Electric v petrol scooter

I've been reading some great posts recently at Chris Eastwood's blog in my view... . Below is a full post comparing the merits of electric and petrol scooters in a detail rarely seen.

But first a few quotes from Chris that might get you interested in some of the ideas floating around on his blog.

By having an increasingly itinerant population is it any wonder that no one gives a rats arse that your home is being degraded? (here)

I recall a conversation with 2 educators on Fraser Island ... that the last thing you want to do is encourage more people to come to national parks, even if it does somehow liberate more funding from the government it won't pay for the extra damage caused by the extra bogans. (here)

The full electric scooter post is below, and the original link here. Chris finds that the electric scooter produces more greenhouse gas emissions than the petrol version. Please keep in mind the rebound effect, since the electric scooter is so much more expensive (the owner can’t spend that money on other goods).

Over to Chris.

It’s starting to get fashionable to talk about Electric Cars again. The other day I was in at the local scooter shop the other day getting a tyre sorted out for my Yamaha T-Max scooter (and pondering a new 50cc scoot for my wife) when I spotted this electric scooter. So (being an engineering sort of fella) it is exactly in my nature to use this situation to mull over the whole thing (and present it to people who may not have thought about it).

I have been interested in the concept of an electric scooter for a while now but had not really done much research on the topic.

So since it was right in front of me I thought I'd ask some questions, take some pictures and write about it here.

I will say from the start that I like the idea of an electric scooter for city work more than petrol ones for the simple fact that most scooters are 2 strokes, stink and pollute something fierce.

India made a great move when they legislated their nasty "auto" taxis to use CNG rather than the regular 2 stroke ones of the past. Emissions fell and everyone is healthier and happier for it.

Its true that electric engines will need power from the regular power stations, which are in the main coal fired (at least in Australia). However at the very least we move this pollution to a single more efficient generation source (while introducing a number of other inefficiencies in the middle) which can be more controlled and monitored.

Before dribbling on about that too much I thought I'd toss in a comment about the rear drive on the scooter. A brush-less 48Volt 4000Watt hub mounted motor: man that means it can suck 83 amps!! wow

Which makes for some interesting observations about the changes in engineering of the swingarm and frame (because the forces are different now).

The motor can suck up to 4000 watts of energy out of your buttery but of course will only pull as much as is needed for keeping a constant speed when cruising along at a steady speed (say 50Kmh). This is of course exactly like a petrol powered motor, which sucks fuel faster when pulling power than does when cursing along. Interestingly both produce about 4000 Watts of energy (yes, 49cc scooter or electric scooter give you the same power to take off) which should come as no surprise because thats regulated by government.

[aside: to put this sort of tiddly power delivery into perspective, a "vanilla" motorcycle like a Suzuik GS500 has a motor that will deliver at least 38,000 Watts and a timid car like a Ford something like 48,000 Watts of power. So as things go the electric scooter is not pushing the engineering envelope here]

Putting energy in:

People somehow think of petrol as fuel and electricity as energy, I blame our schools for creating this schizophrenic view of reality. The reality is that fuel (petrol, gas) is energy in liquid form. We release that energy by burning it.

Motors turn that energy release into movement. The electric bike stores energy in rechargeable batteries and gets the energy to recharge the battery from your wall socket using something like this:

This little device (which is about the size of a small shoe box) is the charger for the scooter.

To charge your scooter up you have to plug this in to the wall power and into the bike. You cannot really run a long extension lead to it or you will lose power so we meet:

Problem #1 - where can I recharge


If you have your own house and garage you can probably charge it up in your garage, but if you live in an apartment its quite unlikely you have power available where you park your scooter. So you'll need to find a place where you can park it and recharge it: which takes 4 hours. In contrast the regular scooter recharges with fuel at the local servo and takes about 5 minutes to fill and pay for.

So, with fuel being (at the time of writing) about $1.5 a Liter a petrol powered scooter takes about 5L in the tank and will set you back about $7.50 to fill up from dead empty. It’s unlikely you'll run it dry, so you'll probably put in 3L at a time and walk into the servo to pay your $4 bill while grinning at the people who fill up their cars and are paying something like $60 for that.

So what does it cost to "fill up" the Electric scooter?

Well of course electricity costs, in my area right now power you pull out of the wall costs you about 19c per 1000 watts per hour. It’s normally written as Kw/H which seems to confuse people who often profess to not understand their power bill. It’s not all that had to get. Essentially if you plug in and turn on something which uses 1000W (or a kilo watt or 1Kw) and leave it turned on for an hour it cost you 19c.

So how does this apply to the Electric scooter?

Looking at the charger we see that it supplies about 900Watts to the battery. I'm certain it is not 100% efficient so let’s give it some grace and assume that it’s going to pull out 1000Watts of power from your power point in your home (or wherever its plugged into).

So (based on the above rate for power) a 4 hour charge will cost you something less than a dollar, 78c our thereabouts.

According to the information I have on the scooter (which you can verify here) For this princely sum you get to travel 90Km (only under particular conditions).

That is quite attractive. Sounds like its quite positive when reading the basics. So let’s plumb into the ownership and do a little bit of thinking:

Cost comparison
Ok, so 80 cents gets you 90Km on the scooter, but it will of course vary on how you ride and in what conditions. 90Km is of course also the maximum distance, so if you commute across town 25Km you'll not quite get two trips into the one charge (as 50 + 50 will put you out of battery) and you can't stop and top up on the way like you can with a petrol bike. The actual distance you will get may be less depending on factors like:

· hills
· number of traffic lights
· how heavy you are on the throttle on take off (kiss bye bye to fast take offs)

This means that (unless you want to be pushing it home) you'll have to top up every day (fine if you park in a garage in your home, annoying if you have a flat).

So again you'll be plugging in and paying that 80c every day instead of the potential discussed by the maker and seller of the bikes.

If you were to consider a petrol scooter (as a comparison) such as the Honda Scoopy, assuming you get something like 3l / 100Km (and some have suggested you can get 1.4L/100Km) you will pay $4.50 for that 100Km or $2.25 per day. That’s a worst case scenario too, as if you get 1.5L/100km (which is actually likely) then that'll be more like $1.12 for the trip.

Starting to look like much the same running cost as the 80c for the scooter isn't it?

Of course with the petrol version you have the flexibility that you KNOW how much is in your fuel tank, battery charge level is not as accurate and will depend on how cold it is. You can top up your fuel in minutes but need hours (back home where your charger is) to top up the electric scooter.

So this begs the question of how much is the convenience that petrol provides worth to you?

Back on the costs: an acquaintance of mine who has an electric bicycle (less power) recently changed battery from the standard one. How much? Well think in numbers closer to $1000 than $500 and you're on the path.

So unless you're after a battery for one of those tiddly little electric bicycles (with all that implies) you're thinking big money. This starts to lead into the next problem identified for the Electric Scooter and that is:

Problem #2 real operation costs:

Thinking about the above battery example, how long will your rechargeable battery last? Well its only covered by 1 year warranty. So assuming you use the battery optimally (charge and discharge according to the makers ideals) you'll certainly get a year out of it, perhaps two. But are you going to learn to do that or is convenience going to get in the way?

