I would distinguish between administrative compliance costs, uncertain measurements and ambiguous deductions. For the carbon tax it appears the regulator has eyeballed the initial 400-500 liable entities. Presumably measurement of gross emissions is under control. I expect problems will arise in what deductions to allow in calculating net emissions. Whether this happens in the early years of carbon tax is not clear but will definitely be a problem if/when we move to an ETS in 2015.

1st example; in WA a prominent mining company sponsors tree planting. What if the trees succumb to dieback, drought or fire?
2nd example; an east coast steelworks implements a furnace heat recovery system. Should the equivalent fuel saving be counted as a CO2 deduction?

These kind of issues remind us of the GST on a cake. Hordes of assessors will be needed to interpret the rules which will no doubt be continually modified by lobbying and appeals. Oddly the EU trading scheme disallows tree planting offsets but has the troubling 'clean development' offsets which are the difference between actual emissions and a presumed entitlement. Some analysts claim up to 40% of these offsets are fraudulent. Australia is copying the EU model. Not only that we are supposed to be spending billions in 2015 paying Indonesia to preserve its forests as a fix for Australian CO2. Seems the Indos can't preserve their own forests.

The Carbon Farming Initiative appears to be a rural pork barrel like the ethanol blending quota is for US corn farmers. In either case any benefit is probably illusory. Will carbon farmers hand back the cash if drought re-releases the carbon? I think we must assume for now the gross emissions measurements problem is solved but we must be vigilant against wasteful and illusory pursuit of offsets.

The increased numbers of public servants should make Julia very happy - that was in fact the true reason for having the carbon tax (to later become ETS) in the first place. Nevermind, by or around 2015 the states would have seceded from the commonwealth and Julia can then implement the ETS in Canberra to solve the unemployment there.

I find myself agreeing with Taswegian (we often disagree).

Two things seem to me patently obvious: (i) the ETS is going to have no discernible effect at all on GHG, and (ii) we are going to have a lot more 'regulators', and after them, lawyers who will dispute what the regulators say.

As I've said elsewhere, we lead the world in regulators and regulation. If only that were positively correlated with an improvement in everyone's standard of living!

The ultimate cost of a carbon trading scheme, the operative word being scheme, will have to raise around $63.00 a ton, to impose a net $23.00 a ton on actual emissions? The rest being a combination of compliance costs, as much as 11% of the bottom line, brokerage fees, cascading costs; and, the shared cost of fraudulent claims; and or, the cost of effectively policing and subsequently prosecuting them?
The cost of generating coal-fired power is 3 cents per kilowatt hour? Transmission line losses, 50%, doubles that cost, about 6 cents per kilowatt hour, plus generators' profits, 100% or around an additional 3cents per kilowatt hour? Making the wholesale cost 9 cents per kilowatt hour.
Selling that power to households involves nothing more than paper shuffling and around 2.5% administration costs, tops. The addition of computers and field operated mobile computer links eliminates at least half that cost to less than 1 cent per kilowatt hour, or a total cost of around 10 cents per kilowatt hour? A number which can be described as the so-called natural cost?
Off peak power, reticulated at around 11 cents per hour, still produces a 10% profit, and peak hour, charges, of around 15 cents per kilowatt hour provides a 50% profit margin for little more than meter reading and shuffling paper? The wholesaler, being responsible for everything up to the nearest transformer or the meter box?
Add to that mix the cost of privatisation, and the servicing of multi billion dollar loans, interest only at commercial rates and shareholders'dividends?
The costs, to the average mug householder can double and double again over a period as small as 3 years?
A carbon tax will simply allow the big polluters to pass on their costs to a captive market, who will respond by energy efficiency and reduced use to an absolute minimum?
Anything less will require the consumer to move into a cave, or a wikkiup, keep all outdoor activities to between dawn and dusk, run all your food down with a stone on a stick and cook it all over an open fire! Rhrosty.

I would like a referendum on just how we address Co2 emission? Let's assume we can all agree that the Co2 emission needs to be reduced, simply to reverse the acidification of our oceans, which produce around two thirds of the very oxygen we all need to simply live; and, are often described as the lungs of the planet.
The referendum could simply ask if we wanted all the additional complexity of an ETS; or, a much simpler vastly less costly to the end user/consumer, carbon tax?
Or, would you prefer a completely reformed tax system, as would exist by replacing all that convoluted complexity, with a single stand alone expenditure tax, that could also include a carbon component, which would impose an annual price of around 100 billion per on all carbon emission, and ensure those with the largest carbon footprint, paid the most.
The additional funds could be ploughed straight back as carbon free/neutral energy projects; that actually reduced energy costs to the consumer!
Who would then want to stay with the more expensive old carbon producing energy options? Well?
Imagine even as we imposed the new stand alone expenditure tax, inclusive of a genuine carbon component; nonetheless, it still allowed business to improve the gross pre-tax bottom line, by around 7%, and the accompanying repeal of all the other taxes, adding around 30% to Australian based business and around 25% to most households.
This would be what we would gain from the massive simplification of our tax collection system along with the accompanying rejection/removal of all those unproductive parasites, who accrue income from their entirely unproductive parasitical tax avoidance/minimisation practises?
All very doable with today's' or modernised versions of yesterday's technology. Rhrosty.

For most taxes it is possible to find calculations about their efficiency - that is, how much of every dollar raised has to be spent on administration both by government collecting the tax and the companies paying it. One of the reasons it hasn't been done for the carbon tax is probably because its a completely unknown area.

