John Quiggin

The Energy Minister Josh Frydenberg has announced legislation to allow the Clean Energy Finance Corporation to fund coal-fired power stations using Carbon Capture and Storage (CCS), often called “clean coal”. Although there has been plenty of criticism, this is actually a Good Thing.

If it worked at low cost, CCS would solve a lot of problems, particularly for Australia. We could burn coal, and store the resulting carbon dioxide underground, fixing much of the climate change problem without changing anything else. The ease of this (hypothetical) solution is why CCS plays a big role in lots of climate change scenarios.

Unfortunately, cost-effective CCS doesn’t exist, and isn’t likely to. So, barring some great new discovery, the change in CEFC rules is purely symbolic.

What makes the announcement a Good Thing is that avoids the “bait and switch” used by Frydenberg and others in the past, where clean coal is described in terms of CCS, then shifted to included “High Efficiency, Low Emissions” (HELE) coal plants. This term refers to the fact that plants constructed today are indeed more efficient, and therefore have lower emissions per unit of electricity, than those built thirty years ago. But they are still far worse than gas-fired plants let alone renewables or (if it could be made to work) CCS.

Here’s the third of my planned weekly emails. If you want to be on the recipient list email me at [email protected] (preferred) or put in a request in the comments section. If you expected to get an email and didn’t, please contact me.

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Looking at news coverage and the emails I’m getting from climate action groups, it looks as if I may have misinterpreted the Queensland government’s move on royalties (or maybe I posted before the decision process was complete). The latest news is that the state government will take no part in processing any loan to Adani from the Northern Australia Infrastructure Fund. I’ll try to post again when I get a clearer picture on this.

What remains clear is that Adani is having a lot of trouble finding bank loans or equity investors to invest in the Carmichael mine project. Given the poor economics of the project, any money lent by Australian governments is likely to be lost, leaving the publci with a stranded and useless asset.

Update 31/5/17 The Guardian reports that https://www.theguardian.com/business/2017/may/30/adani-reaches-mine-royalty-agreement-with-queensland-government to defer nearly all of its royalty obligations for the first five years of production under the new deal, with interest charged on anything owed to the state above that. Almost certainly the interest rate would be well below what a commercial lender would charge, given the risk of default.

More noteworthy, I think, is the following

That would be the trigger for what the company has flagged would be $100m to $400m of preliminary works. But the deadline for financial close, the securing of bank backing to build the mine and rail to haul coal to the coast, is early 2018

As has been true for the past several years, the date when the project actually starts still seems to be at least a year away.

We’ll see at least some money on the table if the “preliminary works” start on the supposed schedule. But my guess is that the scale of the work will be less than meets the eye. I wonder, for example, whether the expenditure figure includes work done before Adani mothballed the project back in 2015.

A new sandpit for long side discussions, conspiracy theories, idees fixes and so on.

Another Monday Message Board. Post comments on any topic. Civil discussion and no coarse language please. Side discussions and idees fixes to the sandpits, please.

Reading the news, I find a lot of items demonstrating a scale of values that makes no sense to me. Some are important in the grand scheme of things, some are less so, but perhaps more relevant to me. I think about writing posts but don’t find the time. So here are a few examples, which you are welcome to chew over.

* Blowing things and people up is seen as a demonstration of clarity and resolve (unless someone is doing it to us, in which case it’s correctly recognised as cowardly and evil). The most striking recent example (on “our” side) was the instant and near-universal approval of Trump’s bombing of an airfield in Syria, which had no effect at all on events there. In this case, there was some pushback, which is a sign of hope, I guess.

* The significance of art and artists is determined by the whims of billionaires. Referring to the sale of a painting by Jean-Michel Basquiat for over $100 million the New York Times says

most agree that the Basquiat sale has cemented his place in the revenue pantheon with Pablo Picasso and Francis Bacon; confirming that he is not some passing trend; and forcing major museums to acknowledge that, by not having the artist in their collections, they passed over a crucial figure in art history.

[1]

* As far as economic research is concerned, less is more. More precisely, an academic economist with a small number of publications in top-rated journals is better regarded by other economists than one with an equal (or even somewhat larger) number of ‘good journal’ publications along with more research published in less prestigious outlets. I can vouch for that, though it’s less of a problem in Australia than in less peripheral locations. I have the impression that the same is true in other fields, but would be interested in comments.

[fn1] To be fair, this is preceded by a brief acknowledgement that “auction prices don’t necessarily translate into intrinsic value”, but there’s no suggestion that any other measure of intrinsic value is worth considering.

