Fancy that, prices work do they, even for gas?

An interesting little story here:

The UK is producing almost a fifth more gas than last year, boosting efforts to wean the country and its European neighbours off Russian energy.

Production of gas in Norway has also climbed 10pc year-on-year, according to Bloomberg data analysed by Bank of America. North Sea drillers in British waters have produced 17pc more gas so far in 2022 than in the same period last year.

UK production in early June is running at almost 100m cubic metres (mcm) per day, after falling to 40mcm last summer.

Bank of America analysts said UK production had recovered from a “horrific” 2021 following a collapse in prices one year earlier and tougher environmental rules.

If people can make more profit from doing something then they do more of that thing? Gosh, now that is a surprise.

The political reaction to which is that those profits must be taxed off everyone so that they stop this damn producing more stuff in the face of dearth.

Politics is indeed an often counterproductive method of running things, isn’t it. Especially since this point is featured on pages two and three of every introductory economics textbook ever in that nice little set of supply and demand curves. Presumably no one in politics has ever read one or, possibly, believed it.

The Problems with Net Zero Nuclear Strategy

The following is an entirely fictional, hypothetical email illustrating the problems with UK nuclear strategy.

To: Chief Scientific Adviser, Treasury                                                                   

cc: CSA, Government 

From: CSA, BEIS 

Subject: Nuclear electricity generation 

It’s good that our senior colleagues have come around to the importance of nuclear electricity generation in a zero carbon 2050 but the problem is they are still in wonderland. I am writing to solicit your help, and Patrick’s, to get them to understand the realities. This memo is prompted by the Great British Nuclear announcement last month and the funding announcement yesterday. 

I have five concerns and two proposals. The first concern is scale. The former paper claimed that the 24 GW projected will be 25% of 2050 electricity needs. So total electricity needs will be 96 GW. Nuclear in 2019 was 9.3% of the 103GW of electricity supply and electricity supplied 22% of UK total energy needs. In a carbon zero economy, virtually all energy will be electric so, assuming no growth in energy demand, the total electricity need would be about 500GW and 24 GW from nuclear would be just 4.8% of that. We need at least five times that much and without your help, we will not get it. 

My second concern is volatility. We can rejoice that renewables supply 50% of our energy needs but if that is the average of 100% for 183 days and 0% for 182 days, we have a major problem during the 182 days. All my colleagues’ announcements refer to averages and none consider volatility. 

So we need far more nuclear power than your colleagues and mine recognise but when they think of nuclear power at all they think of the 20th century monsters like Sizewell, not the 21st century small and advanced reactors which are transforming the industry. Your colleagues have blocked nuclear development for 20 years largely because they did not want to pay for the monsters at £20bn a go. My third concern is that they are still in that mind set and their recognition of small and advanced reactors is lukewarm at best. So we see a PFI finance model enacted in January which dumps huge extra costs on consumers and approves just one power plant per parliament, maybe. Where is the recognition that small and advanced reactors at, maybe, £2bn a go are affordable by the private sector? We should open this up to competition and step away. Yesterday’s funding paper acknowledges modern reactors but keeps all the decisions in government hands. Firms may apply to benevolent government for grants, but no more. This is daft. 

My fourth concern is excessive regulation slowing new builds. The Canadian and American approval processes are far quicker than ours and take a more pragmatic approach. Of course safety is important but making the Office for Nuclear Regulation responsible to the Health and Safety people gave it the wrong priority and smaller means safer.  The ONR have been talking with international colleagues about harmonisation and are doubtless happy to do so ad infinitum, but are they really likely to sweep away their raison d’être? We do not need 20th C. monster rules for small and advanced 21st C. reactors. 

My fifth and last concern is that the body to speed UK nuclear development is a yet to be appointed quango. Simon Bowen is a good man but he has many other jobs and he is only an advisor. The development of the Covid vaccines showed just how critical it was to have a driving force like Kate Bingham. She was removed from the clutches of the DHSC, and its myriad quangos, and given the authority to single-mindedly get the job done. That’s what we want for nuclear, not another quango. 

My second proposal is to have a committee of top scientists and engineers to bring reality to the Cabinet on zero carbon 2050 matters and to shield the executive in the para above but not to interfere. Advice should be transparent and open to peer review. 

Should we meet with Patrick soon to discuss this?  

So, the ULEZ is grossly counterproductive then, is it?