But please note companies affected by this tax are already required to calculate and report their emissions - in other words they are already paying what is likely to be the bulk of the cost of administering this nonsense.

Whichever way you cut it, and no matter who pays the cost, the tax is a monumental policy blunder..

Who cares about how complex it is.
Just think of the money we can make trading carbon credit derivatives !
The market will be ready to go on 1st July.

What else do you think this is all about ?

How do you expect them to be able to explain the measurement and
charging costs when they cannot answer the Bolt question ?

The Bolt question ? Oh yes,

"By how much will the temperature be lower if we reduce our CO2 by the expected amount ?"

"By how much will the temperature be lower if we reduce our CO2 by the expected amount ?"

- It will be lower in summer, but higher in winter, that's the kind of climate you get six feet under.

Rhrosty says: "I would like a referendum on just how we address Co2 emission? Let's assume we can all agree that the Co2 emission needs to be reduced"

You see Rhrosty. That is exactly the problem. There are little more than assumptions that CO2 is any kind of problem for the planet. Lets have some evidence/proof that rising anthropogenic CO2 emissions lead to potentially dangerous warming. And for your, acidification of the oceans. You know, don't you, that the science on these matters is highly controversial, and far from settled. You know, don't you, that the case for the feedbacks are likely neutral or even negative, meaning that CO2 is not really a problem.

I really wish that caring passionate people like you would devote your energies to the real problems facing the planet, of which there are many much more important to the environment than CO2.

Thank you for the comments so far. Keep them coming. Perhaps we can have some influence on the government. Wouldn’t it be good if we could embarrassing the government into doing the cost-benefit analyses of their policies properly before implementing them? It would be great if we could get the Treasury to estimate the real compliance cost of carbon pricing when it is implemented to the precison that will ultimately be required.

Taswegian, thank you for your several examples of the equivalence of the CO2 pricing to the “GST cake”. However, I’d like to focus for now on your first statement:

“For the carbon tax it appears the regulator has eyeballed the initial 400-500 liable entities. Presumably measurement of gross emissions is under control.”

I don’t agree that “measurements of the gross emissions is under control”. Australia has virtually no “measurement” of emissions. We have estimates only, and they are crude. For example, the emissions intensities figures used in the analyses of emissions from our power stations, which are our largest single source of emissions, are inaccurate and imprecise. They are nowhere near what the EU does to estimate emissions let alone what US EPA requires to measure emissions. Even the USA’s ‘measurements’ are nowhere near good enough for trade in a commodity.

Furthermore, the initial 400-500 entities (for Australia) are just the beginning. But what’s next? The government should have a proper estimate of what the cost of the final solution will be, and make it public, before we commit.

Will a partial solution – i.e. the 400-500 initial entities – be good enough for trade in a commodity (CO2 emissions and all the other ‘Kyoto gasses’)? Will it be acceptable to have some emitters included in the CO2 pricing scheme while others are not? Can such a situation last?

cont ...

.... continued from previous comment

Consider the fuss we make over whether or not we are being ripped off over petrol. Every decade or so we demand another investigation into petrol prices and whether or not we got what we’ve paid for. Won’t the same happen, eventually, with CO2 emissions? Won’t there be fraud if small emitters are not included in the scheme? Won’t there be all sorts of distortions imposed if large emitters are included and small emitters are excluded (e.g. entities adjusting their organisation to keep their emissions above or below the threshold)?

What ultimately will be the minimum parcel of tradeable commodity (CO2-eq emissions)? If we continually fuss about being ripped off by petrol prices and whether or not we got the amount we paid for, where the minimum traded volume is valued in cents, can we really expect that there will not be a trend, over time, to include smaller and smaller emitters?

The US Congress passed laws requiring the EPA to monitor emissions from all entities that emit more than 100/250 tons of CO2-eq per year http://www.eenews.net/assets/2011/09/16/document_pm_02.pdf#page=48 . At $30/tonne (the Australian Treasury projected CO2 price in 2020), the US law would require capture all sources emitting more that $3,000 or $7,500 per year.

Although the EPA has got around that for now, it clearly won’t last. Eventually the USA and everyone else involved in CO2 pricing will be forced to capture the CO2 tax or include in CO2 trading all entities that emit CO2. That is where we are inevitably headed.

If that is the level of precision we will need eventually, what will be the compliance cost in Australia?

This article is full of common sense. Would that the global warming alarmists had the same common sense.

Pictman

Something Peter Lang wrote triggered this thought.
If a company receives an emission bill in which electricity is part
of the amount, why should not that company ask the government to
specify what proportion of the electricity they used comes from which
power station ?
After all the emissions from each power station will be different.
Until the government supplies the answer do not pay the bill.

The weights and measures laws require anyone demanding payment on
quantities to use calibrated and certified measuring equipment to
support their demand for payment.
Unless the government can support their demand with such evidence
then the demand is illegal.

Bazz,

That is an excellent point. That very topic is being discussed on Jenifer Marohasy’s web site right now. Perhaps you could post that same point there too. It would be appreciated.
http://jennifermarohasy.com/2012/05/legal-challenge-to-mandated-renewable-energy-in-the-eu/?cp=all

To clarify my position I think the compliance problem will be with net emissions which will be gross emissions minus allowed offsets. The problem being that many offsets are inflated, temporary or misconceived. Thus the carbon penalty that should apply to say 10 tonnes of CO2 will in practice apply to 5 or 6 tonnes through evasion... claiming worthless offsets.

