Monday, August 29, 2011

Anthropogenic Global Warming

I have so much in my head at the moment, and a great desire to write it down, but it is completely incoherent.

For the global warming debate, I feel it is important to demonstrate my non-partisan take on it. One easy way to do this is to show an example of a policy belief of mine usually associated with the far left (Green party or left wing of the Labour Party) and a contrasting belief that is associated near the other extreme (National party or One Nation or Right wing of the Liberal Party).

This is not because I want to present myself in the middle ground, but that what I believe to be true takes up a point in idea space far away from the political left-right line that at the moment takes up all the discussion space in virtually every forum I visit.

For instance, I am vehemently against solar PV tarriffs above the wholesale market rate for electricity.

I am also very in favour of a Carbon Tax.

I steer away from arguments that question whether global warming is "real" or not. To me it is like a question of whether I believe in God or not. I perceive both these questions to be a device to flatten my beliefs and squeeze them down onto the political continuum line from their proper place in multiple dimensions - with an aim to push me with denial or acceptance of various assertions one way or another to the correlated viewpoints of (in this case) the left or right of politics.

There is no "references" I can point to in regards to this basic philosophical idea, but it should be simple enough for the casual reader to understand.

The question remains as to how I can convince someone to my same viewpoint. It is much easier to convince someone that solar PV tarriffs are bad because Global Warming is bunk than it is because it makes the energy market dysfunctional. It is also easier to convince people that we should have a Carbon Tax because AGW is real and a threat, than it is because it moves tax reform down a sensible direction (broad based, flat, easy to administer, can replace messier taxes or even carbon trading)

Another question may be why I think minor structural detail of the laws which underpin the energy market are more important than the global risks of catastrophe or conversely wasting our time, money and energy on a non-catastrophe.

The answer is to me, that the underpinning structural detail is absolutely vital both to succeed in whatever aims that voters think is important with regards to energy usage, and to not waste any time, money or energy in that achievement. Laws which make markets act in functional ways are a net profit to society, laws which don't, are a net loss - pure and simple.

22 comments:

Dr Clam said...

Laws which make markets act in functional ways are a net profit to society, laws which don't, are a net loss - pure and simple.

Here I have been compulsively checking your blog for ages hoping you would write something, and you come up with this, which I disagree with completely, so it should be good to keep us occupied for a while!

The invisible hand is there to make markets act in *functional* ways. The most important laws are those that set the framework within which the markets operate should provide an invariant frame of reference and should not be tweaked to try to improve the functioning of the market: things like security of land tenure, recognised penalties for breaking contracts, etc.

A smoothly functioning market has no more morality than a weather system, so beyond providing this structural framework laws are there to enforce moral limits: to say, 'So far you may go, but no further.' These laws will always make markets act in less functional ways - otherwise they would not be necessary - but it will be a matter for ceaseless argument as to whether they are of benefit to society or not, until we all have identical opinions beamed directly to our minds by our Robot Masters. But until then it is neither pure nor simple.

Question 1: What taxes is the carbon tax replacing, and what is the resultant net simplification of the tax code?

Question 2: If I had town water, I might replace some of it with tank water and pay nothing for it. Are you vehemently opposed to this practice as market-disorting? If not, what is wrong with me being paid the *retail* price for electricity I feed into the network?

Chris Fellows said...

So I take it you are now 'permanently agnostic in principle' on AGW? :D

I have finally made another post on my blog, you may not have noticed, doing some 'Green Mars'-style back-of-the-envelope calculations about warming the ocean.

Marco said...

So I take it you are now 'permanently agnostic in principle' on AGW? :D

Absolutely - I will get to your other more interesting questions later, but this is also a crucial one. One may argue in principle that either it exists or it doesn't, but the question is so loaded that it doesn't deserve any answer at all.

I in fact read your post just before I wrote mine, which convinced me even more of the arbitrariness of the question of does AGW exist?

Marco said...

Question 1: What taxes is the carbon tax replacing, and what is the resultant net simplification of the tax code?

