Letter to Editor CT 22 Feb on Garnaut Report

While the preliminary report from Professor Garnaut is sobering reading there is hope. The CSIRO CT page 5 of the 22nd February reports that a mere 35 square kilometres of land could supply enough solar thermal electricity for Australia. The trick is how to fund the investment. Garnaut puts his faith in emissions permits and trading to supply the funds. This will supply the funds but it may not give the most efficient method to allocate the funds. The most efficient method of allocating resources is through markets where many buyers make choices between many sellers. If we distributed the funds raised from emissions permits to many buyers and permitted them to make choices on what renewable technology to invest in then we would have a market in infrastructure for reducing greenhouse gases. If we gave funds to those in the community whose lifestyles generated fewer emissions but we required them to spend the money on infrastructure to reduce emissions then we will magnify the utility of emissions permits. This approach would mean that we could have zero net emissions within 10 years and as a nation be richer at the end of the period than if we continue on our current course. The addition to Garnaut’s approach is to distribute funds from emissions permits by paying people not to consume rather than giving the money to governments to allocate.

FeedIn Tariff Proposal


FeedIn Tariff (FIT) Proposal Submission

Kevin Cox
22 Yirawala St
Ngunnawal ACT 2913

This submission supports the concept of a feed in tariff but recommends it as part of a broader approach. The broader approach overcomes issues of social equity and uses a market to allow the system to adjust to changing technologies and so obtain the greatest reduction in greenhouse gases for a given expenditure. This submission recommends

  1. Give Monetary Rewards to those whose lifestyle and home technologies produces less greenhouse gases.
  2. Require the Rewards they obtain to be spent on infrastructure for devices eligible for the Feed In Tariff or other greenhouse reducing technologies.

The proposed system can be implemented for no cost to the government.

Difficulties with FIT

The concept of a FIT that gives a fair price for renewable energy input into the grid is a good one. However, setting a fixed price does not encourage the most efficient and effective investment in ways to reduce greenhouse gases for the following reasons:

Pricing Energy at a proportion of Market Rates

A feedin price aligned more closely to the instant wholesale price of energy, rather than a fixed price, would be a more effective approach and will lead to better allocation of resources. For example it will encourage systems that store energy and release it into the system at times of peak loads. The ability for prices to vary according to demand creates systems that lead to efficient resource allocation. The feed in price can be higher than the market rate but it is likely to have the most benefit if it reflects the underlying price of other sources of energy.

Reduction Incentives should be Technology Agnostic

Setting a price that is above the cost of producing renewable energy from other renewable energy systems will divert resources away from other effective renewable methods of reducing greenhouse consumption. For example a feed in tariff above the cost of green energy from the grid will divert people from subscribing to green choices and will divert resources from installing solar hot water systems. Energy saving investment can be viewed as the same as generating renewable energy in terms of reducing green house gases and a fixed high feedin price will divert resources from more effective (in terms of greenhouse gases saved) forms of investment such as insulation.

Any Proposal should be socially equitable

A feed in tariff that subsidises those who can afford the capital to purchase an energy generating system will divert money from the poorer members of society to the richer. A high feedin tariff is ultimately paid by other consumers who do not have an energy generating system. While auxiliary schemes can be invented to help overcome these inequities it is better to have systems that do not need auxiliary schemes to overcome inequities as these auxiliary schemes themselves can be problematic.

Any Proposal should result in genuine reductions in greenhouse gases

A fixed feed in tariff on the generation of electricity does not encourage people to reduce their consumption of energy. In a perverse way it may even increase the total consumption of energy. The psychology of a feedin system for some people – particularly the rich – is that because they have a feedin system they feel entitled to consume more energy. Thus they consume the energy they generate and continue to consume the same amount of non renewable energy. While this does not apply to all people there will be enough to make the system less effective.

A Socially Equitable FeedIn Tariff Approach

The following proposal gives a financial benefit from the FeedIn Tariff but returns the most benefit from the reduction of greenhouse gases saved by the installer. A principle for any socially equitable system with respect to greenhouse gas reduction is that those consumers who cause the least damage to the environment should pay the least and, if possible, should be rewarded for their constraint. In the case of electricity this can be achieved by diverting money from those who pollute to those who generate less pollution. Thus as well as increasing the price of feedin renewable energy above a market price, in addition, we can Reward people who install such systems through their reduction in polluting energy consumption.

This can be achieved in the following way.

  1. Calculate the net greenhouse emissions for each person for domestic electricity consumption.

  2. Price FeedIn renewable energy as a percentage of the price of non renewable energy.
  3. Put a surcharge on all energy in proportion to the greenhouse emissions generated when the energy is produced.

