Posts by David Haywood

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  • Southerly: A Tale of Two Iceblocks: Part…,

    To answer your other questions, Moz:

    you seem to have pre-compromised on 100 years as your CO2e period. Why do that rather than use the more accurate one year figure?

    It’s not me who decided on 100 years as the CO2e period. All the official data is based on those values. That’s the data that governments and other bodies consider to be our official emissions. I used this data to do some ball park calculations of TAX. Nothing else, just TAX.

    Why do you not want to distinguish between embodied energy in a stable material vs an unstable one? Say, meat vs structural timber? If you tax structural timber, that seems like “make emissions worse” at the margins (use a wood substitute with immediate emissions because those are lower “in the long term” than wood).

    Because the lifetime emissions of a product depends on the way it is disposed of (e.g. aerobic vs. anaerobic decomposition)

    – the embodied dirty energy that’s taxed on imports is the dirty energy used to produce the good or service (from which the emissions have already been released to atmosphere by the time of arrival at New Zealand’s border).

    – If something like meat or wood breaks down in a landfill then the methane emissions to atmosphere is accounted for (and taxed) at that point via the landfill operator.

    – If a product doesn’t decompose then there are no more emissions.

    – If a product like meat or wood decomposes aerobically then it simply returns the carbon dioxide to the atmosphere that was absorbed in the first place during photosynthesis at the beginning of the energy chain – and so you don’t attempt to tax that, of course.

    how is a PGST conceptually superior to an ETS, when we have known hard limits on how much we can emit? Allowing “pay to exceed” seems like a major flaw. Political problems only apply here if the PGST has much fewer of them than an ETS, I think.

    Because you can’t implement an ETS in isolation from the rest of the world (or, at least, the vast majority of other countries in the world) for a small exporting nation like New Zealand. The ETS adds a cost to your goods & services that producers in other countries don’t have. Therefore you end up with distorted price signals which may actually increase global GHGs, i.e. as with our current ETS system in New Zealand.

    As I said, a PGST (or similar system) can be combined with an annual (sinking) cap on emissions to meet eventual emissions targets as defined by the “hard limits” of the atmosphere. But I certainly don't see it as the whole solution to GHG emissions by itself, of course (and never claimed that it was). It's only part of the solution.

    Why would a government unwilling to fix the ETS be willing to fix the PGST?

    Because a different government is elected? The Greens are calling for the ETS system to be scrapped, for example.

    Dunsandel • Since Nov 2006 • 1156 posts Report Reply

  • Southerly: A Tale of Two Iceblocks: Part…, in reply to Moz,

    So are there two categories, “organic methane” and “conventional methane” (I kid, I kid, they’re “bio” and “fossil”), which have different effects, so one is taxed and one not? Your statement above admittedly makes me boggle every time I read it, so I might be missing something important.

    Yes, you are.

    I certainly don’t think that methane and carbon dioxide are the same thing; I certainly never suggested that fossil methane should be taxed and biomethane not.

    Those GWP100 values are not my idea. They’re used by thousands of people in the field to calculate greenhouse gas emissions according to the UNFCCC conventions.

    For example, the calculations of New Zealand’s greenhouse gas emissions use these values when they do the “accounting” to add everything up as carbon-dioxide-equivalent tonnes.

    I was querying the official GWP100 values that are used for carbon-dioxide-equivalent calculations of methane in the UNFCCC calculations.

    I won’t repeat my query but you can read it here again if you so wish.

    To put it into the context of your heater example, the IPCC’s GWP100 values appear to assume that:

    – Turning OFF a 500W heater, and then turning ON a 25kW heater for 12 years, and then turning our original 500W heater back on for another 88 years…

    Is the same as:

    – LEAVING a 500W heater ON, and then turning ON a 25kW heater for 12 years, and then turning ON ANOTHER 500W heater for another 88 years…

    The GHG accountants may have a method for taking this into account (they almost certainly do) but I have yet to be able to find out what it is…

    Dunsandel • Since Nov 2006 • 1156 posts Report Reply

  • Southerly: A Tale of Two Iceblocks: Part…, in reply to Michael Homer,

    Written out, my vague sense of unease looks extremely complicated and unlikely.

    I certainly admire your ingenuity, Michael! I hope that you're putting your intellectual energy to work as a tax lawyer or some such.

    Yes, all sorts of weird effects may be possible at hypothetical extremes -- the question is, of course, if there's anything really like that in the economy. It's at such a level of detail that I can't say anything here except that this is the sort of thing you'd have to investigate with your modelling & analysis when deciding on an optimum configuration for your tax system.

    My children have exhausted me today -- I'm off for an early night...

    Dunsandel • Since Nov 2006 • 1156 posts Report Reply

  • Southerly: A Tale of Two Iceblocks: Part…, in reply to Moz,

    Physically, I thought that the long timescale was the whole point behind taxing everything as CO2 rather than having separate rates for all the different gases of concern, specifically methane? I thought you were arguing that since CH4 and CO2 have one carbon each, they pay the same tax. Or at least you seemed horribly confused as to how they could work differently in the short term when over a few decades the CH4 decays to CO2 and they become identical. That was where I got lost in working out what timescale you cared about, because that matters a lot.

