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Thursday, August 28, 2008

Fred's Footprint: Carbon trading and the economy

I have seen the future for American efforts to rejoin the world community on climate change – efforts that will follow whoever wins the presidential election in November.

And it is happening on the other side of the world – here in Australia.

Both Barack Obama and John McCain say the US must cap its emissions of greenhouse gases, by issuing a limited number of permits to pollute and allowing corporations to trade in those permits. It's called cap-and-trade.

That's great in theory, but watch out for when large industrial and utility emitters discover that the rules will cost them. That's when corporations, even those that currently back efforts to halt climate change, will find reasons why the scheme is unfair and discriminatory and – this is where they will ratchet up the rhetoric – self-defeating.

That is what we are seeing right now on the other side of the world.

Australia pulled out of the Kyoto Protocol right after the US. Then-prime minister John Howard was a soul mate of George W Bush. But last year they opted back in when the new prime minister Kevin Rudd took over.

Some here down under say that Rudd – young, clean-cut, intelligent, understated and a bit professorial – is not unlike Obama. Be that as it may, it looks like Australia is just over a year ahead of the US in rejoining the world on climate. So for Rudd's problems today, read Obama's next year, if he wins.

Like the US, Australia has very high per-capita emissions because of its high living standards, coal-fired energy systems and addiction to the automobile. And last week its industrial attack dogs sunk their teeth into Rudd's plans to cap and trade carbon emissions. A big report from the Business Council of Australia published in the last few days claims a "real world" analysis of its implications show that many big emitters will either go bankrupt or relocate offshore.

That last bit is the killer punch, they hope. Sure, they imply, there will be winners and losers as the national economies moves out of fossil fuels and into renewable. But if the losers – those it dubs the "emissions-intensive trade-exposed industries" simply ship out, the emissions will continue under another national flag, and the only loser will be the Australian economy.

The headline-grabbing report says this group of companies – aluminium smelters, cement manufacturers, coal burners and many more – make up half Australia's exports.

So, this matters. If these heavy industries do move to the Gulf or China or India or wherever there are no current emissions limits, then global emissions will keep growing.

Sitting in on a blue-chip conference of Australia's government and business leaders (Rudd was there) last weekend on Queensland's Hayman Island, it was clear that environmentalists and policymakers do not yet have a convincing response to this argument.

They will need one. And not just in Australia. For I predict with absolute certainty that, whoever gets the White House, the same arguments will be heard in the US. And America's attack dogs are a good deal sharper-toothed than the Aussies'.

Call it a threat, or call it real-world pragmatism, but environmentalists have to find an answer to what is coming.

Depending on your politics, you may think off-shoring some industries from the rich to the poor world is no bad thing. But if it stops us fixing climate change, then we will all be the losers.

Fred Pearce, senior environment correspondent, Sydney

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Comments:
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It sucks when reality gets in the way of environmentalism. If people want to force companies to emit less, then they should punish big polluters by not buying their products. It's called voting with your wallet and it shows how few people are actually committed to the cause. Issues that are the populace really cares about don't need government intervention, they happen naturally through consumerism. What environmentalists don't want t admit is that VERY FEW are committed enough to their cause to take personal action, instead they want their beliefs enforced via force. (Don't kid yourself, you can't enforce anything without the threat of force or imprisonment.) Obviously, they feel that violence is the answer to climate change, since free willdoesn't work for their agenda.
Countries will have the option of nationalizing any industry that uses the threat of moving off-shore.
By Anonymous Anonymous on August 28, 2008 7:22 PM  
That clearly doesn't work. If another company can produce the product cheaper elsewhere you're nationalized company makes no profits. You could respond by putting up tariffs on imports but it's hardly clear whether people would stand for it.
By Anonymous Anonymous on August 28, 2008 8:18 PM  
Thats like saying communism works. We need regulation when we need collective action.
By Anonymous Anonymous on August 28, 2008 8:33 PM  
Here in the western U.S. the environmentalists are fighting the greenies. Huge solar farms have been proposed in the desert states, yet they require land be cleared to build. What a delema for enviromentalists, save the environment for humans or save it for nature.
By Anonymous Anonymous on August 28, 2008 10:47 PM  
That's why a global, post-Kyoto agreement is needed. This way avoiding emission trading won't be as easy as expatriate.
By Anonymous Anonymous on August 29, 2008 1:14 AM  
I don't understand why the Australian governemt cannot see it is an empty threat.(or do they)
All of the mentioned industries (aluminium smelters, cement manufacturers, coal burners) are competitive becuase they do refinery near the source. If they start shipping non refined ores then they are also shipping mass amount of waste product which adds up to higher shipping costs.
The industry will also need to invest heavily in setting up their operation overseas and the government can always place a levy on all non refined ores shipped abroad calling it whatever they want.
By Anonymous Tri-ring on August 29, 2008 1:33 AM  
Nice idea "votingwith your wallet" unfortunately it only really works for tertiary producers. For primary producers such as Alcoa etc how do you vote? Do you stop buying anything in aluminium? How do you know that the Coke can you are buying was made with Alcoa aluminium, some other company's aluminium or a mix of both?

