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  • Our highly taxed and depived country folk, and other myths

     

    Leaving aside the sea change factor, people have been drifting from country to city for the best part of a century. Why? Because of the increasing mechanisation of agriculture. There is unceasing pressure for farmers to use more and better machines to replace human labour. Our farms produce more than they ever have, but need fewer people to do it.

    With the increased use of expensive machinery there’s continuing pressure for individual farms – including dairy farms – to be bigger to better exploit economies of scale. That is, for farmers to sell out to their bigger neighbour and find work elsewhere – in the nearest regional centre or in the state capital.

    The pressure comes in the form of their bigger neighbours being able to operate profitably despite falling real prices for their produce – prices at which smaller, less efficient producers can’t survive. Real prices fall not so much because of the rapacious behaviour of Woolworths and Coles but because market forces – competition between producers – cause the benefit of economies of scale to be passed on to end consumers (via the much traduced Woolies and Coles). In a well-functioning market economy it’s not the producers who win, it’s the consumers.

    Country people don’t enjoy seeing people leaving the district, and small farmers don’t enjoy being forced off the land. But are these long-standing trends a bad thing? They’re the product of the capitalist system (you’re not a socialist, are you?) and the technological advance it fosters and exploits (nor a Luddite?).

    The notion that the regions should be given a fair go is appealing, even to city slickers. But what is fair? Country people are convinced they’re being ripped off: they pay all this tax, but the city people spend most of it on themselves and send only a trickle back to the regions.

    One small problem: it ain’t true. For a start, on a per-person basis country people pay less tax than city people do. That’s because incomes in rural areas are generally lower and they have a higher proportion of retired people.

    What would be a fair distribution of government spending – equal amounts per person in country and city? Actually, governments spend more per person in the country than they do in the city. According to calculations by a government agency, spending on hospitals is 7 per cent higher in moderately accessible regions than in the highly accessible capital cities.

    In remote areas the cost differential per person rises to 14 per cent and in very remote areas to 44 per cent.

    For schools, spending per student is 12 per cent higher in moderately accessible regions, 34 per cent higher in remote areas and 60 per cent in very remote. The story for spending on policing is similar.

    But how is this possible when it’s so clear the quality of these services in country areas is less than the quality people receive in the city? It’s possible because the cost of delivering services in the regions is so much higher relative to the (small) number of people for whom the services are being provided (and relative to the number of country taxpayers).

    It’s much cheaper to deliver services to people when they’re all crammed together in a big city. Citysiders have economies of scale working for them, whereas country people have scale economies working against them. That’s no one’s fault, it’s just a fact of nature.

    When governments install some new and expensive facility in the big city, tens of thousands of people are able to take advantage of it and so reduce its cost per person (and per taxpayer). Were such a facility installed in some small town, the cost per person assisted would be remarkably high. Even if it were installed in a big regional centre, the cost per person would still be a lot higher.

    So now you know why facilities are so much better in the cities than in the region: hard economics. If you say that’s not fair and people in the country deserve equality in the quality of services provided, you’re saying you want city taxpayers’ subsidy to country taxpayers to be even greater than it is (so you are a socialist, are you?).

    Most Australians crowd into big cities and they do so for good reasons: more and better-paying jobs, plus better services, both public and private. They put up with the drawbacks of city living: much higher housing costs, unpleasant commuting, congestion, tar and cement, and less feeling of community.

    Country people prefer living in the regions for the opposite sets of reasons. It’s a free country and that choice is up to them.

    Ross Gittins is economics editor.

  • Mexico’s Push To Install 3,000 MW of Wind by 2014

     

    Another large undertaking is under way in Baja California where the Spanish electricity company Union Fenosa has teamed with US-based Sempra Energy to build two parks capable of generating 800 MW. However, their output will be siphoned across the border to California, not to Mexico’s grid. A slew of other smaller projects should add another 400 MW to the country’s power grid, observers say.

    Oaxaca Venture

    With 300,0000 inhabitants, Oaxaca is a windy region in Southern Mexico resting 1555 meters over the sea. The wind is so strong that 7,000 houses lost their roofs when a cold front passed through this past February.

    The upcoming project will see the installation of 13 to 14 wind parks to raise output to 2,500 MW by 2014. Of the 14 parks, only four are government sponsored. Overall, only 20% of all the planned wind power capacity installations will be bankrolled by the state. Some people worry that the government isn’t setting aside enough money to encourage more development.

    “We need more domestic funds to support these projects as most of them are project financed by international banks,” says Tejeda. “We also need a feed-in tariff and I hope the government will include this eventually.”