Consider that at the fuel prices of $1.50 /Liter (and before you say that may rise over 2 years ask yourself if power won't) you will get 20,000Km of travel from $450 of petrol.

If you travel 25Km each way to work, thats 50Km per day = 400 days of travel.

Yes, that's right ... your entire year of fuel bill will blown on a battery replacement. Which means in another way of thinking about it, that you are actually costing yourself an extra 80c a trip just for the hell of it when using an electric scooter.

Ok, but we're CO2 free right? That's got to be worth something hasn't it? Well, let me introduce you to ...

Problem #3 - CO2 generation

Its hard to get figures but it seems that (for coal powered stations) about 900g of CO2 is released for every Kw of electricity. So given that the Electric Scooter will need about 4Kw from the wall every day (using the above situational example) it will thus end up generating about 3.6Kg of C02. Of course you could run it to the edge and charge every second day (and push it home occasionally) halving that figure, but that's up to you (and pushing is good exercise).

In comparison burning petrol will release about 625g of C02 for every litre burnt, so assuming you burn 1.5 litres for your 50Km trip you'll generate about a 1Kg of C02 (Note: these calculations are based on figures for C02 in petrol from here)

so yep ... the petrol version generates less CO2 as well. It’s not looking good to me at this point ...

Naturally at this point someone will make the observation that Electric Scooters are at the beginning of their evolution and that petrol engines benefit from decades of development. Well if you have never gone to school or been taught to do any reading you may believe that line.

Let me assure you that both are quite developed technologies.

Petrol motors are actually not significantly advanced compared to 40 years ago (only we've worked on mainly curbing their emissions of other stuff) when you could buy a 70cc Honda Cub (lovely scooter) which used almost exactly the same amount of petrol as the bikes do today.

Then there is the Brushless DC motors used in the scooters, these have been in commercial use since 1886. So its mainly the battery technology which is changed to make storage more compact and perhaps controller circuits to make the motors more flexible. The basic physics of power required to move something hasn't changed between the motor types.

This does not effect the cost and pollution aspects of this calculation (except to say that modern batteries may be a more significant pollution issue than lead acid batterys).

Problem #4 - capital costs

Right now (if you look closely at the first picture) you'll see that an electric scooter equivalent to a 50cc scooter costs about $4250, while a 4 stroke *(more expensive, much cleaner burning less polluting than 2 stroke) Honda Scoopy will cost you about $2500

Yes, you did read that right, you'll pay nearly double for an equivalent electric scooter which will likely produce as much C02 (if that's of interest to you) and certainly more other significant toxic waste than will the choice of a clean 4 stroke petrol powered scooter (compared to 2 stroke motors which are quite dirty creatures).

An excellent document prepared for the Victorian Competition and Efficiency Commission (here) suggests that scooters are more effective people movers than cars are in cities. No surprise there...

To make the case even more for scooters, according to that same report: "A 2000 report (Motorcycle Transport, Powered Two Wheelers in Victoria) by transport researcher, Professor Marcus Wigan, found that motorcycle riders were the only transport mode to indicate no time delays as part of a trip."

There are articles available written to counterpoint this blog post (such as this one) where they suggest that Electric bikes are better than petrol powered ones. It’s worth noting that these are largely written by people who actually sell the electric alternative (but not the electricity).

It’s interesting to note that in the post I cited above the author makes the comparison between a electric bicycle and a postie bike (Honda CT110). The CT110 is a work horse, it'll carry another 40kg of mail and still accelerate and travel at 60Kmh if you desire, but the author makes a disingenuous comparison with an electric bicycle (which only carries you and you have to pedal too) comes out on top (when he ignores the battery issue). Yet the bicycle has a motor which wouldn't have enough power to pull the skin of a custard when compared to a postie bike ... gosh, bet that'll be popular on the farm!

But what about Solar charging? That would be CO2 free...

Well that's a good point. If you were to get a 1.5 Kw system it would likely produce enough energy on a good day to charge your scooter (if you left it at home) within 5 hours (you don't get 1.5Kw all the time out of them, ask someone who owns one). So for the additional investment of $2500 (around about and you won't be back feeding the grid while your charging) you can be comfortable in the knowledge that you won't pay that extra 80c a day (but you'll still pay the other costs)

So that's $4200 for the scooter, and $2500 for the solar charger system (no rebate on that one) taking your investment to $6700 for a system which needs you to leave the bike home during the day for charging ... sounds great to you too?

So in summary:

It seems like the following to me

· I will save a little per trip (about 80c for a 50Km trip vs $1.25)
· but I pay double to purchase ($4200 vs $2500)
· unknown depreciation losses (but it’s fair to say you can't lose more than $2500 on the petrol scooter)
· pay more for operational costs (the battery will die)
· actually create more pollution in almost every way by using an electric scooter over a petrol one.
· You have to be able to park it where you can charge it (in a secure place or risk getting your charger stolen)
· if your running low in power on the way home you cannot just stop in to a servo to top up.

Why are you buying the scooter? Economy? Environmentally friendly?

The bottom line is if you want to be really environmentally friendly, go get a 50cc to 110cc 4 stroke scooter stop driving your car and help save the world’s atmosphere and resources.

Recycling Jevons Paradox

I have previously argued (here, here and here) that cost effective recycling actually leads to an increase in the demand for the resource being recycled. This is the opposite of what most environmentalists, and even most economists, believe.

What I probably didn't explain is that not only can recycling increase the demand for the resource being recycled, but it can also increase demand for all other natural resources used in the economy. Yes, a new technology that makes recycling car tyres cheaper than manufacturing new car tyres would increase our demand for tyres (because they are cheaper) and for other resources, like oil. The reason is simple. Automotive transport just became slightly cheaper due to the recycling technology, and the response to this price reduction, however slight, is to increase the demand for automotive transport and all the other resources required to provide it. 

This result usually seems counter intuitive at first. But we all accept that improving labour productivity does not decrease the demand for labour. And we all accept that improving agricultural productivity leads to an increase in land under cultivation, due to marginal lands becoming economically viable. So why not recycling? After all, if recycling is cost effective, isn't it also an example of improving the productivity of the material?

At the risk of being painfully repetitive (this is my fourth post on the matter), I will use the 'recycling of labour' as an example.

Suppose there is a task that takes two labourers a month to complete. Given the nature of the task, suitable labour can be found at $1000 per month per man. Now, a new technology allows us to 'recycle' the first mans labour at a cost of $500 per month. Given this is half the cost of employing a second man, recycling is an obvious profitable choice to get the work of two men achieved in a month with only one man. This new technology might comprise new equipment (power tools etc.), or simply the investment in teaching the man new skills.

In any case, one man is achieving two men’s' work for less cost. If I changed the terms a little it is clear how this is actually an example of 'labour recycling'. "Two bottles of cola can be provided with one bottle for less cost" would be a simple summary of the net effect of plastic bottle recycling.

