Tag Archives: environment

The dangers of prediction

The recent post about Australia’s coal supplies took issue with the convention of quoting coal and other commodity reserves in terms of years remaining at current production levels. The problem is that it is too easy to assume that these figures give a good indication of how long the reserves will actually last, when in fact the chances are they will do nothing of the sort.

In the case of coal, production in Australia has been growing exponentially for some time, while estimated reserves have not changed very much. If this trend continues, the standard “years remaining” figure will overestimate the life of Australian coal reserves. Estimates of other mineral resources, however, have been growing more rapidly than consumption, which means that they may last longer than the standard figures suggest.

Geoscience Australia regularly reports on Australia’s mineral resources. In the 2009 report, there is a table showing economic demonstrated resources (EDR) expressed in the standard “years remaining” format at various points back to 1997. This data highlights the shortcomings of this convention.  The chart below illustrates how the figures for a few of the minerals have evolved over time. In each case the dashed line shows the trajectory the “years remaining” should take from 1997 if each passing year simply reduced the remaining years by one and so falling by 11 years to 2008. This is the path that would be expected if “years remaining” was in fact a reasonable forecast of how long the mineral reserves might last.

EDR Life

Over the space of a mere 10 years, we have gone from having 190 years’ worth of black coal left to only 90 years. This is simply due to the fact that production grew steadily over that time, while reserves did not change very much. In this way the chart gives an alternative perspective on the argument of the earlier post, namely that the 90 year estimate for the life of Australia’s black coal looks optimistic unless production drops or new reserves are discovered at a comparable rate to production growth. Both of these are, of course, possible but the trend does not look encouraging.

The picture is very different for a mineral like nickel, which has managed to extend its remaining life from 55 years to 130 years over the same period. In this case, reserves grew faster than production.

In every case, the minerals quite clearly fail to track a simple year by year remaining life trajectory. Once again the lesson is that it can be misleading to quote mineral reserves in terms of remaining years at current production, without any qualification as to how production or reserve estimates may change over time.

When will Australia’s coal run out?

Coal exports are a growth industry for Australia. A lot is being invested in infrastructure for coal production and transport to keep this growth going. But how long will this bonanza last? After all, there is only a finite amount of the stuff in the ground.

Earlier this year, the Australian Bureau of Agricultural and Resource Economics (ABARE) released an extensive report on Australia’s energy resources. The chapter on coal included the following observation about black coal:

At the 2008 rate of production of around 490 Mt [mega-tonnes] per year the EDR are adequate to support about 90 years of production.

For those unfamiliar with the jargon of the industry,  “EDR” stands for “Economic Demonstrated Resources” which means an estimate of the total amount of coal in the ground that we could feasibly dig up.

Now some of you may already be thinking that 90 years does not sound all that long, but there’s a problem. The authors of the report do not understand exponential growth! The catch is hidden in the apparently innocuous phrase “at the 2008 rate of production”. In other words, to come up with the 90 year figure they are assuming that production levels do not grow at all for the next 90 years. Is that reasonable?

A quick look at coal production over almost 50 years would indicate that it is far from a reasonable assumption.

Coal Production chart

Australian Coal Production 1961-2008

Even to the untrained eye, a growth trend is evident in this chart, a fact which is confirmed by looking at year-on-year growth, which has averaged around 5% and has only been negative three times over the whole period.

Coal Production Growth II (chart)

Annual Growth in Australian Coal Production 1961-2008

So, where does the 90 year figure come from? According to the ABARE report, Economic Demonstrated Resources are 39.2 giga-tonnes (Gt). Add to this another 8.3 Gt of “Sub-economic Demonstrated Resources”, or SDR, (i.e. reserves that are really hard to get) gives an estimate total of 47.5 Gt for Australia’s coal reserves. Now 90 × 490 Mt (the 2008 production rate) gives 44.1 Gt, which is somewhere between EDR and the combined total of EDR and SDR. Presumably the ABARE authors are allowing for the possibility that over time it will become economically feasible to mine some of the coal that is currently classified as sub-economic.

