Something unexpected

Teaspoon of soilHere is an interesting situation, almost unimaginable.

You are approaching your 60th birthday and are about to be surprised by an unexpected inheritance from a wealthy relative that you barely remember.

Many years ago your great Aunt, who was always rather odd, left you some money.

She stipulated that you could only access the balance of the funds when you are 60 years old, 40 years on from when the money was deposited.

The good news is that the initial capital she left was $10 million, a huge sum even if nobody quite knew how she came to be so wealthy. The bad news is that the $10 million capital has lost value to the tune of 1.3% a year.

Bummer. Not only did you have to wait to be rich, but also each year there were 1.3% fewer funds. Still, in a few months time when you reach 60 there will be a bank cheque for $6 million in the post, more than enough for a world cruise or two and a luxurious retirement.

Your younger brother was less fortunate. The dowager only bequeathed $1 million to him under the same rules. He has to wait longer for his funds and gets a much smaller cheque of $593,000.

A tidy sum for sure but not quite enough to fund his retirement.

Your three cousins, who soon found out about the unexpected inheritance, were also hoping for something from this distant relative that they only just realized they had. Sure enough, she did not forget them and deposited $100,000 each for when they reach their 60th birthday. They get $59,250 — certainly better than a kick in the teeth but hardly a pension fund.

On the first of your world cruises you mull over the odd situation of financial capital failing to appreciate.

What if your retirement savings, that before your great slice of luck were your only means of support in old age, were being eroded at 1.3% a year?

Each year the amount you had saved up went down a bit, not much admittedly but it went down. Likely you would seek to reinvest your capital quick smart rather than run the risk of not having enough funds for your retirement. Also likely you would fire your investment analyst and rant at everyone you could, looking for a scapegoat for such a fundamental error.

And what bad news it was for your brother. If he had known about that $1 million all those years ago and invested it wisely he would have more money than you right now.

As you sip a G&T on the sundeck you can’t help thinking it funny what we take for granted.


Another unexpected thing

Soil scientists have estimated that the amount of carbon in agricultural soils in Australia has declined by 51% in the last 40 years — that is 1.3% a year.

Soil carbon is a critical environmental asset that drives plant growth because carbon fuels soil biological activity, promotes soil structure, aids infiltration and moisture retention and supports nutrient exchange. Handy material to have and not something to be squandered.

What is worse is that science has little idea about the initial carbon stocks [the capital]. It might have been the equivalent of $10 million in which case we can keep going for a while.

We might even have time to reinvest by adopting smart agricultural practices and get the capital to appreciate again.

The worry is that we may be as uninformed and as poorly off as your cousins.


Here is the original scientific reference for loss of soil carbon [you can find a copy on Google Scholar]:

Zhongkui Luo, Enli Wang, & Osbert Jianxin Sun (2010) Soil carbon change and its responses to agricultural practices in Australian agro-ecosystems: A review and synthesis. Geoderma 155 (2010) 211–223.


And some more articles on soil carbon

Carbon in Soil – Why Organic Carbon is So Important

Soil – the missing carbon sink

The elephant in the bathroom may have farted

elephant02Well it would seem that somebody close to the policy makers might have noticed the elephant in the bathroom.

This week an article in the Financial Review talked of a carbon tax budget hole that could be $4 billion deep thanks to a carbon price that might not continue to rise after the fixed price period after all.

Blind Freddie can’t help but chuckle and the elephant’s stomach rumbles with contentment.

It seems that there has been some new modeling of the carbon price beyond the fixed price period on behalf of Australia’s Climate Change Authority. The numbers suggest a “fall from July 2015 to $10.72 a tonne”.

This should be no surprise given the current European market prices are hovering around $5 tCO2e — this difference from $23 per tCO2e and rising to the reality of current market price is the elephant standing quietly next to the bassinette.

Now if you are a government that has been struggling to get the balance sheet back in the black because it was one of the core things you promised to do, then $4 billion less revenue is a problem. Especially given that the carbon price policy was hugely unpopular in the first place and will continue to give you trouble in an election year.

If it was just a revenue shortfall [$10 instead of $23+ per tCO2e] that probably wouldn’t be too bad. Only the revenue is already either spent or committed, mainly to ease the pain for exposed industries and for consumers, making a market price dip in 2015 a double whammy.

Awkward for the Australian government but stayers among carbon traders in Europe are not too worried. The say it is just what markets do, they will show price volatility around long-term trends. And just now the price is low. Later it will rise again, not least because this is a regulated market designed specifically to manipulate credit supply to raise the price and reduce demand. Like all markets, success comes from the long play.

Then there is another thing that the elephant symbolizes.

Remember that the carbon price is for a permit to emit and fewer permits purchased mean fewer carbon emissions. This was the policy objective: to reduce emissions of greenhouse gases by making it more expensive to emit than the alternatives.

And as President Obama brings action on climate change to the State of the Union address, it will be hard to ditch the policy now. So here are a couple of options given we can see the elephant.

Ostrich option | Bury the report or, if the electorate cotton on, spin it like a fury.

After all 2015 is a long way off. There is plenty of time for anything to happen, perhaps even something positive. Remind yourself of the positivity of the ballsy carbon traders and wait. In the meantime, do whatever is possible to make the whole thing go away.

Be a honey badger | take hold of the policy, believe in it and shake it hard.

The idea of a carbon price was that it should deliver behavior change and make Australia less carbon intensive.  So embrace that and with the tenacity of a honey badger stick with it. Allow an aggressive permit allocation limit, ease the coupling to the EU carbon market by changing the proportion of credits emitters can source from overseas and explain why to consumers. There is no reason that the domestic market cannot have a higher carbon price than elsewhere other than the fear of ceding competitive advantage.

In short, show leadership.

Now there is a thing.

Dangerously quiet

King Parrot, NSWIt has been 23 months since the NSW Labour government left office after more than 16 years in power.

Normally when a left leaning administration is replaced by a right leaning one the inevitable shift in attitude to nature and natural resources would galvanize the environmental movement.

When hard won conservation legislation, planning rules and funding for environmental management are chipped away there might be an objection, some resistance, or at least some verbal argument. Only there has been very little noise.

No great shouts against the inching away from protection — not even allowing shooting in national parks seemed to get a reaction.

Only the nationally significant issue of coal seam gas, particularly how it will be extracted and the possible impact on farmers, seems to have stirred the pot.

Regular readers will know that alloporus is not overtly green — a regular guy who owns a car, takes plane rides, watches a plasma TV and wrote a book called “Awkward news for Greenies” has little moral ground to claim great environmental advocacy. Yet this quiet is eerie — makes you wonder.

Is it the calm before the storm, the tirade that must hit when the environment is no longer considered?

Or is it something else? Perhaps there is no energy left. It could be that the era of loud advocacy has passed. Maybe the malaise of personal entitlement has swept across us all, even the card-carrying activists.

If it has then we have a problem. Whilst screaming from greenies is about as welcome as a crying baby in the quiet carriage of the commuter train, it performs a vital function.

It keeps the b—-ds honest

And when all that goes quiet it is dangerous for us all.