  4. Distribute the money collected from the surcharge as Rewards to all consumers in inverse proportion to their net greenhouse emissions as calculated in (1)

  5. Require Rewards to be spent on approved ways to reduce greenhouse emissions. Existing installations of renewable energy systems can qualify as an approved way.

A person whose feedin results in a net low greenhouse emissions will receive more Rewards and receive money from the market price adjusted feedin power they generate. The approach is equitable because it rewards those who have already installed systems, it rewards those who consume less energy who are often the less well off members of society and it rewards people who invest in ways to reduce greenhouse emissions in whatever way they deem appropriate for their situation.

This approach addresses the issues raised from a straight fixed Feedin approach. The approach can be tuned by the government to achieve any desired reduction of emissions through changes to surcharge amounts and to the formula for distribution of Rewards.

It can be implemented efficiently with the system for efficient delivery of Rebates called Edentiti Rebates. The system can be implement for NO COST to the government as the running costs come from the Rewards recipients and merchants using the system. A government can obtain any level of greenhouse emission reduction desired from household electricity consumption through this approach by simply varying the surcharge added to electricity prices of non green energy..

Answers to Questions Raised in Discussion Paper

The following specific questions have been asked in the discussion paper. In the following these questions are answered if the above proposal of a variable FIT and Energy Rewards is implemented.

Is there a need to limit the size of systems that are entitled to receive the FiT?

There is no need to limit the size of the system. The system can be applied to both residential, community and commercial systems as it gives a market based pricing structure for payment. The payments could be based on the instantaneous wholesale price of electricity from other sources or some other demand calculation..

Is it appropriate to set a maximum net investment in a PV system?

No

Is a ten year payback period appropriate?

The payback period depends on the Rewards or carbon emissions saved rather than the amount of energy generated. The payback period is likely to be shorter than ten years for those people whose lifestyles consume little polluting energy.

Is an annual review sufficient/excessive?

An annual review should be made of the surcharge and of the rates at which Rewards are paid. However, changes will be made on the basis of whether the community rate of reduction in greenhouse gas emissions is “satisfactory” or not. If the rate is too low then the surcharge can be increased and Rewards also increased.

What options are available to ensure that there is no unacceptable impact on those less able to pay or install network connected renewable energy systems?

A system that Rewards people for generating less greenhouse gases will be socially equitable. Because the Rewards system is technologically agnostic with respect to method of reducing greenhouse gases then people who cannot pay to install systems can achieve reductions in other ways. Most people for whom an installation is not an option will obtain Rewards. As Rewards are transferable people who cannot use them can sell them – at a discount – to people who can use them. Others may choose to donate their Rewards to community groups who may install systems on community facilities like schools or churches.

Is a FiT a cost effective and/or efficient method of reducing greenhouse gas emissions?

A FIT combined with Rewards will be cost effective and efficient because people will have a choice on how they decide to invest or change their behaviour to reduce greenhouse emissions. That is Feed In Installations will compete in a market place of greenhouse gas reducing alternatives and we know that market based resource allocation systems is the most efficient way to allocate money for a particular purpose.

Is the FiT a cost-effective way of increasing solar energy use?

It can be if it competes with other greenhouse reduction technologies.

Are there any other options could be used instead of, or to complement a FiT?

The proposal of Energy Rewards as part of the FIT proposal complements FIT.

By reducing the upfront costs associated with installation, are direct subsidies a more attractive option to encourage the adoption of renewable energy technologies?

Direct Rebates are likely to be less efficient because the upfront subsidy will almost certainly cause market distortions – However, the Rewards approach permits direct subsidies through giving some people more Rewards.

Summary

The objective of the FIT is to reduce greenhouse emissions not promote a particular technology. Relating the subsidy directly to the reduction in emissions regardless of the technology or behavioural changes will lead to more efficient expenditure because it brings choice and allows the market in renewable energy production and energy savings to operate efficiently. The introduction of Rewards for low emissions will encourage the adoption of a plethora of renewable energy technologies including PV solar panels. Rewards is socially equitable and favours the frugal over the high consumers. It can be introduced for NO COST to the government and will be seen as fair and reasonable by most of the population.

Submission to Professor Ross Garnaut study

A Submission to Garnaut Climate Change Review – Financial Services and Managing Risk

Trading in Greenhouse Reducing Infrastructure to avoid “The Tragedy of the Commons”

prepared by Edentiti

401 Clunies Ross St

Acton ACT 2601
ABN 67111307361


Reducing Australia’s Greenhouse Gas Emissions

A framework to avoid the Tragedy of the Commons.