But there is no way that 2008 production rates will be kept steady for the next 90 years. Apart from anything else, there are plenty of stakeholders in the coal industry doing their best right now to see their export business grow.

To come up with a better estimate of how long the coal might last, rather than assuming zero production growth, I will assume a constant growth rate. While the annual growth rate from 1961 to 2008 averaged 5% per annum, growth has been a little slower more recently. The last 5 years have seen growth average only 3.1% (presumably the global financial crisis did not help). Working with the ABARE estimate that viable coal reserves are 90 times 2008 production levels and assuming 3.1% annual growth in production, the reserves will in fact only last for 43 years! That is less than half the 90 year figure in the ABARE report and it starts to seem like an awfully short period of time. Since the working life of coal-fired power stations is typically around 40 years, this means any new power stations built today would still work out their useful life, but they could be the last ones we build and extract the full value of their potential productivity.

Of course, if the growth rate is higher, the time to deplete the reserves will be lower, as is illustrated in the table below. In fact, if production growth returns a long run average of 5%, then reserves would only last 34 years.

Growth Rate Years Left

Reserves 90 times 2008 production

Optimists may counter that the ABARE estimates of the available reserves might be far too conservative. Perhaps there are coal fields out there just waiting to be discovered. Surely that would give us room to have coal export growth go gangbusters, wouldn’t it? Let’s see. I’ll be generous and assume that coal reserves are in fact twice as big (EDR has not changed much over the last 30 years). Running the figures again assuming reserves total 180 times 2008 production levels still means that with 3.1% annual production growth, the coal will all be gone in 60 years and if growth is 5%, it will only last 46 years.

Growth Rate Years Left

Reserves 180 times 2008 production

Now it may be the case that climate change will trigger disasters on such as scale that in 40 years time we are not too worried about coal production, nevertheless, these basic calculations mean that some or all of the following must be true.

  • Australian coal is going to run out in around 40 years
  • The coal industry cannot continue to grow at the rate it has done over the last 50 years
  • Australian energy will be turning to coal alternatives sooner that we may expect (with or without a carbon price)
  • There is a significant expansion in EDR in the future (much greater than we’ve seen over the last 30 years)

If we are going to stretch coal supplies beyond 40 years, what can slow down the need for production? With a price on carbon not looking likely to slow Australian energy consumption in the near future, one possibility would be to reduce the share of coal production that is exported and keep more of it for our own energy needs. After all, the export share has been growing quite rapidly.

Export Share II (chart)

Share of Australian coal production exported (1961-2008)

With around 66% going offshore, there is quite a bit that could be clawed back there. But who would dare suggest slowing export growth? Maybe we will just wake up one morning and discover, with a shock, that the coal is all gone and, since it is estimated that Australia has about 6% of the world’s coal reserves, the rest of the world may face the same realisation even sooner.

Data source: ABARE (note that the 2007-08 production figures in this data set look a little lower than the 490 Mt figure quoted in the report, this is because the chart shows saleable coal which is lower than total coal extracted).

UPDATE: there was initially an error on the export share chart. Thanks to @paulwallbank for pointing it out!

Emissions League Tables

Yesterday’s Sydney Morning Herald featured an opinion piece by Rodney Tiffen on Australia’s sluggish response to climate change. Deliberately provocative, the discussion was framed from the outset in the language of competition:

An international competition in self-righteousness would be closely fought. But Australia must be a strong contender.

Tiffen went on to draw on data from the International Energy Agency (IEA), but got his statistics slightly wrong in the process:

If we restrict the analysis to the most populous 130 countries, those with a population of 3.5 million or more, Australia is the world leader. Only a handful of small countries, especially oil producers such as Bahrain, Qatar and Kuwait, have higher per person emissions.

Australians may be disappointed to learn that we do not, in fact, take home the trophy in this competition. Both the United Arab Emirates and the United States have populations over 3.5 million and have higher per capita emissions than Australia at last count (2007). Nevertheless, coming in third place in this competition, Australia certainly punches above its weight, with per capita emissions running at 4.3 times the world average. Furthermore, as the chart below shows, we have been steadily catching up to the United States over the last 40 years. In fact, to give Tiffen the benefit of the doubt, the most recent IEA data is for 2007, so we may well be ahead of the USA by now.

