Friday, June 27, 2008

European ETS Reconsidered

A recent MIT study suggests my generally negative image of the European scheme may be out of date.

Read the whole article but they cite several lessons from the European experience.

First, the European experience shows that the economic effects—in a macro economic sense—have not been large. ... A second lesson is that permitting "banking and borrowing" will make a cap-and-trade system work more efficiently. ... A third lesson is the importance of having accurate data and good communications both to ensure a smooth-running market and to achieve the desired reduction in emissions. ... A fourth lesson is that the process of allocating emissions allowances is going to be contentious—and yet cap-and-trade is still the most politically feasible approach to controlling carbon emissions. ...

Perhaps the main message for policy makers is that everything does not have to be perfectly in place to start up. When the EU ETS began, the overall EU cap had not been finally determined, registries for trading emissions were not established everywhere, and many available allowances—especially from Eastern Europe—could not come onto the market. The volatility of prices during the first period reflects those imperfections. "Obviously you're better off having things all settled and worked out before it gets started," said Ellerman. "But that certainly wasn't the case in Europe, and yet a transparent and widely accepted price for CO2 emission allowances emerged rapidly, as did a functioning market and the infrastructure to support it."

Emissions Trading and Low and Middle Income Earners

One concern with the ETS I don't hear talked about enough is the effect on the people Kevin Rudd calls "working families". (The political reasons for this are pretty clear.)

The US Congressional Budget Office (!) has just released some advice on how to mitigate such concerns.

Hat-tip Ryan Avent

Wednesday, June 25, 2008

More of New Zealand's Nuclear History

Following up on the previous post, one concrete effort in the direction of nuclear power that neither Templeton nor the ODT seem to be aware of is that there was a small research reactor maintained by the School of Engineering at the University of Canterbury during the sixties and seventies. It was given to New Zealand as part of Eisenhower's Atoms for Peace programme which was designed to encourage the development of nuclear power internationally and was apparently a major kick start to the Indian weapons programme. But I'll have to leave that for another post.

Nuclear Power for New Zealand?

Well I continue to see idle references to the possibility of nuclear power in New Zealand. And like the Otago Daily Times editorialist I was aware that fairly concrete plans to build nuclear power stations here did once exist.

I was very surprised today though to discover in Smiths Books a bound copy of a submission to the 1977 Royal Comission on Nuclear Power Generation in New Zealand by the group Ecology Action.

I had no idea that there was ever a Royal Commission, presumably this is because I did not read Malcolm Templeton's 'Standing Upright Here' carefully enough (it's a little dry). Nor it turns out did I properly read the ODT editorial which quite clearly discusses the Royal Commission, but anyway.

Despite the name of the organisation, Ecology Action deputed four members of the Physics Department at the University of Otago to write their submission, led by Professor W. J. Sandle. As a result the submission is very well informed, in fact it's a remarkable document. Writing just after the first oil shock and before the Three Mile Island and Chernobyl accidents the world the authors are anticipating seems very like our own. Take this for example:

Four contemporary concerns -- growth, weapons proliferation, energy and the environment -- interact in that problems associated with them reinforce and fee upon each othe. These concerns have, by virtue of their social significance, entered the public arena where they have found a common and legitimate focus in nuclear power.

Ecology Action list as concerns about nuclear power firstly the capital costs. This was second on my list of objections in 2008 for reasons we will come to. After this they cite concerns about the safety of reactors (now largely a solved problem if one is prepared to spend enough) and of the nuclear fuel cycle in general (still a serious concern). They cite weapons proliferation and concerns about nuclear terrorism including the possibility of terrorists building nuclear or radiological bombs. These seem to me to be perhaps more serious concerns internationally now than they were then.

It becomes painfully obvious how little has changed in the nuclear power industry and energy technology generally.

So the following statement is as true today as it was when it was written

There should be no commitment to a nuclear power programme in New Zealand until there has been a clear and convincing demonstration of the effectiveness of a method of high-level waste containment which guarantees safe sequestration for an indefinitely long period. No such method presently exists.

Technically we believe we know how to store high level waste but no country has yet permanently stored any.

Surveying alternative energy sources the authors list wind, biofuels, waves, solar thermal, solar power (photovoltaic solar panels), ocean thermal power and tidal power. With the exception (so far as I know) of ocean thermal these are exactly the alternative energy sources that we now anticipate will be useful in the near future and in the case of wind, biofuels, solar thermal and solar photovoltaic power they supply a not inconsiderable quantity of power in many countries.

This is a good point for those who hope for a technological fix to the questions of global warming. Except in very special circumstances scientists can see these fixes coming a long way off and are usually disappointed in how long they take to become economic. Roughly speaking the technology we have now is likely to be the technology we will be able to use to limit climate change.

One remarkable thing has changed since 1977 though and that is the scale of the anticipated power consumption in this country. In 1977 energy consumption was growing at a rate of 6.5% per year and it was hoped to keep growing at that rate. By my rough calculations from a figure in the submission energy consumption has only doubled since 1977.

