Intentional economic paralysis?
In two articles I've written HERE and HERE I have laid out the importance of energy in our everyday lives and how where we obtain the primary energy we use, governments around the world do have an input in. I have also shown that decision making on how and what form of energy systems we will have has been kept behind closed doors without transparency for a number of years which has resulted in behavior which politicians ought not partake in if they truly have free market principles and public good at heart.
With the research I have conducted one of the things which I have often questioned is why countries such as Spain and Germany have such a strong renewables sector, when Australia with more wide open country, uninhabited sunny areas than almost any other, we have not developed a strong domestic solar industry. Equally strange is lack of offshore wind, geothermal or wave power resource utilization.
For Australia, this has partially been answered in the previous two articles, however active government discouragement for renewables put aside, is it possible financially to change direction on energy with respect to aiming for a sustainability model over the one which we have? A system of primary energy we use simply because its the one our great great grandparents did?
One of the claims by the United States, as it was with Australias John Howard administration, to not even recognize the serious threat of climate disruption, was a perceived threat to the economy.
JOHN HOWARD: No we have a lot of reservations about carbon taxes because carbon taxes are going to impose huge costs on the Australian economy
Here are some pointers however, disputing what appears to be the biggest excuse used for inaction.
...the impact of the higher dollar dwarfs any possible impact of a carbon price. Here are some examples. Last month, one analyst estimated that the impact of an appreciation from US$0.67 to US$0.95 would reduce margins on steam coal from $46 a tonne to $8 a tonne. The same analyst calculated the cost of a carbon price on coal-mining emissions would be $12 a tonne. The impact of foreign exchange movements is greater than that of a carbon price by a factor of 3.
Somehow, magically, our biggest companies are able to handle that shock to their earnings without bailing out to a country with a weak currency. Yet they claim the smaller impact of the CPRS will send them fleeing to the nearest polluters’ paradise.
So exposure to the US dollar vs Australian dollar has a far more devastating impact on the profitability of these companies than the over-inflated fear of a price on carbon.
Department of Climate Change, estimates that companies like aluminum producers would face a carbon cost of just AU$2 per metric ton in 2012. To put this in perspective, the price of aluminum peaked on the London Metals Exchange at U.S.$3,300 per metric ton before the global financial crisis, and it is still trading around U.S.$1,900 per metric ton.
Half the industry, he says, will pay 80 cents or less per metric ton of coal for their emissions. “Given that coal is currently selling for between around AU$70 and AU$150 per metric ton in exports markets, it is simply misleading to suggest, as some have done, that carbon costs of this magnitude will lead to decisions to close mines,” says Combet.
The estimates are that for a tonne of processed aluminium for which the current price is $1,900, an estimated carbon cost of $2. Likewise for a tonne of coal, estimated 80c of up to $150 USD they receive per tonne.
The government pins its policy hopes on carbon capture and storage (CCS), an undeveloped technology that isn’t ready to take on climate change. Meanwhile, every year in Australia, at least $9 billion of our taxes are given to fossil fuel companies as subsidies. This is 28 times more than the government invests in renewable energy and energy efficiency. Then there are the economic and health costs if Australia doesn’t evolve from coal.
Shouldn’t we just encourage sustainable industries that can provide safe, secure and well-paid jobs for the future? 90% of Australians think so. It just makes sense.
Whilst the fossil fuel industry has been overzealous talking up the 'possible' costs to the consumer of shifting to lower carbon technologies, they have themselves been heavily subsidized by taxpayers to the tune of $9 Billion per year in Australia.
"The coal and oil sector is old, polluting and well entrenched. Even if climate change were not an issue, it would be outrageous that our governments add some $9 billion every year to the coffers of the rich multinational corporations that run the sector.
The study commissioned by Greenpeace found in an average year, the Government subsidises coal, oil and gas companies to the tune of about $9 billion. But renewable industries like solar and wind received $330 million.
The United States
They calculated that the US spent between $30 to $60 billion (with a 'b') a year safeguarding oil supplies in the Middle East during the 1990s, even though its imports from that region totaled only about $10 billion a year during that period.
A more comprehensive study that includes the Strategic Petroleum Reserve and other oil protection services (the coast guard is clearing shipping lanes and doing navigational support to oil tankers, etc) shows that actual subsidies to Big Oil are between $78 to $158 billion (again, with a 'b') per year.
What is the Real Cost of Power Production? The report estimates $120 billion in hidden damages not related to climate change in the United States in 2005, the primary year used in the study, which was requested by Congress.