    Okay, the problem here is that I’ve assumed that there is stuff that everyone knew – whereas clearly it’s not well known. There are standard tables of Global Warming Potential values defined by the IPCC that state the effect of various chemicals (over a given time period, typically 100 years) in comparison to carbon dioxide. For example:

    Methane*: GWP100 = 34
    Nitrous oxide (N2O): GWP100 = 298
    HFC-134a: GWP100 = 1550

    When I say that emissions would be taxed on a carbon-dioxide-equivalent basis – I mean methane at 34 times the standard tax rate (i.e. US$13.60/kg in my ball park calculations) and nitrous oxide at 298 times the standard rate (i.e. US$119.20/kg in my ball park calculations).

    It would be a brilliant stroke of engineering if you could end-run any political problems with a tariff by calling it a consumption tax, but this is the first time you’ve bought it up, when I would have expected it to be the main point.

    From my original blog:

    It is important to note, however, that PGST is not an ‘import duty’ since—as with the GST that it would replace—it is also applied to goods and services produced within New Zealand.

    Not my idea, but a solution suggested to me by an actual tax expert (!) when we were discussing a carbon tax in the context of New Zealand.

    Politically, you’re clearly working on a timescale where taking a few extra years to talk before starting to act is acceptable. Otherwise this proposal would start from where we are today, not from scratch, and it would be concrete and largely political rather than abstract.

    Where New Zealand is today is a non-functioning ETS (emissions trading scheme) which has the effect (from my analysis) of slightly increasing global greenhouse gas emissions, i.e. exactly the opposite of its intended goal.

    The reason that I’ve suggested only the “basic ingredients” for a workable alternative is that I’m not a tax expert. But hopefully a proper tax expert could take my pointers and develop a (hopefully) much better scheme than I’ve used as an example here – though that would require lots of iterative modelling & detailed analysis.

    My ballpark calculations suggest that such a scheme is not infeasible in terms of overall tax take and price increases for high dirty energy products.

    [*Note that no distinction is made between biomethane and fossil methane in terms of GWP100 – whereas it seems that there should be…]

    Dunsandel • Since Nov 2006 • 1156 posts Report Reply

  • Southerly: A Tale of Two Iceblocks: Part…, in reply to Bart Janssen,

    It occurs to me that don’t you have a problem that once this is in place then governments have an incentive to increase greenhouse gas emissions in order to increase their tax take.

    Yes, the perennial problem with excise taxes (you probably recall that the US federal government couldn't levy income tax before 1920-ish and had to rely on excise tax (from alcohol, etc.) to run the country).

    That's what I was talking about when I mentioned that the rate of tax would have to be varied and "... could (and probably should) also be used as part of a cap system." Also when I talked about "the revenue split between income tax and consumption tax (I’d personally favour collecting more government revenue via income tax)".

    The counter-balancing factors here would be the ability (and indeed necessity) to easily raise the PGST rate to maintain revenue, as well as (I would suggest) an annual cap on emissions in order for the country to reach the targets we've signed up to. Also the ability (as with now) to shift the balance between income tax and consumption tax.

    Ultimately, of course, one would hope that NZ would come close to being zero emissions. But that will be a long time away (the average age of a car in NZ is 15 years, and currently there's no commercially available solution for zero-emissions heavy vehicles); I don't expect it to be much of a problem until towards the end of my lifetime.

    Setting aside the impossible task of getting a new tax put in place worldwide …

    Now I've become paranoid that I'm being misunderstood everywhere. Just to be clear: I'm certainly not suggesting "getting a new tax put in place worldwide" -- exactly the opposite! I'm suggesting a new tax only within NZ because there appears no chance for a binding global agreement to reduce emissions. (Although I'm hopeful that you already understood this!)

    Dunsandel • Since Nov 2006 • 1156 posts Report Reply

  • Southerly: A Tale of Two Iceblocks: Part…,

    By the way, many thanks to Moz, linger, Lilith, Andin, Michael Homer, Ian Dalziel and everyone else who read a very long blog and contributed to this discussion. It's certainly given me a lot of feedback in terms of trying to explain this stuff in future!

    Dunsandel • Since Nov 2006 • 1156 posts Report Reply

  • Southerly: A Tale of Two Iceblocks: Part…, in reply to Moz,

    Politically the problem with “a carbon tax with tariffs” is that “new tariff” is philosophically unacceptable to most of the powerful international trade and financial institutions, as well as many of the hard right neo-liberal governments in power around the worlld (arguably including NZ). Regardless, NZ may find that part of imposing those tariffs is withdrawing from trade treaties, or compensating every single company that exports to NZ for the cost of the tariff. Or being dragged through ISDS procedures, then paying compensation.