But we know from centuries of experience that recycling labour increases demand for it. And we know that it leads to productivity gains elsewhere in the economy, since you can't improve economic productivity in isolation of the rest of the economy. As Len Brookes once elegantly noted, the 'principle of the indivisibility of economic productivity' means that any technology that improves the productivity (aka efficiency) of one resource, improves the productivity of ALL resources in the economy.

This post was partly inspired by one of Don Boudreaux's blog posts (originally published here). In it he describes recycling more broadly - 

After I awaken, I shower and dry myself with a towel that I’ve had for a few years. I don’t discard it after one use. When it gets dirty, I rejuvenate it by processing it through recycling machines that my wife and I own: a washing machine and clothes dryer.

Then I brew coffee and fix breakfast. Each day, I use the same coffee maker that I used the day before. I clean it after each use, recycling it for the next brew. My wife and I drink the coffee from mugs that have been used many times in the past. (One set of our coffee mugs was handed down to us after my wife’s parents used them for several years.)

We also eat our breakfasts using dishes and utensils that are recycled from countless past uses. After breakfast, we recycle our mugs, dishes, and utensils with the help of another recycling machine: an automatic dishwasher.

After breakfast, I dress in clothes that I’ve worn before and that I will wear again. My underwear, my pants, my shirt, my necktie, my belt, my coat, my shoes – all are recycled from previous uses. Indeed, I take my suits and coats to a store specializing in recycling such garments: my local dry-cleaner.

And from a later post -

When materials are worth recycling, markets for their reuse naturally arise. For materials with no natural markets for their reuse, the benefits of recycling are less than its costs – and, therefore, government efforts to promote such recycling waste resources

His use of the term waste in the final sentence is misleading. He means that no consumers will gain from government efforts to promote costly recycling, therefore the resources utilised in recycling are wasted, as they could have been employed elsewhere to better satisfy consumers. However, from a macro viewpoint, it is this very cost INEFFECTIVE recycling that reduces economy wide productivity (aka efficiency) and resource demand.

That is the key lesson here. If an activity in uneconomic, it decreases our total level of economic activity and our total demand for resources. If it is economically justifiable, it increases our demand for natural resources. Indeed, if we are concerned about the externalities associated with using our natural resources we need to restrict the supply of these resources at the source - restrict sand mining locations, reduce allowable mining rights to coal etc. Trying to achieve these environmental outcomes by the most indirect route possible, through the consumer and far upstream production processes, is completely misguided.

Queensland’s Strategic Cropping Land

I have been critical about the farming lobby’s reaction to the Murray-Darling Basin Plan, and I have also been very critical about the value of food security, especially when used as a justification for agricultural subsidies.

My general belief is that farmers should be treated like any other business and face risks from their investment decisions.  Because this belief I strongly support Queensland’s new Strategic Cropping Land Policy. 

The policy under development gives farmers a chance to opt out of mining and gas production on their land. Currently land owners must allow mineral and gas exploration and development on their land. The mining industry has legislative power behind it to explore for, and mine, the States mineral resources (have a look at your title deed and you will note that even freehold land owners don’t own the minerals under their land).

This means that miners do not need to buy any property rights from existing land owners to conduct activities on privately owned land. They do however need to provide some compensation for disruption to activities (as prescribed under the relevant acts).

In the greatest of ironies, agricultural policies in this country have protected farmers from their own business decisions (eg. subsidising water supplies, making drought and flood payments - I argue these events are part of the natural weather cycle and should be anticipated), yet have not protected farmers from external threats to from mining.

It took a while for the food security lobby to realise that the food production of the country rests in the land, soil and water, not in the individual businesses of farmers. If a farm business fails, the productive capacity remains for the next buyer of the property. But if land, soil and water is irreversibly damaged, then potential food production capacity is destroyed.

With these bizarre policies in place it is possible to have the situation where a farmer is receiving drought relief payments on the one hand to save his business, while the government is supporting the demise of his ability to farm on the other hand by allowing coal seam gas wells to be peppered across his fields.

In the Darling Downs the preservation of the water quality in underground aquifers is especially important. These aquifers are a significant source of water for agriculture and there is a reasonable probability that drilling through this aquifer many thousands of times to reach the deeper coal seam will contaminate the water. And unlike a river system which flushes water readily, underground aquifers may take hundreds of years to recover (or water users will need to treat the now contaminated water before applying to crops).

The irreversibility of mining and coal seam gas impacts is one of the key reasons that farmers should be given some ability to opt out of such activities on (or even near in some cases) their land.

The outcomes from this type of policy should satisfy a broad range of interests.

1. Land use conflicts are more easily resolved by given some powers back to existing land owners.

2. By protecting the land itself those who want food security and local food produce benefit.

3. Those who want ‘agricultural open space’ benefit (people actually like knowing there are farming communities and driving through the country).

4. Farmers who want to be free to run their own business, protected from irreversible land damage benefit.

5. Those who want mining can do so if the impacts on surrounding land owners are sufficiently low.

Of course there will be problems to overcome during implementation, but in principle the policy appears sound. An indeed, the minerals and gas remain in the ground should future circumstances require their extraction.

Talking climate with Warwick McKibbin

I met RBA board member Professor Warwick McKibbin yesterday.  Alas, his reserved academic demeanour was a successful deterrent to a gruelling discussion on monetary policy and his thoughts on Australian housing.

I was, however, enlightened about his academic research and particular area of expertise – macro-economic modelling and climate change.

For such a diminutive guy he manages to raise a large public profile and promote intense debates on matters of macro-economic policy.  He was intensely critical of the government stimulus package, although many economists see it as very well implemented in hindsight.  


Some of the critics of the implementation of Australia's fiscal stimulus fail to see the broader political picture.  Professor Tony Makin, for example, argued that the fiscal stimulus was not necessary because adjustments in exchange rates and interest rates absorbed most of the impact of the crisis.  Yet he gives no credit to domestic impact of fiscal stimulus from abroad, particularly with our main trading partners.  His argument was that we should have been free riding on the stimulus of other nations.

The broader political picture reveals that there was an explicit agreement by G20 nations in November 2008 to take coordinate fiscal action to avoid this very issue.  In an international context our stimulus appears light on – maybe we still did partly free-ride.

But McKibbin is clearly most passionate about climate policy, driving hard his ideas for coordinated global action – The McKibbin-Wilcoxen Blueprint for climate policy.

Prior to Professor McKibbin's detailed overview of his economic modelling of climate change policy I had sat through a macro-economic modelling discussion which was a world apart from reality, an academic exercise, and I was ready to cast an intense critical eye over the next economic model to be presented. So I did.

His ambitious world economic model seemed to show that it was all too easy for most countries to meet their climate change targets, with many having very small (sub5%) impacts on GDP to their baseline forecast for 2020. Why was that?

I guess the principle reason I could see is that the displacement effect was not considered. This effect describes the "race to the bottom" whereby richer nations outsource their environmental harmful production functions to poorer nations with weaker environmental controls, resulting in net increases in global pollution.

But the displacement effect is really very subtle, and captures much of the sectoral change in the economy over time.  As such, estimates of substitution effects (elasticities) for the model where higher than I would expect.  They were estimated for energy prices from measurements of the US domestic economy from 1950-1980, a period where a dramatic shift in the composition of domestic production took place, yet composition of consumption remained more stable (Japanese manufacturing for example).