The US military uses 340,000 barrels of oil a day. This makes the DoD the 34th largest consumer of oil in the world, and the American taxpayers (with promises to Chinese and other overseas bankers) pay for it. Adding insult to injury, we note that the US government generally pays above market prices for its needed petroleum products.
$400 gallon for Afghanistan Pentagon officials have told the House Appropriations Defense Subcommittee a gallon of fuel costs the military about $400 by the time it arrives in the remote locations in Afghanistan where U.S. troops operate.
Clean coal would add 78% to electricity price CLEAN coal technology will face extraordinary price hurdles over the next 10 years, a major stocktake of all the world's carbon capture and storage projects has found.
The report, prepared by the Global Carbon Capture and Storage Institute, found that it would cost up to 78 per cent more to produce electricity from coal if fully fledged clean coal technology was installed.
Once again, depending on how closely you examine the claims in the media on the anticipated cost of shifting to a lower carbon energy production model, they appear to be greatly exxagerated. Further, the industry creating the perception that sustainable technologies will be some form of burden is disingenous when the subsidies the fossil fuel industry receives are extraordinarily generous.
It is not that shifting to a sustainable model costing taxpayers and end consumers more which appears to be their underlying concern, but that there would be real competition for government support, which at the moment they have a monopoly over.
Investment in Renewable energy
As happened with government policy designed to fully support the development of the coal fired power station industry throughout Australia, so you would think, as it has worked before, the state and federal governments would fully support the development of sustainable energy production through renewables like solar, wind, wave and geothermal.
However, as I have demonstrated, not only does the fossil fuel industry have a stranglehold over government policy, receive the lions share of taxpayer subsidies despite being mature 'free market' businesses but the Howard administration were antagonistic towards new Australian sustainable industries. So back when I first looked at this, I thought maybe the private sector could pick up the difference.
One of the first things I thought would make sense would be similar financial or taxation incentives like the one described below. My accountant once advised that an immediate tax effective investment was in shares of forestry plantations. Where because the capital cost of a plantation was mostly in the first year - planting the trees, the capital cost became a tax deduction which came off that years tax return. I have often wondered why the Howard government, after 11 years in power did nothing to bring in a similar initiative for renewable energy major projects.
Because of the nature of growing a forest crop, by far the biggest proportion of tax-deductible expenditure in a plantation cycle occurs in the establishment years (i.e. years one and two), with much lesser costs also arising at significant intervals over the life of the plantation.
Also in Australia we have a mandatory pension scheme which is called superannuation. This was introduced by the opposite party to the one John Howard lead, but has grown over the years into one of Australia's largest assets. In simple terms, all employers must contribute 9% of your base salary into a fund which is unable to be accessed until retirement age of around 65.
Superannuation contributions to June 2007 totalled $166.9 billion.
Superannuation contributions to June 2008 totalled $120.4 billion.
Total superannuation assets decreased by 2.1 per cent during the year to 30 June 2008 to $1.17 trillion.
During the Howard years Australia was the beneficiary of a massive rise in demand for resources from China and India as a result of an improvement in the industrial bases of their countries. With Superannuation being introduced at 9% and Australian businesses going through a massive boom on the back of our natural resources, increasing this by say 1% to 10% would have raised an enormous sum of money, up to $16 Billion per year. When you consider the entire installed value of ALL of Australia's electricity assets is estimated at $109 Billion, for only 10% of superannuation inflows of $12-$16 Billion being put towards rebuilding this to a green energy future, we'd get there in less than 10 years.
However, two quite strange simultaneous things happened towards the end of John Howard's 11 year reign which leads me to believe that in the spirit shown here to 'tie the hands' of any incoming administration, so these initiatives did just that.
Tying the new governments hands
The first initiative was the government decided to take taxpayer funds and create something akin to a sovereign investment fund. This was right at the peak of the stockmarket bull run when stocks were most expensive. The government took tax receipts and rather than put the funds back into the economy through infrastructure, education, health spending improvements, they decided to 'invest' these monies to supposedly pay for some future liability in a government run pension fund. They called this fund the Future Fund.
Started May 5, 2006 AUD with $18 billion in seed capital February 28, 2007 push the fund to over AUD $50 billion May 2008 adds the 2008 and 2009 budget surpluses, valued at AUD $41 billion, 31st Dec 2008 roughly $66 billion
The Future Fund reported a loss of $2.4 billion in 2008-09, taking its assets to $61.04 billion on 30 June, a reduction it said of 4.2 per cent on the $64.18 billion it opened its second year with.
So $50 Billion of Australian taxpayer money being locked up in an investment fund, not being returned to taxpayers in the form of services, capital improvements to health, educational facilities or defence spending, but locked away as dead money. And timed to occur when the market was at its peak, if not artificially pushing it even higher.
