Transition to a non-carbon economy

Fri, Nov 21 2008
Global issues
Climate

The objectives of climate-change mitigation programs such as those in the Garnaut Report or in the Australian Government's absurdly-named 'carbon pollution reduction scheme' cannot be achieved by 2020 or 2050 without a massive, and rapid, transition away from carbon-intensive energy sources of primary energy for base-load power generation, transport etc.

But forcing rapid change in the way we power production and consumption across the economy —for example, by means of carbon-quota (or tax) penalties— will cut growth and will redistribute resources to less productive sectors such as government and (probably) some households. Certainly, the emission controls will affect business and consumer plans, but the wealth impacts also risk undermining our capacity to invest in the infrastructure necessary for an eventual energy transition.

Prof. Vaclav Smil argues that the inertia of energy systems is much greater than these 'transformational' programs acknowledge. Unlike information systems that the micro-processor revolutionized within the span of half a working-life, a transition in energy systems takes generations because it requires fundamental changes in large-scale 'cooperative' infrastructure such as transmission networks as well as in the organization of production and consumption.

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Temperatures in Victoria

Wed, Nov 19 2008
Data
Global issues
Climate

An update to the previous post on the temperature record in the state of Victoria. The Australian Bureau of Meteorology says that 2007 was the hottest year on record, although satellite data show the Southern Hemisphere is not warming. The chart (above) shows their records for Victoria since 1950.

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How hot has it been in Victoria?

Sun, Nov 16 2008
Data
Global issues
Climate

The Australian Bureau of Meteorology claims that 2007 was the hottest year on record for Victoria

"The year 2007 was Victoria's warmest year on record with a mean annual temperature 1.18°C above the long term norm. This is 0.37°C above the previous record, set in 1988"  BOM

But, if so, Victoria must have had a dramatically different year from the rest of the Southern Hemisphere, whose land-temperatures show almost no trend over the past twenty years—except possibly a slight cooling since 2001 (click the thumbnail).

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A modest proposal for the ‘G-20’ summit

Sun, Nov 09 2008
Data
Trade data
Global issues
Trade framework
WTO

The IMF's Managing Director should not try to talk down expectations for next weekend's summit. We deserve much more from these leaders that, so far, have done little to match their promises of reform of global governance over the past decade.

The G-20's role should be to set up the best conditions for a recovery in real markets, not just in financial markets. But, on their past behavior, it is likely they'll re-cycle yet another low-credibility statement about completing the noxious Doha deal that was on the table last July.

A more modest program to open world markets that is not burdened with the second-thoughts, exceptions and safeguards would do much more to lift global market confidence if it could be quickly implemented. Here's a blast-from-the-past idea that could also set up a still more effective resumption of Doha when the new U.S. administration (and the new EC Commission and Indian Government) is ready to deal

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Automobile tariff cut irrelevant

Tue, Sep 16 2008
Data
Public policy
Micro-economics
1 comments

Why it's impossible to get too excited about the planned cut in automobile tariffs from 10% to 5% in 2010. Despite the howls of capital and the unions, the volatility of the Australian exchange rate makes a 5% margin irrelevant. Already in 2008 the trade-weighted index has fallen more than 7 percent. Click the thumbnail for a larger image.

 

Your thoughts?…

Bombs or bridges?

Wed, Sep 10 2008
Public policy
Micro-economics

Billions of dollars spent on armaments would be more productively spent on infrastructure. This would be a less wasteful and much more certain way to maintain Australia's supposed global 'middle power' status (Is that a 'status'? Or is it a bunch of diplomats exercising their vowels?). Our balance of payments plunged back into the red this month because—among other reasons—we cannot ship the minerals and coal ordered by our customers on time and in the volumes required. Our export performance—not to mention our national productivity—is held back by decades of neglect of essential infrastructure. But the Prime Minister, according to reports, wants to give priority to keeping up with an arms race.