CO2 emissions 1971-2007 (Source: IEA)

The reason Tiffen looks at per capita emissions is to ward off one common argument for inaction on climate change, namely that China and the United States are the only countries that can make a difference. There is no doubt that these two countries dominate the overall production of emissions. Throwing Canada and Mexico in with the United States brings North American emissions to almost one quarter of the world’s total. Add China and almost half the world’s emissions are accounted for.

Total CO2 emissions for 2007 (Source: IEA)

Nevertheless, if the aim is to attempt reductions in world emissions, Tiffen’s focus on per capita emissions is entirely appropriate. No-one would be convinced if the United States viewed its emissions along State lines, thereby arguing that their emissions were not so big by global standards after all (although, this defence would probably not be much use to California). While countries may be actors on the world stage through their political proxies at climate conferences, emissions are ultimately the product of people (both at home and at work) and not countries. Ranking countries by per capita emissions is thus useful as it gives some indication of where emission reductions may be more readily achieved. The chart below shows the top 25 (big and small) countries in terms of per capita emissions.

Top 25 per capita emitters for 2007 (Source: IEA)

Qatar ranks so high on this scale that it compresses the figures for all of the emitters below it, so here is the chart again with a somewhat truncated scale.

Top 25 per capita emitters for 2007 (Source: IEA)

There are certainly some small countries with high rates of carbon emissions per capita, but looking at a larger scale reveals that developed countries are the worst in per capita terms. It is worth noting, though, that Europe is doing better than the rest of the OECD and is also ahead of former members of the Soviet Union.

Per capita emissions by region for 2007 (Source: IEA)

Another useful approach is to consider emissions per dollar of economic output. This serves to highlight “inefficient” emitters, not to shame them but to identify where spending money on the problem is most likely to deliver significant results. It should come as no surprise that a league table of the highest emitters per dollar of gross domestic product (GDP) is a catalogue of troubled and/or small nations. Note that these figures are calculated based on conversion to US dollars using market exchange rates. Using purchasing power parity instead does reorder the list somewhat, but the names are largely the same.

Top 25 emitters by emissions/GDP for 2007 (Source: IEA)

This perspective suggests that when developed countries consider programs to assist developing countries to reduce their emissions, they could reasonably focus on significant but inefficient emitters. The chart below provides a possible target list, showing the 10 worst-performing countries in terms of emissions per dollar of economic output after restricting to countries with emissions of at least 150 million tons of C02 per annum.

Top 10 large emitters by emissions/GDP for 2007 (Source: IEA)

Who are the big carbon emitters?

Earlier this week, @pureandapplied brought to my attention the emissions data that has been published by the Department of Climate Change in Australia. Their report comprises data for the 2008-09 reporting year provided to the Greenhouse and Energy Data Officer by corporations whose greenhouse gas emissions exceeded 125 kilotonnes*. A few corporations are missing from the list for a number of reasons, including failure to provide their data in time for the report’s publication (a sorry excuse indeed). Nevertheless, the data makes for some interesting reading. As @pureandapplied remarked, for example, Qantas was responsible for more emissions than Shell: those air points are producing a lot of CO2-equivalent emissions!

The data is reported in two categories, “Scope 1” and “Scope 2” emissions. The definitions of the two scopes are as follows:

Scope 1 emissions are the release of greenhouse gases into the atmosphere because of activities at a facility that is controlled by the corporation. An example of this would be gases emitted by burning coal to generate electricity at an electricity production facility (i.e. a power station).

Scope 2 emissions in relation to a facility, are the release of greenhouse gases emitted at a second facility because of the electricity, heating, cooling or steam that is consumed at the facility. An example of this would be greenhouse gases emitted to generate electricity, which is then transmitted to a car factory and used there to power the car factory’s lighting. The greenhouse gas emissions are part of the factory’s scope 2 emissions. It is important to recognise that scope 2 emissions from one facility are part of the scope 1 emissions from another facility.