    Centeno says such an initiative is not currently on the drawing board, but that the current incentives are enough to attract foreign investors.

    That was also the view of Miguel Angel Alonso, director of Acciona Wind Power Mexico, who says the Oaxaca return rates are “very attractive.” He declined to talk about Acciona’s competitors’ projects or to comment on specific government policies to develop the wind industry, however. Acciona recently won a concession to build a 300 MW project in partnership with Mexican cement giant Cemex that will sell its electricity to the Comision Federal de Electricidad.

    Selling electricity directly to the state is rare. Around 80-90% of the turbines expected to tower across Mexico will feed corporate clients – so far Walmart and Cemex – with others expected to follow.

    Stronger Wind

    Tejeda says Acciona and the other Spanish firms will strike gold in Oaxaca. This is because the region’s wind flows more furiously than many other parts of the world.

    “Oaxaca has a lot more wind than Brazil or Europe so you get a higher output/cost benefit,” Tejeda explains, adding that the complex’s wind-turbine efficiency ratings stand at 40% compared to 20% in Spain, Denmark or Germany.

    Like Tejeda, Gustavo Camougnani, a Greenpeace campaigner, says the state must do more to support a domestic industry instead of allowing foreign firms to dominate in the market.

    “We need more of this energy to reach Mexicans, not just a bunch of rich corporates,” he says, noting Felipe Calderon administration’s current plans as having “little ambition.”

    “Wind blows harder in Mexico than other countries and it’s in fact much more abundant than in Spain. So why has Spain succeeded?” Cayuga asks. “They have invested, something that the Mexican government is failing do to because it still mainly sees itself as an oil producing country. It needs to change its mindset or it won’t develop its renewable energy potential.”

    If the government got more serious about wind, it could have as much as 43,300 MW of installed capacity by 2030, Camougnani predicts, citing Greenpeace studies.

    Tejeda was more positive about the government’s involvement, however, noting that the wind energy that will soon come online will help cut industrial CO2 emissions from growing industries. While the government could do more, “it has done a lot and the legal framework is in place.”

    He expects Mexico to continue to develop its wind market to someday supply 20% of its electricity needs, down from a meagre 1% currently.

    At least when compared to Latin American’s other wind giant, Mexico’s industry will rank second when Oaxaca is completed, Tejeda says. But certain technical glitches could delay the towering projects. Tejeda acknowledges many grid connection challenges remain and must be solved before Oaxaca comes online.

    “We don’t know how the grid is going to react once 2,000 MW suddenly switch in,” he says. “There is no experience about how to do this in Mexico but hopefully we will learn little by little.”

  • The dirty topic of peak oil : get ready to reduce your reliance

     

    No one can say with certainty how much oil is left in the ground nor how much it will cost to take it out. As with climate change, the search for certainty in relation to oil supply is a fool’s errand. But while no-one can say with certainty how much is left, virtually no economists or oil industry analysts disagree with the statement that oil production cannot keep growing forever. The notion that oil production must one day peak is now referred to as ‘peak oil’.

    While there is virtually no debate that oil production must one day peak, there is much debate about the timing and significance of such a peak. For those who have become accustomed to talking about emission reduction targets for 2020 and 2050 it may come as some surprise to learn that the mid-range forecasts for the peak in global oil production are 10-15 years. This does not mean that there will be no oil in 10 or 15 years time, but it means oil is going to get a LOT more expensive. Put simply, if demand continues to rise and supply starts to fall the days of the average Australian driving their Landcruiser to work will be over.

    Peak oil concerns exploded during the rapid escalation of oil prices prior to the 2007 global financial crisis. These concerns have been underscored by official bodies such as the IEA warning of a possible “supply crunch” brought about by a lack of new investment following the crisis, and of rising depletion rates from existing fields.

    According to the CEO of Lloyds Insurance, there are three factors combining to create deep uncertainties in how we will source energy for power, heat and mobility, and how much we will have to pay for it. These are the growing constraints on “easy access” oil, the urgency of reducing carbon dioxide emissions, and a sharp rise in energy demand from the emerging economies, particularly China.

    As with climate change, the debate about peak oil is not simply confined to whether it exists or not, but whether it is worth worrying about. Some economists simply argue that as prices rise rapidly people will be forced to use a lot less fuel. While this is no doubt true, the potential disruption to the broader economy of people not being able to afford to drive to work are significant, to say the least.

