by Bill Bennett B.E (Chem) M Sc, formerly deputy managing director of CSR Limited and director of Brambles Industries and a number of mining and industrial companies
Finally we’re getting a few answers from Julia Gillard and Prof Garnaut. But, unfortunately, not answers that stand up to closer scrutiny.
I note that Julia Gillard and Prof Garnaut are arguing that implementing a carbon tax of $25 per tonne (which will translate into an increase in the price of electricity of less than 2 cents per kwh) and then compensating consumers for the increased cost will influence consumer behaviour and lead to reduced emissions of carbon dioxide.
One journalist commented that an answer Julia Gillard’s provided to a question on “Q & A” was, “the best, simplest defence yet on why compensating consumers for the impact of a carbon price does not defeat the purpose and create pointless churn.”
I found Julia’s answer patronising, simplistic — not simple — and demonstrating a lack of understanding of the source of carbon dioxide emissions in Australia and the real world of economic decision making by individuals relating to electricity and fuel consumption as reflected by recent behaviour.
In economics according to Julia, you will be “able to stand in a shop and buy things; products that are made with relatively less carbon pollution will be cheaper than products that are made with more carbon pollution”— and (not said) presumably have a significant impact on reducing the amount of carbon dioxide emissions in Australia.
First, you will rarely be able to stand in a shop and be able to make a decision on whether to purchase a product made with relatively less carbon pollution that will have any significant impact on the level of Australia’s carbon dioxide emissions.
Why is that so? You need to go no further than the Department of Climate Change and Energy Efficiency’s latest “Quarterly Update of Australia’s National Greenhouse Gas Inventory” which shows the source and quantity of current annual emissions in millions of tonnes of CO 2 equivalent:
Energy – electricity 203
Energy – stationary (excluding electricity) 87
Energy – Transport 83
Fugitive emissions 41
Industrial processes 29
Electricity generation, transport and energy stationary (steel, aluminium and cement manufacturing) account for 70% of Australia’s total carbon dioxide emissions.
— represents ~ 40% of all CO2 emissions
— is priced by the suppliers to reflect the cost of the various sources of production – coal , gas, hydro and wind ( no solar yet )
— is currently mainly coal based
— lower emission sources (wind and solar) are significantly more expensive than coal and gas based power and are heavily reliant on government intervention in the market place
A question for Julia: when and where can you stand in a shop and make a decision to purchase a lower cost, lower polluting source of electricity?
Energy — Stationary
— represents ~ 15% of all CO2 emissions
— largely generated from manufacture of iron and steel and non ferrous metals
You can’t make steel, aluminium or cement — in Australia or anywhere else in the world — without producing significant quantities of carbon dioxide; the basic chemistry of each process is iron oxide + carbon = iron (steel) + carbon dioxide , aluminium oxide + carbon = aluminium + carbon dioxide , calcium carbonate + carbon = calcium oxide (cement) + carbon dioxide.
Each of these industries have been working away for over 50 years to reduce energy consumption ; further reductions in energy use and carbon dioxide emissions by a carbon price signal are likely to be minimal.
A question for Julia: when do you ever stand in a shop and make a decision to purchase a product made from steel or aluminium or any other metal or plastic and be able to make an informed decision to purchase a lower cost, lower polluting alternative?
A second question for Julia: a carbon tax seeks to reflect the “economic cost of pollution”; when standing in the shop shouldn’t she be looking not only at the CO2 emissions to the “point of sale” and reflected in the sales price but also the emissions beyond the point of sale in the use and disposal of the product?
What’s the benefit of buying a product with a lower carbon input, if the use of the product requires a higher energy usage and greater environmental pollution on disposal?
Steel, aluminium and cement are essential inputs in economic growth and in the construction of housing and transport infrastructure. They are also essential inputs into the construction of wind farms and solar power generators; indeed the amount of steel, aluminium and cement (concrete) required to construct a wind farm is far greater, per MW of capacity , than a coal or gas fired plant — hence the much higher capital cost of wind farms per MW than coal or gas and the need for significant government subsidies.