The second thing they did was change the rules on contributions to the pension/superannuation funds on a temporary basis.
people will be able to make up to $1 million of undeducted contributions between 10 May 2006 and 30 June 2007 which will allow people who were planning a large contribution under the existing rules to do so
Superannuation contributions are taxed differently to ordinary taxation. If a person wishes to 'salary sacrifice' part of their income they can nominate to do so. Any money they sacrifice pre-income tax will be subjected to a 15% flat tax rate versus whatever nominal tax rate that person would be paying. As Australia's top marginal income tax rate is 45c on the dollar once a person reached an income of $180K, superannuation becomes a very attractive investment. Particularly for those on high incomes.
There was a limit however, on how much you could redirect this way... until 2006/2007 that is, coinciding with the establishment of the Future Fund.
The new superannuation regime is a tax–free piggy bank, but you have to be 60 to crack it, writes Peter Freeman.
The massive overhaul of superannuation announced by the Treasurer, Peter Costello, as part of the federal budget delivered a range of benefits, especially to wealthier Australians. This group can now build up a lot more in super without being hit by penalty taxes.
Tax on both lump sums and pension income taken from a taxed super fund from age 60 abolished. Untaxed (mainly public sector) super funds will have 15% tax levied on lump sums up to $700,000, with excess taxed at marginal tax rate. Pensions also to be taxed at your marginal tax rate but with a 10% tax offset. Rules setting a maximum annual drawdown from an allocated pension to be abolished, and a more flexible rule introduced for determining the minimum that has to be taken.
What this actually prompted a number of people I knew close to retirement age to do was to sell all the liquid assets they could, in some cases re-mortgage others and in other cases still take out loans to put into superannuation. Now as the superannuation industry was investing heavily in shares at the same time the new $50 Billion in capital from the Future Fund was occurring, at the time this seemed a little bit of an over-demand threat to me. But it also did something else which when I look at it now, I realize just how deliberative about Australia's future John Howard and his administration were.
Imagine you've worked your whole life, gradually paying off your home and other assets, building a nest egg in a business, stock portfolio or other real estate holdings. The money you have invested is fairly fluid though as credit is easy and you could liquidate at any time however you know there will be a significant capital gains charge, which is profit on an asset sale counted as personal income. But the government comes up with a one off scheme where you can put as much money as you want into a superannuation scheme and avoid paying as much tax. You'd jump at the opportunity, right?
That is what the Howard government did.
When you realize the time frame of this cash shifting enticement was until June 2007 and the Howard government was looking like losing the election in November, this was pre-emptive thinking.
In other words, this appears a well thought out plan to ensure that the incoming government would immediately see a shortfall in receipts from the tax implications of this policy as well as it being a one off occurrance, making a new administration look fiscally irresponsible. In addition with the temporary short time major inflow of cash over and done with, all those new people who'd now invested in the stock market would be looking at on paper losses of a lot of money as the market cooled and demand for shares returned to normal levels.
And of course blaming the government in power is what would happen.
Remember that all indications were pointing to John Howard having been leader for just a little too long in 2007 and there was a lot of discussion that he should have handed over the leadership to another player. Staying in place seriously undermined the Liberal's position going into the 2007 election. Everyone assumed he was simply too proud to stand down and make way for a new leader with a chance of being elected, take Turnbull for instance. However if a crippled economy ended up part of the inheritance of the new administration, it would not have looked good had the Liberal party been re-elected.
John Howard had also inherited a financial 'surprise' when he initially came to power in 1996. So there was plenty of motive there to repay the favor and weaken the chances of the incoming government of holding power for too long.
The Government soon found that the previous Keating Government had left them with an unexpected $9 billion "black hole" budget deficit.
Our economies run on energy powered by fossil fuels. That is indisputable if you go back and review my first article with over 85% of our energy needs being met in this way. This part of the economy, cost of the basic resource of fossil fuels to make our economies operate, needs to stay stable without wild fluctuations.
Think of a loaf of bread or maybe bag of rice, something which you simply cannot do without which makes up the base line of your diet. For as long as you can remember this product has been stable in price, maybe increasing by a couple of percent each year, but so does your wage. Your weekly expenses and budget therefore is shaped to afford this staple. Now imagine someone inflates the price of bread x 3 in a very short period of time. Now take it economy wide. That is what happened towards the end of 2007 and start of 2008. The price of oil and coal, the staples of our energy diet, TRIPLED in a few short months.