Given that this is the key model assumption I would hesitate at interpreting the outputs as a sign of the low cost of meeting targets, or cross-country indicator of comparable effort on climate change.  Obviously the global economy has no opportunity to displace production, yet the model inputs essentially assume we can.

The Professor did take on board this critique, and perhaps the next iterations of the model may show more severe changes to baseline estimates.  


Yet this type of problem exists with all macro-economic models, where data is usually sparse and unreliable, and you make do with the best you have at the time.  But interpreting the results knowing the shortcomings is especially troublesome.

Once again, I fear that questionable economic theory is crowding out common sense and political pragmatism, and I muse over how much this may occur at the board of our favourite central bank. 

No limits to economic growth

For an environmental economist these words are blasphemous, but I said them, and I have good reason to. 

The modern Limits to Growth movement gained prominence with the publication of the Club of Rome’s book of the same name in 1972. This book, by Donella Meadows and colleagues, reports on the results of a computer simulation of the economy under the assumptions of finite resources. The World3 computer model produced scenarios showing that under various assumptions, a decline in non-renewable resources will lead to a decline in global food and industrial production, which will in turn lead to a decline in population and greatly reduced living standards for all. 

The following image is one example of the results of their simulations where a catastrophic decline in industrial output, food production and population will result form reaching our finite resource limits. 

While I don’t doubt the finitude of many natural resources, and that the human population cannot grow indefinitely, I doubt that finite limits of resource inputs to the economy necessarily means that economic growth cannot continue indefinitely.

To be sure, I am certain that substantial unforeseen changes to the rate of extraction of some resources will lead to short-term disruption of established production chains, such as shocks to oil supply, but in the long run I see no reason that an economy with finite resource inputs cannot increase production through improved technology and efficiency.

I need to be clear that when I talk of economic growth I mean our ability to produce more goods and services that we value for a given input. Increasing the size of the economy by simply having more people, each producing the same quantity of goods, will be measured as growth in GDP, but provides no improvement in the material well being of society.

A better measure of growth is real GDP per capita. This adjusts for the disconnection between the supply of money and the production of goods, and adjusts for the increase in scale provided by the extra labour inputs. Even then, this may overestimate the rate of real growth occurring, as there has been a trend of formalising much of the informal economy, for example child care, which is now a measured part of GDP rather than existing as individual family arrangements.

On these adjusted measures economic growth is a very slow process. In a world where non-renewable resource inputs are fixed or declining, it is the rate of the decline and the speed of adjustment that will determine the overall outcome for our well being. If the rate of decline of non-renewable resource inputs is below the rate of real growth (our ability to produce more with less) and the rate at which we can substitute to renewable alternatives, we can avoid economic calamity in the face of natural limits.

Unfortunately there are other factors at play.

The rate of population growth will greatly determine the per capita wellbeing in a time of limited growth. While extra labour input will no doubt contribute to production inputs, my suggestion is that this input will be outweighed by a decline in complementary resource inputs. Remember, we care about real economic ‘wealth’ per capita, and with more people there is a smaller share of remaining resources each person can utilise in production, thus reducing wellbeing.

Further, we can begin to take productivity gains as leisure time instead of more work time, thus there is a possibility of maintaining a given level of production in the economy with fewer labour inputs over time.

There is also the reliance of our financial system on high levels of growth. Many economic growth critics cite the need for exponential growth of financial measures of the economy as being in conflict with any finite system. Yet the ‘system’ itself is a human construction and I seen no reason why a stable money supply cannot operate under various levels of growth (even prolonged negative growth) if used cautiously and with little leverage.

Often forgotten is that many resources are currently fixed and yet go unnoticed. There are always 24 hours in a day, but that doesn’t stop us producing more each day. If a shortage of hours was encountered, would a sudden change to 23hrs (a 4% decline) have a dramatic impact? Or would society easily adjust to this new environment of tighter time scarcity?

While a smooth transition to prosperity under much greater limits on resource inputs to the economy is theoretically possible, I don’t expect this to be our future reality. Self interested governments, businesses and the general public will react to short term shocks in unexpected ways, potentially promoting conflict, and taking the bumpy road. I have no doubt that there will extended periods of prosperity in the future, but also expect a rough ride to get to them.

Murray-Darling Basin Plan: Despite extreme lobbying, you can’t take water that does not exist

The release of a guide to the Murray-Darling Basin Plan is receiving very poor media coverage. This headline – “Basin Authority holds its first public meeting” - is entirely misleading. The Authority had numerous meeting with stakeholders including water users, irrigation groups, farmers groups, local councils, and anyone else who could claim and interest for the past two years. There should be no surprises.

Another here – “As many as 130,000 jobs could be lost because of reduced water allocations in Victoria's fruit bowl region under the Murray-Darling Basin plan, a farmer says” That’s right. A farmer says so, therefore it must be true. 

This is a week the farming lobby has spent years preparing for, and they are basking the attention. 

The further problem which is completely overlooked by the media, is that while the reductions in rights to take water are ‘up to 37%’ that means that most reduction in most rivers are ‘between zero and 37%’. 

Let’s not also forget the fact that these are reductions of paper rights, not volume taken. There would be very few water users whose volume taken matches the volume of their rights due to variability and recent dry conditions.  The graph below shows that recent rainfall conditions are below historical averages, although this is not uncommon in the long term.

What is missing from this mainstream media nonsense is any actual thought about the reason the plan was developed in the first place. Simply put, there are more rights to take water ‘on paper’ than there is water in the system. This leads to both downstream water users suffering at the expense of upstream users, and environmental areas suffering due to upstream water users. When downstream environmental assets, such as wetlands, receive water, the water also flows through to downstream users. 

There is even the possibility that the next five years more water will be used by irrigators than the past five years, even with the Basin Plan, simply because of rainfall variability. The percentage figures are based on long run averages, which are a distant memory for many people in the Basin. 

Imagine I give you a piece of paper that allows you to take 100ML/annum of water from a particular reach of a river. The river flow is highly variable and because of this you get 60ML one year, zero the next three, 100ML the next, then 25ML. You average 31ML. Then, you get told the stream is overallocated and you are getting cut 37%, so that your allocation is now 63ML. If we had the previous six years again the impact would have only occurred in one year - the cut would take your five year average from 31ML to 25ML – a 20% decline in average use, and a once in five year impact. 

If over the next 5 years you can take 63ML, zero, 25ML, 50ML, 5ML and 60ML, you might end up with even more water on average – 34ML/a instead of 31ML/a – despite the theoretical cut to you water right.

In South Australia for example, irrigators have only been able to access 10% or less of their water rights over the past 5 years or so. If the Basin as a whole shares the water more equitably, these irrigators may be able to use 63% of their previous water allocation – a 37% cut on paper, but a 600% increase in real water use compared to the past 5 years. 

Even the MDBA itself showed just how low actual water use is compared to these theoretical baseline figures from which reductions are calculated. The graph below is from page 130 of the Guide and shows that the average water use since 2002-03 is equal to their most ambitious reduction scenario.

