North Sea gas taxes are sloppy thinking

6473

north-sea-gas-taxes-are-sloppy-thinking

The announcement in the Budget of a supplementary tax on North Sea oil and gas producers has gone down badly. Exploration and Production (E&P) businesses are distinctly unhappy, although the strong oil price provides some justification for the Treasury’s controversial decision. At a general level, the Government should be seeking to cut taxes rather than increasing them. Its efforts to deliver meaningful cuts in public expenditure, despite all the hype, remain disappointing – there are still billions of pounds of potential savings.

Hence, expenditure cuts should take priority over tax increases – unless there is a quite compelling case. Strangely perhaps, oil prices are currently strong – at around $117 per barrel of Brent crude – in apparent contrast to the severe weakness of many EU economies. But E & P investors have to assess their potential returns on a long-term basis, rather than on the prevailing spot price.

Such investors, given the inherent risks of E & P activities, also welcome consistency – rather than constant changes – on the tax front. Given that the comparative trading value of gas per unit is around halve that of oil, the case for higher gas taxation is much weaker. With North Sea gas supplies running down, there are real concerns about future gas investment, which is desperately needed as the UK’s electricity generation requirements, post Fukushima, become increasingly dependent on gas-fired plants.

Recently, Centrica, which supplies almost half of the domestic gas market under the British Gas brand, confirmed it is reassessing the future of its key Morecambe South gas-field. Following the supplementary charge imposed by the March Budget, the gas taxation percentage for this field has risen to a whopping 81%. No wonder, Centrica is baffled by the Treasury’s thinking, with such penal rates bringing back memories of the 83%/98% (earned/unearned) maximum income tax rates under the 1970s Labour Government. North Sea gas taxation needs an urgent re-think.

Bjorn Lomborg's Cool It

6452

bjorn-lomborgs-cool-it

Yesterday I attended a screening of "Cool It" at the Legatum Institute, with comments by its writer and presenter Bjorn Lomborg. While he accepts the calculations of the International Panel on Climate Change, he believes that the environmentalist movement largely fails when it comes to solutions to climate change. For the libertarian movement this is a very important debate. It seems wise to accept that climate change may indeed be a problem, and to offer our own solutions, rather than trying to dismiss the very notion that solutions may be needed.

Lomborg's criticisms of the current consensus are powerful. Pledging to cut emissions is clearly getting us nowhere, and attempting to raise the cost of carbon would be damaging for consumers facing higher prices. Cap-and-trade schemes whereby carbon permits are allocated and sold to businesses are prone to huge government failures: the inevitable capture by corporate interests may even result in businesses finding it more cost-effective simply to produce the pollution rather than actually manufacturing anything.

Similarly, governments trying to pick winners suffer from perverse incentives. By artificially deciding what technology will be the future of green energy, investment takes place in building more rather than in making it cost-efficient. Lomborg uses the brilliant analogy of attempting to build more computers in the 1950s. Fortunately, we didn't, and instead waited for the technology to develop. But vested interests also intrude themselves on the process, for example denying an equal footing for technologies that really could challenge vested interests.

However, his own solutions are also problematic. Lomborg claims that the best alternative is to spend the current funding on research and development: it is more cost-effective. But politicians want to build a new technology ready for a photo opportunity rather than invest in something so long-term. Lots of this money will also be wasted, and Lomborg acknowledges this too - he wants to 'let a thousand flowers bloom', funding both success and failure as only a handful of major breakthroughs are needed for it to be worthwhile. Furthermore, the funded researchers may become costly subsidy junkies, exaggerating their claims in exactly the same way the environmentalists do, themselves becoming harmful vested interests.

So why not leave it to the market? After all, the market system is characterised by both success and failure; by competition. It allows experimentation at no cost to the taxpayer, and involves no perverse political incentives. Indeed, levelling the playing field by reducing subsidies for existing industries could further reduce the taxpayers' burden. We need more money to go into research, and this too is achievable by reducing the crowding-out effect of state-funded green technology. Bjorn Lomborg is right to move the debate to solutions rather than problems. But libertarians now need to figure out the best solutions.

Anton Howes is Director of the Liberty League, a network for UK-based libertarians.

Are we running out of oil?

6385

are-we-running-out-of-oil

Are we running out of oil, copper and other resources? No. Steve Horwitz explains why a free market's price system is the environmentalist's best friend.

The Tourniquet Theory

6372

the-tourniquet-theory

Matt Ridley's come up with an interesting idea: The Tourniquet Theory. There are times when radical action like wrapping a tourniquet around a limb is a very wise thing indeed to do. Like, say, when the lower part of said limb has been ripped off and your heart is now pumping your life's blood into the dirt. There are other times when it's not so sensible: like applying a tourniquet to the neck in order to control a nosebleed.

This analogy can then be applied to, say, our actions over climate change. Biofuels are the neck type:

The production of biofuels may have led to at least 192,000 additional deaths and 6.7 million additional lost disability-adjusted life years in 2010. These estimates are conservative [and] exceed the World Health Organisation’s estimates of the toll of death and disease for global warming. Thus, policies to stimulate biofuel production, in part to reduce the alleged impacts of global warming on public health, particularly in developing countries, may actually have increased death and disease globally.