This is akin to a footy umpire consistently awarding free kicks to one side. The actions of the government don't inspire confidence. For example they have given $1bn to Victorian brown coal generators for loss of asset value. We have been talking about carbon taxes for a decade so this should have already been factored into asset values. The government is playing Santa by dishing out freebies left, right and centre. I agree with the principle of carbon pricing but not unless it is done in a thorough and uncompromising way.

Taswegian,

Thank you for your thought provoking points. I agree with much of what you say. Without detailing our points of agreement, I’ll take you up on two points you believe but I am not persuaded are correct.

You say: “To clarify my position I think the compliance problem will be with net emissions which will be gross emissions minus allowed offsets.”

But, to calculate net emissions we must measure both gross emissions and allowable offsets accurately and precisely. There is no possibility of doing either, IMO.

Possibly our main point of disagreement is that I am not persuaded “the principle of CO2 pricing” is sound policy. Here are my reasons:

1. For CO2 pricing to work the whole world, or at least initially all the major emitters, have to implement it in unison. And it has to be economically efficient. That is virtually impossible.

2. CO2 pricing should be based on consumption of embodied emissions, not production. But that is virtually impossible.

3. Most of the growth in emissions will come from the developing countries, but they will not implement CO2 pricing. They cannot implement it. Can you imagine countries like Eretria, Mogadishu and Somalia implementing a CO2 pricing regime? It’s not going to happen, IMO. We can’t even do it in USA, EU or Australia (see my comment @4:32 pm).

4. I am not persuaded that economists are correct that pricing CO2 is the least cost way to reduce emissions. I suspect they are wrong because they do not allow for the fact that we are not removing the massive distortions of the energy market - distortions we've imposed by regulation over many decades. In fact, we are implementing more distortions, such as the RET and the $10 billion renewable energy Greens' slush fund. The ETS cannot operate efficiently and cannot produce least cost emissions reductions while the least cost alternatives are prevented from operating freely in the market.

5. Lastly, and most important of all, the benefit versus the cost of CO2 pricing. I’ve reached my posting limit for today, so I’ll post on this tomorrow.

Peter,
The companies that will be subject to the tax already have a substantial reporting system, in case you aren't aware. It's all available here: How the National Greenhouse Gas Inventory works:

http://www.climatechange.gov.au/climate-change/emissions/how-gas-inventory-works.aspx

So the systems are all in place. If you aren't liable for the carbon price then there is a 'null' reporting requirement, so that scare tactic about the EPA is rather insipid. Indeed, there are already a number of carbon markets already operating, albeit with similar problems to any share market)

The Carbon Farming Initiative is an opt in scheme and for approved projects only, it's already administered by the Clean Energy Regulator.

I think that your expectations are slightly exaggerated.

Here's Christopher Monckton reporting on similar events in the UK:

'When I visited the House of Lords’ minister, Lord Marland, at the Climate Change Department a couple of years ago, I asked him and the Department’s chief number-cruncher, Professor David Mackay (neither a climate scientist nor an economist, of course) to show me the Department’s calculations detailing just how much “global warming” that might otherwise occur this century would be prevented by the $30 billion per year that the Department was committed to spend between 2011 and 2050 – $1.2 trillion in all.

'There was a horrified silence. The birds stopped singing. The Minister adjusted his tie. The Permanent Secretary looked at his watch. Professor Mackay looked as though he wished the plush sofa into which he was disappearing would swallow him up entirely.

'Eventually, in a very small voice, the Professor said, “Er, ah, mphm, that is, oof, arghh, we’ve never done any such calculation.” The biggest tax increase in human history had been based not upon a mature scientific assessment followed by a careful economic appraisal, but solely upon blind faith. I said as much. “Well,” said the Professor, “maybe we’ll get around to doing the calculations next October.”

'They still haven’t done the calculations – or, rather, I suspect they have done them but have kept the results very quiet indeed.'

http://wattsupwiththat.com/2012/02/03/huhne-is-no-loss/

Silly says about Peter's concerns:

"I think that your expectations are slightly exaggerated."

In fact, Peter, being a very measured person, has in fact tended to downplay the costs of an ETS/Carbon tax.

Such costs should include government subsidies to wind and solar, which do not work. These subsidies will cost at least $13.2 billion by 2015 and will have their attendant compliance costs just as for instance there was heavy compliance and oversight of previous subsidies to such 'green' energies as wave, hot-rocks [Flannery's investment du jour] and pixie factories. [sarc off]

The fact is noone knows what it will cost to implement and run either the tax or an ETS; there will be no mention of the costs of fighting AGW in the budget and, as with all things to do with this wretched government and this equally wretched idea of AGW, the lack of transparency is no accident.

SillyFilly,
I followed your link but it did not lead to other than a mass of
legislation but no information on measuring (that I could find) CO2
or how it is taxed.

My question as yet unanswered is how do they relate a companies
electricity consumption to the CO2 and to what preportion of that
electricity came from Windfarms, solar systems, gas fired power
stations etc etc.

Frankly they cannot do such a breakdown so therefore the tax is fraudulent !

Bazz,

start here on the reporting and factors to be included:

http://www.climatechange.gov.au/publications/greenhouse-acctg/national-greenhouse-factors.aspx

Cheers

Sillyfilly;
The link led to a 432 page document. Here is the first paragraph on measurement.