At this rate of growth, and supposing half of all energy was supplied by nuclear power generation, then in 2010 we would have needed 13 600MW nuclear power plants. Wow!

As a senior manager in the New Zealand electricity department said in 1975

On present indications of future electricity consumption, it has been shown New Zealand will require about 1200 MW of additional nuclear generating capacity each year from 1990.

These days our power needs grow by only maybe 200 MW each year and our average consumption is maybe 4700 MW.

This is why no one was worried about reserve capacity which was my number one reason not to build a nuclear power plant.

But it really takes your breath away to think of the size of the country and size of the economy people anticipated at that point. It's also an object lesson in the dangers of attempting to forecast too far into the future.

Tuesday, June 24, 2008

What Would a Power Crisis Look Like?

I know it's election year and my parents are pensioners that I definitely don't want to scare into making themselves sick by not heating the house adequately but what language can we use to describe the situation if:

1/ when you turn on the television you are encouraged to make tiny savings of electricity like using candles over dinner?

2/ opening the newspaper (this morning's Press, not online apparently) you find the head of Transpower Patrick Strange commenting that recent rains have for now stabilised the situation but add

Don't forget, if we lost a thermal plant we'd immediately be very nervous again, so we're certainly not taking the foot off yet.

3/ in the same article the Electricity Comission is looking for businesses and other groups that can supply power into the grid as a contingency (presumably using the dirty noisy diesel generators they've been keeping in the basement since Auckland lost power in the late nineties making us an international laughing stock--or has everyone thrown those out by now?)

4/ if large companies who employ many people have significantly cut back consumption for weeks now, either as a result of negotiations with providers or as a result of huge spot prices.

5/ we are burning diesel at Whirinaki and imported coal at Huntly and having workers operate an asbestos ridden power station in Taranaki all to supply the South Island with power and save the lake levels.

Obama's Petrol Populism

I am with Ryan Avent, Obama is wrong (very very wrong) on ethanol and wrong on "windfall profit taxes" for oil companies. But he is still better than McCain on almost every issue.

Ethanol subsidies are a disastrous policy that has been an important pander in presidential politics for some time because of the Iowa caucuses. The rural parts of Obama's home state Illinois would also be difficult to hold without the ethanol policy but the centrality of Iowa to his primary strategy made it pretty much inevitable.

Watchers of The West Wing will remember that the inspiring young Latino candidate Matt Santos makes the ethanol pledge in Iowa prior to the caucuses, and sort of regrets it, while the McCain-like Republican candidate stands firm. The parallels between the last two seasons and current US politics are somewhat spooky but apparently not entirely co-incidental. I learned recently (maybe from the NYT?) that David Plouffe, a key Obama operative, was already working for him when his friend Eli Attie was developing the Santos character and they corresponded on the matter.

Emissions Trading in Australia

The Opposition has now come out against including petrol and transport costs in the Australian Emissions Trading Scheme and started peppering the Government with questions about the economic impact of the scheme.

Ross Garnaut will give a speech on July 4 to the National Press Club and release his draft report on the ETS.

Monday, June 23, 2008

Saudi Energy Conference

It appears that the Saudis promised no new oil in the short term (just the 200,000 barrels a day promised last week) but have made some ambitious claims about increases in the long term. This is the kind of thing that would seem to require major new oil finds.

"I am afraid that we are going to see the big fields [now in production] top off at 12 million barrels a day or so," said Edward Price, a former president of Saudi Arabian Oil Co., or Aramco, who keeps up with developments there. "Even in Saudi Arabia, there are resource limits."

Chinese Aid in the South Pacific

Earlier this year the Hive got me interested in Chinese aid in the South Pacific.

Fergus Hanson at the Lowy Institute has just finished an exercise in which he attempted to estimate the size and nature of Chinese aid in the region. I have listened to a podcast of his recent talk at the Institute that I can't entirely recommend but the publication is on my reading list.

He estimates that Chinese aid in the region quite possibly exceeds New Zealand's in dollar value and argues that it should be possible to encourage the Chinese to be more transparent and effective in their aid, contrasting this to Chinese aid activities in Africa that are largely focussed on access to mineral resources.

Saturday, June 21, 2008

Fragments of Labour

An interesting feature of the Bassett book is that some of the most insightful commentary on Lange is quoted (with attribution of course!) from Bruce Jesson. In concluding the chapter in which Lange resigns as Prime Minister, Bassett's final summary of his leadership is a quotation from Jesson.

He left behind him a party [now] publicly united, but still fundamentally riven on matters of economic and social policy.

After Helen Clark's long leadership of the Labour party it is claimed that some degree of true unity has been achieved in Labour after the wreckage of 1990.

The true test of that will come after the seemingly inevitable election loss later this year. In the short term I am not terribly hopeful. Like the Liberal opposition in Australia I think we will see a significant period of public listlessness and private blood-letting.

But a decent term in Opposition is the time for a political party to work out what it stands for and what it wants to achieve in Government. Young people in Labour should be thinking hard about that right now.