The Palaszczuk government has, unsurprisingly, capitulated to the Adani corporation’s demands for a tax holiday. To avoid accusations of bias, they have offered the same deal to other new coal projects. If these projects go ahead, the implications for the planet are disastrous. But, at least in Adani’s case, there are plenty of reasons to doubt that this will happen.

It’s now clear that any “investment decision” by Adani will involve spending modest sums on land clearing and surveying. That’s enough to keep the option open and avoid writing off the money already spent on the project. But the real decision, which requires bank finance, appears to have been deferred from June 2017 to some time in 2018. The first shipments of coal aren’t expected until 2020.

My guess is that, before anything of substance happens in the Galilee Basin, Adani will be back with more demands (maybe a Danzig corridor). Sooner or later, they’ll make an offer that can be refused, at which point they’ll pull up stumps and send in the lawyers asking for compensation.

(Sorry for the absence of links, I’ve been reading different bits and pieces).

I got a preview of Drug Wars by
Robin Feldman and Evan Frondorf. It’s not about the War on Drugs, but about the devices used by Big Pharma to maintain the profits they earn from their intellectual property (ownership of drug patents, brand names and so on) and to stave off competition from generics. Feldman and Frondorf propose a number of reforms to the operation of the patenting system to enhance the role of generics. I’m more interested in a fundamental shift away from using intellectual property (patents and brand names) to finance pharmaceutical research.
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I’ll be debating John Rivett at lunchtime today on the subject of Easytax. Rivett is a lawyer who works with John McRobert, the main proponent of the tax (three Johns have got a bit confusing at times). Details are here

I’d have preferred a free event, but I left it to the proponents to organise, so I can’t complain I guess. I’ve attached my presentation, which gives a fair idea of what I’m going to say, and I believe a video of the event will be made available.

Advocates of an expansion of Australian coal mining are constantly claiming that India is desperate for imported coal to supply urgently needed electricity. Leaving aside the Indian government’s stated determination to end coal imports in the next few years (at least for the large public sector), what’s happening to actual demand for coal-fired electricity. Undoubtedly, it was growing very rapidly until quite recently. The Indian government had grandiose plans for a fleet of “Ultra Mega” power plants UMPP, a couple of which actually got built. And state governments were tendering out large contracts to supply electricity, designed with coal-fired power stations in mind.

In the last few weeks, there have been two big developments. Following a string of other cancellations, the government of Gujarat has cancelled a proposed UMPP Key quote

The new decision is believed to be also in line with the Centre’s push to bring down coal import. However, the state government is willing to provide land for a UMPP if the central government wishes to initiate one, says Sapariya. Adding: “Our focus is now on renewable energy. The government will encourage solar power.”

Meanwhile, the government of Uttar Pradesh has cancelled bids conducted in 2016 to procure 3,800 MW of power from independent power producers. Adani was among the suppliers shortlisted to share in the supply contract. This isn’t an isolated event

The UP government’s move, analysts said, is symptomatic of the deeper malaise: On the one hand, hardly any power purchase agreements (PPAs) are being signed and now, the bids for new contracts are being cancelled; on the other, plans to set up large thermal power plants are either being put in abeyance or abandoned. The Gujarat government, for instance, recently dropped the plan to set up a 4,000 MW imported coal-based ultra mega power project at Gir Somnath district, apparently because it thinks that upcoming renewable energy units could meet the the power requirement.

About 33,000 MW of thermal power plants, with an approximate investment of about Rs 2 lakh crore, are left stranded across the country due to the lack of PPAs.

That’s nearly 8 GW gone in the space of a few weeks. By my calculation (a check would be much appreciated) a 1 GW thermal coal station operating at 70 per cent capacity uses about 3 million tonnes of coal a year. Multiply that by 8 and you get 24 million tonnes, the entire projected output of Adani’s first stage project.

The eagerness with which the Adani board announced an indefinite deferral of the Carmichael mine project today speaks for itself. As has long been conjectured by everyone with an understanding of the hopeless economics of this project, Adani has been looking for an excuse to walk away and blame government obstruction. Not only do they get to defer writing off the billion or more they have already invested, but there is the prospect of extracting some kind of compensation. At worst, they have a story to tell the financial markets in India that’s a bit more appealing than “we bought a worthless asset at the top of the market”.

The Palaszczuk government’s mishandling of Adani’s bid for a royalties holiday gave the company the excuse it needed. Until now, the government had bent over backward to avoid appearing obstructive, while holding the line on putting in no financial support. If they had stuck to that when the holiday idea was floated, all would have been well. As it is, they are likely to bear the blame for Adani’s mistakes.

In the broader scheme of things, the outcome is, of course, a good one. There was always the remote chance that Adani might push ahead with the scheme, and now that appears to be dead. But the political cost to Queensland Labor will be huge.