Overview — methods for measurement
1.4
Emissions are rarely measured through direct observation and are most often
estimated by reference to readily observable variables that are closely related to
greenhouse gas emissions such as the quantity of fossil fuels consumed.

Further down is this paragraph;
At its simplest, emissions may be estimated by reference to
reportable data such as fossil fuel consumption, evidenced by
invoices, and the use of specified emission factors provided in these
Guidelines. For emissions from fuel combustion, for example, data on
consumption of a particular fuel would be multiplied by a specific
emission factor for that fuel to generate an emissions estimate.

Without wading through the other 431 pages it is clear that anyone
who made a demand for payment under these conditions would be
prosecuted under weights and measures acts.

Silly Filly @ 8 May 2012 2:31:15 AM”

“The companies that will be subject to the tax already have a substantial reporting system. …. So the systems are all in place.”

No, the systems to measure emissions are not in place. There are no measurements of CO2-eq emissions anywhere in Australia. Not even on the power stations. The links to EPA documents in the lead article provide an example of what is required to measure emissions. Only USA does that. But even what USA is doing is just a start; it is nowhere near good enough for trade.

The reporting we have in place at the moment serves its purpose because there is no money attached - no trade and no tax, yet. However, once money is involved the challenges, litigation and fraud will begin. Look how the ATO pursued Paul Hogan for a decade and ruined his life, only to give up eventually after they’d destroyed him. That sort of thing will happen in spades and all emitters will be vulnerable if we don’t have proper measurements in place. And how can we measure, precisely and accurately, emissions of CO2 and all the other Kyoto gasses. It’s impractical.

SillyFilly, if you think we are measuring emissions, you should be able to point me to a web site, e.g. AEMO, where the emission factors are reported for each generating unit for every 5 minute, or 15 minute or hour interval. No such data is available. No such data is collected in Australia. The emissions factors used for estimating emissions from power stations are the same for every unit in the power station at all times no matter what level of efficiency the individual units are operating at (e.g. running at optimum power or part loaded, ramping up or ramping down, old or new, etc.) http://www.aemo.com.au/Electricity/Settlements/Carbon-Dioxide-Equivalent-Intensity-Index (Available Generators file, Column: ‘CO2 Emissions Factor’).

Clearly, emissions are not measured. They are estimates. The current procedures will not good enough for trade. Imagine what the compliance cost would be when emissions monitoring is extended to all emitters.

Peter, given that 'measurement' of CO2 emissions are at best guess-estimates what do you make of this:

http://www.climatechange.gov.au/government/initiatives/national-greenhouse-energy-reporting/publication-of-data/~/media/government/initiatives/nger/data/NGER-Greenhouse-and-energy-information-2010-2011-3-PDF.pdf

It now seems to be clear that the tax is just a guess, probably done
by the treasurer;
I want 100 billion, so work out what the tax is.

At Peter's request, I am reposting my comment from Judith Curry's blog:

Hi Peter

In theory, a Regulatory Impact Statement should have been prepared for the legislation, and is publicly available. This is supposed to canvass the costs and benefits and possible alternatives to regulatory proposals in legislation. Having laboured over writing these things in a previous life, if properly done it should be a long and perhaps even informative document.

However, there is a history of RIS requirements not being properly met for controversial legislation, which (I think) the Auditor-General reported on a year or two ago.

I am not sure if RIS’s are online, but they are definitely publicly available. You could ask the Department where to find it, but if they are unhelpful, the relevant staff in Parliament House are usually very good – although Budget week might not be a good time to inquire!

Best wishes – J

Cohenite, thank you for the question. Here are some thoughts:

1. The emissions quantities are presented to eight significant figures. What is the justification for that? What is the error/uncertainty in the figures?
[It is correct to account money to any number of significant figures because they are the sum of transactions that are accurate to cents. However, we do not measure emissions and cannot estimate them accurately. So we need to know what is the accuracy for each of the figures that have been summed to make the totals presented.]

2. If there is say a 20% error in the emissions estimates, is that an indication of the amount contestable and/or open for fraud? If not, why not?

3. What will be the compliance cost for measuring and reporting emissions when the emissions monitoring has the level of precision and accuracy that we demand for trading a commodity?

4. This list is for the top 400-500 emitters. What will be the compliance cost when we extend the system to include all CO2 emitters (which will inevitable be where people will demand we end up)?

5. What will be the compliance cost for small business emitters, like farmers for example?

To Bazz:
How to estimate:

"Estimates of emissions from the combustion of individual fuel types are made by multiplying a (physical) quantity of fuel combusted by a fuel-specific energy content factor and a fuel-specific emission factor. This is performed for each relevant greenhouse gas (in this case, carbon dioxide, methane and nitrous oxide). Separate calculations should be carried out for each fuel type.
Total greenhouse emissions are calculated by summing the emissions of each fuel type and each greenhouse gas"

And to Cohenite, Peter etc:

There are only as you say 400-500 emitters who will be liable for emissions reporting. End of story: the rest of your garble is fable.

SillyFilly,

True, the starting points is 400-500 emitters. That is the start. It is like the ‘honey moon rate’. It is not where we are heading if we continue with CO2 pricing. The reason has been explained in previous comments posted in reply to your comments. You may have missed them or misunderstood them.

You quote: “"Estimates of emissions from the combustion of individual fuel types are made by multiplying a (physical) quantity of fuel combusted by a fuel-specific energy content factor and a fuel-specific emission factor.”