Annette King sups with the devil (well actually just Roger Douglas)

I am very much enjoying Michael Bassett's engrossing account of the Fourth Labour government. When I am finished I will write something serious about it.

In the mean time though, given that I keep hearing rumours that Annette King might be the next leader of the Labour party, I'll just say that my favorite gossipy revelation so far is the dinner that Douglas, Bassett and King had early in 1990 to discuss the possibility of Douglas taking a larger role in economic policy and remaining in Parliament. Given Bassett's high regard for King one has to wonder if he is doing her any favours by mentioning this! (It's page 527.)

(Actually in the gossipy revelation stakes it's a close run thing between that and the Defence minister snorring though a Cabinet discussion of the ANZAC frigates purchase.)

Process Stories: Can Rudd run an office?

Today the Weekend Australian is leading with the chaos in Kevin Rudd's office, targetting in particular two 28 year old aides, Lachlan Harris his Press Secretary and Alister Jordan his deputy Chief of Staff. It'll be interesting to see if Harris in particular is able to hang onto his job given that this is not the first time that he has become the story.

This confirms the general sense that the wheels are falling off the government here in Australia but the story itself feels somewhat beaten up, relying largely on bruised feelings in the press core(!) and the public service, most reported anonymously.

George Megalogenis is providing the most effective critique of the Rudd government's obsession with the news cycle and failure to provide true leadership and develop long term policy. His article today has this remark:

To a visitor from outer space, it would be hard to distinguish the job description of prime minister today from that of a talk show or game show host. The PM is a regular fixture on radio and television, where no topic is too small for him to discuss. He offers cash prizes to listeners and he sweats on the weekly ratings.

Monday, June 16, 2008

What was Rudd thinking?

Presumably we, (like Hawke, Keating and pretty much everyone else) are now over the gritted teeth initial reaction to not being consulted on Rudd's Asia Pacific community proposal and it's time to work out what the substance of the proposal is.

I have found the Lowy Institute's Interpreter blog useful on this. Sam Roggeveen believes that getting the regional structure right does matter, while Hugh White believes that Rudd is not truly serious about the proposal and that it does not do anything to address the serious issues facing the region. (If White and Greg Sheridan of the Australian agree on this then perhaps the proposal really is an utter waste of time!)

For Australia these important issues are strategic tensions between the US, China and Japan. White:

So let’s get real: before we can build forums or institutions that work effectively to create the kind of peaceful Asia we all hope for in the Asian Century, the region’s major powers are going to have to start accepting that they have to deal with one another on a rather different basis from the way they have been operating for the last few decades. To build Rudd’s vision, the US will have to start treating China as an equal, China will have to start treating Japan as an equal. These are big concessions, which will not easily be made, and so far there is little sign that they will be. Helping to mobilise these fundamental changes in relationships between major powers is the most urgent issue for Asia, and an immense challenge to Australian diplomacy. But nothing is more important for us.

Relations between those countries would seem to be very important to New Zealand too, so it would be great to see some more discussion of the background to Rudd's moves in the NZ press.

Saudi Arabia to increase oil production: but by how much?

Firstly the recent increase in Saudi production has pushed current production to 9.45 million barrels a day, nearly equal to the level reached a few years ago.

Now the Saudis have moved to further increase their production and call a major meeting of oil producers and consumers later this month. This will of course put downward pressure on prices but the magnitude of the Saudi efforts is presented very differently in major international papers.

According to the New York Times

The increase could bring Saudi output to a production level of 10 million barrels a day, which, if sustained, would be the kingdom’s highest ever.

This would prove wrong my ill-informed predictions about future Saudi production by July. The article emphasizes an ambition to limit volatility in the markets, a marked change from OPECs effort to maintain a definite price band only a few years ago.

The Wall Street Journal's article on the same development is much less upbeat. They suggest a rather smaller increase in production.

U.N. Secretary-General Ban Ki-moon said Sunday after meeting with the country's oil minister that the kingdom will raise production by 200,000 barrels a day in July. It wasn't immediately clear whether that rise would be permanent or a one-off response, as was a Saudi boost of 300,000 barrels a day in June.

While the Financial Times never puts a definite figure on the proposed increase, noting that

The kingdom has dismissed ideas it would boost production all the way to 10m b/d, up from the 9.45m b/d it pumps today, which is already 300,000 b/d higher than last month.

Journalism today!

Friday, June 13, 2008

Good News on Nuclear Waste

Who wants nuclear waste in their back yard?

This is a classic situation of an issue that is framed utterly incorrectly in the press.

For perfectly good reasons activities in hospitals, universities and mines, to name three, result in the generation of small quantities of low level nuclear waste. At least in Australia, these are often stored on-site, often with inadequate records being maintained. In a couple of cases I know of storage has been in rooms that were the site of minor accidents that no one has been able to find money to clean up.

This is the status quo.

For more than a decade the Australia Federal Government has been offering to collect this waste and store it safely at a central facility. Do you think they can get the thing built? Why would anyone rather have the waste lying around hospitals, universities and work places?

