Posts by David Haywood
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To respond publicly about a question that I receieved via email, RE: this section of my blog:
In theory, the refund of PGST on exports could be calculated via a system of documentation that shows the accumulated dirty energy for any good or service (in the long term this may well be the approach taken internationally). However this would impose a considerable administrative burden on New Zealand businesses.
I absolutely agree that such a method of tracking actual emissions would be a better scheme than estimating them for imports and exports as in my demonstration proposal.
My difficulty with this approach -- when applied solely to New Zealand -- is that it would be very difficult to get this to happen in a trustable manner for all our imported goods (the incentive for the producers of the imports would be to understate the emissions on their products since our tax would be applied at the end of their production process).
It's quite true that such a system to calculate export refunds would be much less problematic. Since the tax on emissions is applied at the point of production then the incentive for producers of goods and services would be to accurately track the emissions in order to maximize their PGST refund. This is admittedly no more complicated than 'tracking' GST in the current system. But it requires a tracking system to be implemented right through the entire economy just to calculate export refunds.
Since many of our producers export almost all their production (e.g. the agriculture sector exports more than 80 per cent of its production) then we are introducing a lot of complexity to (admittedly very accurately) calculate a tax only to give most of it back again.
Hence I attempted to show in my demonstration proposal that there was (potentially) a simpler way of doing this -- which also could be used to economically minimize emissions within any given industry sector.
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Southerly: A Tale of Two Iceblocks: Part…, in reply to Michael Homer,
How is a local exporter that doesn’t have a differently-polluting competitor affected by this? It seems that provided that 1) all outputs are exported, and 2) there is no competing exporter in the same category with a lower CO2-equivalent to unbalance the rebate, there is no net impact on the exporter. Is that correct?
Yes, that is correct. In fact, if my demonstration proposal were enacted, I'd expect all exporters in a given sector to very rapidly match their emissions to one another (by reducing them to an economic minimum) so that there would effectively be no impact of PGST on any of them.
If this good substitutes (overseas) for a lower-emission net-payer in a different category, does that have the same impact of incentivising an increase in total emissions?
No, I wouldn't say so. By having the PGST refunded to exporters (as with GST now) then the PGST can have neither an incentive nor disincentive effect. My view is that we should neither subsidize clean energy in exports or punish dirty energy in exports because we don't have control beyond our borders, and can't anticipate the effect that the modified price signals would have in terms of encouraging/discouraging greenhouse gas emissions elsewhere.
Put another way, it's up to the country in which the embodied dirty energy is 'consumed' to make the call about their own emissions in terms of their own domestic policies and international agreements. This is simply the reality of having different sovereign nations in the world (and no binding international emissions agreement)!
I'd actually see the definition of industry categories as being the greatest difficulty with my demonstration proposal. There would have to be some tricky issues resolved in terms of 'co-operative' exporters (who represent a co-operative of different producers, e.g. Fonterra, etc.) who in some cases may have no competitors in a particular industry sector.
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Southerly: A Tale of Two Iceblocks: Part…, in reply to Lilith __,
I didn’t mean that as a criticism (of your explanation, or of the concept of a PGST) at all. It seems totally clear to me that we need it.
It's okay to criticize (though I realize that you weren't)! I'm hoping that someone will suggest a better solution...
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Southerly: A Tale of Two Iceblocks: Part…, in reply to linger,
Could be worse. If you listen to the current series of David Baddiel Tries to Understand… (specifically, at the 7 minute mark in the episode on “The Cloud”), you’ll hear one of the nominated “experts” helpfully using the wrong multiplier to explain petabytes …
It's odd what you can say accidentally on the radio. I had an embarrassing moment after being interviewed by Kathryn Ryan (on another occasion) when someone emailed to complain that I'd said "locust-eaters" instead of "lotus-eaters".
I was -- as you can imagine -- highly indignant. But before firing off an angry reply (critical of the complainant's cloth ears), I had a quick listen to the interview on the website. Oh dear, yes I had.
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Southerly: A Tale of Two Iceblocks: Part…, in reply to Lilith __,
It’s very interesting David, but to this non-engineer it seems very complicated! Not the overall clean iceblock/dirty iceblock idea, but all the many components in calculating whose fault the greenhouse gases are.
Fair enough! Yes, it is conceptually a bit complicated (though our existing ETS seems worse to me — and as far as I can see it doesn’t actually have a cap as implemented). Also the existing ETS is an added cost and layer of complexity in addition to all our existing regulations and taxes.