Since the Carbon Tax is not marketed as a tax reform, this is not obvious at all. However - the closest example I can think of is the GST, which will have analagous comparisons. I will make a general statement about any new taxes.

Any new broad based tax will take the pressure off other taxes as a funding or paying down of debt by the Government. The fact that the GST is there and generating a large chunk of income means that the Government can reduce narrower based taxes or be in a better fiscal position when the crunch comes. I suggest that taxes such as payroll taxes, which considerably distort the job market and are not constant sources of income of the Government will be much easier to drop.

A recent income tax tax free threshold increase has only been possible because there is a wider base of tax than before the Howard GST reforms. The Carbon Tax will continue this process of making a wider base with a smaller percentage tax.

Marco said...

Question 2: If I had town water, I might replace some of it with tank water and pay nothing for it. Are you vehemently opposed to this practice as market-disorting? If not, what is wrong with me being paid the *retail* price for electricity I feed into the network?

The main difference is that you are paying for your own storage and (if necessary) pumping of your water to your own patch. I would completely agree with you if the PV electricity was stored in batteries for ones own use rather than using the grid as the storage. I dont think the water utility would be much impressed if you were charging them at retail prices for water, especially if you had considerable excess and were pumping into the grid. In Europe and in some US states Some utilities had to shut down some power stations and purchase wind electricity at retail or higher, as well as making electricity free for a time because there was too much power in the grid. I can imagine in times of flood, your local water utility would not be happy to pay for our water at any cost.

Dr Clam said...

Ooh, I feel properly alive now!

The main difference is that you are paying for your own storage

But, if I use the PV electricity, there is no storage involved. I think what you are vehemently opposed to is a phantom, a straw man. I grant you that the current NSW feed-in tariff is unsustainably high and silly; but you realise that it will pass in a very few years. Now, even at this unsustainably high tariff, we do not make enough electricity to profit: we just about cover our electricity bill, that is all. And this is with very little north-facing roof space left on the house. At the *retail* electricity tariff, I think very few people would have space to generate enough PV electricity to sell anything back to the grid: they would just use the power they generate instead of that generated at power stations a long way away. It is just a matter of tweaking the model at the edges to avoid the extreme cases you cite, I don't see that it is anything to be vehemently opposed to.

To pursue the water analogy further, consider that we have the largest amount of water storage capacity per capita in the world (unverified internet factoid): so if water *could* be sloshed around the country as easily as electricity can, it might make sense to buy it in places where it was flooding and pump it to dry places.

And here is a Question 1 follow-up question, given your answer to "What taxes will be replaced and how much will the tax code be simplified?" was "Hopefully, some". How many of the regressive state taxes the GST was supposed to replace are still with us?

Marco said...

To pursue the water analogy further, consider that we have the largest amount of water storage capacity per capita in the world (unverified internet factoid): so if water *could* be sloshed around the country as easily as electricity can, it might make sense to buy it in places where it was flooding and pump it to dry places.

The analogy is quite close and useful. Both for electricity and water, the infrastructure cost for the pipes and or powerlines to do that effectively dwarfs the cost of say the NBN. This is partly what the utilities are complaining about.

What makes it dysfunctional is that the private utilities are *forced* to purchase at a high price and then made responsible for everybody getting enough electricity when they want it. There is no morality associated with the laws that dictate the prices. It completely changes the business model for the utility in unpredictable ways.

I am all for infrastructure that helps the process of evening out demand and supply. Forcing purchases from a multitude of minor players is not the way to do it.

Marco said...

Here's another back of the envelope calculation that is worth doing. Imagine that all of the installed Aus PV systems amounted to one huge distributed power station (1.3 GW if I remember correctly). How much did this power station cost? How much power will the utilities have to buy at retail price? (the average feed in tariff until 2015 is considerably higher than the retail rate) How does the cost of installing this "power station" compare with any other imaginable power station that a utility would choose to install? What is the overall cost difference of the power? Importantly, can the utility feasibly get this back without increasing tariffs dramatically, AND relying on NON-PV power stations' cheap power to fund this discrepancy?