I like Martin Ferguson more and more since he seems to be pushing this issue forward.

Habeas Corpus Lives to Fight Another Day

“The laws and Constitution are designed to survive, and remain in force, in extraordinary times,” Justice Anthony M. Kennedy wrote for the court.

The New York Times and Glenn Greenwald.

Demand outstrips supply in oil market but OPEC raises production

I have been regretting my long-winded last post on oil supply difficulties. I'm not going to comment on this any more except to say that firstly I am watching moves by India in the near future to lower subsidies which will damp demand (and surely China must follow soon?). Secondly I'm awaiting with interest the IEA review of world oil stocks due in November.

In Christchurch for family reasons I have been arguing with my brother over concerns about oil supply. I should note that these concerns apply only to conventional crude oil reserves, there is an awful lot of tar sand, shale oil and that sludge in the Orinoco to go around. Higher oil prices will continue to drive further utilization of these resources particularly in Canada. However mining those resources is much more costly and the environmental consequences deserve serious attention.

Anyway the IEA has updated it's Oil Market Report for May. Andrew Leonard gives an account here.

The bottom line is this: Although demand for oil is declining in the U.S. and Europe, overall global demand is still rising, fueled primarily by China and India. Overall demand growth has slowed, to be sure, but still totals 86.8 million barrels per day. And that's 200,000 barrels a day greater than current supply -- 86.6 million barrels a day, according to the IEA. Perhaps most alarming -- although global supply rose by 490 kb/d in May, the added production came primarily from OPEC. Non-OPEC oil production is down.

The fact that non-OPEC oil production is slumping, with oil prices setting new records nearly every week, is just another datum of proof indicating that no matter how high prices go, you can't squeeze ever more oil out of a peaking oil field. To a certain extent, the world is returning to where it was in the 1970s, when OPEC ruled the market. But back then, high prices encouraged the development of non-OPEC sources of oil and broke the back of the cartel's pricing power.

The decline of those newer non-OPEC oil fields is one reason why U.S. politicians are now begging OPEC to boost production. OPEC is back in the driver's seat. But is the OPEC spigot as potentially free-flowing as it was 30 years ago? That's another question everyone wants to know the answer to. One imagines that it would not be in OPEC's interest to precipitate the kind of global recession that sustained record-breaking oil prices will inevitably deliver. And according to the IEA figures, OPEC has been boosting production.

But whether OPEC is still holding back to keep prices high, or facing the same cold realities of depleting resources that the non-OPEC world is slamming into, the fundamental dynamics of the supply and demand equation are unchanged. A difference of just 200,000 barrels a day between demand and supply doesn't seem like all that much when measured against the total energy consumption of the world, but as long as that disjunction exists, as long as there are more buyers than sellers, there will be long-term support for high prices.

Sunday, June 8, 2008

Oil Price Poker

The current feverish state of the international oil market could be due to many factors. How you would bet on future prices depends on how you read the hands of the various players, and in particular on whether you think OPEC is bluffing.

The market was reminded on Friday of the (hopefully small) possibility that either Israel or the US could attack Iran before the US presidential elections later this year. This is bound to lead to a short term leap in oil prices.

Until Friday The Hive was canvassing the notion that the current price is a bubble created by speculators. There are very good reasons to believe this may be the contributing to current prices, including lax regulation of US energy futures markets.

Speculation was however the fourth reason George Soros gave in Senate testimony on oil prices last week. In listing major factors he said "First, the increasing cost of discovering and developing new reserves, and the accelerating depletion of existing oilfields as they age. This goes under the rather misleading name of peak oil."

Now everyone seems to agree that there are currently serious constraints on supply. The International Energy Agency's monthly Oil Market Report says of the month of April that "Effective OPEC spare capacity stands at 2.3 mb/d on paper, although refinery outages, crude quality and high prices mean much of this oil would be difficult to market under current conditions". It also lists several issues in Nigeria and the North Sea that have contributed to reduced supply. (Figures for May are not free so I do not have them.)

Many people hope that these constraints are largely caused by temporary political instability and temporary shortfalls in drilling infrastructure, refinery capacity and so on.

A more pessimistic view is that these difficulties will increase over time due to "the increasing cost of discovering and developing new reserves, and the accelerating depletion of existing oilfields as they age".

A rule of thumb, based on on the historical development of very many mineral resources, suggests this would be expected to be a factor if Middle East countries have already mined a large fraction, say roughly half, of their total crude oil resource. Don't consign yourself to the internet debates on "peak oil", read this considered piece by David Goodstein a physicist at the California Institute of Technology. Goodstein has been urging scientists, engineers, politicians and the general public to prepare for the end of cheap crude oil for several years now.