I wouldn’t disagree with anyone who said that a straight carbon tax on fossil fuels burnt in New Zealand would be much simpler. But, as I keep banging on, such a system would actually increase global greenhouse gas emissions in all probability (as with the existing ETS).
It’s a complicated issue and – as far as I can see – has to have a somewhat complicated solution. Of course, a binding global agreement would in many ways make everything so much more straightforward!
Addendum: it’s possible that a PGST could actually simplify the tax system overall. The current system of duties and GST do make a lot of complications for a lot of people. A PGST would transfer the workload to a very much smaller group: energy producers, importers, and exporters.
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Southerly: A Tale of Two Iceblocks: Part…, in reply to andin,
the missed step (part 1) just took my breathe away.
It does mine, too!
I should emphasize that this wasn’t an original observation on my part or anything. It’s extremely well-known in energy engineering circles (and elsewhere), but the knowledge doesn’t seem able to make its way to policy makers and policy analysts. I wrote these two pieces at the urging of a colleague in an attempt to ‘throw the information over the wall’ to the policy people. (I’m imagining the wall as the sort of thing that might be built on the Mexican border).
Usually the proposed solution involves a document chain that tracks the embodied energy for any good or service (giving you something like the nutritional breakdown information that comes with food). This approach has always seemed like it had a few problems to me when just enacted in New Zealand.
I like the idea of taxing the dirty energy (direct or embodied) at the point of production or importation and then letting the money do the tracking of the emissions for you (as I have attempted to demonstrate here). There may be another way of doing this, but I haven’t come across it yet.
you sell yourself short on your explanation skills
Possibly you missed me trying to explain the Laws of Thermodynamics to Kathryn Ryan on the National Programme. She’s an extremely clever person, but my explanation was not successful. Like one of those multi-car pile-ups they have on the autobahn during fog… I’m still having flash-backs.
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Southerly: A Tale of Two Iceblocks: Part…, in reply to Moz,
Yes, as would your system… without the border tariffs that also fix the carbon tax. So the question to answer is: would we be better applying that fix to the existing system, or should we throw it all away and start the process again with the PGST?
Wow, I must suck at explaining this stuff. The border issues are the whole point that I’ve been trying to make! To quote my post:
An approach to discouraging dirty energy in New Zealand must satisfy three criteria:
- Any disincentive must be applied to the embodied dirty energy for goods and services imported into New Zealand.
- Any disincentive must also be applied to goods and services within New Zealand.
- Any disincentive must be removed from goods and services exported from New Zealand.
In my demonstration proposal of PGST (which is simply a carbon tax that replaces GST, and is applied on embodied emissions as well as direct emissions in NZ):
1. PGST is applied as goods and services are imported across the border.
2. PGST is applied within New Zealand.
3. PGST is refunded when goods and services are exported across the border.
I’ve often come across the reaction that this would be impossible to do–or that we don’t need any more taxes. My entire reason for today’s post was to demonstrate that it can be done in principle, and to show ballpark calculations demonstrating that it would collect an equivalent to GST (and could therefore be used to replace it) and wouldn’t excessively increase the cost of high dirty energy goods & services.
The suggestion of PGST was a proof-of concept example. I’m not wedded to any particular system (if anyone has a better idea–and I’m sure someone will–then I’m all for it!).
EDIT: Just realized that your comment could be read another way, Moz, i.e. with the first “fix” meaning repair rather than “set”. In that case, I suck at explaining in an entirely different way! My response would be that: (1) My demonstration proposal of PGST is exactly a carbon tax (though at the more comprehensive end of the versions proposed) that also takes into account embodied energy (2) although I’m suggesting that it shouldn’t be implemented as an additional tax, but rather as a replacement for one of our current taxes (GST). The existing system in NZ is a very complicated (and essentially non-functional) ETS, which is what makes your comment a bit ambiguous.
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Southerly: A Tale of Two Iceblocks: Part…, in reply to Moz,
Except that for all its faults, a carbon tax is widely known and discussed.
But one of the faults of a carbon tax when applied to dirty energy in New Zealand (as I’ve tried to point out) is that it would increase greenhouse gas emissions for the world as a whole. That seems a major fault! And that’s why I’ve pointed out the ingredients required for a system that doesn’t suffer this fault.
I suppose the core problem is that you use “averaged over time” rather than naming a period, so it’s not clear whether you mean over the next thousand years or million years. You’ve ruled out anything much under a century, though. Your ranges are inappropriate, IMO
If we’re still taking about trees, the harvest time for radiata pine can be as low as 20 years; the coppiced chestnuts in Canterbury only 10 years. Not many renewable timber ‘crops’ are over 100 years (selective logging being a different kettle of fish).