The Guardian reports that it’s actually tyres, not ICE exhausts, which produce the pollution:

Car tyres produce vastly more particle pollution than exhausts, tests show

This makes the ULEZ worse than useless, it’s counterproductive:

“Tailpipes are now so clean for pollutants that, if you were starting out afresh, you wouldn’t even bother regulating them.”

Oh, right.

But there has been particular debate over whether battery electric vehicles (BEVs), which are heavier than conventional cars and can have greater wheel torque, may lead to more tyre particles being produced. Molden said it would depend on driving style, with gentle EV drivers producing fewer particles than fossil-fuelled cars driven badly, though on average he expected slightly higher tyre particles from BEVs.

Gosh, that is interesting. So, in order to reduce pollution in London we should be banning the heavier, EV, cars and encouraging the lighter, less pollution producing, ICE ones.

As ever, because of course, public policy is exactly and entirely opposite to good science then.

True, there is still that little point about CO2. But this evidence indicates that the continuation of the use of the internal combustion engine - because of weight - is desirable. All that’s necessary is to produce synthetic petrol by the upgrade of green hydrogen and we’re done. That also saves all of those costs of having to rewire the entire country to charge EVs. Of course, it also means that that idea of banning the sale of new ICEs is nonsense as well.

Is politics going to do that? Rescind the ban on ICE sales? Not just reduce but eliminate the subsidies to EVs, those more polluting vehicles? Reverse the way the ULEZ works in order to actually reduce pollution in London? Of course we know the answer to those questions, politics isn’t going to do that - is it heck.

For politics isn’t driven by actual science nor even by good sense, which is why politics is such a foully bad way of running anything, isn’t it?

What excellent logic politics tries to use, eh?

As we’ve noted before a windfall tax on supply at a time of dearth really isn’t the way to do about things. We might even have muttered words like “idiocy” and “insane”. The reason being, of course, that we’d rather like people to have the incentives to build out the industry. Create supply that will only be called upon at some time of dearth - say, when some other part of the supply chain falls out of the system - and that requires those super-profits to be available if that infrastructure is only going to be used occasionally.

So that’s our first marvel at political logic - the taxation of the very thing which would, if untaxed, reduce the likelihood or severity of any future dearth.

We’ve also noted that if the green-eyed God is indeed to be allowed her due, if super-profits just must be taxed because of jealousy, then it should be all such profits in the sector which are taxed. Not just fossil fuel profits, but wind, solar, biofuel and so on. For all have been making those super-profits and it’s those super-profits which are the justification for the tax. Which brings us to this:

Electricity generated by wind farms and nuclear power plants could be exempted from a proposed windfall tax on energy firms following a backlash over the plans, The Telegraph can disclose.

Why?

But a Whitehall source said analysis of companies’ profits has shown a “wildly different picture” depending on the individual firm and source of energy.

Restricting a new tax to profits yielded from electricity generated by gas and coal would avoid “impacting sectors of the economy where we need hundreds of billions of pounds of investment”, the source added.

That’s the argument against having a windfall tax at all. That’s also an argument in favour of having a windfall tax that doesn’t raise any tax revenue at all.

Think on it. Electricity generation from fossil fuels (almost entirely gas, there’s very little coal used and almost no oil) is very much more expensive now because the price of gas has risen. So, generation from fossil fuels doesn’t make any excess profits - they’re at the level of the fossil fuel companies, not the generating ones. There aren’t any fossil fuel generating excess profits to tax.

There are electricity generating excess profits to tax - at those companies that don’t use fossil fuels to do their generating. So, to tax the fossil fuel generators raises nothing, while leaving the excess profits untouched. Which obviates the very point of any windfall tax, justified as it is not by reason but that jealousy of people making excess profits.

But then this is the basic problem with using politics to run things. It doesn’t run on logic it relies upon emotion. Well, we hope that’s the reason because we’d be really worried if people trying to use logic came up with the above plan.

The difference between reality and projections

It’s a standard complaint that if government spending rises less than it had previously been budgeted to then that’s a cut. This is how we were able to have all those cries of austerity while government spending in cash, real, nominal and as percentage of GDP terms continued to rise. The previous plans had the spending rising more than it did.