It kind of pushes utilities in two contradictory directions - Buy power as cheap as possible (hm eg Coal) so that they can buy the expensive PV power and stay viable. Importantly, if the Government pays the difference, as it seems to make noises about doing, how can the government remain financially viable? - Carbon tax???.

Waldorf said...

What makes it dysfunctional is that the private utilities are *forced* to purchase at a high price...

What I am saying is that a tariff at the *retail* level will not generally amount to forcing the private utilities to buy anything, just substituting a local product for the delivered product in the same way as rainwater would substitute for delivered water.

Chris Fellows said...

This announcement suggests that 365 MW has been added to the grid in NSW at a total cost of $1.9 billion.

If we assume the panels will last ten years, then this is a cost of $1.9 billion / (365 MW x 365 days x 24 hours x 10 years) = $59 / MW.hour.

This document suggests ongoing (non-capital)costs of operating a coal-fired power plant as $20 / MWhour. A similar value ($21.5 / MW.hr) appears in this report prepared for the Independent Pricing and Regulatory Tribunal.

Coal-fired power plants are typically depreciated over about 35 years and the estimated cost of the 2000 MW plant at Mt Piper near Lithgow is $2.6-5.0 billion. Combining this capital cost with the operating costs estimated above
This gives approximate limits of $20-28 / MW.hour.

So whether it is good value or not depends entirely on how long the solar infrastructure – whose maintenance and depreciation will be carried by the householder – will last. If you assume they will last 20 years, instead of ten, you get a comparable cost.

The other difference, which you have mentioned before, is that this 365 MW has been added in the twinkling of an eye, without benefit of environmental impact assessments or cost blow-outs, and came along at an appropriate time to act as GFC stimulus funding.

Marco said...

I just hope that to a casual observer, we are not talking around in circles.

I am not against PV electricity per se, and therefore the *efficiency* vis a vis coal is a minor point. With me it is always about the "machinery" - the incentives and subsidies that distorts behaviour. It is fine to say that a 1:1 tarriff should be ok. It certainly is better than the 4:1 tarriff that is typical of the NSW installations for several years. The QLD one was set at 44c/ KW H for a guaranteed 10 years for installations made now if what I heard on radio ads is to be believed. It does match what I read about German style tarriffs which were generally set at these kinds of ratios for up to 20 years.

My question regarding the comparison with coal is that for the viability (or if you must, profitability) of the utility is concerned, new coal power stations (or extending lives of old ones) is a no brainer. How much better it would be if the weren't cajoled by REC's and long term government promises and instead treat all renewables fairly and equally. This would give continued predictability to the business models of utilities. My one worry about taking up this 44c tariff for my own house is that I believe that the utility will be given the shaft and go bankrupt and I won't get a positive return on the investment. ie. that would be one way to break the promise of 44c /KW h for that many years.

As far as the calculation of costs goes, I think the 365 MW may be a daytime average power output and thus the KWh rating may need to be halved, as no power would be generated at night.

Marco said...

The 365 MW is for 85% sun, I think. The mean insolation would be about 5 hours a day rather than the 24 you have used.

Marco said...

The exact capital expenditure cost per KWh will vary depending on the insolation factor and lifespan. Insolation will be better in Townsville than in Armidale, but lifespan may go the other way or not. Hard to say. Either way, I believe just the capex vs. large scale coal is not competitive with even the retail price. Why Australians think that it makes sense to buy electricity up front for several years worth of partial local distribution at 10 times the cost we need to pay beggars belief. It is all the layers of cross-subsidy and legislation that hides this basic fact that what we are doing makes no economic sense. I would be willing to bet that a diesel generator of comparable rating hooked up to the grid would generate electricity more cheaply.

Dr Clam said...

Good point about insolation, that is very obscure in the press release, where one would think they would be making a case for the unviability of the scheme.

