Where to invest

Where to invest

$50 billion is the current projected cost to replace the Australian submarine fleet.

$60 billion is roughly 5% of Australia’s GDP

$96 billion is what 9.3 million Australian households spend on the modern equivalent of bread and water, somewhere near 15% of their weekly budget. This is a pretty standard proportional spend in mature economies. Somewhere between 7 and 15% of household budgets go to food. The French at the higher end, the British the lower.

Big numbers then.

$226 billion is an order of magnitude larger. It represents the size of the labelled green bond market in 2016.

$895 billion is the size of the climate-aligned blond universe. This amount includes investments that are designed to support climate adaptation or have an impact on emissions but are not quite up for a green label.

$1,000 billion is the projected size of the climate aligned bond market in 2020, just three years hence, investments that are needed to help all countries meet their Paris climate commitments for emission reduction.

$90,000 billion is the current size of the global bond market.

The interesting question is where to put all this money.

It makes sense to put a hefty chunk of it into actions that improve environmental performance or, alternatively, new submarines.

Nice one

Nice one

I think that measuring with precision human activity on the climate is something very challenging to do and there’s tremendous disagreement about the degree of impact, so no, I would not agree that it’s a primary contributor to the global warming that we see

Scott Pruitt, Head US Environmental Protection Agency

This is an awesome quote on so many levels.

Like all good quotes, there are truths. Measuring with precision is indeed challenging and the impact of human activity on climate is, without doubt, a source of disagreement.

Then there is an opinion. And you would expect the Head of the EPA to have one, just maybe not one that is opposite to the official view of the agency he leads.

There is also a subtle admission; “the global warming that we see”. Lucky he put that in before some of the biggest storms on record. It’s also an admission somewhat at odds with the rest of the quote. Presumably, you are supposed to look past that inconsistency.

So here is a question to think about.

At what point should a public servant talk up his personal view or that of his immediate political masters over the official policy setting?

Perhaps never.

If public servants simply disregarded the current policy it makes a mockery of the democratic process. Those elected to create policy rely on the system to implement whatever they decide in good faith. And those who elect their representatives expect the system to work too.

This means public servants tasked with designing and delivering workable policy should get on with it even as the politics dances around them. They should stand firm and deliver the flavour of the day.

So to be fair to Mr Pruitt his frame is a new policy and not that of the previous administration.

And then there is the reality.


Here are some Alloporus thoughts on climate change

If this is leadership, heaven help us

Post revisited — the missing link

Can you answer these four easy questions?

Soil carbon — what we think

Post revisited — the missing link

Post revisited — the missing link

It used to be said that only death and taxes were certain. All else was a maybe. It seems Australians can now add ‘confused climate policy’ to the list of certainties. Since this post first appeared in August 2011 very little has changed. You could even argue that some of the uncertainty has leaked to other jurisdictions and tweets from the POTUS.

And the message is still missing.

The missing link

Some years ago I wrote an essay entitled ‘What if it’s not emissions’. I was not in denial or even sceptical about climate change, more concerned that we had become fixated with emission reduction as the solution to climate change. So convinced had we become that it was a given that if emissions came down, we would have fixed that awkward problem and all will be well with the world.

My real issue was that we risked putting all our eggs into the emission reduction basket.

After more years of political inaction than seems decent, the Australian government has just released a clean energy future policy on climate change. And, guess what? We still have the same fixation. The proposal is all about emission reduction, initially through a tax on pollution followed by a cap and trade system to make emitting greenhouse gas so expensive that no rational business could afford such behaviour.

It might be about emissions, but the policy formulation sees only a modest reduction target – 5% below 2000 emission levels by 2020. This means in 2020 Australia is pledging to emit 509 million tCO2e in greenhouse gases or 56 million less than it did in 2009.

Only by 2020, even with the proposed intricate emissions reduction policy fully functional, emissions of 679 million tCO2e are predicted.

Actual emissions will increase because the Australian population will grow in numbers at roughly 890 people per day, the economy will grow and so will affluence. Economic growth will require energy to follow the historical trend of a doubling in consumption every 30 years. And although the policy does talk about energy efficiency and alternative sources, the required capacity increase will inevitably be met by traditional means.