What you fail to acknowledge is that the power stations do not measure the (physical) quantity of fuel used or the fuel-specific energy content factor for the fuel actually used over a time period. Many of the power stations (such as Victoria’s brown coal power stations) do not even have a measurement of the mass (or weight) of fuel used.

If you think I am wrong, then please point me to a link where I can see the mass (or weight) of coal burnt in Hazelwood Unit 1 from 10:00 to 10:15 am on 31 March 2012, or any other generator unit, date and time interval you nominate. If you can’t do so, then please acknowledge we do not have measurement of emissions – we have crude estimates. These will not be good enough for trade, eventually, for the reasons previously explained in replies to your comments.

As an aside, the fuel quantity used varies according to the efficiency of each unit, how old it is, how long since last refurbished, what power output it is running at and, importantly, whether it is ramping up and down in response to changes in demand and to fill in for intermittent generators like wind and solar.

sillyfilly, good points on emissions reporting, but if the objective is to reduce *actual* emissions, rather than collect taxes from the big-polluters, how do you account for the diabolical problem of real-time measurement?

For example, what happens if a coal-fired baseload generator needs to reduce output for an hour during high wind conditions to balance wind farm output? In effect, all that has happened for the hour is that the coal generator sold less electricity but may have reduced emissions only marginally, yet the wind generation appears, at face value, to have contributed zero-emission electricity. Clearly, applying estimated emission factors is not going to give you the marginal abatement, and therefore not contribute to cost-effective abatement.

Key word silly: "Estimates".

As for the list of "polluters" examine MacQuarie Generation and consider these facts:

1 Annual net profit: ~ $180 million

2 CO2 emission ESTIMATE for 2010-2011, in tonnes, 20524177

3 % of NSW electricity supplied by MacGen, 40-45%

4 Price of CO2 per tonne, $23

5 Annual tax liability of Macgen, $472 million.

6 Tax credit availiability to MacGen if it closes it's doors, $472 million.

I suppose you've got your supply of candles in silly.

The more I learn about this the sillier it gets. (pun intended).
If the tax on a company is calculated on their electricity consumption
then unless the govt knows how much alternative supply such as wind was
part of the KWH used then the tax is in fact fraudulent.

If it was me that got the bill I would write back and ask how much
wind energy was in the period involved.
I would hazard a guess that they would not have a clue.
That being the case all wind generators must be shut down.
If that was refused I would lay a complaint with the fraud squad.

Why should I be taxed on something I did not generate ?

Bazza, valuable insights; this one needs qualifying:

"If it was me that got the bill I would write back and ask how much
wind energy was in the period involved.
I would hazard a guess that they would not have a clue."

I reckon they do have a clue and the answer is ziltch; and they don't want that known.

Bazz and Cohenhite,

A further clarification: we do know precisely how much energy comes from each generating plant at any point in time. The information is available on the AEMO site. However, what we don't know is how much CO2 was emitted. We can estimate crudely, as SillyFilly has pointed out using assumptions and factors such as provided by DCCEE, but the estimate is crude. My point is that that will not be good enough in the future.

What level of precision and accuracy will ultimately be required for measuring CO2-eq emissions? Will we need to measure all emissions caused by man to a level of precision of 1 t? If not what level will be required? And to what level of accuracy, e.g. +/- 1%, 5%, 10%? At 10% accuracy the total amount readily available for fraud would be 10% of 600 Mt/a @ $50/t = $3 billion per year.

I am influenced by recollection of past inquiries into petrol distribution. Petrol station owners and consumer groups were concerned they were being ‘ripped off’. For example, there was concern that the petrol delivered at the bowser was less dense (and therefore contained less energy per litre) than when it was loaded into the petrol tanker because it would warm up along the way. So people reckoned they were getting less than they were paying for. There were many inquiries over the years.

This suggests people will become concerned about the accuracy of measuring CO2-eq emissions once trading is underway. That implies we will be forever having to tighten the regulations on emissions monitoring. That suggests ever increasing cost of compliance at a rate well above inflation.

It strains credulity to believe some sources will have to participate in emissions trading while other sources of emissions will not. We can foresee the fuss if that situation is allowed. “Why me, but not him?” Eventually, emissions measurement and reporting will have to apply to all sources. How can this be done sufficiently accurately from all emissions sources? What will be the total compliance cost ultimately?

Sillyfilly said;
Total greenhouse emissions are calculated by summing the emissions of
each fuel type and each greenhouse gas"

This statement is a nonsense. How does it relate to the electricity
delivered to an individual organisation that has to pay the tax ?
How does the tax get adjusted for time of day, when wind or solar
may be a larger percentage of the supply ?

Coal supplied to power stations is measured by conveyor belt weighers.
These weighers are seldom better than 2% accurate because of the
dynamics of the system. Another way in which the coal is weighed is
by weighing each wagon on a weighbridge if the coal is delivered by
rail. This would be more accurate than conveyor belt weighers but
there is plenty of room for discrepancies.

However the thermal value of the coal varies continuously depending
where it is dug in the mine or which mine.
There are just too many process steps between the fuel and the meter
on the customers premises to achieve any sensible relationship.

As a result any tax charge calculated on the coal sample emission
would have no validity.

The government says that its $23 per tonne tax raises $9,000 million in the first year. That means it applies to 390 million tonnes of CO2
• The remaining 160 million tonnes are not yet covered but if the tax is to be comprehensive they must somehow be caught.