Likewise for energy companies

But on the flip-side - how is a primary producer going to move offshore??
By Anonymous Anonymous on August 29, 2008 2:03 AM  
Actually there are already a number of Aluminium smelters operating successfully, far from the source of raw materials.
Alumina (refined Aluminium ore) is shipped all over the world to smelters in the middle east and other places.
The biggest cost of producing Aluminium is electrical energy, so siting your smelter close to cheap energy is the key. In the Middle East the people OWN the natural gas not corporations, so they can produce electricity for next to nothing.
The biggest Aluminium smelter in the world is about to be built in the U.A.E. which already has a successful smelter, one is being built in Quatar now, and Oman has just finished building theirs. And that won't be the end of it.
On the up side they use natural gas, a fossil fuel no doubt but much cleaner than coal fired technology. Do you really want a dirty coal fired smelter in your back yard or a clean one in someone elses. And I don't know about you but I like my cheap stereos and cars etc.
What really anoyes me about all this is that we, the west have polluted for decades and built our fortunes, now someone else is doing it and we don't like it. At the end of the day it's the same corporations producing in Australia, the US, the Middle East and elsewhere anyway. It's always been about profits and it always will be.
By Anonymous Anonymous on August 29, 2008 2:21 AM  
Why couldn't cap-and-trade participating countries not simply agree to charge it regardless?

If the smelter or whatever is local, it has "paid for" it's emissions... say this adds a whole $0.01 to every aluminum can it produces. Well, if you decide to import aluminum cans from China where they don't play the game, you've got to pay $0.01 of carbon-tax.

Any price differential remaining is due to current market forces, the whole benefit of "evasion of cap-and-trade" disappears, most companies don't bother to relocate. The taxes collected from those that do can be used to make the world greener and try to balance out the effects. The end.
By Anonymous Pat Deegan on August 29, 2008 2:43 AM  
Tri-ring is right: moving industries overseas is an empty threat. Aluminium, coal - these are mined and refined here in Aust. How can they move overseas? Plus it will cost them enormous amounts to move even just their refineries overseas, and ship the raw materials around the world. And no matter where they move, as more countries put a price on pollution, they'll end up paying for it.

Call their bluff, and see it for what it is: a temper tantrum from those who've been avoiding the truth about climate change for a long time now.
Coal, alumina and even bauxite are already shipped overseas from Australia - in some case to Europe. It's the nett marginal cost versus nett market price that counts.
By Anonymous Anonymous on August 29, 2008 6:43 AM  
"...high per-capita emissions because of its high living standards...". could not have put it better myself and who is really willing to give up their living standards in the real world because of some climate models in a virtual world?
Punitive tarrifs against countries not controlling emissions only work when you have good information.

This means countries where any stats they collect are good and carbon laws they have are enforced. Cuts out most of the world doesnt it, can you imagine India controlling its emissions anytime soon?

So you would have claims of backyard protectionism, and many of those claims would be right.