This did not correlate to a sudden rise in demand as we can see with these daily numbers below of millions of barrels of oil, nor was there any world conflict explaining this. Daily oil consumption millions barrels 2002 - 2007
This also correlated in the past 8 years with significant increases in turnover of the Fossil Fuel industry, particularly oil companies. Again this does not hold up well when considered against actual rise in demand.
The price of fossil fuels skyrocketed in a few short months. Where was the government action on addressing this? A threat to the economic health of every single business in Australia through its energy costs, more severe than anything seen before was suddenly unleashed on the market. What did the Howard government do?
After 11 years in power in Australia, John Howard had lost the 2007 election on 24 November 2007. And of course George W Bush popularity was at a very low 30%, and of course they had Copenhagen coming up in 2009 to discuss a means to mitigate carbon emissions.
Also the resultant unpopularity could be put down to a number of policies which both had implemented including the invasions of Iraq and Afghanistan, so they would have known that in even the most resilient populations there is sometimes a hankering for change to something different. Just to see how things would go with 'the other guys' in power. These long lived fossil fuel organizations, like Mr Murdoch, have seen this occur again and again through thousands of elections throughout the years, so I am sure they had a fair inclination for just what would be the inevitable result of the election in the US. Consider the candidates which wound up running against Barack Obama.
The incoming Australian PM had indicated his party would ratify Kyoto, which they did. There was strong indication that Barack Obama would also take, like the REST OF THE WORLD, the implicit threat of climate change seriously. So with that, how to prevent a new administration from taking any action. How do you tie their hands?
With the Trillions of dollars flowing through the economy in order to purchase energy, the first would be to look at extracting as much money from the incredibly favorable run created whilst they had the full support of industry friendly people in government. However no stable system, which oil and coal prices had been for a very long time, can handle a sudden spike where the price triples in a few short months.
These organizations do closely follow the macro-economic factors of an economy, it is their business after all to know exactly how much the citizens of a country can absorb to meet their daily energy needs. So was this a way to inflate the bank balance of the fossil fuel industry, protect against any financial disruption, whilst knowing the remainder of the economy would not be able to absorb this sudden swing in prices? Cash is king in an economic crisis when you are the only one who has it and particularly if you knew a crash was coming because you were instrumental in causing it.
In the US, we had sub-prime loans which any government which had the long term financial health of its citizens would have recognized the danger signs as these committed ordinary mum and dad's to outrageous resetting interest rates which they would not be able to afford and resulted in speculative gains in the real estate market unsupported by a rise in middle class incomes.
Many things can be said about what has motivated the populations of the US and Australia over many years, but one underlying thread, the one that excuses destroying natural habitat, prolongs the use of destructive processes, allows fatal products like cigarettes continue to be sold, is that "it'll harm the economy" mantra. Well this is what those who preached the mantra the loudest did to America.
But it was in Australia where the governments actions were a little more inexplicable. As I indicated in the second article the LETAG concept was to lock in for as long as possible greenhouse gas policy which would result in no real change from the status quo being heavily dependent on the continuous use of fossil fuels. These follow through financial actions, in my opinion, appear intended to paralyze the incoming administrations of Barack Obama and Kevin Rudd to such a degree that people would become angry enough to dislodge them from power.
Along with the policy of not participating in any debate over legislation which has been occurring in the US as well as Australia, Murdoch's media empire was to be used to criticize both administrations in order to drum up disproportionate hatred of the leaders of both countries.
Media magnate Rupert Murdoch says Kevin Rudd is too sensitive to media criticism and is more interested in strutting the world stage than running Australia.
"He doesn't like criticism," Mr Murdoch told Sky News.
"He expresses his complaints more vociferously and faster."
"He's different in that he's more ambitious to lead the world than to lead Australia," he told Sky News, but quickly added that the comment may be a "little unfair" though "there's some truth in it".
Mr Howard also claims the Government has achieved very little since defeating him in 2007 and took credit for Australia keeping its head above water during the global financial crisis.
"I can't think of a major thing it has done, except spend the bank balance that Costello and I left behind. Nothing else," he said.
This is from Rupert Murdoch's old playbook where he shut down the Australian government in 1974 and used his media empire to dislodge the government he had previously supported.
In 1972, Murdoch acquired the Sydney morning tabloid The Daily Telegraph from Australian media mogul Sir Frank Packer, …
Murdoch threw his growing power behind the Australian Labor Party under the leadership of Gough Whitlam and duly saw it elected... in 1972 on a social platform that included universal free health care, free education for all Australians to tertiary level, recognition of the People's Republic of China, and public ownership of Australia's oil, gas and mineral resources.