Goodstein is not a crazed millenairian, his expectations are based on the historical trajectory of a large number of mineral resources. If you look at the historical production from, to name a few, anthracite coal in Pennsylvania, British coal, North Sea oil, French uranium, US oil, there comes a time when the quality of ore declines, the location of remaining ore becomes inconvenient, production costs rise and production slows. I'd also recommend you take a look at the public lecture by Goodstein's Caltech colleague, engineer David Rutledge. He has also collected data on most of the resources I have mentioned here into an Excel spreadsheet that you can play with for yourself. (Full disclosure: I used to work at Caltech and Goodstein was the Ph.D supervisor of a good friend so maybe I am biased.)

There are many people, including Goodstein and Rutledge, who believe that Middle East oil supplies are near the point at which they will not be able to sustain current daily production. Based on the stated Middle East oil reserves you will usually see this does not seem very likely. However lets take a look at those reserves

Over the 25 years shown world oil consumption has exceeded announced oil discoveries by about 200 billion barrels of oil and non-OPEC reserves have remained roughly constant. Yet the OPEC reserves look remarkably constant year to year except for very sharp increases adding up to about 400 billion barrels of oil in the late 80s. (This plot is from Rutledge's talk.)

This jump coincides with an OPEC rule change that associated the amount of oil a country was allowed to sell each year with the size of its reserves. As Goodstein puts it "politicians discovered 400 billion barrels of oil without ever drilling a hole in the ground!" It seems to me likely that OPEC reserves are hugely exagerated, possibly by a factor of a few.

One other piece of simple available evidence. If you subtract Kuwaiti production since 1980 from reserves in 1980 you get about 50 billion barrels rather than 100 billion barrels of official reserves. This strangely enough is about what a recent leak from the Kuwaitis suggests they think they have.

The US Geological Survey, the US Energy Information Agency and the International Energy Agency all take these stated reserves at face value but on the face of it this does not seem credible.

So, finally, lets have a look at recent Saudi oil production (taken from the International energy agency.)

During the Iraq war in 2003 the Saudis were able to very rapidly increase production about 1.5 million barrels of oil a day to about 9.5 million barrels of oil. At this point they were certainly still operating as a cartel artificially restricting supply. Around April 2004 they were able to do the same again in response to oil prices rising out of the price bracket OPEC was attempting to protect (about $40US I believe). At this time Saudi Arabia's production quotas were increased to "legalize" this increased production and it was maintained at roughly this level for several years. Prices however continued to increase. At this point either the Saudis are unable to fulfill their stated goal of keeping prices low by increasing supply or they realise that the value of their oil assets is increasing with rapidly rising demand and are quite happy to sit tight at a comfortable production rate. This possibility is another of Soros's four factors affecting world oil prices. Alternatively they are simply unable to convince the rest of OPEC to further increase quotas despite both wishing to and being able to increase production.

Saudi production dropped significantly after April 2006 to as low as 8.5 million barrels of oil a day, this figure was significantly below their quotas at the time which is consistent with suspicions that some of their older fields are getting tired. However, this year production has been increased again to 9 million barrels of oil a day, presumably in response to increased prices. Production is once again roughly the same as the OPEC quota. Once again, either the Saudis and OPEC are quite happy with the current trajectory of oil prices or they are unable to increase production significantly. In recent weeks the Wall Street Journal has reported that the US has asked the Saudis to increase production and that the US was dissapointed with a Saudi response that they would supply only an extra three hundred thousand barrels a day. (The comparisons to quota come from here)

It is tempting to look at this plot and ask yourself if you feel lucky, how would you place a bet on future Saudi oil production/

Can the Saudis still increase production to 9.5 million barrels of oil a day?

I suspect not but I have to concede the evidence I have given is not compelling. I am just expressing an overall distrust of the Saudis and the feeling I get from reading around the issue. Ideally one would carry out a detailed study of everything that is publicly known about the various Saudi oil fields. Matthew Simmons has been arguing for this pessimistic view of Saudi oil reserves for years on the basis of just such a study, he seems well informed and has been a consultant on energy issues since the first oil shock. On the other hand I have not read his book and lots of people just think he is plain wrong.

Will the Saudis ever be able to increase production above 10 million barrels of oil a day?

Despite many official predictions to the contrary I would be willing to bet a large sum against this.

Oil Prices in Real Terms

The big news of the weekend is definitely the unprecedented crude oil price hike on Friday.

There have until recently been reasons to be complacent about rising oil prices. I am old enough to remember both Muldoon and carless days pretty well. So I am well aware that in real terms oil prices have been nowhere near the levels they reached in the second oil shock in the early 80s. Moreover oil supplies have been less important to the economy than they were in the 70s with the price of oil consumed being a relatively small fraction of GDP. Thirdly high oil prices seem like the most straightforward way to contain carbon emissions.

James Hamilton points out that the first two are not the case anymore, at least in the US. As the price went over around $100US per barrel earlier this year it went over the previous peak in oil prices (in 2008 $US) at around 1980. On the other hand, the value of oil consumed in the US peaked at around 8% of GDP in the early 80s and went as low as 1.1% in 1998. At an average price for the last year of $98US it's now about 5% of GDP.