Here’s the second of my planned weekly emails. If you want to be on the recipient list email me at [email protected] (preferred) or put in a request in the comments section.

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A new sandpit for long side discussions, conspiracy theories, idees fixes and so on.

Another Monday Message Board. Post comments on any topic. Civil discussion and no coarse language please. Side discussions and idees fixes to the sandpits, please.

That’s the self-explanatory headline for my latest piece in the Brisbane Times (reproduced in the other Fairfax papers, I think). Text is over the fold.

And, on the same theme, Richard Denniss.

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After a long break, it’s time for another weekend reflections, which makes space for longer than usual comments on any topic. Side discussions to sandpits, please. Absolutely no personal criticism of other commenters.

Here’s the letter I’ve sent to (I hope!) everyone who’s signed up for my mailing list.

Hi everyone,
I’ve now received more than 60 requests to join the mailing list, so I thought I would send a quick note to everyone thanking them for their requests and the kind words many of you have added. I’ll be checking for messages that bounce and I’ll also post on my blog and social media pages so that people who miss out can tell me about it.
My plan at this stage is to send the email once a week on Mondays. I’ll include links to blog posts and tweets, and I have a few other ideas to try out. I’m also open to suggestions, as long as they don’t involve too much work. If you have suggestions, go to my blog johnquiggin.com and post them there, once I’ve put this message up.
Best wishes
John

So, we finally joined the 21st Century and got Netflix. We are watching House of Cards (US version), an episode most nights. Based on one season per year of time passed in the show, that’s about four weeks of dystopian fantasy per night. But, when we wake up in the morning, the day’s news almost always has more and crazier stuff packed into it than that, with subplots and story arcs being passed over for lack of space ( will the emoluments clause come back to bite Trump? did he suggest that Comey should imprison journalists? Who can keep track of it all).

Looking at the main plotline of Season 1, what would it take for life to imitate art and elevate Pence to the White House? There’s clearly no likelihood that the House Repubs will impeach Trump as long as they still hope to push through a big tax cut for corporations (which apparently depends, for arcane procedural reasons, on passing some kind of repeal of Obamacare). As Liam Donovan says in Politico

The criticisms may grow louder with each unforced error by the White House, but as long as the legislative dream is still alive it’s hard to imagine any sort of full-scale break. If that dream dies, however, it’s every man for himself.

But maybe this really is a house of cards. Suppose that three Republican Senators defected to the Democrats. That would kill the dream, at which point lots of Republicans might start thinking that a fresh start with Pence would offer them a better chance of survival in 2018. And, hey, they got Gorsuch. Once a dozen or so jumped, it would indeed by sauve qui peut for the rest.

It’s easy to name two Repub Senators (McCain and Collins) for whom it would make personal and political sense to switch sides. Given two, there must surely be a third. Still, I can’t see it happening any time soon. On the other hand, every day brings a new humiliation. Perhaps someone will find a hidden reserve of decency, or just frustration, and say that enough is enough.

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I’ve never been a fan of Senator David Leyonjhelm, but even so, I find it hard to believe he made the mindbogglingly absurd statement attributed to him by today’s Oz. Accusing Bill Shorten of a $1.85 billion black hole in relation to his policy of keeping the levy on high-income earners,

But Liberal Democratic senator David Leyonhjelm yesterday called out the Labor costings as disingenuous. He said it was “misleading budgeting” because Labor had no way of extending the deficit levy from opposition.

Say what? On this basis, no Opposition should ever announce policy of any kind. And of course, that goes many times over for members of fringe parties that have no chance of ever forming a government. I’ll be interested to see if he claims to have been misquoted.

Regardless, Leyonjhelm is one of a stream of regrettable politicians to be drawn from the ranks of the Institute of Public Affairs (IIRC, some even worse possibilities were derailed by racist indiscretions on social media). I won’t name names, instead repeating my possibly unhelpful endorsement of Chris Berg as the only person associated with the IPA for whom I have any intellectual respect.

What proportion of Australian voters regularly attend church and identify as Labor voters? How many of those are social conservatives in the mould of, say, Joe de Bruyn? If I’ve interpreted this piece by Crikey’s Pollbludger correctly, the answer to the first question is about 4 per cent. The relevant bits

This is partly reflected by the long-term decline in religious observance, with the proportion of respondents who attended services at least once a month falling from 23% in 1990 to 17% last year.

….

Of still greater interest is a pattern over the past decade in which the observant have grown more pronounced in their identification with the Coalition rather than Labor, with the gap reaching a new peak of 52% to 25% in the 2016 survey.

25 per cent of 17 per cent is 4.25 per cent.

