responses need to be a rolling plan.

Summary effects (based on Reuters):

1. Temperature rises. The range of possible temperature increases this century has increased to 1.1-6.4 degrees Celsius in this report from 1.8-5.4 degrees in the IPCC's previous report in 2001. Note the lower minimum anticipated increase.

The projected temperature increase to 2100 has risen because it is now considered that global warming will make nature less able to absorb carbon dioxide.

This alone could raise estimates by more than 1 degree this century.

For the first time the IPCC gives ‘best estimates’, giving greater certainty than predictions in earlier reports. The best estimates range is for a 1.8-4.0 degrees temperature rise by 2100. Only one of the six scenarios analysed generated a best estimate of less than 2 degrees warming this century (1.8 degrees).

The report does not include the possible warming impact of methane, a potent greenhouse gas, escaping from melting permafrost – there isn’t enough evidence.

It is ‘very likely’ that extremes such as heatwaves and heavy rains will become more frequent.
Warming is expected to be greatest over land and at high northern latitudes and least over the Southern Ocean and North Atlantic.

2. Sea level rises. The report cites 6 models with core projections of sea level rises ranging from 18-59 cm this century. That is a narrower and lower band than the 9-88 cm gain forecast in 2001. Note the lower anticipated maximum increase - this is the subject of Lambert dispute mentioned above.

If the Greenland ice sheet melts in the future proportionally to the temperature rises then sea levels would rise by up to 79 cm, not 59 cm, this century. Some models show an ice-free Arctic in summer by 2100 (meaning that sea ice floating in the water disappears, but not ice resting on Greenland).

If the Greenland ice sheet melted completely that would lead to a 7 metre sea level rise but this would occur only with a sustained temperature increase over 3 degrees for millennia Jurgen Willebrand, the report's author with special expertise in ocean effects, told Reuters. Thus trends are serious but somewhat less serious than earlier apocolyptic views.

3. Ocean currents. The report predicts a gradual slow-down this century in ocean currents such as the one which carries warm water to north-west Europe. Again less drama than in soime earlier forecasts.

‘It's very unlikely there will be an abrupt breakdown in ocean currents in the 21st century,’ said Willebrand.

‘Most models predict a gradual slowdown this century but you shouldn't expect a fall in temperatures (in Europe), because global warming is happening.’

4. Hurricanes. The report says it is ‘more likely than not’ that a trend of increasing intense tropical cyclones and hurricanes has a human cause. It expects such tropical cyclones to become more intense in the future’.

There may not be an increase in number, there may be a re-distribution to more intense events - which is what has been observed in the Atlantic since 1970’ lead author Stott told Reuters.

I’ll try to add further good posts if I discover them and welcome reader's advice.

New Blogger

I painlessly upgraded to the New Blogger. The main advantage is that I can now attach labels to posts. It is then easy to search for posts on a particular topic. (Entering labels caused a slight hitch - as I did this tonight for the last 20 or so posts Goggle assumed I was a Spam blog and temporarily stopped me continuing by switching me out).

New Blogger also provides options for customising template design - something I might get around to.

Blogger is looked down on a bit in the blogging community for its simplicity but this seems to me a virtue. I have played around with WordPress blogs. Their main advantage over Old Blogger was the ability to post quickly but, as I look around, they often seem to run amok. New Blogger is much improved in its ability to post quickly.

One thing I had hoped was that people who do operate blogs that run into problems with software, or indeed with hosting services, would comment explicitly on their problems and how they were resolved. It would be a useful service for the blogging community.

One for the birds

A paraglider, Miss Nicky Moss, attacked at an altitude of 2500 feet by two Wedge-tailed eagles. The message? Keep out of our territory! A Hitchcockian revenge attack by our fine-feathered- friends! The sharks of the sky!

Hakeem Hakeem & limits to compassion

Hakeem Hakeem has been sentenced to 24 years jail for the violent rape of a 63 year old woman and for raping and assaulting 3 teenagers all in a period of 3 days. Before the attacks he had been chroming and using amphetamines. The 63 year-old woman he attacked spent more than a week in hospital recovering from fractures to her eye socket, nose and cheek that she suffered during the savage beating.

Hakeem entered Australia only a month before the attacks as a refugee from Sudan. In his defence it was argued that Hakeem was young and had experienced violence in both Sudan and Egypt. He had also been forced to leave his infant son and girlfriend behind in Egypt and apparently didn’t want to be in Australia.

Immigration Minister Kevin Andrews has ordered an investigation into how the troubled Sudanese refugee was allowed to settle in Australia and will consider deporting him after the 21-year-old has served his time in jail.

I am interested in the outcome of this inquiry. The unfortunate Hakeem has had a miserable life but granting him refugee status was a mistake. Compassion has been stretched too far. Noone develops a drug dependence in a month. As Neil Mitchell points out there are problems in the Sudanese community in Australia that cannot be glossed over by appealing to their difficult circumstances back in the Sudan. As Mitchell continues:

‘There is now increasing evidence of a culture of violence imported to this country with some refugees. There is no point dodging around that fact for fear of being called racist’.