Carbon emissions do respond to policy

In Australia it is common to come across both climate change deniers and those who deny that policy measures to reduce global warming will be effective. Often the claim is made that the policy measures do too much harm to people's livelihood's now to be worth the benefits later (dingos kidneys obviously).

The story below from the BBC reports on a record fall in UK coal use and as a result carbon emissions. It is a story that suggests when policy is properly applied it can have a significant impact.

In the case of the UK (and here you can read a combination of EU and UK policy) thare are a raft of complementary policies that have driven lower emissions.

Briefly the UK policy includes:

• Setting a carbon budget - a proposed limit to carbon emissions that falls over time
• Taxing carbon emissions, including a minimum tax on carbon.
• Subsidizing renewable energy.
• Promoting and funding a shift away from coal to cleaner fuels (move to low-carbon technologies)
• Funding public information of the dangers of global warming and ways to reduce carbon emissions.
• Subsidizing home improvements and strict regulation on new building standards e.g. insulation standards such as compulsory double glazing.

The message here is that one policy alone is not really that effective, but a combination of policies that raise the price and shift the demand curve to the left do have a significant effect.

One point to note is that serious attempts in UK policy on this issue began in 1990. While policy has intensified since 2006 there has been a fairly sudden change recently, as the article notes. Initially policy met an inelastic response to price changes and only minor changes that could be said to have moved the demand curve left. 

Now the policy has reached the 'tipping point'. We are observing an elastic response to price (see article) and behaviour has been changed. Economists knew this point would be reached, but predicting how much pressure needed to be applied to reach it was never clear.

David Pearce, you were right. I'm sorry you never lived to see it.

The BBC article is here

RET, forgotten for a long time, but not gone yet.

The RET is the Renewable Energy Target. It states that Australia should source 20% of its energy generation from renewable sources by 2020.

For Australia the most obvious renewable sources are wind and solar. Wind because huge wind farms can be built in the empty spaces of Australia with minimal environmental impact. Solar because parts of Australia get plenty of sunshine, although actually solar works on cloudy days too.

The point of the RET is to reduce carbon emissions. If renewable sources are used then less coal needs to be burned. Australian coal, especially Victorian coal (brown coal) is really quite 'dirty' with high CO2 emissions.

The government does not like renewable energy. They don't really think action on climate change is important and many suspect they are just pro-mining as they receive strong financial support from that sector.

The government now have a report on what to do with the RET. Written by a climate change sceptic it's likely to add to Australia's disgraceful reputation as a nation of environmental terrorists too poorly educated to grasp the nature of scientific probability.

The Guardian discusses the likely impact of cutting back or abolishing the RET below.

The Guardian article is here

Reasons to keep the Carbon Tax

As the Senate does or does not vote to keep the Carbon Tax it is useful to remember that the Economics of Climate Change says a Carbon price is a good idea.

It is also worth remembering that the Australian governments issue is that it does not raise enough revenue, thanks to the reckless Costello budgets. Therefore why not tax something bad? It's better than income tax or Medicare co-payments.

The Guardian five reasons to keep the Carbon Tax is here

Regulation to reduce climate change

Yesterday Clive Palmer said he discovered things about the dangers of climate change from Al Gore that he had not known about. Leaving aside the obvious point that no politician who wishes to talk at length about the Carbon Tax should do so without knowing the facts, I also found out something about Australian policy yesterday.

Australia has no vehicle emission standards for cars and light goods vehicles. I knew Australia lagged behind the rest of the world on carbon pricing, emissions targets and CO2 per capita. However not to have rules on how much vehicles emit was a shock.

The good news is that it might happen soon. The Guardian tells the story and has the details of how effective it can be. Such regulation is one of the few examples of where a rule is better than a price to deal with market failure.

Remember when the idiot Abbott falsely claims the Carbon tax is 'the highest in the world' that the rest of the world has multiple climate change measures.

The Guardian has the story here

"Stop using fossil fuels" - IPCC

The IPCC have published their findings on what must be done to prevent the worst effects of climate change. They say the worst polluting fossil fuels must stop being used as soon as possible and renewable energy used instead.

What this really means is that fuels like brown coal, the dirtiest fuel, should be replaced with new capacity built in renewable energy such as wind and solar. They warn that if carbon emissions are not reduced radically by 2050 then it will be necessary to move into 'negative carbon emissions' after that.

They suggest that if action is taken now the cost will be small. They estimate about 0.1% of GDP per year. Whatever is done energy will cost more than it does today and, frankly, people will just have to suck it up.

Renewable energy is more expensive than energy from fossil fuel. However the external costs of using fossil fuel far outweigh the additional private costs of switching to renewable fuel. The problem is that the external costs fall on future generations and this allows climate criminals, such as the idiot Abbot, to use cheap debating tricks to convince people that there is no need to take urgent action on this matter for short-term political gain.

On the bright side the IPCC point out that there are more immediate external benefits of moving away from fossil fuels. These are all due to lower pollution levels and so better health. 