The report is very careful to note that these two scopes should be used warily. In fact, it warns that the two figures “should not be used individually, or added together” to estimate liabilities under any emissions abatement scheme. That is a red rag to a Mule, so I will indeed look at them individually and added together. The chart below shows the top 25 emitters in the Scope 1 category.

Top 25 Scope 1 Emitters

It should come as no surprise that the big Scope 1 emitters are primarily power generators, although there are a number of mining companies in there, along with Qantas thanks to its burning of jet fuel. Scope 2 tells a somewhat different story.

Top 25 Scope 2 Emitters

Here “poles and wires” make an appearance: Transgrid and the like, move energy from place to place that has been generated elsewhere. So, the Scope 1 emissions are counted by the generator, but the tranmission company wears the Scope 2 emissions. Woolworths manages an impressive fifth place, perhaps thanks to the lights in all of their supermarkets? Wesfarmers, the owners of the Coles supermarket chain, rank higher still.

Finally, here are the top 25 emitters by the combined total of Scope 1 and Scope 2 emissions. Not surprisingly, the generators dominate once more.

Top 25 Scope 1+2 Emitters

Also included in the data is the total amount of energy consumed by each corporation. It is in these numbers that I stumbled upon something of a puzzle. Envestra produced a reasonably sizeable 627,161 tonnes of Scope 2 CO2-equivalent, but had one of the lowest levels of total energy consumption at only 193 GJ. What have they been up to? Guesses are welcome!

* Also included are those corporations holding a reporting transfer certificate.

No hiding the cost of emissions reduction

In today’s Sydney Morning Herald, Ross Gittins has an opinion piece entitled Mealy-mouthed pollies see voters as a bunch of suckers. In it he argues that politicians are not to be believed when they start talking about taxes: they are more interested in playing issues for their electoral effect than actually saying what they believe about a tax. After all, if Labor really believed all their arguments against the goods and services tax (GST) back in the days of Kim Beazley‘s 2001 “Rollback” campaign, wouldn’t you expect to hear something from the current Labor government about the GST?

Perhaps this goes some way to explain why no politician in Australia is brave enough to enunciate the unavoidable fact that if, as a nation, we want to reduce carbon emissions, there will be a cost.

This is true regardless of whether your scheme of choice be Labor’s proposed emissions trading scheme (ETS), a carbon tax or the latest offering from the coalition, an emissions reduction fund. The reason is simple. The bulk of Australia’s power generation is sourced from coal-burning power-stations and this is because coal is cheaper than any other source, including natural gas, solar, wind or geothermal. Achieving a meaningful reduction in Australia’s carbon emissions will require a gradual phasing out of coal-burning power stations, replacing those reaching the end of their life with generators using more expensive alternative sources. Ultimately someone, somewhere must bear this cost if the shift is to occur.

Some would argue that “the big polluters have to pay”. That is easier said than done: these polluters would want to preserve their profit margins and so in practice any additional costs imposed on power generators and other industrial polluters would be passed directly on to their customers anyway.

Others would prefer to rely on people opting to reduce their own emissions. One avenue for this currently open to Australians is provided by the GreenPower program. Established by Commonwealth Government in 1997, GreenPower allows energy retailers to provide their customers with an accredited “green” option. This allows households and businesses to buy some or all of their power from lower emission generation sources. Needless to say, these options cost more than the standard offering. According to the 2008 GreenPower audit, 947,268 customers were using a GreenPower product, representing around 10% of Australian households. While this may appear at first glance to be an impressive take-up in 10 years, digging into the figures a little deeper gives a different picture. For many of the retailers, close to 90% of the retail customers have elected to buy the cheapest GreenPower product which only sources 10% of the householder’s power from alternative sources. For businesses the number using the 10% option is even higher. So, relying on customer choice alone, the GreenPower program has only resulted in a shift to lower emission sources of about 1 or 2%.

Both emission trading schemes and carbon taxes aim to provide a far bigger shift by closing the price gap between cheap but carbon-intensive power sources and the more expensive alternatives. Economically the key difference between a tax and a trading scheme is that the cost of carbon imposed by a tax is fixed by the government, while the price imposed by a trading scheme would vary with supply and demand.