    World economies are built on oil. As occurred in response to the OPEC oil shock of the 1970s, skyrocketing oil prices are likely to result in severe disruption to those economies, with central banks raising interest rates to slow inflation, people out of work, and famine and civil disorder in the third world, as much agricultural production depends on oil.

    The obvious policy response to the inevitable peak in oil supply is to begin to reduce our reliance on oil well before we are forced to do so. But what would that entail?

    Subsidies for oil use are common around the world and need to be phased out. Wastefully low rates of fuel tax in the US should be changed. Countries like Australia, while small in terms of their contribution to demand, have a role to play. Fuel and road-pricing regimes need to be altered to encourage fuel efficiency. A congestion tax and investment in public transport would help to shift people from the least to the most fuel-efficient forms of transport. Alternative fuels like natural gas can be promoted and fringe benefits tax concessions on company cars that encourage owners to drive more to pay less should be scrapped.

    Some of the alternatives to conventional oil are becoming economic at current prices, and might offer a way around peak oil. But it must be recognised that they can involve extremely high and possibly unsustainable costs in terms of greenhouse gas emissions. The extraction of oil from tar sands, for example, or its processing from coal and natural gas generates enormous amounts of greenhouse gasses. This poses a potential dilemma for policy, but the answer is actually quite simple — a price on carbon.

    As luck would have it, the policy prescriptions to prepare for peak oil are almost identical to those required to reduce our greenhouse gas emissions. Let’s hope that policy makers who are disinterested in saving the planet will pay a bit more attention to saving the economy. It’s inevitable that we will run out of cheap oil, but it need not be inevitable that our economies grind to a halt.

    But if we are to avoid another big and permanent increase in the price of oil, we need to invest in early adaptation. It will be costly and difficult to redesign cities, switch the vehicle fleet to new forms of fuel and invest in public transport. Ironically, it will be much cheaper and easier to make such investments before the price of oil surges, rather than after. Early investment in adaptation measures will pay high dividends in the future.

    And who knows, if in 20 years someone finds an enormous new oil field in the middle of Australia, all that preparation might have served only to avoid catastrophic climate change. And wouldn’t we feel silly then.

    *Dr David Ingles is a Research Fellow at The Australia Institute, a Canberra-based think tank. He is the author of Running on empty? The peak oil debate.

  • Running on empty? The peak oil debate.

    Peak oil concerns exploded during the rapid escalation of oil prices prior to the 2007 global financial crisis (GFC), and resurfaced recently when oil prices appeared to resume their upward trend. These concerns have been underscored by official bodies such as the International Energy Agency (IEA) warning of a possible ‘supply crunch’ brought about by a lack of new investment following the GFC.
    The paper suggests that a carbon tax rather than a trading system is the optimal method for pricing carbon, but ultimately the method is not as important as the existence of a price that is relatively uniform across countries and is sufficiently high to materially affect production and consumption decisions, particularly the decision as to whether or not to pursue the development of emission-intensive alternatives to oil. In the medium term, the circumstances created by a price on carbon will likely expand the use of natural gas, both for power generation and transport; in the long term, it is likely to expand the role of electric vehicles and non-fossil forms of power generation.
    As with climate change, the most cost-effective response to the inevitable but uncertain timing of peak oil is to invest in early adaptation. It will be impossible to redesign cities, switch the vehicle fleet to new forms of fuel and transform the location decisions of producers in a timely manner after the oil supply has peaked. Early investment in adaptation measures will pay high dividends in the future, whether in response to peak oil, climate change or simply better city design and reduced congestion on roads.
    The paper concludes by suggesting that the peak-oil issue is sufficiently important for regular official re-assessments of the situation to be designed and implemented. If mitigation actions are not planned in advance, the alternative may be for a future where periodic price spikes and shortages affect the nation’s ability to manage the economic cycle by causing the re-emergence of ‘stop-start’ economic conditions such as those experienced in the 1970s.

    Sections: Economy | Government and Accountability | Environment

  • The Scale of the low-carbon task is immense

     

    A new paper in Science by Dr Steve Davis and colleagues at Carnegie Institution of Washington in Stanford, California, gives us a clear estimate. Davis says that our existing energy infrastructure will put about 500 gigatonnes (Gt) of CO2 into the atmosphere during the course of its life (this is about 15 times the world’s annual emissions from all sources today).

    The paper calculates this number by examining the number of power plants, motor vehicles and homes around the globe and estimating how long they will remain in use. The research team found that in the past, the average electricity-generating station lasted about 35 years before being demolished. Cars typically run for about 17 years before being scrapped, lorries and buses nearer 30. Since we know when all the power plants in the world were constructed and the average age of the planet’s vehicles, Davis and his colleagues could estimate how much carbon dioxide will be emitted by existing infrastructure during the remainder of its life.

