All posts by Robert Merkel

Sundries

Nibali a shoo-in, but plenty to watch for in Tour’s last week

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It’s the curse of the commentator, political or sporting, that they are required to find drama where little exists. And this Tour promised so much. In the last major lead-up race, the Criterium du Dauphine, 2013 Tour winner Chris Froome and 2009 winner Alberto Contador fought a see-sawing battle over several mountain stages, only to have the race taken from under them by an enterprising, tactically astute and lucky attack on the last stage by young American rider Andrew Talansky. Vincenzo Nibali, meanwhile, looked a step below the two favourites. But, still, it looked like a closely-fought Tour was at hand. Meanwhile, the battle for the Tour’s flat stages was almost as tantalizing – could the diminuitive Mark Cavendish regain his ascendancy over Ivan Drago Marcel Kittel?

Continue reading Nibali a shoo-in, but plenty to watch for in Tour’s last week →

Climate Policy & Planning, Politics & Government

The consequences of vertical fiscal imbalance

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This is belated, but I still think worthwhile.

Jess Hill’s cracking article in The Monthly (you can read a limited number of articles online per month without a subscription), and the recent Four Corners program on renewable energy, are required consumption for anybody interested in the history and future of electricity supply in Australia.

In short, the electricity distributors (who hold a natural monopoly over their corner of the market) predicted continued growth in electricity demand and then persuaded the energy regulators to let them increase their charges to pay for said infrastructure. This accounted for most of the growth in electricity prices, despite the nonsense about the carbon tax from the right of politics. The reasonableness of these predictions can be debated; the fact that they led to massive profits for the distributors is now clear. In the face of these increased prices, something amazing happened – absolute demand for electricity dropped substantially. Part of this can be attributed to rooftop solar, some to energy efficiency; regardless, the huge infrastructure spend has turned out to be almost completely unnecessary. Along the way, grid electricity generators have felt the squeeze between falling demand and mandated construction of renewable energy through the RET, and are now lobbying hard to prevent more renewable energy being connected to the grid.

The future is a topic for another post, but there is one point about the past and present that Hill’s excellent report hasn’t really gotten in to. Particularly in NSW and Queensland where the price increases have been greatest, the electricity distributors are state-owned, and the profits have gone to the state governments. Dividends from the distributors have filled a pretty substantial gap in those state budgets; however, they’ve done so in an extremely inefficient way. Billions of dollars has been wasted building unnecessary infrastructure so that the state governments could collect revenue from the monopoly profits. Hill’s article reports $45 billion dollars worth of infrastructure has been built nationally; in Victoria’s privately run grid, one third of the infrastructure spending went towards peak capacity augmentation, whereas in NSW and Queensland about two-thirds was spent on the same area. Based on this, my rough guess is that in those two states, at least $7-8 billion was spent on unnecessary capacity augmentation.

In a sane world, if state governments need more revenue, they would raise taxes. But because of Australia’s strange fiscal arrangements, where state governments spend a large fraction of total government revenue but only collect a fraction of it, it’s easier to whinge about the vicissitudes of the Commonwealth Grants Commission and raise this kind of hugely inefficient stealth tax.

So next time somebody mentions “vertical fiscal imbalance” and “narrow tax bases”, try not to let your eyes glaze over. It’s boring, but it’s important.

Technology

The Heartbleed security vulnerability

Over the past couple of months, I have written a series of articles at The Conversation about one of the most serious software security flaws in history – the evocatively named “Heartbleed”.

The most recent article discusses the continued fallout from the event, and the tardy response of some system administrators and software developers. However, if you didn’t follow this story when it emerged in April, the first article explains the problem and the consequences in some detail, and the second article discusses how the discovery of the first bugs encouraged more scrutiny that found yet more problems.

Tomorrow, something on climate – a followup of sorts to Jess Hill’s cracking article in The Monthly about power prices.