Most economists are attracted to trading schemes, pointing out that the problem with a tax aimed at reducing emissions is that you do not know how high to set the tax to get a desired reduction in emissions. While government can progressively tweak the tax to get to the target, it still requires significant guesswork. In contrast, under a trading scheme, the emissions target can be set in advance and then an appropriate number of “emissions permits” are issued (at which point, some environmentalists get queasy at the thought of providing business with the right to pollute, but that is an emotional distraction). These permits can be bought and sold, so any polluters unable to reduce their emissions to the level of the number of permits they have can purchase additional permits from others who can achieve greater reductions. In the process, the price should automatically adjust (thanks to the famous–or infamous–invisible hand of markets) to a level that achieves the desired reduction target. Any emissions not backed by permits are subject to punitive financial penalties set at a sufficiently high level to make the purchase of permits preferable.

For carbon taxes the price is known in advance, but the amount of reduction achieved is unknown. For a trading scheme, the reduction is known in advance, but the price is not.

That is the theory at least. In practice, both approaches have enormous practical complexities, not least the challenges of monitoring compliance. Furthermore, the trading scheme proposed by the Labor government, known as the Carbon Pollution Reduction Scheme (CPRS), is not quite as pure a trading model as economists would like since it comes with a price cap. This means that, while the market is allowed to determine the price of carbon, the price cannot trade above a pre-determined level. Under the proposal, the cap would be set at $40 per ton of carbon for the first few years. This means that if the market price of emissions was in fact higher than $40 per ton, the CPRS scheme would in fact operate more like a fixed-price carbon tax.

As for the coalition’s reduction fund, it resembles a carbon tax approach to some extent in that it does not impose a particular emissions target. But the key difference between the reduction fund and either a carbon tax or a trading scheme is that it would be up to the government to determine the most promising approaches to reducing emissions and offering financial inducements to pursue these approaches. So it involves the government “picking winners”, to use a phrase favoured by free-market enthusiasts who consider markets far more efficient than governments at making decisions about allocation of scarce resources and, presumably, the best approach to dealing with climate change. To see the Labor government advocating a market solution and the Liberal/National Party coalition advocating a government-led approach is perhaps the most peculiar aspect of the current climate change debate.

While there are many reasonable discussions that could be had about the relative merits of all of these schemes, sadly the debate driven by the politicians is far more likely to be which scheme is or is not a “great big new tax”. The fact that a trading scheme is not a carbon tax does not somehow mean than taxpayers and other consumers will not end up paying for the emissions reductions. Equally, the money in a reduction fund has to come from somewhere and, since the scheme is being advocated by a party with a deep-rooted fear of government deficits, it is safe to say that it will come from increased taxes, reduced public spending elsewhere or a combination of the two. Again, someone will pay.

The last Federal election and opinion polls held before and since then all suggest that, recent visits by Lord Monckton notwithstanding, the majority of Australians want something to be done about reducing our country’s emissions. Is it too much to ask of our politicians to stop shouting “It’s a tax!”, “No it’s not a tax, yours is!”? I hope it is not, but in the process, everyone else has to accept the fact that reducing our emissions will come at a cost and do not believe any politician who tries to claim otherwise.

Dubai Perspectives

dubai-smallI’m hoping to try something a little bit different here on the Stubborn Mule: a guest post.

But first some background. Recently I came across this article in the Independent exploring the “dark side” of Dubai. It paints a very grim picture of massive crumbling developments, environmental degredation, Western ex-pats who either revel in luxury or are thrown into debtors prison and a society built on the backs of an immigrant sub-class of near slaves. I know very little about Dubai, or the rest of the United Arab Emirates (UAE) for that matter, but found the article a compelling read. So, as usual, I shared the link with my social networks on twitter* and Facebook. This drew an immediate response from a friend who has lived in the UAE who thought it painted a very distorted picture of Dubai. So, I have offered her a guest spot here on the Mule to present an alternative perspective.

So, with any luck you’ll be reading the first guest post here very soon.

UPDATE: the article is written, but waiting on clearance. Fingers crossed!