So a third question for Julia: why do we need a carbon price signal that puts up the cost of constructing lower pollution electricity?
Energy — Transport
— represents 15 % of all CO2 emissions
— essentially petrol, diesel and fuel ethanol
— fuel ethanol is costlier to produce than petrol but is subsidised by the government to make it competitive
— while not widely known (or publicised by the government or the fuel ethanol industry) fuel ethanol is a higher polluter than petrol; the total CO 2 emissions from the production and burning of fuel ethanol in car engines is greater than the total emissions from manufacture and burning of petrol — and by calling ethanol a “biofuel” and “renewable energy”, the government and the producers are misleading the public (normally an offence under the Trade Practices Act)
— the price of transport fuels have risen substantially over the past four years with no discernible reduction in consumption
A question for Julia: when do you every stand in a shop (a service station) and make a decision to purchase a lower cost, lower polluting alternative to petrol or diesel?
A second question for Julia: what is the lower cost, lower polluting alternative to petrol or diesel?
— represents 5% of all CO2 emissions
— the flow through impact of a carbon tax on the cost and hence price of industrial products will be insignificant
The instances where you can stand in a shop and seek to get a price signal on products reflecting a higher polluting product represent only 5% of all carbon dioxide emissions.
A question for Julia: when you stand in the shop, how will you get to get a price signal on industrial products reflecting a higher polluting product, when, apart from food, much of what we buy in the shops is imported, and will continue to be imported from countries that do not have a carbon tax?
— represents around 15% of emissions (carbon dioxide equivalent of methane)
— agriculture is proposed to be exempt from the carbon tax
— in any event, the price of agricultural products varies significantly throughout the year reflecting seasonal conditions and supply; the impact of a carbon tax would be swamped by the seasonal variations in price.
Any rational analysis of the sources of Australia’s CO2 emissions would conclude that there are almost no shops that you will be able to stand in and make a decision to buy a lower cost, lower polluting alternative to the current major sources of carbon pollution for the simple reason that there are very few lower cost, lower polluting alternatives (as you acknowledge with electricity, which accounts for 40% of total carbon dioxide emissions in Australia).
While on the subject of heavy polluting industries, by Julia and Prof Garnaut’s definition, the manufacture of solar cells is an energy intensive, “dirty” polluting carbon dioxide emitting process; the energy consumed in the manufacture of the cells is equivalent to the first two to four years of energy production from the cells depending on the level of solar insolation. But we don’t manufacture solar cells in Australia; we prefer to leave that to the Chinese and then point the finger at them for their growing carbon dioxide emissions. And we never refer to the environmental issues arising from disposing of used solar cells.
Second, I appreciate that the first chapter in economic textbooks generally sets out one of the fundamental of economic theory — the price / demand relationship — “guns or butter”.
It seems that Julia Gillard may not have read past chapter one to the chapter on price elasticity — the chapter which overlays a bit of psychology / human behaviour / hierarchy of needs on basic economics to explain why the price/demand relationship for some of the basic necessities of life is relatively inelastic.
In addition, it appears that Julia may not have looked at her electricity bill over the past four years and noted the price elasticity relationship for electricity reflecting peoples actual behaviour rather than a theoretical forecast of their behaviour
The household price of electricity has risen by around 50% over the past four years to around 18 cents / kwh (higher in some country areas), yet consumption of electricity has not declined
I therefore didn’t find Julia Gillard’s answer convincing and I would like an answer to the question: if the price of electricity has risen by 6 cents per kwh over the past four years, but consumption has not declined, why will a price increase of less than 2 cent per kwh reduced to around zero by compensation lead to a reduction in electricity consumption?
There are other very important issues to be considered and questions to be answered.
The US Energy Information Administration’s International Energy Outlook 2010 paints a sobering picture of likely world carbon dioxide emissions over the period to 2035.