Sadly, many more of the things that we're doing seem to be of the neck type as well. For example, wind simply isn't reliable enough to provide the power that we'll need in the future. Even if we covered both the land and the seas with the things we still won't have a reliable electricity generation system. Not using gas on the basis that it's running out also seems to be of the neck, not saving a life, type. For shale gas, frakking, means that once again we've invented a natural resource by advancing technology.

I know that I'm repeating myself yet again when I say that I do think that climate change is a problem, one that we should do something about. But what has me in near despair is that all of the things we are actually doing aren't the right things to be doing. They're very much more like strangling the economy to cure a nosebleed than they are a necessary and vital part of maintaining life.

Waiting for the lights to go out in California

6350

waiting-for-the-lights-to-go-out-in-california

The State Legislature of California has just passed a law requiring that:

Earlier today, the California Assembly passed a bill that would oblige state utilities to get a third of their energy from renewable sources by 2020.

I have the popcorn making scheduled for late 2019 as we watch the lights go out all over California. Because there's no way at all that this can actually happen.

To take one of the supposed benefits of the scheme first, supporters claim that this will create 500,000 "green collar jobs". And as we've shouted repeatedly over the years, jobs are a cost of a scheme, not a benefit. A certain M. Bastiat pointed this out 161 years ago: enough time, surely, for even Californians to have grasped the idea? This will mean 500,000 people not designing computers, caring for the elderly, making movies or growing garlic (that last actually an important part of the economy, surprisingly, up around the Gilroy area). We thus lose that output while we gain the energy but if we used a less labour intensive method of generation we could have both the energy and the computers/happy oldsters/movies/garlic and would thus be richer.

However, the law is much, much, worse than this. Here. Section 6 states that large scale hydroelectric power does not qualify as being part of that 33% target. Which, given that large scale hydroelectric power currently produces 14.9% of California's electricity, is something of a problem. If you include that large scale hydro, renewables currently generate about 18% of California's power.

So actually the target is that renewables (ie, solar, wind, small scale hydro, geothermal, biowaste etc) need to grow from maybe 3% of current electricity generation to 33% in only 9 years. I suggest that, whatever the politicians in Sacramento might think or say, this just isn't going to happen. The lights are going to go out.

Oh, and if ignoring M. Bastiat isn't enough, they seem ignorant of the findings of Adam Smith and David Ricardo as well. Section 6 also seems to be saying that all of this generating capacity that isn't going to be built should be built within the State. Meaning that they've quite ignored the value of trade despite being part of an enormous free trade block of 300 million people known as the United States of America.

While I am entirely on message that climate change is a problem and one we ought to do something about might I suggest that stumbling around in the dark might not be the very best of solutions?

Good sense on recycling at last

6336

good-sense-on-recycling-at-last

This rather shocks me, someone is being sensible about recycling at last:

Traditionally recycling performance has been measured in terms of tonnage of material. Under the new system, tonnage diversion levels will be weighted by applying a ‘carbon factor’ to the materials collected, which takes into account the environmental benefits of recycling those materials over sending them to landfill.  This is believed to be the first attempt anywhere in the world to apply climate change thinking to waste management performance measurement.

Full marks to "Zero Waste Scotland" for this idea. For as we keep being told, we've got to recycle in order to stop the planet burning up. Therefore, as you would think people would already have cottoned on to, we should be measuring what we recycle and how by how well doing so stops the planet burning up. That everyone should have done this earlier is true but more joy in heaven over one sinner repentant etc.

However, while I might applaud this I'm certain that very few greenies will and nor will Zero Waste Scotland. Indeed, I have a very strong feeling that this will be quietly dropped and not spoken of again. You know, in the manner that random eructations while at tea with aunts are never spoken of.

For what they're going to find is that, measured by how well we prevent the planet from burning up, we already recycle too much. For example, we crush up green glass to be used as underlay for roads: this produces more CO2 then simply dumping it. Dumping waste food underground and collecting the methane (as we do at every landfill now) produces fewer greenhouse gases than sticking it into a wormery: worms do that eructation thing you see, just with NOx which is 10 times more polluting that methane.

I'm all in favour of doing the right things to reduce pollution: I'm also all in favour of measuring properly what we're actually doing. For only then can we work out what those right things are to reduce pollution. So full marks, as I say, for this initiative.

And I look forward to the publication of the full results: that is, as long as they don't find they're just too, too embarrassing to print.

Here we go again

6296

here-we-go-again

What do the global credit crunch and Friday’s earthquake in Japan have in common? They both underscore the folly of Britain’s efforts to create a “green investment bank.”

On Friday, the House environmental audit committee warned that, if the green bank is structured as a “proper” bank, there would be little chance of meeting government targets on emissions and renewable energy. In other words, this committee is keen that only projects that don’t make economic sense get funded by the green bank.