We need to recall this point here:

Rishi Sunak has room to cut taxes by £30bn to alleviate cost-of-living crisis

This room to cut taxes is against the previous plans. It’s not against any objective view of reality. Predictions were that the vast budget deficit would continue even as we’re at full employment and as that gap is now only large instead of vast we’re told there’s this room.

This not, really and wholly, being so. Given that we are at full employment - the closest we’ve been for decades at least - then no, the economy doesn’t have room for more stimulus in the form of a budget deficit. This is just that time when the Sun shines when finances need to be rebuilt.

Of course, we’re all in favour of all tax cuts everywhen on the simple basis that they mean less of ours being wasted by them. But the implication of this is that both the taxes and the spending need to be cut, not just the taxes.

And certainly not just the taxes because the government finances look marginally less awful than they did.

The NHS isn’t the world’s greatest health care system, that’s true, but it does at least try to cure incontinence rather than just limit it to its current incidence. Perhaps we could adopt that principle more generally, let’s try to cure fiscal incompetence rather than just allow it to run on at the current level?

Joyous, another global plan written by the entirely clueless

The Guardian tells us of something called The Shift. An international plan for how housing must be dealt with:

Here’s how rocketing rents and unaffordable house prices can be fixed

Leilani Farha

Well, we have ideas about that too.

We have the chance to guarantee the human right to housing – rather than a real-life game of Monopoly. We must take it

Human rights law isn’t the way we’d do it though. The full proposals are here. Including this one which we think is remarkable. So, remark we will:

1. States must ensure investors in residential real estate comply with human rights by

ii. requiring a human rights impact assessment be carried out by parties prior to a purchase of property or its sale or by the owner before upgrades and renovations are undertaken. These assessments must be made available to all residents and where negative human rights outcomes are indicated, tenants must have access to recourse mechanisms;

A human rights assessment is required before the landlord comes around to paint the place. Note that it’s not if he doesn’t - but if he does.

The rest of it is at about that level of silliness too. But underlying the foolishness is a grand and terrible mistake. It’s all about how the current stock of housing is to be regulated. There is nothing that we’ve seen in there about how the stock of housing should be changed. Which is, as they say, problematic, for the way for tenants to gain power over landlords is not thorough bureaucracy but supply. If there is housing demand of x and housing units up for rent of x plus 1 then tenants have power over landlords. So, the task is to increase the amount of rental housing - all housing in fact - available so as to put power in the hands of the consumer, not the producer.

Or, more simply, the assumption is made that housing is a zero sum game, that there’s some fixed amount and we must manage relations within that limit. Nonsense, entire ludicrosity. It’s entirely possible to change the supply of housing and thus relations within that market. And increasing that supply tips those relations further toward the renter and away from the landlord.

The proof is The Shift Directives, which I am launching today in the European parliament. These are the world’s first set of international recommendations that challenge the financialisation of housing head on, using human rights standards to lead the way forward. Drafted in consultation with leading experts, the directives guide governments and investors on timely issues such as short-term rental platforms like Airbnb, student housing, the banking sector, and “renovictions” – the process of renovating a property in order to raise the rent.

Among those leading experts apparently not one single one who can even recognise a market, let alone grasp subtleties like supply and demand. Which, when discussing the housing market would seem to be a bit of a handicap.

Abject piffle but no doubt there will be some who attempt to push it forward.

As we've been saying for some time

Lionel Shriver reports on what people believe against what is true:

In part I, I speculated that most Britons would overestimate the size of the UK’s black population (according to the Office for National Statistics, about 3 per cent). I was right. Respondents hazarded that 20 per cent of the UK was black — a proportion seven times greater than reality. (One in nine respondents thought 30 per cent of the UK was black; they were wrong by an order of magnitude.) As for Muslims, Brits’ median guess was 15 per cent of the adult population (true: 4 per cent). For Asian adults, Brits went for 17 per cent (true: 7 per cent). Add these figures up (52 per cent), and Britons hazily perceive that more than half the adult population comprises ethnic or racial minorities. The correct proportion is 13 per cent.

As we’ve pointed out several times mass immigration is a recent thing in these isles, meaning that the non-white population veers markedly younger than the indigenes. At the 2011 census, for example, the non-white share of the population among the over-80s was 4% or so, markedly different from that of the population as a whole and even more so of the youngest cohorts.