Now the weakness of the US dollar may mean these figures are not so dramatic outside the US. If I was the Treasury gnome responsible for the oil price projection in the budget I would be trying to work out what the equivalent figures are for New Zealand.

(I saw the Treasury oil-price projection on an NZ blog in the last week but I can't remember where, and couldn't find it just now, so whoever you are I owe you a hat-tip.)

The End of the Begining of the US Presidential Race

Like everyone else I am preoccupied by the US presidential race. I'm a great fan of Barack Obama and I believe he will win but it is going to be close and there are things to be said for McCain. My reasons for supporting Obama include

1: I'm such a bleeding heart that I get chills every time I listen to one of those speeches. (I know, I know, I am trying to kick the habit.)

2: I liked him back when he was the kind of wonk who edits the Harvard Law Review and gives boring hour-long speeches about tax policy. Despite what some suggest I admire his record in the senate, starting with his commitment to nuclear non-proliferation. One policy wonk's discussion of this record can be found here.

3: I don't believe that McCain would be able to reverse the disastrous decline of US soft power and reputation in the world. Obama certainly could.

4: Removing the Republican establishment from the executive in Washington guarantees a return to a more reasonable notion of executive privilege and most importantly an end to US torture. Given McCain's uneasy relationship with his party I doubt he can achieve the latter and there is reason to believe he would not want to make changes on the former.

The conservative blogosphe in the US is awash with discussion of this lively attack on McCain by Daniel Larison in the American Conservative. Larison says "If style often beats substance, Obama is in trouble because, as his supporters tirelessly remind us, Obama does have a substantive policy agenda (even if he doesn’t spend as much time talking about it and a lot of his boosters don’t care what it is) and McCain’s entire campaign has been even more driven by biography and character than Obama’s." I couldn't have put it better myself.

Queen Bee may be regretting her very generous assessment of my blog. In my defense I will agree with her that one primary consideration for New Zealand's interests is trade policy. McCain is a free trade true believer and Obama is not. It may appear that there is some hope of progressing free trade negotiations for New Zealand under a McCain presidency. Queen Bee may be in much better position to assess this than I am. However a free hand to negotiate such arrangements has over the last decade been voted to free trade presidents by free trade congresses. This is not going to happen again in the near term. Regardless of what happens in the Presidential race, the Republicans are about to go down to a historic defeat in the House and Senate elections. The Democratic majority in both houses will be made up of socially conservative, economically populist, Southerners and Mid-Westerners, the so-called Blue Dogs. Opposition to free trade will be a signature issue for these people and I am almost certain US trade policy will be protectionist whoever is President. I would be sending all those new diplomats to Japan, Korea and India to negotiate free trade agreements there.

Another consideration for New Zealand's interests is that McCain is, I believe, on a personal level very friendly to Australia (where his father spent some time in WWII, he is a not infrequent visitor himself) and also perhaps New Zealand. This kind of personal connection can be important and I don't know of any connections Obama has to Australia or New Zealand specifically. In general Republicans are viewed as giving a higher priority to the Asia Pacific region than Democrats.

Progress of the Australian ETS

During the week Climate Change Minister Penny Wong told the Committee for Economic Development of Australia 'State of the Nation' Conference "the more emissions intensive industries who aren't making a contribution to emissions reductions through the ETS, the more work needs to be done by those industries [that] are making a contribution".

Eminently sensible.

Assistant Treasurer Chris Bowen on the other hand suggested during the week that the transport sector could be left out of the ETS. Asked whether this was consistent with the statements of other ministers he told the Australian "I have been consistent with what other ministers have been saying and that is that it is an open question, we are having a genuine process and there are genuine policy questions about how responsive petrol is to price increases and, given the big increases in petrol prices we have already had, whether another increase is going to do any good."


Bowen seems to be at the bottom of several outbreaks of what I will call petrol populism from the Australian Government in the last fortnight. A leak of cabinet papers has already shown him to be engaged in robust exchanges with other Ministers about exactly this populist approach. At the moment he seems to have very strong support from Rudd on this.

Read the Australian's profile on Bowen.

More on US Climate Change Policy

The cap and trade bill in the US Senate died on Friday, so it is back to the drawing board for US carbon pricing measures.

One heartening feature of the US climate change policy debate though is that outright denial of global climate warming is losing its grip on conservatives (when 8 of the 10 warmest years on the instrumental record have been in the last decade it's hard to see how one maintains this position but there you go.) A recent Kiwiblog poll suggests this has yet to occur in New Zealand.

As a result, some conservative debate is moving on to responses. Reihan Salam (here and here) nevertheless argues that the best thing to do is provide money for research and hope for a technical fix. I am not optimistic about this strategy. Ryan Avent responds here and here, putting the case for carbon pricing.

Monica Prasad wrote an excellent NYT editorial arguing for carbon taxing without spending. She makes the point that Denmark had great success reducing carbon emissions with a carefully designed carbon tax.

On the other hand this qualified defense of defense of cap and trade is worth considering.