Sure, a diesel generator may be cheaper, but a diesel generator is noisy, and we live out here to avoid noise. It also is dependent on constant purchases of diesel which we are afraid may increase sharply in cost at any time. Like I said, the attraction of the scheme to me is that it is a first step towards energy independence. And we pay a very large premium for independence: that is why we all maintain private motor vehicles at great cost, instead of taking a bus to work.

Pulling back from these details, and from the initial philosophical point about market that I leapt up gleefully to disagree with you about, there is something essential I am missing that I would like you to clarify:

There must be some axiom of your thought from which the deductions "PV subsisidies very bad, Carbon Tax good" follow using Earth logic. I don't expect I share this axiom, but if you try to explain it slowly and carefully using small words, then I may understand you.

Marco said...

There must be some axiom of your thought from which the deductions "PV subsisidies very bad, Carbon Tax good" follow using Earth logic.

This is quite probably true - However I do find it hard to break it down and back to individual axioms, but I will do my best.

(1)Principally, I compare them to each other as ways to using a given set of global resources to achieve the goal of increasing renewables in the long term.

(X)The question of individual energy independence is a *separate* question, which is not given ANY weight at all with the first question.

(2)Now when I calculate "costs" in regards to (1) these are NOT actual monetary costs in the usual sense of the word. I am looking at the "machinery" in the system. Essentially it is the net sum of incentives built into the system. how they work and what "rate" they need to be above market to tempt third party investors.

(3) On the "benefit" side of the ledger, this is also not a measure of how much renewables has been built by the scheme we are talking about but the net incentive between market and subsidy to do so for *ALL* renewables.

With regards to the question of (X), I believe a limiting of subsidies to marginal grid areas and a mandating of battery power would do a good job of making that something I would include in (3) but as the subsidy stands, it neither helps nor hinders progress in that regard.

Chris Fellows said...

I compare them to each other as ways to using a given set of global resources to achieve the goal of increasing renewables in the long term

Okay, your position now makes sense in light of this axiom.

I think in the long term the stated goal will be met through technological advances and global economic phenomena, with all government interference in attempting to bring it about sooner likely to be (a) largely ineffective and (b) in so far as it is effective, to impact negatively on the economy. Thus in my own assessment of these two policies I would discount your axiom.

My assessment would rest instead on: how severely will this policy impact our international competitiveness in the short term? and, how does this policy serve to increase/decrease regulatory complexity and the centralisation of power?

Marco said...

My assessment would rest instead on: how severely will this policy impact our international competitiveness in the short term? and, how does this policy serve to increase/decrease regulatory complexity and the centralisation of power?

I would like to see also how you would calculate the impact of these two policies on these factors. I would look at selective subsidies *in general* and see that they reduce international competitiveness by distorting investment away from the best value technologies.
Specifically, Panels with the highest wattage *Rating* for the cost are chosen for instance (to get the REC the cheapest way), rather than the one that gives the best lifetime power for the cost - there are plenty more examples, even within solar panel technologies themselves, not to mention the money sucked away from more cost effective renewables. This doesn't effect your calculation as much as it does mine, but I am convinced it puts our international competitiveness at a net disadvantage even compared to quite a high Carbon Tax.

The input tariff system gives a very high regulatory complexity, albeit to just one part of the energy sector. It is almost too complex to explain. The utility gets a one off "reward" of REC's at a ratio of 4:1 compared to other renewables, as a kind of offset to the extra they have to pay for the generated (or the marginal electricity they don't get to sell to them)electricity. It's so complicated that it is hard to know who gets the shaft (government, consumer or utility?) let alone if any compensation is required. All this to make something a good investment individually that otherwise wouldn't be in either a collective sense or an "all renewables treated equally" sense.
Break it down for me a bit more. Is there examples of agricultural subsidies that don't reduce competitiveness in that which is subsidised?

Marco said...