This is not to say that immigration either matters or does not. Rather, to point out that those shouting about the under-representation of certain groups at the top of society aren’t in fact comparing like population with like. The leaders in near all fields (perhaps pop music and sport apart) are drawn from those rich in maturity and years - at least we generally hope so. So the correct comparator is the population mix in the age cohort, not that of the society as a whole.

Similarly:

But Brits’ estimate of how many compatriots earn more than £100,000 a year — 20 per cent — is crazily high (true: 3 per cent). Britons also imagine that 5 per cent of their fellows make more than £1 million a year (true: 0.04 per cent, statistically zero), a misapprehension probably borne less from optimism than resentment. Alas, the number of rich folks who can be squeezed to finance free everything for the rest of us is disturbingly wee.

The reason we can’t just tax the rich to provide everything nice is that there aren’t that many rich people and in aggregate they’ve not got that much money to be taxed - certainly not enough to pay the bills that some would pile up.

That is, much about the world makes much more sense if you’ve a reasonable idea of what the world actually is. Reality, we hope knowledge of it inveigles itself into modern politics. Well, we can hope, can’t we?

But we all want the benefits bill to be zero

Jonn Harris presents us with what is meant to be incontrovertible evidence that there’s something wrong with the current polity:

Welfare policy was driven by austerity, which was so drastic that an estimated £37bn was cut from benefits spending between 2010 and 2021.

Spending on benefits is lower. That’s just proof that there’s something wrong, a decade of Tory austerity, etc etc.

Except a lower benefits bill is proof of no such thing. For we all desire that the benefits bill be zero, precisely and exactly zero. Where folk might differ is the reason for it being zero.

Imagine a world in which no one needed benefits. Well paid and fulfilling work was available to all, no one had any problems that prevented them from doing such work (yes, we know, fantasy, but bear with us for the purpose of the argument). This would be a wondrous world and one in which the benefits bill would righteously and gloriously be zero.

It’s also possible to posit one in which we just leave the poor dying in the streets as if this were the Georgian Era come back to haunt us. That would not be a wondrous nor glorious reason for a benefits bill of zero.

But both situations would mean that zero bill. Meaning that we cannot take as provative that a reduction in the benefits bill is a bad thing. It could be that the need for benefits has declined.

As, you know, it might have done since 2010. Back when the unemployment rate was nudging 8% and today it’s under 4%.

Please note that we are not insisting here that the benefits bill is the right size now, or was then, or that either were wrong. We’re commenting merely upon the logic being deployed. It simply is not true that we can just point to the amount of money being spent upon a problem and start shouting that if it has declined then something is wrong. For it is indeed possible that problems actually get solved and therefore need less money spent upon them.

The why of the declining bill is the important point, not the size of it.

Congratulations to the EU - sanctions on the most fungible oil

Yes, yes, we know, something must be done and something must be seen to be done. It’s just that deliberately crafting sanctions so as to only impact the most fungible part of the supply is more than a little odd. Ineffective even - even if it does mean that something is being seen to be done:

EU bans majority of Russian oil imports

Huzzah, we are saved - or Europe is and can hold its head up among the community of nations again. Except for the little details of course:

Since the invasion of Ukraine on February 24 the EU’s 27 member states have paid Russia a total of €56.5 billion for energy, providing vital revenue for Putin’s war machine. The lion’s share, almost €30 billion, is accounted for by crude oil supplies.

To cut off the cash to Russia, the EU had planned to ban all oil imports by the end of this year but the talks have stalled over the impact of shutting off pipeline oil to landlocked countries and fears of soaring crude prices.

The compromise plan, agreed at a dinner last night, will exempt imports delivered by pipeline.

The row pivots on the Soviet-era Druzhba, or “friendship”, pipeline which brings oil from Siberia to eastern Germany, Poland, Slovakia, Hungary, Slovenia and the Czech Republic.

Ah. Ship bourne oil can be moved anywhere in the world - adaptable things, ships. So, what will happen is that the EU will get its oil notfromRussia. The Russian oil will now flow to whoever would originally have bought the notfromRussia oil but now can’t have it because the EU does.

The end effect here - as it always will be with something as fungible as oil - is not very much. Russia will make around and about the same income from oil exports, the world will consume around and about the same amount of Russian oil, it’ll just be a few tanker crews away from home for longer.

Of course, the oil coming by pipeline is not fungible in anything like the same sense. So restricting pipeline access to the EU market really would reduce Russian oil revenues (and produce the odd problem within the EU too). Which is what wasn’t done.