In addition we have the Renewable Energy Target under which 20 per cent of electricity must come from renewable sources by 2020. Twenty per cent is defined as 45,000 Megawatt hours. Wind is the cheapest eligible renewable. Assuming it were to cover all of the 45,0000 (and some will be reserved for the even more inefficient solar), this means a premium of $50 over the (carbon tax inclusive) coal alternative. This adds a further $2250 million by 2020.

Then there are direct disbursements from the budget that are not part of the taxation stream. This includes the Department of Energy’s R&D funds $730 million last year plus the funding of carbon restraining programs through other government departments CSIRO, BoM etc.

So the aggregate cost can be put at, say, $12-13 billion a year, escalated by the tax rate necessary to bring about the targeted reduction in emissions.

On top of all this there are regulatory measures like the 6 star requirement on housing.
One problem in estimating the costs is that they cannot simply be calculated by determining the tax rate and then multiplying this by the carbon dioxide tonnage. The tonnage has to fall by 2050 from present per capita levels of around 22 tonnes to a world average of 4 tonnes. Even at $150 per tonne (and the various modellers in Treasury and its consultants have higher numbers than this buried in their tables). Unlike conventional taxes the carbon tax is designed to depress production not to raise revenue.

The revenue raised by a tax even at $200 per tonne would, if the goal of approximately 100 million tonnes were to be met, would be only $20 billion. And according to Treasury, we will be little worse off by trashing the use of our most productive industries.

Alan,

Thank you for those details.. I am wondering if there a mix of figures from more than just the compliance cost of CO2 pricing? Is it justified to include the Renewable Energy Targets and Certificates and subsidies for renewable energy in the ETS compliance cost? I agree these are a cost attributable to trying to mitigate climate change. But I am not sure they can be allocated to the compliance cost of ETS and CO2 emissions monitoring.

I suspect these costs should be included in the benefit/cost analysis for all the government’s policies to attempt to mitigate climate change. You might be interested in this estimate of the benefit and cost for Australia of the CO2 price to 2050:
http://jennifermarohasy.com/2012/05/legal-challenge-to-mandated-renewable-energy-in-the-eu/?cp=all#comment-506444

In short, according to Treasury assumptions and figures [1] the cost of the Government’s policies, cumulative to 2050 and discounted, would be $390 billion.

However, the estimated benefit (cumulative to 2050), i.e. the damages the CO2 pricing scheme is estimated to avoid, would be just $41 billion. The damage estimate is probably too high; it is based on a small number of studies, mostly in developed countries and likely biased towards high damage cost estimates.

Therefore, the benefit to cost ratio is just 0.11 (i.e. $41/ $390). We should not proceed with a policy that would have a benefit to cost ratio less than 1.

The advocates argue that most of the damages occur beyond 2050. However, the damage estimates seem to be highly exaggerated, and do not make proper allowance for adaption. Projecting damages out to 2590, as Nordhaus [2] does, in order to make the damage costs seems high, and based on a small number of studies that likely over estimate the damages, is not a sound basis for policies that will seriously damage our economy now and forever.

[1] Treasury (2011):
http://archive.treasury.gov.au/carbonpricemodelling/content/chart_table_data/chapter5.asp (Chart 5:13)

[2] Nordhaus Yale-RICE Model (2010):
http://nordhaus.econ.yale.edu/

For more explanation of the calculations see my two comments on 4 May 2012 here
http://bishophill.squarespace.com/blog/2012/4/4/nordhaus-and-the-sixteen.html

Peter Lang said;
A further clarification: we do know precisely how much energy comes
from each generating plant at any point in time. The information is
available on the AEMO site.

Granted, but that does not say how much CO2 is emmitted.
The only way to measure that is with stack measurement.
Then as I was pointing out, if the tax is charged by customer meter
measurement, you need to know what percentage of, for example, wind
power was included in the meter reading.
If this is not done, then as the amount of alternative generation is
increased the tax will remain the same and wind power will be taxed
as well.

Frankly it is a control engineers madhouse !

Bazz,
a question; why didn't the Government just levy a charge on each ton of coal burnt for power, and for each barrel of oil used?

Why are they demanding that each Company/ Public Entity spend time and effort estimating their emissions?

The short answers are
1. so they can employ many more public servants checking/collating the data.
2. so the Government can collect double/triple the money.

1. is self evident. 2. is because the Electricity generator gets taxed, then the user get taxed on the estimated emissions from the electricity used (plus any other emissions).

As to the last when the NSW Gov. was fishing on emission reporting my boss and I looked at the requirements and I think he had the best comment. “if those damn public servants want accurate figures (that could only be obtained by climbing 70 feet up an exhaust stack at 300ºC ), then they can do it themselves. By the time they’ve organized themselves I have my pension”. [He was well short of 40]. Shortly after we both left the company for various reasons (retirement in my case). 


Those are the sort of figures the tax is based on

Well Graham 3 I would suggest;

3. Blind stupidity and incompetence.

I would say from everything I have read on this matter that at no time
did they get any technical advice from engineers in the generation and
electrical spheres.
I suspect that they might have tried and those that they asked just
ran away from such an impossible task.

There is another problem I have thought of and that is to do with the
trading of emission units and their derivatives.
Anyone doing so will come under stock exchange and ASIC supervision.
In the event of a dispute or complaint how could you defend yourself
in such a dodgey measurement enviroment ?

