Great post and have to agree that it is indeed ridiculous to “thank god” for anything. If God (or Allah) was so great he/she would never have put all those dinosaurs under the desert to ferment into dirty oil for us burn in the 20th and 21st centuries following the birth of his/her esteemed “son”.

Onto other more pressing creations of the human imagination. I was an active farmer and should disclose I still have a beneficial interest in several farms and I fully agree that farmers neither need nor should seek any applause for pursuing their own self interest.

As I understand it any farmer converting to dairy after 2005 will have no carbon allowance and therefore will be fully liable for all emssions.

From what I have managed to find out from current literature in science (and it is bloody difficult to get data) an average dairy cow emits something in the range of 350 – 450 grams of methane and 1000g of CO2 a day. Adjusting for molecular weight and the the GW potential of methane which is allegedly 23 times more potent than CO2, an average modern NZ farm operation of 500 cows would therefore be responsible for emissions in the vicinity of 1300 tonnes of carbon equivalent per year.

Given a nominal value of $30 a tonne (but actually who knows what value the market will set under ETS), this would equate to an annual charge of about $40k per year assuming no offset is allowed for the potential carbon sink of pasture.

This is an estimate of the potential cost to farmers considering setting up operations in New Zealand and who may consider offshoring such operations to more favorable places such as Uruguay or Brazil.

The longer term consequence may be that faced with a physical inability to reduce emissions and a prohibitive emissions cost, Farmers acting in their self interest will ramp down production and plant trees on their farms which of course will please the greens but will have the effect of reducing food supply thus driving up prices.

Farmers possibly won’t be any worse off, but we may then be able to have a moral debate along the lines proposed by Fidel Castro who criticised the diversion of arable land into biofuel crops at the expense of food production.

Actually if we are going to use the “morality” card we can state that it is the farmers “immorally” polluting the planet, as they are the ones that create most of the carbon emissions. The ETS is set up so those benefiting from the “immoral” practice of creating carbon emissions are the ones who pay – implying that it is still ridiculous for farmers to act like they are superior to us.

“I disagree and assume an AGW event will entail a high future cost”

I’m not disagreeing with the cost – I’m disagreeing with our countries impact on the cost. If we halve carbon emissions we will reduce our Kyoto liability – so that is a benefit.

However, the probability of AGW event occuring will still be the same – as we produce such a tiny amount of the worlds carbon emissions – as a result there is no additional benefit from lowering the probability of AGW event.

Our fundamental disagreement:

Sure, but we don’t pick the Kyoto liability – we only pick whatever is the least cost method of funding the liability. It is an external cost that is being imposed on us and we need to find the least cost method of paying for it – if the Kyoto agreement was not set in such a way that it will prevent AGW event then thats a pity, but that is not the issue at stake when setting an ETS.

You have defined an AGW event as having no effect on the economy, effectively setting the cost to zero. I disagree and assume an AGW event will entail a high future cost. This is a disagreement on costings and easily solved.

I can provide estimates on the costs of an AGW event by several reputable bodies that all estimate a cost much greater than zero. Would you accept these to imply detrimental costs to the economy if so presented? Would a known detrimental cost to the economy be relevent to deciding the costs to the economy in picking a way of meeting the Kyoto liability?

“It is not a discrete choice, Kyoto liability is a way of representing the cost of preventing an AGW event”

Sure, but we don’t pick the Kyoto liability – we only pick whatever is the least cost method of funding the liability. It is an external cost that is being imposed on us and we need to find the least cost method of paying for it – if the Kyoto agreement was not set in such a way that it will prevent AGW event then thats a pity, but that is not the issue at stake when setting an ETS.

“Consumption is of direct bearing to the equation. A carbon consumption tax could both fulfill our Kyoto liability and reduce AGW emission (win/win). It could be internalised to the NZ economy and not harm our international competitiveness.”

A tax on the consumption side could raise the funds – however it would not lead to a reduction in our emissions as the emissions or the Kyoto protocal are measured from the production side and agricultural products are tradable goods. If we tax the consumer for a tradable good then the whole incidence of the tax will fall on them, as NZ farmers can still sell the product at the world price, tax fee, overseas. That is why it wasn’t considered.

Once we have worked out what is the most efficient way of paying off our Kyoto Liability we can make a discrete choice between the “not paying it” and “paying it” schemes. This is a separate issue, and one that I’m not going to argue as I don’t have any information on it at all.

It is not a discrete choice, Kyoto liability is a way of representing the cost of preventing an AGW event. An ETS scheme has the effect of promoting an AGW event, to follow an ETS means paying both the cost of prevention (as cheaply as possible) and bearing the cost of the event (which you have equated to zero). The ETS only makes sense if you equate the cost of an AGW event to zero.

We do have infomation the cost is not zero, we are subject to a liability to pay money to the former Eastern Bloc and to sponsor carbon efficient tech into the developing world. We can infer this is done for a reason and assign that reason a future cost, we must logically assume that the future cost is greater than the Kyoto liability.