My point is, people are taking the cuts as real water then multiplying impacts to flow on industries then getting bigger and bigger impacts that border on ridiculous. These complementary agricultural industries are clearly already adjusted to any proposed cutbacks.

The only person to present any figures on the media circus is economist Quentin Grafton. He makes his case that farmers are exaggerating losses as follows: 

"In 2000-2001, the gross value of irrigated agricultural production was just over $5 billion, and they used surface water of about 10,500 gigalitres in that particular year," he says. 

"Fast forward to 2007-08, 70 per cent reduction in surface water use, guess what happened to the gross value of irrigated agricultural production? It changed by less than 1 per cent." 

Not only are impacts greatly overstated but water users will generally be compensated for their theoretical water loss at market prices for water – whether the water exists or not. 

Historically most water rights are a gift from the State to landholders. They have generally earned a good living from these gifts, and now that the government has realised that too many were granted, they are going to pay to buy them back. 

While I’m on the water bandwagon, some people are taking the chance to have a dig at cotton and rice growers for their water consumption. What they need to understand is that while Australia is a dry continent, we are characterised by variability of rainfall. Some years it floods and to make use of the water you need a thirsty annual crop. That’s why the virtual desert regions south of St George are cotton areas, even though this intuitively seems bizarre. 

Too good to be true environmental solutions

... roughly 42 percent of U.S. lighting energy (in Canada the fraction might even be a little higher) goes to incandescent bulbs. ...compact fluorescent lamps in all sorts of sizes and shapes that have roughly quadrupled efficiency -- 11 watts replacing 40, 18 watts replacing 75, and so on. They last about thirteen times as long as a regular light bulb; therefore each one of them saves you not only three quarters of the electricity, but also a dozen replacement bulbs and trips up the ladder. That more than pays for them, even though these things are rather expensive.

Think of such a compact bulb, with 14 watts replacing 75, as a 61 negawatt power plant. By substituting 14 watts for 75 watts, you are sending 61 unused watts -- or negawatts -- back to Hydro, who can sell the electricity saved to someone else without having to make it all over again. It is much cheaper to save the electricity than to make it -- and not only in thermal stations. It is cheaper for society to use these bulbs than to operate a Hydro plant, even if building the dam were to cost nothing. Each bulb has a net cost of minus several cents per kilowatt- hour, and no dam can compete with that! - The Negawatt Revolution 

The crackpot with a mo, Amory Lovins, wants people to be paid to not consume electricity as a way to promote energy efficiency and decrease the demand for energy. He has been pushing the negawatt bandwagon for twenty years, yet for all our dramatic increases in energy efficiency, we consume more energy than ever (or more correctly, we use more natural resources to generate more electricity, heat and motion than ever). 

The term negawatt describes the fact that in a capacity constrained electricity generation system, reduced energy consumption by one customer allows an increase in consumption by another customer. Without the reduced consumption by one customer, the increased consumption by the new customer would only have been possible by investing in new generation capacity. Thus, the energy saved is as good as energy generated - so much so that the energy generator could pay users to reduce their energy consumption.

From an engineering perspective there is little wrong with this concept. Unfortunately, an economic perspective reveals many flaws.

First, we have a baseline issue. Customers use electricity over time in an irregular manner. If I was being paid to not use electricity I would make sure my baseline measure was extremely high by leaving on all lights and appliances all day and night. Then, when I go back to normal use, I would be paid.

Second, there is a pricing issue. If someone reduces their consumption of electricity they save the cost of electricity. The new users would then pay the same price for their electricity. Thus revenue is unchanged for the generator and they have no incentive to offer payments to reduce electricity consumption.

Third, if new customers are willing to pay more for electricity then the price can be increased. Existing users then have greater incentive to reduce use to save a now greater electricity cost. Further, with higher prices, electricity will be directed to higher value uses.

Finally, there is a problem of rebound effects when electricity consumption is reduced through economic adoption of energy efficient technology. Increased spending elsewhere, and increased demand for electricity from new appliances need to be considered.

In light of these extensive problems, nega-incentives are becoming quite popular in other areas. Recently a QUT Professor proposed that paying the Japanese to stop whaling – for negawhales – would be a good idea.

Hang on. I don’t whale. Where’s my money? There is clearly a severe baseline problem here, let alone a problem of equity. 

Why stop there? If this approach is so effective, why no pay criminals not to commit crimes?

Maybe I’m being cynical, but if a something sounds too good to be true, it probably is. As a rule, never pay anyone to not do something.

Flow-on effects of recycling - are there net benefits?

It is widely claimed that recycling “saves resources.” Often, recycling proponents claim that it will save specific resources, such as timber, petroleum, or mineral ores. Sometimes particularly successful examples are singled out, such as the recycling of aluminum cans. Both of these lines of argument rest on the notion that reusing some resources means using fewer total resources.

Daniel K. Benjamin

Like efficiency, the word recycling reflects positivity from all angles. How could anyone say a bad thing about recycling?

I propose not to say a bad thing for the sake of cementing my identity as a super-sceptic, but to examine in detail the potential flow-on effects of recycling and determine whether the espoused benefits can theoretically be delivered.

Generally two benefits of recycling are proclaimed. First, waste will be diverted from landfill, thus we can reduce the space required for this purposed and reduce the threat of leaching from landfill sites into groundwater systems and other environments. Second, recycled material will substitute for raw materials and thus reduce consumption of natural resources which may have associated negative environmental externalities.

These are two distinct benefits, and achieving one does not necessarily imply achieving both.

There are also two different economic scenarios for achieving recycling with different outcomes – the profitable recycling scenario, and the unprofitable recycling scenario that requires government support.

The profitable scenario represents an improvement in overall economic efficiency, thus, like the case of profitable energy efficiency, it facilitates future economic growth and improves our productive capacity.

In this scenario, recycled material cannot be said to be diverted from land fill, because it would never have been put there in the first place due to the material’s value to remanufacturing. If the material was simply dumped on the street there would be an opportunity for a business to emerge to collect the material and sell for a profit. Without a counterfactual we cannot estimate the effect on either of our two recycling claims.

If we assume instead that the counterfactual scenario is one where the technology had not yet emerged to make recycling profitable, then we can now consider the flow-on effects from the technology. It is best to have a single material in mind, say glass, when thinking of these effects.

First, the price of the final goods (windows, bottles etc) using the newly recyclable material will decline due to the reduced cost of recycled instead of raw materials. Thus we will see an increase in demand (not a shift in the demand curve, but a new point on the demand curve at a lower price) for these final goods and therefore an increase in demand for recycled and/or raw materials (recycled glass or silica from natural sand deposits). Depending on the availability of recycled material compared to the total quantity of raw materials, this can lead to greater demand for natural resource itself (sand mining).

We can now say we have probably diverted waste from landfill leading to a greater quantity of material circulating in the hands of society (as either capital equipment – glass in buildings perhaps- or soon to be recycled consumables – maybe bottles), but we cannot say with certainty that the new recycling technology has reduced demand for the particular natural resource in question. Nor can we say that demand for, and consumption of, other natural resources remains unaffected. In fact the new recycling technology, since it improved overall economic efficiency, is likely to increase demand for all natural resource inputs to the economy.