Much easier to phase out coal and oil as energy sources and phase in gas and green power, even if it has to be subsidised at first. Coal can still provide feedstock for synthetics as can oil. Some oil will still be required for fuels.

Of course we are headed to the 2deg Celsius threshold anyway so we are going to have a disaster on our hands regardless, but lets reduce the size of it as much as we can.

Of course collapse of many nations through famine and oil prices will wind back economic activity in a hurry, so theres still some potential positive feedback in the system.

Consequent maiming of globalisation will see nations producing most of what they need themselves - back to the future!
By Anonymous Perenti on August 29, 2008 8:47 AM  
The Climate change believers must get real! We are NOT going to stiop the world burning every bit of fossil fuel that can be dug up.

SO

Start preparing for the worst! Take to the high ground

The New Noah
There's guys here thinking that economic collapse and famine would be a positive thing as it would solve the problem of climate change, that it's going to happen anyway so let's 'take to the high ground'.

Don't you think that, I dunno, it would be better to try and avoid millions of extra people living in poverty, extinctions of whole species, large scale loss of life? Or would you be prepared to watch that so you can hang on to your cheap stereos and cars? And can you seriously believe that would either solve the problem or go on far enough away from your ivory tower where you can't see it!?

Get real... you don't have to live in a cave and brush your teeth with pig bristles to sort it out, but don't tell me that we can go on as normal and it'll all be fine. I don't like it either guys, but duh!
By Anonymous Patrick Treacy on August 29, 2008 12:29 PM  
If there are still some scientists who believe this nonsense what hope do politicians have?
By Anonymous Anonymous on August 29, 2008 5:15 PM  
It is utterly astounding that people go on fretting about global warming and insisting that human beings cause it and can stop it. Global temperatures keep going up and down as they have for millions of years, and we humans have nothing at all to do with it. And for the past ten years or so we have been in a cooling trend, although it is most likely temporary. The trend has been upward now for 20,000 years and will probably continue on in that direction until the Arctic Ocean is free of ice year-round.
By Anonymous Anonymous on August 29, 2008 6:39 PM  
Thirteen per cent of the coal used in Australia is used to smelt aluminium. No other country in the world allows that. Because of the vast amounts of energy needed to produce aluminium, bauxite smelting is normally only allowed in places where there's large reserves of non-polluting hydro-electric power. But Australia is helping to drown Pacific Island States to put money in the pockets of multinational countries like Alcoa.

Of course there's a standard response to that kind of statement, and it always comes from big business in the whining tones of a frightened puppy: 'But if we put demands on them to reduce pollution the big emitters will move offshore to India or China.'

Think again. When the climate finally goes terminally wrong it's the Indians and the Chinese populations who'll starve first. Their politicians will become as hysterical and dangerous about global warmers as the Americans are about terrorists today. And the US will go just as crazy when the snows stop falling on the Californian mountains and a quarter of the country's food production disappears into the dust clouds. Emitters world wide will either have to shut down or risk being bombed out of production.

Sure, it sounds crazy now. Tell me again how crazy it is when grocery prices double and triple and the average guy and his wife finally start to believe there is such a thing as global warning.

So I can tell Alcoa exactly where to stick their smelters. Somewhere up near Derby. Because there's hydro-power there like they've never dreamed of.

The Kimberley area of North West Australia is three times the size of the UK, has a population of 40,000 people, 2,500 kilometres of coastline and 1,200 offshore inlands. It also has the second largest tidal range in the world -- 12 metres. Which means there are channels and inlets almost beyond counting, and most of them have so much water being squeezed through them every day they look like horizontal waterfalls. That's part of the equation. The second part is the SeaGen free standing tidal power station now operating in Strangford Loch in Northern Ireland.

Does it make more sense for Alcoa to transfer its smelting operations to another country or to instal its own power generators along the Kimberely coastline? Bearing in mind there's nowhere else on the planet it can get political stability and free electricity for ever more. Oh, and did I mention that the Kimberley has extensive bauxite deposits within easy transport distance of the coast?