Emissions growth will leave a shortfall in the target of 170 million tCO2e or 30% of current emissions. So it would seem that the emissions reduction basket has few eggs.

This again begs the question ‘What if it’s not emissions?

Let us accept what the science tells us and agree that it is emissions that are a significant driver of the current climate warming. What the policy shows is that, rather like American debt ceiling, we cannot quite admit the severity of the problem. And, more importantly, we lack the courage to tackle the problem head on. It is just too hard and too scary.

And this would actually be ok if we hadn’t missed the critical issue in all this.

We have stopped talking about how 7 billion people are going to sustain growth in affluence on a warming planet. We have forgotten about adaptation. Forgotten that we will need to use water wisely, deliver sustainable production on farms, and manage our landscapes when the temperatures change, rains forget to fall, seasonality shifts, severe weather events become more frequent and the sea levels rise.

Less than $1 billion of the $25 billion revenue generated from the carbon tax will go incentive land management through carbon offset projects. They will mostly be Kyoto compliant activities such as permanent tree plantings and flaring methane – just as the international agreement to proceed with a second commitment period of the Kyoto protocol teeters.

There will be money for biodiversity initiatives. Good stuff, but just more of what we have already been doing.

What happened to incentives to revegetate the landscape and put carbon back into the soil? The critical activities that will help us manage that scarce water, produce reliable quantities of food and help save what is left of nature. Missing, presumed dead.

Seems like we should ask again, ‘What if it’s not emissions?

Hidden in deep in the 2017 budget papers from the Australian government is an apparent cut to funding for the National Climate Change Adaptation Centre. This centre is one of the few places in Australia with a focus on adaptation, the thing we have to do if emission reduction fails. Something like Plan B that, given the precariousness of Plan A, should be getting a boost not a cut.

Only this is where we are at just three years out from 2020. Devoid of policy, pushing rubbery emission targets out to the distant future, and cutting funding for Plan B.

For the sake of the grandkids, let’s pray that it is not emissions.

Really poor leadership

Really poor leadership

Direct action on climate change is costing the Australian taxpayer over $2 billion to achieve around 177 million tCO2e or one years worth of abatement to meet the emission reduction target Australia presented in Paris.

A few people are being paid a lot of money (more than double the global market rate) to generate abatement while emitters continue to externalise their contribution to a warming world.

Policy that is in the interest of a few and the detriment of most is not good policy whatever your political leanings. Direct action is even worse because the government of the day is not committed to climate action at all. And instead of owning this position, they pay a sop to the voters, pretending to do something that is actually a way to line the pockets of a few.

The painful satire from Ross Gittings that sums up just how stupid modern politics has become tells us just how pathetic our political leadership is. And for once there is no mention of The Donald.

When something is really bad it does not tend to persist. This is true of really good things too because there is a regression to the mean in most things. The average eventually reasserts itself.

This will happen to our current leaders and perhaps to the current political system. Parliamentarians and those feeding off them should be worried.

Claiming coal is the answer in a record-breaking countrywide heatwave is as stupid as it looks. Everyone can see it.

Soon they will also see that many other policies, such as the ERF, are useless and unfair.

Disruption is at hand.

 

 

 

If this is leadership, heaven help us

If this is leadership, heaven help us

At various times I have ranted about the politics of climate change in Australia

The climate change action thing

Climate change policy – does Australia need it?

The Kardashian Index

And I am not alone. Many are tearing out what remains of their hair.

So I thought I would bring to your attention the latest from the current direct action policy option in place in Australia. This is the policy setting that hopes to achieve emission reduction targets through the purchase of greenhouse gas abatement at auctions.

At the end of 2016 the vehicle for this, the Emission Reduction Fund, had paid for 177 million tCO2e of abatement purchased across four auctions at an average price of $12 per tCO2e.

Yes, you read it right. Close to $2 billion, that is $2,000,000,000 or roughly enough to pay the annual salary of 100 cabinet ministers for over 50 years, has been spent to purchase roughly the amount of abatement needed to meet the emission reduction target Australia presented in Paris… for one year.