The most enjoyable weekend read on this issue though was Charles Krauthammer's op-ed on oil prices. He's a keen cheerleader for the neo-cons, a dead ender supporter of the war in Iraq, an unabashed supporter of torture, and he doesn't believe in climate change. Nevertheless he thinks the US should be taxing the hell out of petrol! The geopolitical argument he makes for a US carbon tax is very strong. He is also correct that high petrol prices are finally changing the habits of US consumers.

Thursday, June 5, 2008

When did we stop thinking about carbon taxes?

I am very much a late-comer to the big questions of climate change policy. But there seems to have been a very broad consensus for some time now in Australia and New Zealand to back Emissions Trading Schemes of some kind, with both main parties in both countries being in favour.

Now in the Kyoto environment with definite emissions targets this seems like a good way to guarantee specific emissions levels. There are also good examples of working markets like the SO2 market in the US. In fact, I believe that as residents of Los Angeles for nearly four years my lungs are beneficiaries of some of the earliest emissions trading markets, aiming to reduce the notorious smog there. On the other hand the possibilities for rorting and gaming such systems seem to have had a very negative effect on the European CO2 market, and the politics in Australia and New Zealand begin to make it look like getting a scheme with teeth is too hard even with in principle support from essentially everyone.

It's interesting that in the US there is still a lively debate on the question of whether "cap-and-trade" (Yankee for ETS) or carbon taxes are the way to go. (There is a cap-and-trade bill in the Senate at the moment though.) I found this article to be a very interesting background to this debate. (Hat-tip Andrew Sullivan).

One person quoted there is William Nordhaus, one of the main exponents of a carbon tax, who has just written a fascinating sounding book that is reviewed here by the theoretical physicist Freeman Dyson. (Hat-tip Michael Nielsen)

Why is it not much simpler to just tax greenhouse gas emissions in terms of equivalent tonnes of CO2? (Or preferably commodities like petrol whose use will result in greenhouse gas emissions). One then adjusts the tax level, either to achieve the desired reduction in emissions or as we learn more about the response of the climate to our dangerous experiment of doubling atmospheric CO2 levels. In New Zealand this would absolutely have to include a tax on cattle, which I seem to recall has been pretty unpopular, but that should keep the Greens happy! If things are structured so as not to enormously increase Government revenue Tories might not be so put out either.

I'm now going to try to find out why this has not been the preferred option in the Antipodes.

Climate Change Will Probably Beat Us!

When these comments come from the highly respected economist and academic Ross Garnaut, charged by an immensely popular Prime Minister to fulfill an election pledge by designing Australia's response to climate change, it's at least, well, striking.

Presumably he is less pessimistic about the Australian response?

Tuesday, June 3, 2008

Shopping for a Nuclear Power Reactor

I've been asked to explain why nuclear power plants come in such inconveniently large sizes.

The main reason is economies of scale. The huge costs associated with safety measures mean that the industry in the US and Europe has focussed on building progressively larger plants. In fact 1200MW is considered mid-size.

Now it is true, that many reactors, including smaller reactors, have in the past been built to various one-off designs often employing the nuclear engineering expertise retained by governments of nuclear weapons nations. If you're familiar with complicated one-off technical projects, like the baggage handling system at Heathrow say, you will know that things often go awry with delays and enormous cost overruns being commonplace.

With no great indigenous nuclear engineering expertise, New Zealand should certainly go with one of the established companies like Westinghouse, Areva or General Electric, and use one of their established designs. The great thing about the internet is that you can go shopping for nuclear power reactors in minutes! When you do you will find that the smallest off-the-shelf reactors currently mentioned on their sites are 1154MW, 1200MW and 1500MW respectively. (Areva has recently supplied a pair of 1000MW plants to China but these were actually constructed by the Chinese, so for better or worse I am not counting them.)

I believe that the 600MW figure quoted by the Electricity Comission comes from older designs. Several of these companies have built reactors this size but no longer seem to be doing so. In principle one could try to place orders but it's very unlikely they would rejig their current setup for a single reactor, and if they did it would be unlikely to be cheap.

Eagle-eyed followers of the IAEA's indispensible Power Reactor Information System will note that the Indians have been building a series of 200MW reactors. According to the Switkowski report this design was "appropriated" from the Canadians in the late 1960s. You may recall that there are many issues with the proper separation between civilian and military nuclear endevours in India, and that India is not a signatory of the NPT. So I doubt we will be pursuing this avenue. Sadly the Canadians are now apparently building 1200MW reactors, there goes that number again.

Taking a Deep Breath

The Hive and the Otago Daily Times are right to argue that we should be able to calmly discuss the benefits or otherwise of nuclear power. This would be a great step forward.

My post yesterday may not exactly have achieved this. It's frustrating that media accounts of this issue do not clearly address the technical issues, such as reserve capacity, or the financial ones such as capital costs.