The credit crunch clearly showed how moral hazard – the assumption that banks wouldn’t be allowed to fail – fuelled massive property bubbles around the world whose bursting landed us in the mess we’re in now. Just imagine what a bank without any pretence of commercial discipline could do.

Already, the coalition government is going that route with the proposed £32 billion high-speed rail line from London to Manchester and Leeds via Birmingham. The economic case for this isn’t at all obvious. Rather, it’s part of an almost religious faith in seemingly green but massive projects in line with the prevailing orthodoxy.

Sound familiar? For most of the past 20 or 30 years, home ownership for all was the holy grail – a sure one-way bet that went unopposed, if not actually encouraged, by policymakers. Just think of Fannie Mae and Freddie Mac or 125% mortgages.

And the Japanese earthquake? It’s a salutary reminder there are still other, perhaps bigger, dangers than global warming. The risk is that the green bank will spray money on politically attuned ventures at the expense of more pressing short-term but humdrum needs – coastal flood defences, snow preparedness, road maintenance, non-high speed rail improvements, resilient power supply, water distribution and sewage treatment.

A green bank with no commercial discipline is a recipe for white elephants and taxpayer bailouts.

Green jobs are a cost, not a benefit

6291

green-jobs-are-a-cost-not-a-benefit

I know that everyone's already bored with me saying this but it still is true. Green jobs are a cost, not a benefit, of various Green plans. If we need to have four people generating our energy, instead of one (or 2 million instead of 30, any number larger than the current one in fact) then this is 3 (or nearly 2 million etc) people who cannot be off doing something else, wiping bottoms, curing cancer or just relaxing with a nice frothy pint.

So all of the shouting that we get about this plan for windmills, or that for recycling, the other for insulation, about how many jobs they will create, is nonsense. Those shouting are parading their ignorance, insisting that one of the costs of their plan is a benefit.

However, yes, it does get worse than this:

A study of renewable energy in Scotland shows that for every job created in the alternative energy sector, almost four jobs are lost in the rest of the economy.

We've now got a UK study to accompany that Spanish one that showed that 2.2 jobs are lost (as a result of higher energy prices etc) for every green one generated, the German study which showed the maths going similarly the wrong way.

So not only is the argument about Green jobs wrong in theory, it's also not even correct in its own terms. Diverting resources from productive areas of the economy to unproductive ones destroys jobs, not creates them.

Sadly, it won't stop the idiots bleating about how many green jobs their proposals will generate but can we at least all start laughing at them as they do so?

It's not that we have too many supermarkets

6266

its-not-that-we-have-too-many-supermarkets

It's rather that some other places have too few. Take, for a moment, the example of India:

Opening up the retail space to foreign investment would help in overhauling the country's antiquated supply chain. Shortcomings in the distribution systems have created huge differences between wholesale and retail prices. Inefficiencies are common. The government estimates that 40% of the fruit and vegetable production in country is lost due to inadequate storage and transport infrastructure. Waste of this magnitude, troubling in the best of times, is appalling as the country battles double-digit inflation.

Now it's true that 35 million people work in the current not supermarket distribution chain: but being able to distribute groceries without using 35 million people, by, for example, using 15 million, frees up 20 million people to go and do something more interesting, more productive.

And would you just look at that 40% waste. Sure, I know, we're told that we here in the UK throw away 30% of the food we buy because the supermarkets make it too cheap and too attractive. But moving to that system would increase the Indian food supply by 10% in itself, not a bad idea in a country with so many still malnourished.

It's absolutely true that economic efficiency isn't everything in this life. But where efficiency is called for, like in the distribution of food, it's a pretty good thing to be, to be efficient.

It's all very well for various types to complain about the supermarkets but one can look around the world and see what it's like not to have them. Worse.

Dispelling the myths about orangutans

6237

dispelling-the-myths-about-orangutans

Environmentalists often invoke endangered animals as mascots for their causes – if you don’t meet their demands, the puppy gets it. Global warming campaigners used the polar bear, despite no conclusive evidence that global warming would endanger the bear, and campaigners against palm oil plantations in the tropics have followed suit with the orangutan.

In our new report by analyst Keith Boyfield, Dispelling the myths: Palm oil and the environmental lobby (PDF), we take a closer look at the claims of environmentalist groups about the plight of the orangutan. Rather than palm oil plantations eating into the orangutan’s habitat, as is commonly thought, the growth of palm oil has largely taken place at the expense of other crops. Claims that these plantations threaten the great ape are largely unfounded.

Boyfield explores some of the conflicts of interest that the environmental lobby – quick to accuse its opponents of being in the pockets of big business – may have. Being recipients of millions of pounds in state funding, groups like Friends of the Earth and the World Wildlife Foundation have every interest in spreading disinformation to apply political pressure to the government.

The orangutan’s habitat is very small and limited, as Boyfield explains. If environmentalist groups are serious about preserving the orangutan, they would do well to use the institutions of private property to fundraise and buy the land on which these apes live to create nature reserves. The palm oil industry may not be a threat to the creature, but it is certainly worth protecting against other threats.