The alternate unprofitable scenario represents a decrease in overall economic efficiency, and will reduce overall economic activity compared to scenario where government did not use its coercive power to enforce this unprofitable venture.

In this scenario we are likely to see a decline in waste to landfill compared to the economically efficient situation where recycling is not subsidised. We face the same situation of compensatory demand due to price declines of final goods manufactured using the cheaper subsidised recycled materials. This scale of this offsetting behaviour cannot be readily estimated and is likely to strongly depend on the relative prices and quantities of the recycled materials and raw material inputs are a particular point in time. A decline in overall demand for raw materials in the economy as a whole is certain in the unprofitable scenario due to the overall reduction in economic efficiency.

For unprofitable recycling the net result will be a reduction in waste to landfill of both the recycled good and other goods (since we can now produce fewer goods in total across the economy), and a reduction in resource consumption of the recycled material and all other resource inputs to the economy.

In what is becoming a familiar environmental theme at this blog, it should be clear that indirect measures to curb negative environmental impacts from our activities, such as promoting conservation behaviours, profitable energy efficiency, and recycling, have questionable net impacts on the environmental issue at hand.

Returning to our two main environmental goals of recycling – reduce negative impacts form landfill sites and reduce resource extraction that involves an environmental burden – we can clearly offer more direct measures which are both easy to establish and have certain environmental benefits.

The first environmental goal can be achieved by setting minimum environmental standards for landfill sites to address leaching (or any other associated problem depending on local conditions) including, perhaps, restrictions on location. In response to these criteria, landfill operators (public or private) would need to adopt appropriate measure to limit external impacts – possibly lining their pits with impermeable material, sorting, washing or removing particular types of waste, or some other creative response. These extra costs of waste disposal – the internalised environmental cost – will flow through to the cost of disposal, and may render some recycling programs profitable.

For the second environmental concern, resource extraction, similar direct controls can be used. Sticking with the glass example, the scope of sand mining can be limited through planning controls where natural environments which are valued by the community. Once this limit is established, sand mining in that area can proceed, at any particular rate, with certainty that there is a finite limit to the environmental cost.

These limits would never be, strictly speaking, perfect. They would at best reflect the perceived value of the environment to the community. There is no reason that the limits should not be stricter in some areas than others.

As an indirect environmental measure with questionable benefits, recycling, like efficiency, is claimed to be a panacea for a variety of poorly defined environmental ills. We often forget to critically examine the link between this indirect environmental ‘remedy’, and the target environmental illness.

Energy efficiency - further reading

A robust discussion on the impact of energy efficiency on energy use took place in the journal Energy Policy over the decade since Len Brookes' article The greenhouse effect: the fallacies in the energy efficiency solution in 1994.  It concluded (for now) with another article by Brookes in 2003 entitled Energy efficiency fallacies- a postscript.  Brookes' conclusions are almost identical to my own, and those of Blake Alcott - capping or rationing resources where their use entails some kind of externality.

Brookes also adds taxing resources to reflect the cost of negative externalities, which one assumes, would be spent on reparation activities to return to a new optimal resource allocation which internalises the cost of pollution and eliminates the possibility of rebound effects (if reparations are possible).

It is worth reading his conclusions in full (below the fold):

"The lesson is inescapable that optimal allocation of the economic resources available to us—fuel included— and measures to reduce consumption of any given resource—fuel, for example—are two quite different exercises. Neither one implies the other.

If one’s object is to reduce fuel consumption to serve, for example, some environmental end, fallacious ideas about the economics of activities that involve fuel consumption do not help. Putting the economic spotlight on such activities is as likely to throw up cases where economic optimality calls for the substitution of fuel for other resources as cases where substitution in the other direction is indicated. The right course, given the object, is to bear down on energy use directly, outlawing it (if it is of a particularly damaging kind), rationing it (if you have in mind a total that you are not prepared to exceed) or taxing it (if you believe you can reflect in the tax the environmental damage that concerns you).

It would then be up to individual consumers—both producers and suppliers of services as well as final consumers - to make the best of all the resources available to them in the light of the new constraints and any others they may be experiencing. Only they know what is the best response for them in their own individual circumstances.

It is necessary always to distinguish between engineering efficiency and economic efficiency. To invoke cost effectiveness as justification for a change in resource relationships to achieve any given end is to embark on an exercise in the field of economic efficiency. Fuel can never be employed with greater economic efficiency than in a system in which the allocation of all the relevant resources is collectively at an optimum. Economic optimisation requires an even-handed approach as between all the economic resources involved in any given activity: there is no case for giving pride of place to fuel in such a quest. Seeking optimal allocation of economic resources and reducing national energy consumption for environmental reasons are two quite different exercises and should be treated as such.

Limiting the availability of fuel, whatever the purpose and the means chosen, involves an economic cost in the shape of a reduction in production and consumption possibilities. Not for the first time it has to be concluded that there is no ‘‘free lunch’’. Reducing energy consumption for environmental reasons can never be a costless option unless by chance the action taken happens to coincide with the action necessary to achieve general economic optimisation."

Energy efficiency: A flawed paradigm

The word efficiency carries a meaning immersed in all things positive – you never hear that being more efficient could possibly be detrimental.  In fact, if you can bear the evangelical fervour, you may have read about achieving ‘Factor Four’ or ‘Factor Five’ gains in energy efficiency, as part of a ‘Natural Capital’ revolution comprising a ‘decoupling’ economic growth from a growth in the consumption of exhaustible resources – aka ‘sustainability’.  You may even have heard that I=PAT, where environment impact (I) is a function of population (P), affluence (A) and technology (T), and that becoming more efficient will enable a desired level of affluence will far less environmental cost.

Believe me, this is all nonsense, and indeed counterproductive to the stated aims of curbing resource use and decreasing negative environmental externalities.

When it comes to natural resource use, and the externalities associated with resource extraction and production, efficiency alone is the enabler of greater consumption.  William Stanley Jevons first noted that technological improvement, in terms of greater efficiency and therefore productivity, was the enabler of greater coal consumption in Britain back in 1865 in his book, The Coal Question: an Inquiry Concerning the Progress of the Nation, and the Probable Exhaustion of our Coal-mines. His observation was coined Jevon’s Paradox, even though the argument that technological improvements in resource efficiency (modes of economy) leads to greater resource use was already widely accepted in the labour market:

“As a rule, new modes of economy will lead to an increase in consumption according to a principle recognised in many parallel instances. The economy of labor effected by the introduction of new machinery throws labourers out of employment for the moment. But such is the increased demand for the cheapened products, that eventually the sphere of employment is greatly widened.”

One hundred and fifty years later the modern debate is fuelled by economic ignorance, with many of the most influential economists and environmentalists remaining confused - failing to acknowledge the parallel effects of technology on the resource called ‘labour’ and other resource inputs to the economy.

More rigorous economists have reopened the debate, under the new term rebound effects, breaking down the transition mechanisms between greater efficiency and greater resource consumption.