    Put another 500Gt of CO2 into the atmosphere between now and 2050, and the expected temperature rise will be about 0.5C of extra warming on top of what we have already seen. (Of course there is a very wide range to this forecast because of the uncertainties in the models of how temperature change is related to emissions). Davis and his colleagues make the point that if we stopped building new coal-fired power plants tomorrow and manufactured no new cars or trucks we would therefore keep warming well below the 2C increase which global scientists think is the maximum tolerable. Davis’s climate models suggest that CO2 concentrations in the atmosphere would rise to about 430 parts per million (ppm), a rise of about 40ppm on today’s level and well below the 450ppm level that scientists often associate with 2C of warming.

    That’s the good news – today’s energy infrastructure probably isn’t enough, by itself, to topple us into wholly unmanageable climate change. The bad news is that this figure assumes that we build no fossil fuel power stations in the future and that all our new vehicles and homes are zero-carbon. That’s not going to happen and the scale of the challenge is grimly indicated by the current rate of growth in low-carbon electricity. Of the 1,300 gigawatts of new power station capacity built since 2000, 31% uses coal, 34% gas and 4% oil. This leaves 2% nuclear and 17% renewables. And even this number substantially overestimates the share of future electricity production coming from renewables since both wind and solar power plants only produce a fraction of their maximum output. The wind and the sun aren’t available all the time.

    In a perspective in Science, Dr Marty Hoffert of New York University looks at how much energy we are likely to need to meet the world’s requirements in future. Keeping the world’s economy going requires continuously production of about 14,000 gigawatts of energy. That’s equivalent to about 10,000 large-scale power plants. As the world economy grows, this is likely to rise to at least twice this level by 2050, even if we achieve major gains in the efficiency with which we use energy. So the challenge is to run down existing carbon-polluting energy sources rapidly and to replace them with atmosphere-friendly equivalents.

    The scale of this task is immense. My rough calculation is that the world needs to ramp up its yearly rate of installation of low-carbon energy about 30-fold from today’s levels within the next couple of decades.

    A few wind turbines aren’t going to be enough.

     

    • Chris Goodall is a businessman, author and climate change expert

  • World bank hints Africa is ‘quick win’ for land grabbing investors

    World bank hints Africa is ‘quick win’ for land grabbing investors

    Ecologist

    14th September, 2010

    Report on land-grabbing reveals large-scale farmland deals amounted to 45 million hectares in 2009 alone with 6 million hectares expected to be added every year in less industrialised countries

    Activists have criticised the World Bank for effectively ignoring the harsh reality of land grabbing being faced by local populations and instead, showing the way for investors.

    The World Bank’s long-awaited report on the controversial issue of land grabbing in less industrialised countries looks at the scale of the situation and the risks to local populations. It also makes recommendations for how investors and governments should act in the future to ensure more responsible investments.

    As part of its detailed analysis of 14 countries, the report highlights Africa’s ‘large amounts of suitable but currently uncultivated land’, together with its history of weak governance.

    It states more than half the land that could potentially be used for expansion to meet commodity demands is in just ten countries, of which 5 are in Africa – making it a potential target for investors.

    Campaigners said the World Bank was effectively promoting Africa as a ‘quick win’ for investors and that there should in fact be a moratorium on all land grabbing.

    ‘What we are already seeing in many African countries is Neocolonialism; the land is being carved up,’ said Kirtana Chandrasekaran, Food Campaigner at Friends of the Earth.

    Chandrasekaran said local communities were not benefiting from land grabbing and the report showed there was no sustainable land model. She also accused the World Bank of ignoring the importance of strengthening governance and protecting the rights of local populations.

    ‘A lot of people are losing land and their means of livelihood with no compensation… It’s illogical,’ she said.

    While the report does stress the importance of respecting land rights it doesn’t appear to state how this should be enforced, nor how best to approach those local populations or farmers who are without, or who are unlikely to be aware of, such rights.

    Jodie Thorpe, Policy Advisor at Oxfam said it, ‘glosses over what needs to be done in order to ensure rights of local populations.’
    ‘Laws on paper can be good but the ability or capacity to enforce these laws is often lacking,’ she added.

    Useful links
    World Bank report ‘Rising Gobal Interest in Farmland’
    Friends of the Earth’s report ‘Africa up for grabs’
    FIAN’s campaign to ban land grabbing