So, the sanctions are on the most fungible, “redirectable”, part of the oil flow and nothing is to be done about the part that might have had a significant effect. But something was seen to be done and that’s the important part of politics, isn’t it.

The End of End-to-End Encryption

WhatsApp, the instant messaging service with more than 1.3 billion users worldwide, uses end-to-end encryption as a security feature. When you send a message, the content or data in it is encrypted, which means it is turned into an unreadable code that can only be mathematically deciphered by those who have the secret key.  End-to-end encryption provides the strongest level of trust and security as only the sender and the recipient have the key, so even the owner or programmer who designed WhatApp cannot read the messages. If your message is intercepted by a third party, the message will remain illegible gibberish. Modern encryption is tough to break because the number of possible keys far exceeds the number of guesses that even today’s fastest computers can make in a reasonable time. It is a cheap, safe and secure method of data protection. Hence, Whatsapp users can, at least for now, be reassured that only the intended recipients can read the messages. The same goes for many other services, such as Zoom, Microsoft Teams and FaceTime. 

Unfortunately, the Online Safety Bill, which has already passed its second reading in the House of Commons will force companies to compromise on these security features.

Although the original intent of the Bill, which promises to prevent users from being exposed to harmful content such as terroism and child abuse, is a noble one, the Bill has wide-ranging implications on security features like end-to-end encryption.

Clause 103(2) of the draft legislation allows the Office of Communication (OFCOM) to issue a notice requiring service providers to use ‘accredited technology’ to identify child abuse content, whether communicated publicly or privately. Clause 92(4) then makes it an offence for the provider to give ‘information which is encrypted such that it is not possible for OFCOM to understand it, or produces a document which is encrypted such that it is not possible for OFCOM to understand the information it contains’. Schedule 12 of the Bill further stipulates that failure to comply can lead to fines of up to £18 million or 10% of global revenue.

The regulatory framework and the penalties will necessitate companies to weaken encryption in order to intercept communications and avoid violating the duty of care placed on them. Lawmakers have claimed that the Bill does not remove the end-to-end encryption as it simply requires companies to install ‘encryption backdoors’ to allow ‘exceptional access’ to law enforcement agencies. This is however technologically impossible, as end-to-end encryption by definition does not allow third parties to hold the key to encryption.

It is easy to miscategorise the issue as a classic dilemma between privacy and security,  but the truth is that the Bill promotes neither. There is not a backdoor that will only let the ‘good guys’ in. Creating a backdoor for law enforcement will also create an opening for criminals and hostile actors to exploit. In 2015, Juniper Network Inc. discovered an unauthorised code in their firewall ScreenOS that allowed hackers to decipher encrypted information to gain access to the network of their customers. A probe into the cause suggested that there was an intentional flaw in the encryption algorithm Dual_EC, which was deliberately designed to include a backdoor enabling the US National Spy Agency to eavesdrop on overseas clients of Juniper. The opening has rendered the system vulnerable to cyberattacks. The lesson to learn from this incident is that any backdoor in the encryption algorithm is a security risk.

Adding to security risk is the extremely broad discretionary power given to the Secretary of State. The government might assure the public that email services, at least for now, are exempted from the Bill. However, clause 174(9) empowers the Secretary of State to add or remove services from the exemption list, so the scope of the legislation might broaden in the future. This will create a chilling effect; service providers who are currently exempted might opt to weaken encryption to conform to the potential effect of the Bill in the future. 

The Government promised that the Online Safety Bill would deliver their manifesto commitment to make the UK the ‘safest place in the world to be online’; but in actuality the legislation undermines both privacy and security, leaving individuals and companies vulnerable to data leakage. By compelling the removal of end-to-end encryption, the Bill effectively spells the end of private conversation. As UN Special Rapporteur on freedom of expression David Kaye said, ‘national laws should recognize that individuals are free to protect the privacy of their digital communications by using encryption technology’. The Online Safety Bill in its current form does not promote safety. It needs to be re-drafted to be compatible with end-to-end encryption.

Theodore Ka Fai Fung is an intern at Adam Smith Institute. Currently a law student at King’s College London, he is a strong advocate for holding the government accountable. Throughout his internship, he researched into the impact of the Online Safety Bill on encryption, as well as the effect of the electronic monitoring of protestors proposed in the Public Order Bill on civil liberties.