The EIA forecast that over the period from 2007 to 2035:
— world energy consumption will increase by 49% with total energy demand in OECD countries increasing by 14% and total energy demand in non OECD countries increasing by 84% as they seek to move some way towards the standard of living of OECD countries
— the major proportion of the increased energy consumption will be sourced from fossil fuels coal, oil and gas
— world energy related carbon dioxide emissions will rise by 43% from 29.7 billion metric tonnes in 2007 to 42.4 billion metric tonnes in 2035
— in 2007, non OECD emissions exceeded OECD emissions by 17%, in 2035, they are expected to be double the OECD emissions.
To put the proposals for a carbon tax in Australia as a meaningful contributor to minimising global carbon dioxide emissions and minimising global warming in perspective
— Australia’s population is 22 million, China’s population is 1,345 million; 61 times that of Australia’s
— Australia’s emissions of carbon dioxide currently amount to around 400 million tonnes per annum.
— China’s emissions of carbon dioxide currently amount to about 8,000 million tones per annum; 20 times that of Australia’s, having increased by around 645 million tonnes per annum in each of the past seven years
— China’s per capita consumption of electricity and petroleum and emissions of carbon dioxide CO2 are currently about 1/5th of that of Australia’s (and the USA and the EU)
— Australia’s existing coal fired power plants have a capacity of 43GW
— China’s exiting coal and gas fired power plants have a capacity of 3,000GW and their current 5 year plan provides for an additional 438GW–282GW coal and gas, 40GW nuclear and 116GW of renewables (mainly hydro)
— China’s emissions of carbon dioxide are therefore likely to increase by about 500 million tonnes in each of the next five years (lower than the 645 million tonnes per annum increases of the past seven years as aging less efficient plants are replaced by more efficient plants) and reach 10,500 million tones per annum
— the forecast increase in China’s carbon dioxide emissions in each year of the next five years is more than Australia’s total annual emissions.
— if Australia shut down all of its coal fired generating stations, the increase in China’s emissions of carbon dioxide would offset the whole of the reduced Australian carbon dioxide emissions within 9 months
I would have thought that for an informed debate on the merits of a carbon tax in Australia on “global warming”, Julia Gillard and Professor Garnaut should provide credible answers to the following questions, but they all seem to be going out of their way to avoid giving any answers to such questions as.
— what is the likely impact of a carbon tax of $25 per tonne offset by the proposed consumer and industry concessions on Australia’s carbon dioxide emissions?
— what is the likely impact of a carbon tax in Australia on global temperatures in 2020?
— what is the estimated annual cost of administrating the carbon tax and the consumer and industry compensation schemes?
— what is the likely impact of China’s , India’s, Brazil’s and Indonesia’s current five year plans for power generation on global carbon dioxide emissions and global temperatures in 2020?
and, given the answers to these questions, the $64 questions for Julia Gillard, why is a carbon tax in Australia
— an essential economic reform?
— the right thing to do?
— at this time?
Julia Gillard seems to ignore the forecast significant emissions from China when promoting a carbon tax in Australia but in her speeches in the US, talked about the “threats” posed by the rate of growth of China’s economy to the stability of the Asia Pacific region.
You can’t have economic growth without substantial increases in energy, steel, aluminium and cement inputs and substantial increases in carbon dioxide emissions.
The OECD countries have done it for over 100 years and now have per capita carbon dioxide emissions of around 10 tonnes per annum; the non-OECD countries are now embarking down the industrial development path and currently have per capita carbon dioxide emissions of around 2-3 tonnes per annum.
Does anyone (including Julia Gillard and Prof Garnaut) realistically think that the 3 billion people in China, India, Indonesia and Brazil are going to be happy to maintain or reduce their current emissions of carbon dioxide while the 1.2 billion people in the developed world have significantly higher standards of living and significantly higher per capita emissions of carbon dioxide.
Australia’s proposal for a carbon tax is “farting against thunder” — and China, India, Indonesia and Brazil — in its impact on global carbon dioxide emissions.
If Julia wants “facts not fear,” and claims that global warming is a “fact to be feared,” then why does she not express “fear” at the “fact” that increasing levels of carbon dioxide emissions from China and other developing countries will swamp any decrease in Australia’s emissions?