In Professor Garnaut’s recent speech http://www.henrythornton.com/article.asp?article_id=4937 he discusses the issue of mitigating greenhouse gases as a global “Tragedy of the Commons” problem.

This submission argues that a solution to the problem of global warming lies in creating a trading system to trade infrastructure technologies in such a way to overcome the “Tragedy of the Commons”. Note the trading system is not in energy or emissions or carbon but is trade in technologies to reduce greenhouse gases.

There are three related areas with respect to reducing greenhouse gases:

1. developing infrastructure to generate energy without producing greenhouse gases;

2. developing strategies and infrastructure to save energy consumption; and

3. developing carbon sinks.

The problem of global warming can be resolved through investing money with these goals in mind. The issue – at both international and national levels – is in finding the most efficient, yet fair way to allocate resources to infrastructure to reduce greenhouse emissions.

We know that the best way to allocate resources is through fair and free markets and this submission concentrates primarily on developing markets in greenhouse-reducing infrastructure rather than on the question of collecting money. An approach that results in a fair and reasonable expenditure of money will get wide acceptance and adoption. The following outlines an answer to the question of resource allocation (expenditure of money) with a proposed international infrastructure marketplace between nations. It also outlines how greenhouse reducing infrastructure market places can be established within nations. The details of how the internal market place can be established and run are available on request. The approach is an example of a cooperative economic system as mooted in http://www.ted.com/index.php/talks/view/id/216

An International Market Place for Greenhouse Reducing Technologies

Money to be used in the international market place for infrastructure comes from nations according to their current net per head greenhouse emissions. Large per head emitters supply more money than low per head emitters. Each country who signs up is required to supply a minimum “deposit” but can supply more if it wishes. Each country also retains ownership and control of the money they provide while it is in the global fund.

All money from this fund must be used for investment in greenhouse-mitigating measures or infrastructure. The money is deposited with the UN and interest on the money, while it is not used, accumulates in the fund and is distributed in inverse proportion to the per head emissions of each country for use on greenhouse-mitigating measures.

Any country can propose projects to use the money within their own country. The proposing country sets out the conditions of the project such as how the project is developed and what happens to the profits generated from the investment.

For example, India might propose a thermal solar farm in the Indian desert to generate base load power for the Indian grid. It could also propose that a percentage of the income from the generated energy be returned to the supplier of money. Countries with money in the fund now bid, with the fund monies they have deposited, for the right to build and profit from the thermal solar farm.

There are some additional rules with this market. It requires an independent group to determine if projects are allowed in the market place. There is a rule that each year every country is allocated a certain amount that may be invested in their country through the fund. If in any year the money is not spent then the amount accumulates. Thus a country with very low per head emissions and with a large population will have a large allocation in terms of investment. A country with high emissions and a small population will have a small allocation. Another rule is that a country cannot invest in a project in a country with higher per head net emissions. The purpose of this rule is to stop countries colluding along the lines of – you invest in mine and I will invest in yours – and to influence investments towards the countries that have the greatest need for investment in energy sources.

Because the market is open and competitive it will be seen as fair. In terms of reducing greenhouse gases it does not matter where money is invested but investment in energy infrastructure does offer extra benefits to the country in which it is built. In addition, the countries contributing funds will receive a return on their investment.

All buyers and sellers have a choice in which projects to propose and which projects to support. All countries will see advantage in reducing their own net per head greenhouse emissions as this will determine the amount of money to be invested and contributed.

The market is completely voluntary, with each country deciding for itself whether to join or not. Those that do must obey the rules of the market. Those that do not join are not permitted to propose projects or to contribute money to any other fund-approved greenhouse reducing projects.

A National Market Place

Countries that join agree to set up an internal, national market place in greenhouse reducing technologies within the country. The rules of this market place are as follows.

There could be a Pigovian tax imposed on the emissions of greenhouse gases, or the money could be raised from the sale of emission permits or it could be obtained from carbon credits. A proportion of the money collected is distributed to individuals in inverse proportion to the amount of greenhouse producing energy they consume. The money received has to be spent on any approved infrastructure project that will reduce greenhouse gases. It could be used for solar hot water heaters, to buy new shares in a geothermal company (not buy existing shares), to purchase a bicycle etc. Implementation of this strategy requires a communications infrastructure such as a mobile phone network and a mobile phone network could classify as an infrastructure project under the international fund. See Edentiti Rewards for ideas on how a national market place can be implemented.

The national infrastructure system will encourage individuals to reduce their carbon footprint because they will pay more for greenhouse-generating energy, receive money for reducing their consumption and are required to invest the money received for reducing their carbon footprint in technologies to reduce greenhouse gases.