1.      Direct rebound effect: Increased fuel efficiency lowers the cost of consumption, and hence increases the consumption of that good because of the substitution effect.

2.      Indirect rebound effect: Through the income effect, decreased cost of the good enables increased household consumption of other goods and services, increasing the consumption of the resource embodied in those goods and services.

3.      Economy wide effects: New technology creates new production possibilities in and increases economic growth.

Genius and UCLA mathematics professor Terence Tao explains the direct effect like so:

Suppose one has to decide whether to use one light bulb or two light bulbs to light a room. Ignoring energy costs (and the initial cost of purchasing the bulbs), let's say that lighting a room with one light bulb will provide $10/month of utility to the room owner, whereas lighting with two light bulbs will provide $15/month of utility. (Like most goods, the utility from lighting tends to obey a law of diminishing returns.)

Let us first suppose that the energy cost of a light bulb is $6/month. Then the net utility per month becomes $4 for one light bulb and $3 for two light bulbs, so the rational choice would be to use one light bulb, for a net energy cost of $6/month.

Now suppose that, thanks to advances in energy efficiency, the energy cost of a light bulb drops to $4/month. Then the net utility becomes $6/month for one light bulb and $7/month for two light bulbs; so it is now rational to switch to two light bulbs. But by doing so, the net energy cost jumps up to $8/month.

So is a gain in energy efficiency good for the environment in this case? It depends on how one measures it. In the first scenario, there was less energy used (the equivalent of $6/month), but also there was less net utility obtained ($4/month in this case). In the second scenario, more energy was used ($8/month). but more net utility was obtained as a consequence ($7/month). As a consequence of energy efficiency gains, the energy cost per capita increased (from $6/month to $8/month); but the energy cost per unit of utility decreased (from 6/4 = 1.5 to 8/7 ~ 1.14).

The indirect effect is more subtle and it is the environmental cost of consumption of other goods due to costs saved on, for example, lighting.  If, in the above example, lighting costs were reduced to $2 per bulb for the room, it would be rational to spend $4 on lighting (using two bulbs) and spend the $2 saved on lighting to consume other goods which themselves have energy use embodied in their production. 

Finally, the economy wide effect occurs due to stimulated demand for other goods and efficiency gains being shared across other sectors (due to the principle of the indivisibility of economic productivity – the linked article is highly recommended). 

These economy wide effects have gained recent attention in The Economist where it is estimated that energy efficient lighting will contribute to greater energy use in the long run.  You will note from the comments the cognitive dissonance of economists when referring to labour and other resource inputs remains. 

Conservation, using less at a given level of technology by giving up some utility, is equally ineffective (another great read at the link). We still face the indirect effects from conservation as we spend elsewhere in the economy, and if you believe all consumption has equal environmental cost per dollar (due to indivisibility once more and conceptually boundary problems to traditional input-output analysis of embodied resources – maybe more on this another time) you are back to where you started. 

Further, conservation, like waste, is a relative concept, and by definition we can’t all do it. And we wouldn’t do it either due to the tragedy of the commons problem, where it is in each person’s best interest to defect from a cooperative conservation strategy.  Terence Tao once again explains:

However, if there are enough private citizens sharing the same resource, then the "tragedy of the commons" effect kicks in. Suppose for instance that there are 100 citizens sharing the same energy resource, which is worth $1200 x 100 = $120,000 units of energy. If all the citizens conserve, then the resource lasts for $120,000/$400 = 300 months and everyone obtains $1800 long-term utility. But then if one of the citizens "defects" by using two light bulbs, driving up the net monthly energy cost from $400 to $404, then the resource now only lasts for $120,000/$404 ~ 297 months; the defecting citizen now gains ~ $7 x 297 = $2079 utility, while the remaining conserving citizens' utility drops from $1800 to $6 x 297 = $1782. Thus we see that it is in each citizen's long-term interest (and not merely short-term interest) to defect; and indeed if one continues this process one can see that one ends up in the situation in which all citizens defect. Thus we see that the tragedy of the commons effectively replaces long-term incentives with short-term ones, and the effects of voluntary conservation are not equivalent to the compulsory effects caused by government policy.

If energy efficiency is a counterproductive action for our environment, and personal conservation is useless, what should be done? As renowned ecological economist Blake Alcott points out

If Jevons is right, efficiency policies are counter-productive, and business-as-usual efficiency gains must be compensated for with physical caps like quotas or rationing.

It really is that easy. If you are concerned about greenhouse gases, a cap on greenhouse gases is what is required. If you are worried about deforestation, you create a cap by ‘fencing off’ areas that are not be touched.  If you are worried about over fishing, you create a cap. Whether these caps/quotas are tradeable is a secondary concern, but enable the cap to be met most efficiently.

What about a tax instead?

Many commentators argue that taxing negative externalities (such as a carbon tax) would not only reduce greenhouse gas emissions, but would provide a ‘double dividend’ of improved economic efficiency because more distortionary taxes could be reduced.  However, the very nature of reducing other taxes to make the tax revenue neutral would mean that other sectors of the economy where taxes were reduced now have greater purchasing power to pay for those goods now bearing the new tax burden.  Thus the double dividend comes at a cost to the primary dividend of reducing externalities.

Politics and ideology probably explain why the most basic economics is tossed out the window when it comes to the environmental protection.  Then again, maybe we just can’t acknowledge that such a thing of beauty, efficiency, could possibly have a downside. 


UPDATE: Recommended reading - The Jevons Paradox and the Myth of Resource Efficiency Improvements.

Steve Irwin's way: Economics of wildlife conservation

At Australia Zoo (I had a lovely time there on the weekend, thanks for asking) there are numerous signs posted to encourage visitors not to buy native animal products – crocodile, emu, and kangaroo meat for example.  I found this very odd, as crocodile and emu are farmed, and most kangaroo species are not endangered – far from it.  So what kind of conservation message was this I wondered?

Steve Irwin expressed his conservation message more clearly on the website:

"Sustainable Use" of native wildlife in so-called modern nations like Australia and the U.S.A. has inadvertently created a multi-million dollar 'bushmeat' industry, where local people kill native wildlife for meat, skins and products. Please don't blame the local people; it's not their fault! They're simply hunting for much needed money. The greatest wildlife perpetrators of today's world are those behind the driving force of "Sustainable Use." 

How are the Tiger Farms in Taiwan and China helping to save Tigers in India, SE Asia or Siberia? They are perpetuating the market in Tiger products, which is the single greatest reason for the endangerment of Tigers.

…If we can destroy the market, we'll destroy the industry. Historically the only reason spotted cats, like Leopards and Cheetahs are still found in the wild, is because of peer pressure. It became 'uncool' and controversial to wear spotted cat fur coats, so the market was destroyed and the industry suffered. Slowly, less and less Leopards and Cheetahs were being shot for their skins, and just as well or they would've been extinct 20 years ago.

The principle behind this message is that if we eliminate demand for wildlife products, we will preserve species.  But there are alternative ways to protect wildlife and biodiversity (a side note: do we really care about an individual species, or do we use iconic mammals as the canary in the coal mine of biodiversity protection?)