Australia is so far behind the rest of the world on this matter it is difficult to imagine any leadership on this issue. Carbon pricing remains the most efficient way to tackle the problem and nuclear energy the most obvious short-term replacement for fossil fuels. The rest of the world will have to wait until after the next election for any help from Australia.

The Guardian covers the story here

Australia taking a step backwards - IPCC here

Evidence of climate change continues

The idiot Abbot continues to claim that climate change isn't a serious issue and is still trying to replace the carbon tax with a less effective 'direct action' policy.

It is quite clear that the current level of carbon tax is inadequate to reduce carbon emissions to a level that will mitigate the worst effects of global warming. The best solution, a tradeable pollution permit scheme, is not currently on the table in Australia.

The latest report by the Climate Council shows that 156 temperature records were broken during the summer. And these were not on the lower boundary.

The Sydney Morning Herald reports the Climate Council report here

Government told its climate change policy isn't good enough

The Climate Change Authority has said Australia's emissions reduction target should be trebled to 15%. This will fall on the deaf ears of the Idiot Abbot's government who not only want to abolish the Authority they also don't believe in climate change at all.

The Authorities point is that the current policy won't even achieve the 5% target and the conditions to do more have been met. Other countries are straining to cut emissions (UK target 80% reduction by 2050).

To reduce carbon emissions it will be necessary to raise the cost of carbon somehow. It is necessary to persuade people to use less goods and services that have high carbon emissions. This will mean people have to pay more and the repeal of the Carbon Tax is a backward move in this sense.

Below is a Guardian Australia article that has some discussion on this.

The Guardian article is here

Renewable Energy Targets to be dropped?

It is important not to get carried away or influenced by what be a 'scare stroy'. Politicians love scare stories, but its all politics, not truth.

However there is a concern that the RET's, Renewable Energy Targets, might be dropped. This is consistent with the Abbot government's climate change denying agenda that is also seeing them trying to abolish the Carbon Tax.

The RET is an example of a regulation to deal with market failure. The Carbon Tax is using the price mechanism. While Economists prefer to use prices to influence behaviour, regulation is also important in the case of many market failures - a belt and braces approach.

It is important to concentrate on the issues here:

Why has the market failed in the case of climate change?
What direction must policy move the market in?
What is the best way to achieve the desired goal?

When you approach the issue from this direction you will be applying economic thinking, not political rhetoric.

The Guardian covers the story here

Australia's climate change shame

The UN Climate Change negotiations are currently taking place in Poland. Australia has declined to send any Ministers, an unprecedented move that has drawn condemnation from many quarters.

On Monday the latest Climate Change Performance Index was published and Australia comes out badly.

You would be forgiven for thinking that under Rudd/Gillard Australia was really out there pushing the boundaries on climate change, and that the Carbon Tax was a major policy initiative that left other countries lagging behind. In truth Australia was 51st of 61 countries on the league table of countries doing most to alleviate climate change.

With the repeal of the Carbon Tax by the idiot Abbott simply to score a political point Australia is now seen as a force that is "anti-climate" and has dropped to 58 out of 61*.

The Economics of climate change is clear and without reservation says that a price must be placed on carbon. My own country lags only behind Denmark on the league table and the measures taken there have widespread and bipartisan support. It's time Australia stopped being so selfish.

The Guardian reports the story here

*The countries below Australia are Iran, Kazakhstan and Saudi Arabia

Impact of the Carbon Tax

The Age are running a poll asking people if they have felt the impact of the Carbon Tax, now 100 days old. 76%, so far, have answered no.

This is hardly surprising as it is a very small tax and applied to only 300 large firms and councils. It also has numerous offsetting elements, such as the higher tax threshold that means the lowest paid are much better off.

The result is disappointing however because the point of a tax like this is to change behaviour! The aim of the Carbon Tax is to reduce Australia's CO2 emissions.

Currently Australia lags the industrialised world in taking action on climate change. For example the UK aims to reduce CO2 emissions by 80% by 2050 and they do this by taxing petrol (a litre of petrol currently costs $2.10), a carbon tax applied to large firms and an emissions trading scheme (the ETS) which is EU wide. In addition renewable energy receives large subsidies.

The aim of any indirect tax is to raise the costs of the firm involved. This raises the market price and reduces demand for the product.

 So will the Carbon Tax be effective? 

It will if consumers see the price of 'high carbon' goods and services rising and switch to 'low carbon' goods and services which are now relatively cheaper.

It will be more effective if the high carbon goods and services have high price elasticity of demand (PED)  and so consumers switch to other goods.

It will be effective if the rise in the price of high carbon goods is high enough. 

It won't be effective if consumers do not switch, because the PED is inelastic or the price rises are too low.

It won't  be effective if the 'compensation' provided by the government is so generous that households and firms are able to continue to buy the high carbon goods.

If you are asked about policies to promote environmental sustainability the Carbon Tax is the obvious candidate from the last four years. Alternatives are seen in my example from the UK. Just don't take sides on the political arguments.

The Age report that one firm is reinstating a project it previously shelved because of fears over the Carbon Tax. 

Read it here.