FURTHER UPDATE: sad to say it looks as though the piece is not going to see the light of day. My guest poster’s employer has ruled out any scope for publishing the piece, even if it is done anonymously. It was to have given a more positive picture of Dubai, but the experience suggests to me that on the score of openness at least, Dubai does not do well!

* In fact, I suspect that I came across the article on twitter in the first place.

Burning Candles

CandleThe third Earth Hour takes place tomorrow night and once again I have been asked about carbon emissions from candles. So, without wanting to be a party-pooper, I thought I would dig up some calculations from a year ago, courtesy of the friendly family power engineer (you know who you are!).

Tomorrow night, many people will turn off the lights for an hour and light up candles instead. Since the candles themselves emit carbon dioxide (CO2), the question is will we end up reducing emissions for the hour or not? Of course, it all depends on how many candles you light up and what sorts of lights you turn off.

Since candles don’t actually emit very much light, the temptation (particularly in bars and restaurants) is to light lots of candles.  To make it concrete, think of a 40 Watt (W) traditional incandescent light-bulb. Although a 40W light bulb is not very bright, it actually emits the equivalent light of around 40 candles. The amount of CO2 emitted is equivalent to at most 5 or 6 candles. So if you turn off one light and replace it with enough candles to generate an equivalent amount of light, you’d be emitting at least 7 times as much CO2 as using the light-bulb. So, the moral of the story is not to light too many candles!

The comparison gets worse if you use energy-saving compact fluorescent lamps (CFL) rather than incandescent bulbs. A 7W CFL bulb gives about the same amount of light as a 40W incandescent bulb or around 40 candles. However, the carbon emissions from this bulb is equivalent to one candle. Admittedly, this is a fairly dim bulb, so you’d be more likely to be using a brighter bulb. But even if we considered a 14W CFL bulb (equivalent to a traditional 75W bulb) this produces emissions equivalent to two candles but the light output of almost 80 candles.

So if it was just about reducing emissions, you would be far better off leaving on CFL bulbs (and switching as many of your old bulbs to CFL as possible) than lighting candles at home or in bars and restaurants. Of course, it’s more about the symolism than anything else. Furthermore, there is a real saving in commercial premises like office blocks where the lights are turned off and nothing is turned on in their place.

One final point people make is the source of the CO2. Coal-burning power stations release carbon that has been buried in the ground for a very long time, while beeswax candles release carbon that has only recently been captured (of course paraffin candles are just as bad as coal-fired power stations!). While this is true, the end result in terms of CO2 in the atmosphere is the same. Perhaps the best thing to do is to buy the candles and keep them in the bottom drawer for emergencies and keep the carbon captured, while lighting your house with CFL bulbs!

The (Optional) Details

For the brave of heart, here are some of the details used to calculate the figures discussed above.

The aim of these calculations is to compare the carbon emissions of candles, traditional incandescent light-bulbs and energy-saving compact fluorescent lamps (CFL). To make this comparison fair, we should take into account the fact that candles emit much less light than light bulbs. The traditional unit of brightness for candles is candlepower, so I will start with a hypothetical candle that emits one candlepower of light. In more moden units, this is a luminous intensity of 0.981 candela.

Now, to complicate matters, the light output of bulbs is typically quoted in terms of lumens, a measure of luminous flux. The relationship between flux and total intensity depends on the area over which the light is emitted (e.g. a pinhole light might have high flux, but not much total intensity). For our purposes, I will assume that we have an unshaded bulb which emits light in just about every direction.

According to wikipedia, a 40 Watt (W) bulb has an output of 500 lumens, which converts to an intensity of 39.8 candela or 40.6 candlepower. So, our relatively dim 40W bulb generates as much light as about 40 candles. While there is a fair amount of variation amongst CFL bulbs, a typical 14W CFL is equivalent to a 75W incandescent light bulb. To get to the equivalent of our 40W bulb, we would need a CFL of about 7W. To achieve the equivalent light intensity of a 40W incandescent bulb, it would therefore require 40 candles or one 7W CFL.

