Monday, April 13, 2015

The Bureaucrats in Pursuit of the Invisible

On 1 April this year I received an invitation that, at first reading, I was convinced was a joke.  Could I attend a Treasury meeting to consider a proposal to set up a huge bureaucracy to administer the running of all industry? Whatever else I knew about our government and its policies, I could not credit that we had stooped to the folly of central planning.  I had had experience of Russia in its darkest days, when Moscow ran out of lady’s underwear (don’t ask me how I know!). Surely no-one of sound mind would wish to resuscitate that system?

But no, it was not a joke.  Our Treasury had hired some Dutch consultants to advise them on setting up a system to determine Z-factors, “to reward companies that have taken voluntary and early action to reduce their GHG [greenhouse gas] emissions.”

This is eco-colonialism at its worst.  Europe is struggling with its failed carbon trading system, which has cost it billions of Euros in VAT fraud alone. The value of carbon has fallen to less than €7 per tonne, and is not expected to rise until at least 2020.  At €7, not only have those who invested heavily when it was over €20 per tonne lost their shirts, but it now pays to build new coal-fired power stations. According to the Guardian (22-1-2015) “The Exchange Trading Scheme is currently experiencing a glut of more than 2 billion allowances as a result of factors including massive oversupply and recession.” Yet we are buying European services to tell us how to make the same mistake.

The flaws in thinking are manifold.  First, anything South African companies did to reduce their GHG emissions would be lost amidst the surging emissions of other developing countries.  Every year for the past ten years, China’s and India’s carbon emissions have grown by an average of 520 and 90 million tonnes respectively; South Africa’s total carbon emissions in 2013 were 440 million tonnes.

Secondly, the whole of the climate scam is in disarray.  The saturnine head of the Intergovernmental Panel on Climate Change [IPCC], Dr Pachauri, has been forced to resign after two scandals, one involving some singularly inappropriate emails to a junior female employee and another in which he went around telling stories about Himalayan glaciers disappearing, and then got a huge grant to study what turned out to have been a non-problem all along. A study of the records of the Global Historical Climate Network [GHCN] has shown that temperatures have indeed climbed during the past century due to human interference – by the staff of the GHCN, which has “homogenized” most of the historical data downwards and much of the recent data upwards.  These adjustments have artificially added about 0.35oC to the reported 0.8oC temperature rise. Just to add to the destruction of the Carbon Causes Chaos theory, global temperatures had been warm but stable for the past 18 years, when theoretically it should have heated by another 1oC. Moreover, the “fingerprint” of climate change, the warming of the upper troposphere faster than the earth’s surface, has not happened.  The much-vaunted Conference of Parties in Paris in November this year seems likely to make even less progress than the 20 such Conferences that have gone before.

All of this means that the rationale for curbing our greenhouse gas emissions is weak at best. In this light we have to ask whether it is sensible to set up a bureaucracy to licence industry. Of course, Treasury has talked of “rewards”, but we would be donkeys to think that such carrots did not come without sticks. The Z-factors would also be there to punish industries that did not reduce their GHG emissions.

The point of licensing industry arises from the Department of Environmental Affairs’ White Paper “National Climate Change Response” 2011. This was based upon the Long-Term Mitigation Scenarios, which should immediately warn any reader that the basis is flawed.  Scenarios explore extreme positions; you can then draw up practical plans between the extremes. The Department’s plan sits firmly on the lower scenario – it is by definition not practical.

The Department intends to define the “desired emission reduction outcomes for each sector and sub-sector of the economy - -.”  It would draw up “Carbon Budgets for significant GHG emitting sectors and/or sub-sectors - -.”  “Companies and economic sectors or sub-sectors for whom desired emission reduction outcomes have been established” would be required “to prepare and submit mitigation plans that set out how they intend to achieve the desired emission reduction outcomes.”

So there would be an Emissions Director within the Department who would have the authority to agree how much GHG the company could emit. As emissions are very strongly related to energy consumption, in practice the Emissions Director would determine each company’s permissible energy use. Because energy is one of the essential inputs to production, the Emissions Director would have control of every aspect of South Africa’s productive capacity.

Fortunately somewhat wiser counsel has prevailed at the National Treasury.  Its 2010 Discussion Paper specifically recognized the problem – “There are two options: an upstream tax at the point where fuels enter the economy, according to their carbon content; or a downstream tax on emitters at the point where fuels are combusted. The administrative costs and complexity of an upstream tax are significantly lower.”

In spite of this, the 2013 Carbon Tax Policy Paper still has a role for the Emissions Director – “The DEA will approve the appropriate emissions factors and procedures - - . “  It will “introduce mandatory reporting of GHG emissions for entities, companies and installations that emit in excess of 100 000 tons of GHGs annually, or consume electricity that results in more than 100 000 tons of emissions from the electricity sector.”  

 It was in the light of this that Treasury decided to ask the eco-colonialists to draw up “benchmarks” and Z-factors against which individual industry emissions could be measured.  Duly a massive (255-page) tome was prepared covering iron & steel, ferroalloys, cement, petroleum, chemicals, pulp & paper and sugar industries. Fortunately, perhaps, it is a case of Parturient montes, nascetur ridiculus mus [1](Horace), because for most industries there are no data of any worth.

So it seems likely that Treasury, when it finally gets round to taxing carbon, will tax upstream rather than downstream.  Administratively this is much simpler.  Environmental Affairs’ desire to establish a carbon kingdom may be stillborn, which is probably no bad thing.  But we are still left with a possible carbon tax. Is it likely to have any effect?

The answer is almost certainly not.  The prices of petrol and diesel have oscillated widely in recent years.  The demand for these fuels has grown steadily in spite of the price changes.  In economic terms, the demand is inelastic.

What this means is that a carbon tax is an exercise in futility. A tax on energy is unlikely to have any impact on our carbon emissions.  Have you seen any fewer 4x4s on our roads since they were taxed in the name of saving the planet?  Have you used much less electricity because coal-sourced power is levied? What is more important – growing our economy or doing our insignificant bit to save the world from carbon chaos?   

[1] The mountains have given birth to a ridiculous mouse.

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