What makes Australia special is that some of our hottest deserts and high tidal flow coastlines are located next to huge mining companies with an urgent need for their own home grown energy supplies. The miners have the financial and technical skills to take advantage of that situation and develop solar-thermal and tidal power.

It has nothing to do with being good corporate citizens. With rising world energy prices it's a business imperative for BHP-Billiton and Rio Tinto to find new sources of energy which are under their own control. And in helping themselves they can show the way forward for the rest of the world.

It was the British coal industry which paid for the first steam engines and began the industrial revolution which took us off horses and behind steering wheels. Now the Australian mining industry has its own chance to make history.
The rules, as you call them, don't impact the large industrial and utility emitters unless there is external competition from places that don't have the same rules. But even if the rules would be uniform across the entire planet the increased costs will still be a burden for the consumer and not the producer. And what's the solution to that? Government mandated price freezes? Lower growth and lowered incomes? That's a recipe for disaster.
By Anonymous Anonymous on August 30, 2008 2:08 AM  
Kyoto has accomplished nothing! The EU signed it & the USA didn't. Guess which one lowered emissions? I can assure you believers that humans can't stop the climate from changing. Its a fantasy face the truth! If you think evil big corporations won't leave your a denier! Even if they can't & stay who do you think going to pay for your taxes? Yes the consumers! Nationalize them comment shows the mentality of AGW proponents! If the government is so good at running companies why aren't they already doing this! Sure would make you capitalist hating socialists happy. As an American I will be more than happy to compete against them/lol. Ronnie
By Anonymous Anonymous on September 01, 2008 2:54 AM  
You're talking a a scary amount of sense, Mr Shaw...
Some people here might be interested in this its a government paper about the environment and health in Europe. Its still in its Consultation stage so can still be changed.
In EU, as you know, we have really good working carbon emission quotas and trade. And they really affect the decisions. For example, in Estonia, we are forced to produce less electricity from oil-shale as the quota has become too expensive.

My view is that for the environment it is good to have a "national conscience" - the bureocrats in Brussels - who just tell us to emit less CO2, cut down fishing etc.
I live in the UK and i dont believe all of the hype about global warming, undoutedly there are things happening to the global climate, nobody can deny this, but i dont think its all down to us humans and our way of living, THE FACT OF THE MATTER IS THAT OUR SCIENTISTS DONT HAVE A CLUE ABOUT THE ENVIRONMENTAL HISTORY OF THE PLANET, WE HAVE ONLY BEEN KEEPING RECORDS ON OUR CLIMATES FOR A COUPLE OF HUNDRED YEARS, everything else is purely guesswork, this time last year we were all being told about how we were all going to fry with global temps rising, we were told that there would be water shortages and drought warnings by now, well, they certainly got that wrong, this summer has been a complete wash-out, one of the wettest summers since records began, they didnt spot that one coming, which is why i and the majority of people in the UK think its all hyped up rubbish, an excuse for the government to tax us even more, and they (the government) keep on telling us to listen to the scientists, well they would say that, because every bit of environmental scientific research gets funded by the same organisation and in order to get that funding, each scientific instiution must subscribe to the 'theory' that global warming exists otherwise they get no funding, so it goes something like this: agree that global warming exists and you get lots of money to try to prove it, disagree and you dont get a penny,
Not exactly balanced is it?.
By Anonymous Anonymous on September 05, 2008 1:05 AM  
Fred Pearce,

I am watching your talk on C-SPAN BookTV and was extremely amused by your saying, "I'm not an environmentalist, I am a humanist" while at the same time offering no humanistic solution to the world's problems.

Your claims that environmentalism is fascism makes a whole lot of sense ... if you are behaving as an apologist for business-as-usual, corporatism, and capitalism.

Is that your definition of humanism?

I will say this much: What humans destroy today is not available for the enjoyment of humans tomorrow.

And I will make a warning to humankind: Extinction happens. Primates aren't immortal even if they have spent some hours walking on the moon.

***

Now that the global economy is collapsing and capitalism has died, perhaps it is time for humanists to think differently about humankind's relationship with nature.
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