Rupert Murdoch's flirtation with Whitlam turned out to be brief. As the Whitlam government began to lose public support following its re-election in 1974, Murdoch turned against Whitlam and supported the Governor-General's dismissal of the Prime Minister.
The 1975 Australian constitutional crisis, commonly called The Dismissal, refers to the events that culminated with the removal of Australia's then Prime Minister, Gough Whitlam, by Governor-General Sir John Kerr and appointing the Leader of the Opposition Malcolm Fraser as caretaker Prime Minister. It has been described as the greatest political and constitutional crisis in Australia's history.
Using a series of recent scandals as justification, the Senate announced it would defer any voting on the annual supply bills that appropriated funds for government expenditure until the Prime Minister called an election for the House of Representatives.
Think carefully about the negative media attention that Newscorp has directed at both Barack Obama and Kevin Rudd since they were elected. Murdoch has even gone out of his way to personally attack these leaders.
And consider that those current tactics, 'taking their bat and ball and going home', refusing to participate in the legislative process are standard operating procedure in both the US and Australia by two right wing opposition parties with strong ties to Murdoch's empire.
So what are they so afraid to discuss?
"On three major matters before this parliament, the Carbon Pollution Reduction Scheme, alcopops and immigration policy, his authority is so undermined he cannot even unite his party and unite the Coalition in a single vote -- and they are so desperate on the CPRS they voted in the Senate to avoid voting.
Just like the day before, only one Republican showed up for the Senate's climate change hearing Wednesday morning -- but not to debate. Republicans are boycotting the Environment and Public Works Committee hearings, blocking action by exploiting a committee rule that at least two members of the minority have to be present before opening markup.
How quickly they forget that when in power, policy discussion was never transparent with Dick Cheney's Energy task force and who know's what went on with John Howard and the Greenhouse Mafia making decision arbitrarily behind closed doors.
Why are they so afraid to discuss future energy policy?
I completely agree with the Prime Minister at the time when the most important asset building initiative, Superannuation was introduced into Australia when he said this:
Hawke calls for climate summit Mr Hawke said a summit would give everyone involved in the debate the chance to learn the facts, both on the consequences of climate change and the costs of action and inaction.
"I have always believed that ignorance and prejudice are the enemies of good policy making," Mr Hawke said.
"There is so much lack of understanding and knowledge about the issue, there is a lot of prejudice and fear around, that I believe if you had a summit where all the facts were laid out, you'd get a much better basis for policy making."
This issue of climate disruption and interconnected energy are too important to allow a very small group of self serving people and organizations decide what is in our best interests. A climate and energy summit which everyone gets to state their case needs to happen. We cannot continue relying on the press to be accurate as we can see how easily money can influence those who chose to bend the truth in order to profit such as Fox News, Newscorp does.
We need to hear the truth as at the moment it seems we are getting anything but.
Both developed and developing countries are under heavy pressure by fossil fuel industries and other carbon-intensive businesses to slow progress on negotiations and weaken government commitments. The clash cannot simply be framed as one between richer and poorer nations.
China’s moves to hasten development of renewable energy, Brazil’s pledges to curb Amazon deforestation, and other steps to address climate change in the developing world have prompted a strong pushback from domestic in-country interests determined to maintain the status quo.
Instead of a broad frontal assault on the climate science that marked the pre-Kyoto battles, lobbyists seeking to dilute the Copenhagen treaty have changed strategy, acknowledging there is a problem while focusing on slowing or easing national commitments.
The intensity of the lobbying can be seen most clearly in developed countries, where official registers reveal that thousands of industry representatives have attempted to influence climate legislation. In the United States, there are now about 2,810 climate lobbyists — five lobbyists for every member of Congress — a 400 percent jump from six years earlier. And in Australia, Canada, and the European Union, hundreds more lobbyists are at work attempting to block or water down strict limits on carbon emissions.
Powerful corporations are fielding multinational efforts to influence the debate, such as Peabody Coal, the world’s largest coal company, in Australia and the United States; and oil giant Exxon Mobil in Canada, the European Union, and the United States. Although largely operating at a national level, opponents of a strong climate change treaty are employing similar fear tactics worldwide, including threats of massive blackouts and job losses.
The voices of scores of business advocates for stronger climate change policy, including alternative energy companies and would-be players in the carbon market, can barely be heard above the clamor of the older, well-capitalized, and deeply entrenched industries that have been lobbying on climate change for more than 20 years.
As a result of the forces arrayed against stricter emissions limits, no developed nation has made a firm pledge for the kind of emissions cut scientists say will be needed within the next decade to stave off catastrophic climate change.