Some analysts have described this as a "catching up" exercise, suggesting more investment would be necessary. Mr Rudd appears to agree.
"For the government, a major priority is to ensure we have enough naval capabilities in the future, enough naval assets, enough naval performance, and therefore enough funding put aside to invest in that, long term," he said.
Mr Rudd also insisted in his speech that Australia, which is a close ally of the United States, wanted to maintain its status as a global "middle power".  [From BBC NEWS | Australia fears Asian arms race]

Your thoughts?…

Garnaut Review Economic Model

Fri, Sep 05 2008
Global issues
Climate

On a quick first reading of the supplementary report, this seems to be the key data related to the modeling results. For the more moderate 550ppm CO₂ objective, the costs of a 10% cut in 2000 carbon emissions to 2020 are estimated at 1.1% of GDP (1.8% cut to consumption) comprising a net decrement of about 0.1+% of GNP per year. In other words, the expected net benefits are somewhere toward the end of the century (and seem to comprise assumptions about 'avoiding catastrophies').

Despite the boost to growth in the second half of the century, the sacrifice in the first half of the century is substantial, though the loss to GNP is fully recovered with a margin by the end of the century. The benefits that are purchased by this sacrifice take several forms. One is insurance against the effects of severe and possibly catastrophic outcomes on material consumption during this century. Another is increased protection against loss of non-market services this century. Yet another is avoidance of all of the rapidly increasing costs in through the 21st and into the 22nd century and beyond: the rapidly increasing negative impact on material consumption; the risk of outcomes much worse than the median expectations from the applied science (although beyond the 21st century, the median outcomes include more and more of the severe and possibly catastrophic); and the impacts on non-market values.

Your thoughts?…

Drought in the “Sunburnt Country”

Fri, Sep 05 2008
Global issues
Climate

Ian Castles has published—as a tribute to Dorothea Mackellar's poem, My Country (often known from a line in its second verse as 'A Sunburnt Country'), published just one hundred years ago today—a typically well-mannered but meticulous criticism of the CSIRO's paper on the future incidence of drought in Australia. Ian detects, and documents, the CSIRO authors' habits of ignoring pertinent but inconvenient criticism and points to some not-quite-credible claims that the CSIRO authors have previously published—in the IPCC's Fourth Assessment report.

It defies belief that the range of rainfall change in 2080 (relative to 1990) from all of these scenarios and models could be from minus 27 per cent to plus 54 per cent for “Northern NSW, Tasmania and central Northern Territory” - and yet be from minus 80 per cent (i.e. one-fifth of the 1990 level) to nil “within 400 km of western and southern coasts”   [From One hundred years of drought and flooding rains - On Line Opinion]

Your thoughts?…

Precautionary principle, misleading and undemocratic

Fri, Sep 05 2008
Global issues
Climate
Public policy

The "precautionary principle" makes a dishonest claim (I don't say that people who invoke it are dishonest) because it pretends to be one thing—a justification—while being, in fact, a very different thing—an explanation. I say it justifies, at best, a wager and that wagers should not be the basis of public policy in democracies, certainly not when we are debating a decision that will cost us billions of dollars in taxes and probably still more in lobbying and tax-avoidance.

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The Panic of 2007

Wed, Aug 27 2008
Public policy

The sub-prime mortgage crisis sparked a financial market panic caused by lack of information on the current size of the problem. This market-information fault is due, in essence, to the way that the sub-prime mortgage is structured.

Not an easy analysis, but careful, complete, convincing. Hint: you can skip the really obscure stuff on derivative instruments and still find very good value in this paper, presented by an expert in synthetic financial instruments to the recent US Federal Reserve conference.

"A century after the Panic of 1907 we again contemplate the causes of a panic. Identifying the causes of the Panic of 2007 will in large part determine the policy response to the crisis. I have argued that the subprime crisis was caused by information problems related to declining house prices, which prevent subprime mortgages from being refinanced. The design of subprime mortgages is unique in that…

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The unravelling trade consensus

Tue, Aug 26 2008
Global issues
Trade framework
WTO

An much better account of the real, secular challenges facing the WTO than Larry Summers' jumbled column (see the Sidebar) can be found in Simon Evenett's dissection of the failure of the Doha Round, written almost a year ago. I think Simon has set the bar too high, but his call—presaging that of the Warwick Commission—for a period of reflection and a new start for the WTO is and intriguing account; accurate and carefully-argued.