I remain of the opinion that these two issues mean that any discussion of the future role of nuclear power in New Zealand will be very short. When an established company such as Areva, Westinghouse or General Electric builds an affordable 400MW reactor we should revisit the issue. At that point, or when plans for such reactors are announced, nuclear power enthusiasts should lobby Government to set up the regulatory framework that would be required to licence and operate a nuclear power plant. This would allow power generating companies to properly assess the economics of nuclear power in New Zealand. The need for such a framework was the one of the main recommendations of the recent Switkowski report on nuclear power in Australia. I'd recommend this report to anyone interested in the issues related to starting a nuclear power industry and I do think that Australia should be thinking seriously about the issue. Be warned that it takes a very optimistic view of the challenges involved. (The nuclear power enthusiast should watch the outcome of the Australian Labor party's internal machinations on this issue, and the related issue of uranium mining, and attempt to take advantage of any nuclear regulation regime set up in Australia in the next few years.)

On the subject of regulations; I'll note here that while the nuclear free legislation bans nuclear weapons and nuclear powered warships, I do not believe that civilian nuclear power stations are illegal in New Zealand. Any lawyers out there willing to argue the toss?

Monday, June 2, 2008

Questions to Ask a Nuclear Power Salesperson: First in a Series

The chattering classes in New Zealand are having one of their periodic flirtations with nuclear power. There have been not one but two polls on the subject, one of which suggested that as many as 36% of New Zealanders might be ready to consider it as a possible solution for New Zealand's current power shortages and rapidly increasing carbon footprint. It's getting discussed on the TV and radio. Even artists, opposed to the environmental devastation of wind farms, are wanting to go nuclear! What ever happened to nuclear free New Zealand?

It seems to me that despite the various emotional issues that tend to lead to differences of opinion between the left and the right on this issue, there are pretty hard headed reasons why New Zealand will never build a nuclear power station.

So if you are faced with a nuclear power salesperson why don't you try to find out the answer to some of these questions.

Question 1: Who is going to build and maintain all that reserve capacity?

Power stations, including nuclear power stations, sometimes have to be taken off line because of some issue at the plant. When that happens you need an equal amount of power generation sitting around ready to fire up so that the lights don't go off. Currently the largest power stations in the grid are less than 400MW, so that's roughly the reserve power generating capacity we are currently struggling to maintain. A nuclear power station that we would want to buy might put out as much as 1200MW of power. It seems we would need to MORE THAN TRIPLE our already stretched reserve power capacity to put a nuclear power station on the grid. Oh and you can't build two nuclear stations and leave one idling, unlike coal fired stations and hydropower, nuclear power stations can't be switched off for long periods. This issue is what the statement from the Electricity Commission is trying to get at.

(To give you an idea of the numbers, average demand in New Zealand at the moment is about 4500MW and apparently you can expect a nuclear power station to be on-line about 90% of the time, as opposed to 30% for wind. Oh and I disagree with the Electricity Commission that we would even want to think about a 600MW nuclear plant, but it is true that they have been built that small, and smaller. That's another blog post; and 600MW would mean nearly doubling reserve capacity in any case.)

Question 2: Where are you going to get the US$7 billion to build one?

There are lots of arguments that nuclear power may work out to be economic in the long run, particularly if carbon emissions become sufficiently expensive. (The Electricity Commission say that it may only be twice as expensive as our current power generation, although estimates of the cost vary widely and depend on whether a well established design is being used and how many plants are being built.) However, a really significant fraction of the cost of the power is the cost of the power plant itself. This makes nuclear power hugely capital intensive. Given that this is an enormous problem for the well-established nuclear power industry in the US it's likely to be pretty difficult to solve in New Zealand.

Make sure you ask the nuclear power salesperson about these issues before you ask them about long term waste storage, safety, the lack of nuclear engineering expertise in New Zealand, or the future price and availability of uranium!

Oh, and ask your politicians why they are not investing more in energy conservation measures, wind power, solar power, and my current favourite solar thermal.


Against my better judgement I am going to give this blogging gig a go. I am a New Zealand born theoretical physicist currently living in Australia. If I say "we" I probably mean "we New Zealanders".

I'll rant about whatever comes to mind, but currently I am interested in learning more about policy responses to global warming and high oil prices. I'll also have a few words to say about nuclear issues.

The title comes from a Louis Macneice poem Star-Gazer which gives some feeling for why a person becomes a physicist.

What's that rumbling sound?

In retrospect, one of the most demoralising aspects of the National party withdrawing support for the Emissions Trading Scheme currently dying a slow death in the New Zealand Parliament was the claim that we should wait for the Australians.

Why? We could be waiting a long time.

Australian politicians have yet to face the hard choices on an Emissions Trading Scheme and the new government seems not much given to making hard choices. If the Australian government thinks it needs to be seen to put downward pressure petrol prices currently (and for those not paying attention it does), how long is the transport sector going to remain in the Australian ETS? What about the mining industry?

What if neither country has a meaningful emissions trading scheme in 2012?

The rumbling sound, by the way, is either rapidly growing disaffection with the idea of an ETS in Australian industry, or Ross Garnaut getting ready to finish his report, or both. I wouldn't want to be Penny Wong right now.