Will the approach work at the international level?

This approach does not require any global agreement. Countries can join of their own free will and there is no penalty for not participating. If countries break the rules then they are simply excluded as donors or as recipients for a period.

The system can be implemented immediately and is relatively simple to administer.

It is a system whereby each country wins. Countries contributing to the fund have the opportunity to earn money through investing and they can propose technologies developed in their own countries. This encourages them to invest wisely and to get a greater return on their own home grown technologies.

Countries receiving money benefit from new infrastructure that will help supply the energy needs of their own country. They will also be encouraged to keep their rain forests and other carbon sinks as these help reduce their greenhouse balance sheet and increase the amount invested.

By making it advantageous to both donor and recipient countries to join we escape the prisoner’s dilemma and solve the Tragedy of the Commons. By using a market for allocation of resources we get the best return on our investments in both greenhouse reductions and in wealth derived from the investment.

The system does not preclude or interfere with any global emission targets, carbon trading schemes, or other measures. It stands on its own.

Will the approach work at the local level?

The local level infrastructure market is established by paying people Rewards in inverse proportion to the amount of greenhouse gases their lifestyle generates. Individuals are not required to receive Rewards and if they cannot think of a way to spend their Rewards they can sell them to others. Participants who break the rules of the market are excluded from the system for a period of time.

The Rewards must be spent on infrastructure that reduces greenhouse gases. This approach will work because it is seen as a “fair trade” and like all good trades both sides win. It is important to note that the market is in infrastructure not in carbon, nor in emission permits, nor in energy. It is a direct way of addressing the problem – not an indirect way.

The system is easy to understand – If I generate less emissions then I am rewarded but I must spend my Rewards to reduce emissions. This solves the Tragedy of the Commons as the funds I receive is spent on infrastructure that benefits the whole community as well as myself.

The system is easy to implement but the details will depend on the communications infrastructure available in the country. Systems can be implemented with mobile phones but more complex systems can be implemented if there is a widely available broadband Internet.

The cost of implementation is low and running costs are expected to be less than a percentage point of investment dollars spent.

The system leads to stability in prices and is guaranteed to work. Emissions targets can be set and can be achieved for a known amount of investment which is determined by the size of the Pigovian tax.

How much money do we need to invest?

The following calculations are indicative but with ongoing development in renewable energy technologies the figures are conservative.

Each Australian, on average, consumes for all reasons about 75,000 kwhs per year of energy. It costs $3,000 to build a solar powered or geothermal power source capable of generating 1 kw continuously for a year (or about 9,000 kwhs). Thus an investment of $25,000 will produce all the energy needed for an Australian to be greenhouse neutral. This equates to a total of $500 billion for the entire population at current prices. If this amount is spread over 10 years, it becomes an investment of $2,500 per person annually. The running costs (excluding financial costs) of renewable energy sources are about 1 cent per kwh or half the running costs of coal fired stations. The capital cost of coal fired stations is about $1,000 so the capital on greenhouse free energy investment is repaid in 22 years with today’s prices. At the end of 22 years the nation has an energy source fully paid for and generating energy at 1 cent per kilowatt hour.

Summary

As stated at the beginning it is not the focus of this submission to suggest how the money for such a fund is raised. However, numerous solutions have been canvassed in recent years, including Pigovian taxes, selling emission permits or through generating carbon credits. This proposal supplements rather than replaces these suggestions. It addresses the problem of spending the money through a market in sustainable infrastructure rather than through the energy market itself.

The problem of global warming is not ultimately one of funding. On such a critical issue the money can be found when needed. The question is making it worthwhile for countries to agree to participate and then allocating the resources efficiently so that we do not waste time or dollars in addressing the problem. Creating an international market place in infrastructure projects supplemented by more efficient local resource allocation through Energy Rewards will achieve this.

Letter to Editor CT 10th Feb Transferring between banks

While Mr Swan is making it easier for us to change banks he should not forget to ensure the banks transfer the money instantly when we change banks. Have you ever wondered why you do an electronic transfer on Friday, the money is taken from your account immediately, but it does not appear in the other account until Monday? In this day of electronic banking do all the computers take the weekend off? There is no technical, operational or risk reason for money transfers to be delayed. Money transfers can be made instantly between accounts. The banks do it because they make money while the funds are being transferred (they get the interest while the money is in limbo) and more importantly because it restricts competition. If instant transfer of money was available then other organisations would give us more efficient methods of paying our bills and we would find account keeping and transaction fees and ATM fees would all drop.