Let’s make this clear. Emitters of carbon are not paying for this abatement, the taxpayer is.

Now you could be generous and say that the taxpayer is really the economy, so the economy is footing the bill, but that is a very long bow. Industries that were previously under the carbon price and reducing their emissions to save money are not anymore. Instead, various activities from other players in the economy are offered to reduce emissions or to capture carbon into vegetation and the CO2e tonnage presented for sale.

The concept of ‘polluter pays’ that has been so successful in a host of situations, from cleaning up rivers to closing the hole in ozone layer, is not in play here. Polluters carry on polluting as they merrily pass on the externality to the taxpayer.

This is neither good policy nor good governance.

There is no incentive to reduce emissions across the economy only an opportunity for a few to make a fast buck if they have access to some abatement.

At current prices, $2 billion will buy you 400 million tCO2e of offset credit on the international markets, nearly 2.5 times the local option. So not only does the policy fail to incentivise prudence, it pays way over the top for mitigation.

You cannot help think that a few people are laughing all the way to the bank.

Sounds crazy #5 | Carbon price forecasts

August 2013 is silly season here in Australia. We have a federal election in just a few weeks time and the inevitable merry-go-round of vacuous media grabs and absence of policy debate is upon us. It is actually rather depressing as the main parties jostle to hog the middle ground to spend money they don’t have whilst no one else can come up with anything better than “vote for me”.

It is also rather absurd. On the rare occasion when media do delve beyond the rhetoric, or for some unknown reason you dig yourself for evidence to help make a voting choice, what emerges are gems like this pre-election outlook from Treasury.  Somehow the economic boffins that work for the ministry have managed to predict that the carbon price that in Australia is currently fixed at $23 will first fall to $6.20 in 2014/15 [fair enough as the start of the flexible price period when the domestic scheme is pegged to the EU market has been brought forward a year] and then rise to $18.90 by 2016/17 reaching $38.0 by 2020.

Now we should remember that this is what is supposed to happen to a carbon price. The whole idea was that to ensure steady emission reduction the carbon market is capped so that supply is squeezed over time causing prices to rise. A rising price on carbon would encourage energy thrift and starts to make clean energy sources economically viable with the net effect of lower emissions. Except that the political will to set, stick to and steadily lower the cap has been conspicuously absent.

Alloporus borrowed a graph of the historical carbon price in the EU published by Point Carbon and appended the Treasury projections.

It looks like this:

CarbonPriceProjections

As regular readers will know Alloporus is no economist, but whilst $20 seems possible, $40 by 2020 is hugely over-optimistic. It would require a significant step change around 2015 to reverse a market that has a t best been steady but mostly fallen. Such a change would need considerable and coordinated global political will to achieve. No single nation would stick their neck out that far [probably why the Australian government linked the domestic scheme to the international market so as to neatly sidestep the pressure to go it alone].

Then consider that by 2020 we will have seen price shocks in oil [and possibly coal too] that, even if temporary, will have the required effect on emission reduction without the need for a separate policy. In other words fluctuations in energy needs in response to inevitable pulses in the global economy will allow the modest emission reduction targets to be met most of the time.

Of course politically it is best if the carbon price is low, but for any cap-and-trade policy to be effective the price needs to rise steadily. Alloporus suspects that the carbon price forecast from Treasury sound like some middle ground plucked from the ether for political expedience.

The craziness here is that a lot of money has been spent and committed to deliver emission reductions — a ‘clean energy future’ as the policy was tagged. Except that the cap-and-trade approach chosen only works if the price of permits [the carbon price] rose steadily over time. And this required that the market was manipulated buy controlling permit and offset credit supply. Now that governments have shied away from that part of the plan, the whole policy falls over and monies spent on free permits for exposed sectors and, in the case of Australia tax threshold adjustments and cash payments to households, turn into welcome handouts that have no impact on emissions at all.

$38.0 by 2020 is what they would like it to be, except wishful thinking cannot make it so. You actually have to implement the policy.