If your bank gets involved, move your accounts and sell their shares !

sillyfilly, Wednesday, 9 May 2012 12:47:28 PM

Estimates of emissions from the combustion of individual fuel types are made by multiplying a (physical) quantity of fuel combusted ... and a fuel-specific emission factor

I've retired from all that estimation but was involved when it started in NSW when I worked for a paint Company making some resins. The short answer is that we didn't know what specific fuel types or amounts were combusted in our after burner (to reduce all emissions to CO2 and some nitrogen oxides).
Firstly, a portion of the resin ingredients were chemically changed during reaction, and a mixture of the reactants and the changed substances went straight to the oil fired after burner. It was a complex and variable mixture, and analysing each reaction would have been a nightmare of complexity.
Also into the afterburner went volatiles from the paint production. As there were over 6,000 products and hundreds of volatile ingredients it was impossible to calculate emissions.
The 4 "methods" put forward by the public servants ranged from idiotic to bizarre. (No-one in the paint industry could supply the answer, but were threatened with fines if they didn't).
I moved on, thankfully, and my successor was a practical (unscrupulous) fellow who responded by generating a vast spread sheet of over 600MB. 16 pages of calculations, I’ve forgotten how many pages of information on composition, tonnage produced, batch sizes and frequency of manufacture. All in 10 point Arial font with no graphics. Factors were assumed and buried in obscure corners with no explanations.

One resin might be spread over 200 products. And with 6000 rows and 120 columns on a page, try following through that, esp. with references from page to page to another page. It looked impressive, but trying to check it was nigh on impossible, but the public servants were pleased and even recommended that other paint companies consult him! His view was that he retired in 5 years and they wouldn’t figure it out in that time.His comment was “Brains baffle b*llsh*t”.
This I add happened more than 5 years ago.

Graham 3;

Thats the way to do it !
Presumably the last calculation was divide by 10 !

A Classic !

Graeme 3, thank you for an excellent explanation of what would be involved in CO2 monitoring at the level where the work is done and the information provided.

Here we have an example from an engineer who has worked at the level where the measurements are taken and the calculations are done. It is rare to get such an insight. From the explanation you have provided we can envisage what would have to be done, eventually, by all businesses that emit CO2. I wonder what would be the total cost to the country?

Graeme, could you post another comment and explain the resource requirements and the costs to the company where you worked? Perhaps you could also comment on what might be the consequences for small businesses, especially those competing in a world market.

The US EPA has estimated that its costs, if it were to comply with the laws passed by US Congress, would be $21 billion per year. What would the total cost to US businesses be? Would they be 10 times, 20 times, 50 times the EPA’s cost? I suggest, given this law has already been passed in the USA, it is only a matter of time until equivalent requirements are imposed on all countries. What would be the cost in Australia (our GDP is 1/15th of USA’s approximately, but our productivity is much lower and out labour rates much higher, so perhaps use 1/10th as a reasonable approximation)?

When we start to think about the consequences to businesses, as Graeme 3 has explained, we can start to recognise how important it is that we be informed of the compliance cost of the ETS before it is implemented. I urge Minister Combet to instruct DCCEE, and the Treasurer to instruct Treasury, to do the estimates, do them properly, and also to fund a proper external due diligence of the results the government comes up with

‘The Australian’ this morning:

“ONE of the nation's leading carbon-pricing experts has described as "unrealistic in the extreme" Treasury's budget forecast of a $29-a-tonne carbon price in 2015-16, and warned of a multi-billion-dollar risk to the budget and a failure of the scheme to change emissions behaviour if a floor price is not maintained.

Frank Jotzo, the deputy director of the Australian National University's Climate Change Institute, told The Australian an oversupply of credits in the UN's Clean Development Mechanism meant carbon prices would stay low and a more realistic estimate was $5.”

Read the article here:
http://www.theaustralian.com.au/national-affairs/treasury/carbon-price-denounced-as-unrealistic-by-expert/story-fndbwnla-122635251771

ETS is a highly evolved mechanism based on POWER heirachies in social systems.

1. Men basically want sexual pleasure

2. Women want the tools to deceive men into thinking they are fountains of sexual pleasure when all they want is to hatch their eggs and create bigger populations. If that causes overpopulation, climate change, war and ultimately disease epidemics is calculated to be MEN's problem.

3. Politicians and Business CEOs have outgrown both the primal urges through luck and intelligence. They see Power as the ultimate goal. Power being the ultimate aphrodisiac means these elites don't have to grovel to satisfy primal urges as they get IT thrown at them. Nice gig! However Power depends on a continuous growth in population and that means a continuous increase in POLLUTION based climate change and increased intensity of wars, failing infrastructue, externalising debt and danger costs to constituents and civil strife like drive by shooting.

What to do? This limits growth in population and thus growth in POWER.

Smart political managers thus embrace CO2 climate change because it means they can have an ETS and a DIVERSION. They say they are taking care of all the ugly overpopulation problems , pay baby and family bonuses and keep the growth going against the inevitable tide of overpopulation destruction. They KNOW or guess that by the time they die the world will erupt into overpopulation wars but hey they will have achieved the ultimate life that can be lived.

Why more people don't want to be politicians is beyond me. So cool. More deceptive and cunning than any mere woman!

Oh and then there are lawyers .. the Jackalls. Scavenging for all the leftovers! Perhaps the biggest winners in the longrun.