I think in the long term the stated goal will be met through technological advances and global economic phenomena

I don't have faith in technological advances separate from the machinery that allows them to happen. Europe is never going to improve their agricultural technology while they hide behind a wall of agricultural subsidy and tariff.
Broad pricing signals allow this machinery to do its technological advancement magic directionally.
Of course, I can see that I am not as convincing with the sorts of things your assessments rest on, but I think even with your axioms, I probably would still come to my same conclusion because of my different defining examples of competitiveness and complexity. I also take less issue with centralised government, and believe in a structured tier system anyway. A carbon tax probably does centralise power to some extent.

Dr Clam said...

I would like to see also how you would calculate the impact of these two policies on these factors. I would look at selective subsidies *in general* and see that they reduce international competitiveness by distorting investment away from the best value technologies.

I qualitatively calculate the marginal cost of PV subsidies to Australian exporters in general as low, through (perhaps naively) believing media reports that PV subsidies are the smaller part of renewable energy investment, and that renewable energy investment is a relatively small part of the infrastructure driving up electricity prices for Australian manufacturers.

As the carbon tax is intended to force up the price of fossil fuel, and will be ineffective if it does not, I don't see how it can but reduce our competitiveness by directly attacking one of our main areas of competitive advantage.


Europe is never going to improve their agricultural technology while they hide behind a wall of agricultural subsidy and tariff.

Oh, but they are! I know lots of people who work at European agricultural research institutes. That is because funding those places is part of the same policy as the European subsidy wall and tariffs, the policy intended to maintain a rural population and a nice tended European look to the countryside.

Marco said...

I qualitatively calculate the marginal cost of PV subsidies to Australian exporters in general as low, through (perhaps naively) believing media reports that PV subsidies are the smaller part of renewable energy investment, and that renewable energy investment is a relatively small part of the infrastructure driving up electricity prices for Australian manufacturers.

I can summarize that your "factoids" are, to my mind, half truths, even though I am in the minority. Thus the sum of half truths comes to plausibly the wrong conclusion. Most of the "costs" to manufacturers are pernicious effects of the hyperactivity of the rooftop solar industry. The sudden competition for human resources such as electricians and business managers can dwarf costs of electricity increases.

As the carbon tax is intended to force up the price of fossil fuel, and will be ineffective if it does not, I don't see how it can but reduce our competitiveness by directly attacking one of our main areas of competitive advantage.
again, a series of what I see as half truths. Very small changes if convincingly made long term policy have a dramatic effect on investment. Shares in geodynamics, for instance, shot up on the announcement of a tax.



Oh, but they are! I know lots of people who work at European agricultural research institutes. That is because funding those places is part of the same policy as the European subsidy wall and tariffs, the policy intended to maintain a rural population and a nice tended European look to the countryside.

Here you equate research funding with technological success. I assert that all the agricultural technology improvements are happening in places such as Australia with a more vibrant competition and entrepreneurship .

Dr Clam said...

The sudden competition for human resources such as electricians and business managers can dwarf costs of electricity increases.

*Chokes, splutters, points to the mining sector, waves hands desparately to indicate relative size of labour market distortions.*


Very small changes if convincingly made long term policy have a dramatic effect on investment.

So you are saying that, since protectionism is bad, an "anti tariff" on our own manufactures is a good thing?


I assert that all the agricultural technology improvements are happening in places such as Australia with a more vibrant competition and entrepreneurship

I assert that "vibrant competition and entrepreneurship" is not the only horse in the stable and that public and private research funding address different timeframes and are both valuable.


I admitted that your position makes sense from your starting axioms: to now argue that it makes sense from my axioms smacks of imperial overreach - so declare victory and move on!

Marco said...

So you are saying that, since protectionism is bad, an "anti tariff" on our own manufactures is a good thing?
Yes. I guess I am.

I admitted that your position makes sense from your starting axioms: to now argue that it makes sense from my axioms smacks of imperial overreach - so declare victory and move on!

I am moving on. I think it does make sense even from your axioms. Like I said though - I admit it is a harder sell, and there are a dearth of references or research where I can point to and say like there.