Turning to the second question, I’d be surprised if socially progressive observant Christians (and members of other religious) didn’t account for 5 per cent of the total population of Australia. So, if Labor gets the support of half of those, that would leave less than 2 per cent of the population in the religious conservative Labor voting category. That’s comparable to the support for the HEMP (pro sex, pro marijuana) party in the last Senate election.

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As promised, I’ve started a weekly email (over the fold). If you would like to be on the recipient list, email me at [email protected]

If you asked to be added, but haven’t got it, try emailing me again, or commenting here.

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At the suggestion of Hall Greenland, I’m planning to start a weekly email, with links to stuff I’ve written, and odd bits of news. If anyone would like to receive it, please email me at [email protected]

Among the 29 people to hold the office of Prime Minister in Australia, Paul Keating is probably the one with the sharpest intellect[1]. So, his abandonment of market liberalism is worth noting.

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Among the measures in last night’s budget was the decision to kill off, once and for all, more than $10 billion of “zombie measures”. These cuts proposed in Joe Hockey’s disastrous 2014 Budget, rejected by the Senate, but kept on the books as proposed savings until now.

More importantly, the Budget abandons the undead ideology of market liberalism (aka economic rationalism, neoliberalism and so on) that dominated policy thinking in Australia in the decades leading up to the Global Financial Crisis, and continued to be taken for granted by most of the political class long after that.
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It’s now pretty clear that renewables can replace fossil fuels in their main uses, electricity generation and land transport, at a very modest cost or, as appears to be the case for electricity, with a cost saving. But that still leaves room for doubt over whether the economy can be fully decarbonized in time to hold CO2 concentrations to 450 ppm or below. Among the big gaps are air and sea transport.

I’ve tended to argue on the basis of the idea of induced innovation that, since there are plenty of possible options, at least one will work out, given some incentives to reduce CO2 emissions. That’s proved true for electricity (solar and PV worked, while other promising contenders like geothermal and Gen III nuclear haven’t), and more recently for storage. But it doesn’t seem to satisfy everyone.

So, I was struck to realize that drones (which I’ve always thought of either as toys or as particularly nasty weapons systems) may be on the way to displacing a good deal of air and sea freight transport in the relatively near future. Initially at least, the bigger ones are likely to use conventional engines, but with greatly reduced fuel costs, as with this proposal. But it’s easy to imagine a version that carries its own solar PV system being developed in the future – possibly slower but even cheaper than the current verison.

Moreover, the size and capacity of battery-driven electric drones is increasing all the time. The current leader appears to be the Griff 300, which can (as the name indicates) lift 300kg, including its own weight of about 65 kg. Apparently there is a Griff 800 either released or in the works. At least to my understanding, there’s no fundamental scaling limit here, although there will obviously be plenty of technical challenges. On the other hand, with batteries getting lighter every year, performance can be improved over time without any significant change in design.

None of this deals with passenger air travel which looms larger in the culture wars over energy policy that its objective significance as a source of emissions justifies. But again, in the absence of fundamental limits (the kind that apply, for example, to carbon capture and storage), a sufficiently strong incentive will in all probability bring forth a solution.

A new sandpit for long side discussions, conspiracy theories, idees fixes and so on.

Another Monday Message Board. Post comments on any topic. Civil discussion and no coarse language please. Side discussions and idees fixes to the sandpits, please.

In response to discussions about freedom of speech, particularly at university campuses, I started thinking about the question of heckling a speaker, and to what extent this is, or ought to be, protected by advocates of freedom of speech. I assumed that the correct formulation (both legally in the US context and in terms of what is appropriate) is the one attributed to Nat Hentoff

“First Amendment law is clear that everyone has the right to picket a speaker, and to go inside a hall and heckle him or her—but not to drown out the speaker, let alone rush the stage and stop the speech before it starts

It turns out, however, that Hentoff was wrong, as shown by the case of the Irvine 11.
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To misquote Benjamin Franklin and others, the only certainties in economic life are debt and taxes. Among the themes of political struggle, fights over debt (demands from creditors to be paid in the terms they expect, and from debtors to be relieved from unfair burdens) and taxes (who should pay them and how should the resulting revenue be spent) have always been central.

I mentioned in a comment at Crooked Timber recently, that Pro-debtor politics is always in competition with social democracy, and a couple of people asked for more explanation.
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Here’s a piece I wrote in the Guardian responding to Scott Morrison’s distinction between “good” and “bad” debt. Unfortunately, the comments included plenty of people who are under the impression that, thanks to Modern Monetary Theory, there’s no need for taxes and therefore no need to think about budget balance. That’s wrong, as I explain here, with an endorsement in comments from leading MMT economist, Warren Mosler.