Each hour a small candle burns at least 2.5 grams of candlewax (most candles would be worse than this), which contains a little over 2 grams of carbon, producing 7 grams of CO2 emissions.  So 40 candles would produce about 280 grams of CO2 each hour. These figures are based on the Hex Jar burn time in this table of candle burn times, which burns 1.5 oz of candlewax in 12 hours. Many others in the list burn at a faster rate.

Coal-burning power stations typically emit CO2 at the rate of 1kg/kWh or 1 g/Wh (need to dig up a reference on this one) (US National Renewable Energy Laboratory figures of 1.114kg/lWh are quoted here). This means that the 40W incandescent bulb produces around 40 grams of CO2 emissions each hour, while the equivalent CFL bulb is only 7W, and so it produces only 7 grams of CO2 emissions each hour. Of course, if your power comes from renewable sources, the emissions of these bulbs may be lower.

Photo credit: Rickydavid on flickr (Creative Commons).

Rudd, Carbon and the Price of Petrol

Power StackAustralia’s Prime Minister, Kevin Rudd, triggered waves of protests from environmentalists this week when he annouced that Australia’s target for emissions for 2020 would be a mere 5% reduction from the levels in 2000. With substantial commitments to emission reductions from other countries around the world, this target would be increased to 15%. The Government was at pains to point out that Australia’s population growth makes this target more ambitious than it sounds. However, by world standards Australia’s emissions are very high, whether measured per capita or by gross domestic product. This means that Australia should have more scope for relatively inexpensive emissions reductions than many other countries.

So 5% does seem to be a very unsatisfactory target. If you are a climate-change skeptic, even a 5% target is a needless waste of time and money, while if you take forecasts of climate-change seriously it seems woefully inadequate. However, rather than focusing on the target itself, in this post I will look at the implications that the Government’s plan will have where consumers will see it most directly, on the price of petrol.

In their White Paper on the carbon reduction scheme, the Government proposes a cap on the price of carbon of $40 per tonne for the next 5 years while, for their financial impact modelling, a price of $25 per tonne has been assumed. In an earlier post I calculated the impact of the price of carbon on the price of petrol. Here are the results for a range of carbon prices.

Cost of

Petrol Price
10 2.4
20 4.8
25 6.0
30 7.2
40 9.6

So, if the Government’s assumption is correct that the price of carbon will initially be around $25 per tonne, we can expect an increase in petrol prices of 6 cents per litre. Even if the price of carbon reaches the $40 cap, the impact on petrol prices will only be around 10 cents per litre. I say “only” because that 10 cents is small compared to extraordinary moves in petrol prices seen over the last year due to movements in the price of crude oil. From July to November, the price of petrol in Sydney fell by almost 40 cents per litre, according to prices published by the Australian Automobile Association, and based on my observations has fallen another 20 cents since then. Even compared to the 38 cents per litre fuel excise, 10 cents seems a modest figure. The chart below shows the dramatic moves in petrol prices along with projected prices based on the daily price of Singapore 95 refined oil, based on a regression model I have used in a number of posts in the past.

Petrol - Dec 2008

Introducing an emissions trading scheme for carbon will eventually affect a wide range of consumer prices, but based on the relatively small increase in petrol prices that it will produce, the scheme is not likely to have a significant impact on consumer behaviour. The scheme will do all its work on the behaviour of businesses and, given the dire financial straits we find ourselves in today, this is presumably why the Government has been so unambitious with their target. But this does also highlight that there is a lot more that the Government could be doing to reduce consumer carbon emissions beyond the trading scheme itself.

Photo Source: Foto43 on flickr (Creative Commons).

Bottlemania Comes to Sydney

Today’s Sun-Herald has a piece entitled “Turning Water into Wine“, which reports that the prestigious Kable’s restaurant in Sydney’s Four Seasons hotel has launched its first “water menu”. Here you get a tantalising array of choices for how to flush your money away. My favourite is a 750mL bottle of Cloud Juice rainwater from King Island for a mere $20! At first I thought it must be a joke, straight out of an episode of Penn and Teller‘s take-no-prisoners, nonsense-busting series, Bullshit.

Continue reading