Let us run an analogy to the ETS. There is a disaease that will cripple a person for life. There is an vaccine which costs 30 days pay but will leave the patient unable to work for 10 days. You decide to purchase the vaccine and find a way that will allow you to purchase the vaccine using a mere 20 days of work as long as you do not take the 10 days off to administer the vaccine. Have you successfully saved 50% of your costs?

When it comes to the production and consumption of the meat some carbon liability is created.

Yes.

The feeling behind the ETS is that if you tax those who are creating the liability you will get a more efficient outcome than if you just slapped on an additional income tax.

No sh*t.

ETS is a tax on production and income tax is a tax on income. A tax on the production side of the equation is more effective than a tax that is not related in anyway what-so-ever.

Sorry, I don’t understand what you are talking about with regards to the consumers in this case.

Consumption.

Consumption is of direct bearing to the equation. A carbon consumption tax could both fulfill our Kyoto liability and reduce AGW emission (win/win). It could be internalised to the NZ economy and not harm our international competitiveness. It was not considered worthy of examining, because we have decided pre-report to blame farmers and for that reason we should “thank God” they exist. And we should quietly “thank Helen Clark” that the ETS on farmers is not coming in till 2012 so they will continue to exist, hopefully we can do away with ETS absurdity between now and then.

As a result, when looking at the case when we are going to pay off the liability we want to find the least cost method.

“Perhaps. I do think that our farmers are by world standards quite efficient at producing a kg of product and I think that our consumers are quite carbon inefficient at keeping body & soul together”

Sorry, I don’t understand what you are talking about with regards to the consumers in this case.

When it comes to the production and consumption of the meat some carbon liability is created. The feeling behind the ETS is that if you tax those who are creating the liability you will get a more efficient outcome than if you just slapped on an additional income tax.

Now, it doesn’t matter if our farmers are “relatively” more carbon efficient then farmers in China if our interest is solely minimising our own liability. (Note that the interest is paying off our liability – not ensuring that we lower world carbon emissions – that is a criticism of the Kyoto scheme, not of the ETS!)

The fact that we are a small open economy makes this more difficult – however every analysis apart from the NZIER one has concluded that in the NZ context the loss in GDP from targeting carbon producers is lower than the case when you increase income taxes to pay for the scheme.

Since our goal is to minimise the economic cost of the scheme, this would indicate that we should use an ETS – that is the logic that the government is running with, and it is a danged site more objective than Mr Pedersen’s claim that we should tell the man upstairs how cool our farmers are 😉

Like the smilies.

Fundamentally I think this may be where our disagreement lies. I believe that the ETS is being placed on efficiency grounds, you are saying it is on normative “equity” grounds (which farmers may justifiably feel peeved with).

Perhaps. I do think that our farmers are by world standards quite efficient at producing a kg of product and I think that our consumers are quite carbon inefficient at keeping body & soul together. Cannot see how a tax (the ETS) on the first as opposed to the second group is based on efficiency.

However I think there is a more fundamental disagreement, relating to economic costs.

Why did we join Kyoto?

I have always presumed it is because we believe an “almighty cost” will likely occur in the event of runaway climate change caused by AGW gas emissions and that Kyoto offered itself as a solution to prevent this future cost.

“…the ETS is being implemented under the belief that it is the cheapest way of meeting our Kyoto Liability.”

Kyoto assigns this liability to us and we pay it on the basis that our paying now will reduce the likelihood of that “almighty cost” being brought to bear later. So paying our Kyoto liabilities in such a way that it leads to an increase in AGW gasses will be exceedingly costly, because we increase the likelihood of bearing that “almighty cost”. An ETS policy when introcuced is in my opinion going to lead to an increase of AGW gas emission.

Not fully, the ETS is being implemented under the belief that it is the cheapest way of meeting our Kyoto Liability. That is why they commissioned Adolf’s study a while back:

http://www.scoop.co.nz/stories/PA0710/S00325.htm

I have agreed that if this wasn’t the case it could be seen as “emotive”.

However, if we do believe that an ETS is a lower cost option then funding the liability through income taxes then it seems fair enough.

Fundamentally I think this may be where our disagreement lies. I believe that the ETS is being placed on efficiency grounds, you are saying it is on normative “equity” grounds (which farmers may justifiably feel peeved with). Interesting stuff, but I don’t know if we will ever be able to reach a conclusion as neither of us will be willing to change our assumption here 🙂 (which is completely fine)

“However all things are not equal, we are about to impose a tax upon his group for no good reason”

I still don’t think that the ETS argument is sufficient to explain his claim that we should be “thanking god” for farmers. Again he is claiming that producers create all the surplus – this type of pre-industrial revolution way of thinking is just inappropriate, even if he is having a bad day 😉