"The EU and US pursued agricultural trade negotiating strategies that were not politically viable in their trading partners and their demands for tariff cuts on industrial products (driven up by the extent of unilateral reform in developing countries) could not be reconciled with some of the development-related princi- ples adopted for this Round. Finally, what was on the negotiating table was small compared to other developments in the world economy, making the cost of saying "no" easier and poten- tially reducing the attention spent on concluding the Doha Round in the first place." from Reciprocity and the Doha Round Impasse by Simon Evenett

Your thoughts?…

Foreign direct investment approvals

Tue, Aug 26 2008
Public policy
Investment
FDI

Below the fold, my Op-Ed in today's Australian Financial Review on the approval of foreign investment proposals.

In summary, I'm advocating a transparent policies and procedures using existing review institutions and laws (the Corporations Act, the Australian Stock Exchange Guidelines on business practices, the transfer pricing regulations of the tax laws) to regulate all companies doing business in Australia, including foreign investors. This will ensures continuing monitoring, reviewed by the Courts as necessary, in place of one-off 'authorizations' by the Treasurer on entry based on obscure—apparently arbitrary—interpretation of 'national interest'. No-one should have to ask the permission of a politician to do business in Australia. That's not how our economy (or democracy) works.

Are one-off investment approvals (and rejections) such as the Chinalco decision the right policy tool for managing closer economic integration with China in the 21st century? Or should we be looking for fairer review and on-going engagement?

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Weaning and whining

Sat, Aug 16 2008
Public policy
Micro-economics
Trade framework
Trade politics

I know one story about an import-competing, near-basket-case, industry that turned-around with the help of government support and a re-structuring plan, to become globally competitive and an export success story.

It's not motor vehicles.

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“Sensitive” farm quotas revealed

Thu, Aug 14 2008
Global issues
Trade framework
WTO

Details are starting to emerge of the expansion in import tariff-quotas in the EU that might have conceded included in a Doha deal. They are large numbers by any measure, because the EU now comprises 27 middle and high-income economies.

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Differences over the ‘revival’ of WTO negotiations

Thu, Aug 14 2008
Trade framework
WTO

While Pascal Lamy, the WTO Director General, rushes around the world trying to revive an agreement he claims was 'almost done' and within Members' grasp, the Chairman of the Agriculture negotiating group Crawford Falconer—who has been through the mangle trying to squeeze consensus out of the Members over two years—has a more skeptical assessment of the chances of 'revival'.

"Overall, there was a credible basis for conclusion on very many (and possibly one could have said “nearly all”) issues. But even “nearly all” is not all. And, as a matter of plain fact, there was decisive disagreement on certain matters while other very significant issues were not even dealt with. So there was no possibility to put a judgement on the “other” matters to the final test.

That said, had the “outstanding” matters been resolved (and that would have been no small matter), I do think the rest could have “fallen into place”. But such a judgement is a function of a very particular situation. That situation was one where, at the time, Members were conscious that there was a genuine endgame scenario. Members were, accordingly, prepared to accept compromises that were not generally their preferred options. That was a mind-set that applied as of yesterday. As of today that remains at best moot. "  extract from: Chairman's report on July 'package' (WTO document JOB(08)/95)

Your thoughts?…

Next steps for agriculture agreements

Wed, Aug 13 2008
Global issues
Trade framework
WTO

The WTO's Doha Round of trade negotiations did not 'collapse'; they failed. The failure was not caused by the disagreement over the Special Safeguard Mechanism. The poor quality of the proposed agreements reflected much deeper problems that might also have caused the collapse of consensus. The Doha enterprise had priorities that were no longer aligned with the commercial realities of world markets and that had been by-passed by the political realities of the trading system.

It is important to understand the lessons of the Doha Round’s collapse and not be misled by the hope that extending its processes still further (more ‘Chairman’s’ proposals) will cure its shortcomings. Even if more tweaking could reveal the elusive ‘landing zone’ for consensus, agreement could only resuscitate a feeble and mostly irrelevant result for the sake of closure, rather than for the sake of substantial progress on contemporary trade problems.

Rather than engage in 'shuttle diplomacy', Pascal Lamy should be encouraging WTO governments to reflect on the systemic changes needed before returning to the project of multilateral market liberalization.

Fortunately for Australia, some of the factors that brought Doha to an end favor our market interests and allow us time to undertake the research and the diplomatic work necessary to help re-construct a more effective framework for multilateral trade agreements.

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