Also, “no incentive to release fuel” is just wrong. Oil wells only burn it because otherwise it might explode, and the whole fracking industry is built around capturing most of the gas rather than all of it.
Well I was thinking of intermediate products in manufacturing in New Zealand [EDIT: sorry I may have confused the discussion when talking about ‘fuel’ in my previous post–I was thinking about fertilizer production and ‘non-oxidized intermediate chemicals’ might have been better terminology!]. I agree that the incentives would be for fossil fuel producers to attempt to hide their emissions, but whatever could be attributed to them would be all counted as embodied emissions under a PGST approach. Embodied emissions on imports aren’t even considered on other schemes I’ve seen proposed for New Zealand.
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Southerly: A Tale of Two Iceblocks: Part…, in reply to Moz,
So with the landfill, they pay for the methane production, but if they sell that methane to someone who burns it, there is no tax refund for the methane but there is tax on the CO2 produced by burning.
Okay I see what you’re asking. The idea, of course, is to encourage landfill operators to capture the methane (as they do now). If they flare it off (as is commonly done now anyway) then they would only have to pay PGST on carbon dioxide rather than the carbon-dioxide-equivalent of methane. If they use the methane to earn money from fuelling a peaking-power plant or heating a municipal swimming pool (which also turns it into carbon dioxide, of course) then they can recoup some of their PGST cost from the profits.
This would have the advantage of encouraging them to convert the methane into ‘safe’ (i.e. minimum-emissions) form at the point of production. It would have the disadvantage–as you say–of discouraging the landfill operator from selling the methane, for example, as fuel for a trucking company.
I can see ways around this disadvantage, if necessary, but I don’t think it’s the degree of detail that I need to get into on a broad-brush proposal (but an interesting point to raise nevertheless).
There are also nasty edge cases along similar lines (I assume that other intermediate products that are consumed during production are not taxed, for example, unless they are sold or shipped during production.
It would have to be sold to attract PGST. The lowest energy state of any slightly common fuel is when it is reduced to carbon dioxide – so there’s no real incentive for anyone to engage in large-scale release of unburnt 'fuel' to atmosphere (and indeed there are already laws that deal with dumping and spillages). The cost drivers would encourage usage of as much of the energy as economically possible, and existing pollution laws would cover discharge of most products (that I can think of) to atmosphere.
I agree that there are all sorts of definitional difficulties with energy – as there are now. For example, are wood pellets a waste product that embodies very little dirty energy, or should they be considered to embody a proportion of the dirty energy from production of the sold timber? In my view a PGST approach may well solve more definitional issues than it would raise, as the flow of money would determine the definition.
Again I think that these are details that could worked out if such a system was ever implemented (which would probably be never!) I fully acknowledge that my demonstration proposal isn’t a ready-to-implement scheme, but I would point out that all the other proposals I’ve seen seem a lot worse – which is why I used it as an example approach to show the basic ingredients required to genuinely reduce greenhouse gas emissions from New Zealand…
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Southerly: A Tale of Two Iceblocks: Part…, in reply to Moz,
plantation vs old growth forest, they’re identical to you
Only from an energy perspective! I'd say old growth forest has value that can't be measured in joules -- and should be considered (protected) via totally different laws.
think I’m struggling with your time scales. To me, it doesn’t matter whether, say, the 400 year old trees we’re burning are swamp kauri (PGST taxable) or standing timber (not taxable), they both burn to CO2 and that’s what we care about. But to you, one 400 years is geologic time which matters, the other 400 years is just normal carbon cycling so can be ignored.
You're saying that--from an energy perspective--I'd view swamp kauri as a fossil fuel? But standing timber as a renewable fuel (so long as the area is reforested after harvesting)? Yes I would. Burning the swamp kauri adds to the net carbon dioxide in the atmosphere, but burning the sustainably harvested timber doesn't (when averaged over time). This is the standard energy engineering perspective.
I'm assuming here that the swamp kauri is turning into coal or some such in the long term. Of course, if you were to extract the swamp kauri and then replant forest then that would be a different story (but again that gets back to the decision of how much of our finite land should be forested or not).
The engineering problem we have is that we don’t have a socipolitical system capable of dealing with anything much beyond 10 years reliably, but we engineers are good at producing systems that require active management over much (much, much) longer timescales. It’s not a “bah, puny humans” situation.
You won't find an argument from energy engineers on that analysis!