    Maybe this is one of our points of misunderstanding, Moz – I don’t see that the flow of embodied dirty energy across borders has to be evaluated via a tariff.

    That’s why my demonstration proposal was framed as a modification/replacement for GST. It’s not a tarriff (import or export duty)*, since it’s applied at the same rate within the country as well. So it can’t be objected against any more than has happened (or, rather, not happened) with GST.

    As I’ve said, this was a demonstration proposal and not a ready-to-implement scheme, but if I was a New Zealand exporter or producer then I’d be delighted at the suggestion:
    (a) PGST is refunded at the border and so has no effect on exporters (other than a similar administrative burden to the current GST)
    (b) PGST is applied at point of dirty energy production or importation – so New Zealand businesses (barring importers and energy producers) would be freed of all the GST paperwork.

    I don’t mean to frustrate you further, but thought that this was an important point to get across to other readers (if any).

    *EDIT: the way the difference between import duty and GST was explained to me by a tax guy: import duty is applied as you cross the border into New Zealand, but GST is applied (to imports and nearly everything else) as soon as you’re within the border. Apparently this is an important distinction from a trade agreement perspective.

    Dunsandel • Since Nov 2006 • 1156 posts Report Reply

  • Southerly: A Tale of Two Iceblocks: Part…, in reply to Moz,

    I’m still confused by the apparently important difference between the PGST and a carbon tax when it comes to the point of sale tax calculations. I thought you were taxing inputs directly as a way of avoiding the complex carbon tax calculations at the point of retail sale, which is a strawman argument but I was trying to avoid derailing into that. When a “feature” of your scheme is that it works differently in theory but the same in practice, that’s not really worth discussing. But it seems to be important to you.

    Yes, as with some other carbon tax schemes that have been suggested elsewhere, my demonstration proposal would tax at point of production or importation. As I’ve explained, the calculation at point of retail would be administratively difficult.

    I think that I made a mistake by discussing both of the common objections against doing anything about GHG emissions (i.e. (a) too hard, and (b) we don’t need an extra tax) in the same blog. It would have been clearer if I’d split it into two parts: one describing the advantages of a comprehensive carbon tax that included embodied emissions, and another showing how this could be used to replace GST (at a ballpark analysis). As it is I think I’ve just made a lot of people confused.

    I was mislead, then, by all the stuff about it being inherently different from a carbon tax because it operates on a scale of centuries rather than financial years or electoral cycles.

    See, in all honesty, I don’t ever remember mentioning any such thing. Indeed, prior to you saying that just now, I would have stood up in a court of law and sworn that I didn’t!

    Sorry Moz, I was enjoying a friendly discussion (from my point of view), which I thought was very helpful in explaining my points to other readers. My apologies if I’ve mis-read the situation and have just managed to annoy you…

    Dunsandel • Since Nov 2006 • 1156 posts Report Reply

  • Southerly: A Tale of Two Iceblocks: Part…, in reply to Ian Dalziel,

    They eat locusts in Dunedin now, ya know!

    As an energy engineer, I thoroughly approve! Extremely energy efficient, and -- according to a paper that I once read -- exactly what the digestive system that we inherited from our proto-hominid ancestors has evolved to digest.

    Dunsandel • Since Nov 2006 • 1156 posts Report Reply

  • Southerly: A Tale of Two Iceblocks: Part…,

    Responding to another question by email:

    What’s wrong with a revenue neutral carbon-tax on selected emissions?

    Yes, that seems like one of the few workable alternatives in New Zealand (if properly done) that wouldn’t tend to increase world greenhouse gas emissions. Essentially you’d be putting things like industrial emissions and agricultural emissions into the too-hard basket, and focussing on changing the energy behaviour of private individuals.

    The idea is often suggested for reducing transport emissions from private motor vehicles. The tax is only applied to non-business use (businesses either aren’t taxed or are able to get an almost immediate refund), which means that the price signals don’t flow into locally produced good & services or exports. The tax that’s been collected is then pooled and divided between individual taxpayers as an end-of-year refund. The idea is that individuals are incentivized to avoid dirty energy consumption and thereby get a larger refund than the tax they paid in.

    This works in the larger world context since it doesn’t affect imports or exports—and has only a sort of ‘decoy’ effect within a country in terms of sending price signals.

    The criticism that’s often made of this approach is that it tends to create a flow of money away from the poor (who, for example, can’t easily change to an electric vehicle) and toward the rich (who can). Although I can also see the tax being avoided by simply moving to bicycle or public transport (if these were possible options available to most people).

    The other drawback, of course, is that it doesn’t reduce the emissions from businesses—so only has a limited effect. In New Zealand, however, private motor vehicles are a large chunk of our genuine greenhouse gas emissions, so it seems that this approach may well be worth considering (perhaps as a first step towards a more comprehensive scheme).

    At any rate, it certainly seems a much better idea to me than the existing ETS scheme...

    Dunsandel • Since Nov 2006 • 1156 posts Report Reply

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