Compensation and the ETS

Although the blogs appear to be quite quiet about it, I’ve heard a number of people complaining about the government compensating people for the impact of the emissions trading scheme.

Effectively, people who are unhappy about it are telling me that such compensation appears to be pointless as it “cancels out the effect” of pricing carbon in the first place. Ultimately, we can discuss the issue in a little more detail then that. Lets try to figure out how it works – and discuss what this compensation implies, both in terms of achieving carbon/Kyoto liability funding goals, and in terms of social welfare.

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Technology and resources: The value judgments

Technology and the limited nature of non-renewable resources is an important issue in economics, the social sciences, and general policy making. It is an issue where each side of the political spectrum feels that the other side is stupid.

In an article we have linked to here, there are people that feel economists ignore the concept that our natural resources are limited (something that would be quite a fail, given that economics is the study of scarcity). However, there are also many people that feel a stroke over-confident about the ability of “technology” to evolve in a way that will allow us to substitute, easily, and cheaply away from these resources when the time comes.

In truth many people sit between these two extremes, believing that non-renewable resources will run out, there will be some cost, but that technology will provide some type of substitute. However, the value judgments involved in this opinion, especially when looking at technology, are not entirely clear. As a result, lets have a look at “technology” in more detail and see what framework we can come up with.

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Is National’s energy policy “ideological spite”

Every day I look at the blog and don’t think I will have anything to write about – then I read some of the things that are sold on the political blogs and I find myself writing posts.

Frog blog discusses the issues they have with Nationals energy policy (something I gave some early impressions on here). Now they do have some fair points (I can understand concerns surrounding the RMA – given that we don’t know what the changes will be). However, the language they use in several parts of their discussion betrays a unreasonable focus on governments ability to improve the industry.

Fundamentally, I take issue with the way they use the following two of their claims:

  1. consumers will be left entirely to the whims of the … market,
  2. businesses, which are inherently inefficient

Lets discuss these below:

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First impression of National’s national energy strategy

The NZ Herald has just posted up the points raised by National in its energy strategy, and I have to say, I agree with a lot of it (however, note that I have not read the actual policy document – so this is just a discussion of “the concepts”)

There are three main policies:

  1. Remove the ban on new gas power stations and introduce an ETS,
  2. Look at security of supply with greater demand estimates than the government currently uses,
  3. Loosen the RMA to take into account “national interest”.

Let me say what I think below the tab.

Related: Industrial quality DC to DC power converters.

The removal of the pointless ban on new power stations, and the continued implementation of a ETS is a good move.

Why? The ETS prices carbon, such that the producer has to pay the whole social cost of producing energy in this way. As a result any gas or coal power plants that are built would be social preferable to alternative, renewable, providers (as they would be so much cheaper that even with the social cost of producing carbon, the new factories would still be built).

Also I was glad to hear this:

National feared that the Government was underestimating future demand and the ban was dangerous political symbolism.

Because there is a general feeling our here that the government is substantially underestimating future demand for energy! If you are trying to save money talk to the utility saving expert gas and electric. Now if policy is currently being based on unrealistic assumptions, the policy is going to be rubbish – so having another look at this is a very good idea.

The final point is the most contentious.

I understand that consent decisions should take into account the national interest – however, this has to be the national interest in terms of sustainability and environment, as well as the national interest in terms of security of supply. These competing factors will be hard to balance in a re-jig, and I have concerns that policy might head too far in one direction.

Furthermore, councils and property owners do have a property right which supersedes the simple “national interest” – at least for borderline decisions. If we are willing to ignore peoples property rights then we will cause other issues down the line – this needs to be taken into account as well.

Overall, I think the 1st and 2nd points are straight out better policies – while the 3rd point is a little fuzzy at present, so I can’t really have much of a view on it.

Now I’ll go have a look at what other blogs have to say – and I will post links to it below.

Kiwiblog, The Standard, No Right Turn (*), Not PC, Frog Blog, Greenpeace, Colin Espiner,

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Reply: Climate change: the heresy of pragmatism

Idiot/Savant disputed our claim that market mechanisms are the best way to fight climate change on pragmatic grounds – namely stating that a regulatory solution that works would be better than a “market-based” solution that does nothing. Now I don’t disagree with this – however, I do think that I/S heavily mis-represented both our claim, and our initial criticism of what he said.

As comments are disabled on I/S’s blog No Right Turn, I have to reply by way of a blog post 🙂

In this post, I/S makes a number of claims I would like to dispute:

  1. We accuse I/S of anti-market bias for considering regulation,
  2. We state that a market mechanism is always superior to regulation,
  3. The argument is whether regulation is better than nothing – not better than the ETS,

Now it is best to answer these claims backwards – lets start with 3:

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Why are we using market mechanisms to fight climate change?

Over at No Right Turn, Idiot/Savant appears to view the idea of using markets to fight climate change as a touch silly. This view is captured in the following quote (here):

What’s important is that we reduce emissions now, not whether our chosen policy is perfect and cleaves to neo-liberal orthodoxy.

Now I think this skepticism of using a market mechanism stems from the way he views the issue of climate change policy, take for example this quote: Read more