Peter Lang,

I have no specific cost figures. All I can say is that the original NSW survey involved about 2 weeks work for 2 people (Engineer & Chemist) by which time we decided the queries couldn’t be answered.
The CO2 emissions from the after burner were, as first comment above, impossible to measure. Installing a spectrophotometer 70’ up (as was suggested by the public servants) exposed to the weather and to 300ºC exhaust gases didn’t appeal as reliable.
The point was that the highly variable flow of flammables from the resin plant and/or the paint factory was balanced by the oil firing to maintain the right temperature. Since we could only get an average figure for the oil consumption, and no figures at all for the flow of flammables, there was no way you could get the amount of CO2 emitted.

The Government assumptions were from a paint plant with 2 bulk tanks (of water based resin) and 3 mixing tanks. They assumed that all paint companies were similar. We had over 200 tanks of varying sizes. Even the bulk holding tanks could hold different materials at different times of the year.

Also, we had over 6,000 products. Classed into categories of similar composition, and in groups of 20 to 200 (roughly). The public servants came to a meeting and faced with arguments that their 4 suggested methods wouldn’t (and couldn’t) work, suggested that we install recording spectrophotometers at suitable points in the paint factory. We estimated we would need 112 measuring heads, and the figures would have been worthless without simultaneous air flow measurements.

Peter Lang continued

All the other paint companies were in the same position. One of the public servants got very agitated and arrogant about the lack of response (so much so that complaints from other companies resulted in him being disciplined and removed).

As I said the two of us worked on it for solid weeks, then had 2 or 3 meetings with the public servants over about another 6 weeks. All up about 10 weeks work for nil result.

The new engineer took that different approach. I think it took him 5-6 weeks to prepare the spreadsheet, which I think had to be copied onto a DVD to give to them.

The public servants were delighted, they had numbers! Other paint companies got together with him, and prepared their own sets of figures. And I believe for some years these were up-dated annually (at a cost of 2 weeks work).
As I indicated the figures were quite dubious, but that didn’t seem to matter. I have no doubt that figures like this were carefully integrated into their planning.

I don't believe that many companies can make accurate measurements of all the emissions which the public servants want. They seem to think that everything is measured as a matter of course, and that Companies employ lots of people to do that, regardless of cost.
Personally I think the cost of accurate measurements will be beyond most companies resources, and an approach like the above will be adopted. After all, the public servants won't be able to measure them anyway, even if they wanted to do so.

Graeme3,

Thank you for the valuable input. In short, measuring CO2 emissions from most sources would be impractical.

Thank you to ‘On line Opinion’ Editor for running this thread. I wonder if there is a way to publicise this sort of information more broadly. It is rare to get someone like Graeme, who has retired and does not have a job at risk by explaining this publically, to provide such information.

We can also see why Treasury and DCCEE have not attempted to estimated the compliance cost. If they did their figures would be exposed by people like Graeme as nearly meaningless. However, I do believe it is important to publicise the issue of the ultimate compliance cost before we commit any more deeply to CO2 pricing.

I’d also urge readers to urge others, who may have something to add to this discussion, to post their comments.

Peter Lang,
curious how the old memories come back.

At the time it seemed a clash of cultures; there wanted something and couldn’t see why it wasn’t supplied a.s.a.p. The public servants weren’t interested in our difficulties, they expected us to drop everything and comply with their demands. Almost feudal, like a Baron addressing serfs.

The original demand came with a deadline, and threatened us with fines and/or imprisonment if we didn’t supply the information on time and guarantee its accuracy.

I don’t think that the question of the costs of compliance ever crossed the minds of this government or its advisors. For over 50 years the amount of paperwork they’ve demanded from industry has grown and grown. Each Department assumes their demands are reasonable and not much work (forgetting that collecting data takes far more time than filing it) and not allowing for other departments demands.

The howl from industry has been loud and clear for years, yet ignored. The burden is becoming too great,and will be resolved by either of two methods - that of the Israelites departing Egypt, or the French peasants revolting. For companies the first is in vogue.

That we might have other priorities wasn’t considered, but even then the firm was trimming staff. We were down about 40 from 4 years before, and had about 170-180 working there.
I lost contact but I know that there are now less than 50 there. Drastic cuts have been made because they are struggling to compete with overseas competitors, yet they were exporting quite large volumes when I was there.

Peter Lang
The blame for the company’s decline will be put onto the high Aussie dollar, but that isn’t the only factor.

As an example when it came to registering a new resin, the Yanks were amazed at what we had to go through. They sent off about a half a page of data, basically a trade name and composition, along with a $200 fee, and started making the resin. (This was for a resin considered non- hazardous).
One of my submissions ran to 73 pages including a copy of the label, all sent in triplicate. The fees, and I use the plural advisedly, totaled $4700. There would follow a series of queries, most of which were nit-picking e.g. “on Page 14 you refer to ingredients in 1 tonne bulk bags, but on Page 27 you refer to ingredients in bulk bags. What size are these bulk bags”. Permission to produce the resin might take 10 months to arrive.

Robert Mendelsohn (2009), Climate Change and Economic Growth
World Bank

Abstract
Grim descriptions of the long‐term consequences of climate change have given the impression that the climate impacts from greenhouse gases threaten long-term economic growth. However, the impact of climate change on the global economy is likely to be quite small over the next 50 years. Severe impacts even by the end of the century are unlikely. The greatest threat that climate change poses to long-term economic growth is from potentially excessive near-term mitigation efforts.
http://www.growthcommission.org/storage/cgdev/documents/gcwp060web.pdf