Climate Change & Sustainability, Climate Policy & Planning

Fuel efficiency standards – a no-brainer

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Hi.  You might know me from such blogs as the late, great Larvatus Prodeo. For those of you who don’t, my day job is teaching software engineering at Monash University, but I’ve had a long-standing interest in public policy, and particularly the intersection between climate change and public policy. I hope you find my posts an interesting addition to the blog!

The (possibly reprieved) Climate Change Authority has continued to produce high-quality analysis that a sane federal government should examine very closely, and its latest report is no exception. It advocates for a mandatory emissions target for light vehicles (that is, vehicles you can drive on a car licence) sold in Australia, and proposes some design principles and options for implementation.

The proposed scheme would establish “fleet-wide” emissions targets for manufacturers, with an adjustment for vehicle footprint; that is, the target for a particular vehicle is adjusted by the size of that vehicle. As the report puts it,

The standard should differentiate obligations based on the size (footprint) of the vehicle, ensuring equity across suppliers while maintaining consumer choice and maximising flexibility. This approach ensures that the option to lightweight vehicles,
a major emissions reduction strategy in new vehicle design, is maintained.

I’m a bit ambivalent about this, and it shows one of the weaknesses in this kind of regulatory mandate as compared to alternative approaches like simply increasing fuel taxes. All things being equal, smaller vehicles are more fuel efficient than larger vehicles; encouraging people to make the switch away from vehicles than they need would actually be a good thing. But a flat target would encourage manufacturers who sell an above-average proportion of small cars to not do anything, as they will be able to meet their targets without actually improving their vehicles beyond business as usual.

In any case, what is most striking about this is how out of step with global practice Australia is; most other OECD countries have an enforceable fuel efficiency target of one kind or another. As Evan Beaver pointed out on Twitter, it was mostly another aspect of the multitude of small-beer decisions taken to protect the Australian car industry. Since the demise of Corolla production, Australia’s domestic producers have exclusively churned out large vehicles, mostly with large, not particularly sophisticated petrol engines. When combined with Australia’s low levels of fuel taxation, this further encouraged Australians to indulge their long-standing penchant for large, powerful and thirsty vehicles. The consequence of this is one of the most fuel-inefficient light vehicle fleets in the world, matched only by the USA with its love for Ford F-150s and Chevy Suburbans.

One of the great things about doing this is that it’s actually a net win for the country even ignoring the social costs of climate change; the extra costs of more fuel efficient technologies in vehicles are more than outweighed by the lifetime value of the fuel savings. As a society, the report estimates that rather than paying costs to avoid carbon emissions, every tonne of carbon emissions avoided through this policy would also result in a net saving of over $350. You might wonder why this policy is actually necessary; the short answer is that both consumers and businesses seem to undervalue emission savings when considering a new vehicle purchase. I’d prefer to fix this with fuel taxes and congestion charging, but if that’s not on the table it’s a reasonable alternative.

Even within a model range, the savings by simply changing the mix of drivetrain variants available are substantial. The Climate Change Authority compared the fuel efficiency of models available in both the UK and Australia, and found that, on average, the most efficient models available in Australia emit 20% more emissions than the most efficient models available in the UK. That probably overstates the difference between the typical models sold in Oz and Blighty, as many of the economy specials sold are heavily compromised to the point of impracticality and sell in tiny numbers. But even if you assume a 5% difference in the economy of your average Pommy Toyota Corolla and the Australian equivalent, that adds up to a lot of money.

Based on the data in the report and my assumption that Australian fuel usage is 5% higher than it might otherwise be purely because of the engine variant choices within a model range due to the lack of fuel economy targets, this results in Australian consumers and businesses burning about 1.2 billion litres more petrol than they otherwise might. At the current fuel price, that’s 1.8 billion dollars a year, every year, wasted, in that long and ultimately futile attempt to keep the Australian car industry alive.

The demise of the Australian car manufacturing industry represents an opportunity to fix a number of boneheaded transport policies. It would be nice if this anomaly was one of them.