In addition to the ‘demand destruction’ technique, economists propose other ways to preserve threatened species – promote domesticated supply (farm threatened species), the Coase solution (give rights to the species to a group who can profit from non-consumptive use of the animals such as eco-tourism and research), and simple land conservation.

Which of these measures work?  Should we try them all, or are they mutually exclusive?

Promoting alternative supplies of animal products may sound strange at first, but has merit.  If we began farming pandas, bears, tigers and elephants, we could essentially flood the market for these animals’ body parts, bringing down the price to make hunting these species in the wild uneconomical for the risks involved.  The logic appears sound, and I can think of crocodiles in Australia as an example of where farmed animals have almost completely replaced wild animals as a supply of meat and skins.

But caution should be taken if this method is to be the primary conservation measure.  Solid institutional arrangements, regulations, and enough participants to avoid collusion are necessary, or this measure can simply backfire.  Because the farming of a species legitimises consumption of its body parts (thus increasing demand), farmers may collude to reduce supply and maintain a high price which may not discourage hunting of the species in the wild, especially in countries where hunting bans or their enforcement are non-existent.

For example, if all the crocodile farmers colluded to reduce supply of skins and meat while demand for crocodile products increases now that it is the new must have item, the price may be high enough for wild hunting to be profitable.

One unusual extension of this philosophy is to encourage farming by promoting various endangered species as gourmet food.  No doubt this will encourage farming, but it won’t necessarily ensure that wild animals are preserved, which is the primary goal here.  We don’t see many wild chickens, cows, or pigs anymore (or the descendants of the wild species from which they were originally domesticated).  Tuna farming is developing, and we may see whether this has any impact on wild populations; however I worry about the push for farming tigers for Chinese medicine as an effective conservation measure.  

The Coase solution gives private rights to utilise a species for non-consumptive use (such as tourism or research) to a particular group.  Since that group now has an incentive to preserve the wild population, they will protect an area for poachers, promote tourism, and potentially play a role in demand destruction (easing their efforts to protect against poachers).  For example, some African countries have private rights for tourism operators who make money from shooting elephants with cameras rather than guns, thereby having a strong interest in preserving their habitat and protecting them from poachers.  In fact, in some of these areas the elephant population is now estimated to be at the carrying capacity of the conservation area.

Alongside the Coase solution, habitat protection is also needed.  If the group with rights over the species have no assurance that a minimum size habitat will be maintained, there is little incentive for any group to take up these right and develop the tourism industry.  A combination of land conservation and private rights can be a potent solution.

How do we go about optimising conservation with these options?

If our primary goal is to protect the species in their wild habitat, promoting domesticated supply is probably the least preferred option.  It legitimises consumption of the species and does not always ensure that farmed supplies completely replace wild supply.  It also hinders the introduction of other conservation measures.  Why would tourist pay top dollar to see wild elephants in Africa when there is an elephant farm just down the road?  If hides the plight of the species in the wild when it becomes common in captivity.

A combination of the other measures probably constitutes optimal conservation – destroy demand for consumptive use of the species, promote non-consumptive use and give a group rights to benefit from those uses, and ensure a minimum scale of habitat is preserved for our top of the food chain ‘canary’ species. 

Australia Zoo’s message at first struck me as very odd, but it may just be that the animals they cite are not endangered (kangaroos), or have been successfully farmed (crocodiles and emus).  But their logic is sound.  They may simply have needed a message accessible to children and foreigners, which is achieved by referring to common Australian animals.

You can also see the commitment to this optimal conservation strategy from the Irwin’s purchase of land in Cape York to preserve habitat and promote non-consumptive use of wild animals, which is now under threat from mining exploration (since the State still holds rights to minerals on private property).  You can read more here and sign a petition to protect this land from mining. 

The take home message is to be wary of ‘too good to be true’ solutions from economists when the outcomes are irreversible. 

Food packaging less wasteful than none at all!

I wrote once before that the concept of waste has been distracting environmentalist for decades. Today I came across this exceptionally interesting article on food packaging. The main point is that packaging serves an important purpose - to preserve food. The longer food is preserved, the more likely it is to be eaten rather than wasted. Thus, packaging cuts down immensely on food waste.

I do however believe that some packaging, such as the excessive size of cereal boxes to ensure good shelf space, does not always result in benefits for consumers.

Tuscany v Tassie

For those who don’t know, I am planning a trip to Europe in June. The attraction of Europe for me, a simple Aussie, is the history of human society that is embedded in the environment there. The rivers, still often beautiful, have been subjected to thousands of years of human tinkering. No one would even know the original path of some developed rivers. Even the countryside is not ‘natural’, but the product of thousands of years of agriculture in various forms. The cities obviously are the product of man, but still capture humanities path through history to the present. This humanised environment is beautiful and enticing to me.

Then I consider the wild areas of Tasmania and New Zealand. My Dad is a fan of this environment, hiking the tracks in the fresh mountain air, with none of the bustle of city living. But even in this environment, humanisation (for want of a better term) is occurring. Huts are built. Tracks are formed on the side of steep ravines, and fallen trees are transformed in to nifty seating for a weary wanderer.

When I go camping, it is partly to get closer to nature, but in doing so I change it. I instinctively humanise the landscape as I go - remove fallen branches to make some nice open space, forge a track through to the beach, and make a fire place. I want to go out to nature, but then subconsciously change it as soon as I get there. The result then, for me at least, must be better than the landscape in its original form.

At this moment I believe there must be an instinctive desire to humanise our environment, whether we value natural environments or not. But how does this impact our lives in contemporary urban society?

One important thing that springs to mind is that this humanising desire explains why people apparently ‘over value’ design. I live on the darkside with a Mac laptop. Yes, in my opinion it is more functional, but I must admit, in the beginning, the design really appealed. When the initial decision was made, I simply paid for looks. It was humanised.

More specifically, does this kind of desire explain the premium people are willing to pay to own their own home? Yes, home ownership is more secure, but does security explain the massive premium people are willing to pay? Or does the ability to customise, to humanise, to personalise our space contribute to this willingness to pay? I don’t know; it is just a suggestion.

To put the whole thing in reverse, would there be outrage at the suggestion that you couldn’t personalise your office space at work? Would a premium be paid for home ownership if regulations forbade different colour paint, renovations or extensions, and no changes to the garden?

Then again, maybe I’ve picked up on something that is explained by deeper causes and possibly has an evolutionary explanation.

Down the rabbit hole

I thought it might be nice to put up on the front page a recent comment by Chris. He states:

I can't quite get my intuition around this counter-intuitive concept. I'd like to try to develop some points that still bamboozle me:

1. Equating dollars to energy: For the purposes of example let's make up an economy, let's call it Moldova, which is powered 100% by coal-fired power plants. Say Moldova is a pretty dodgy place and the coal-fired power plants are running break even: so it costs the same amount of Mol-dollars to produce the energy as what they sell it for. Intuitively we would expect that this system could work; that the Moldovians, however poor they may be, would have electricity. However if we substitute the words coal-fired power plant with solar panels it becomes impossible. In both examples the cost of production equals the price of their product. It's easy to understand that if in the process of creating the solar panel we require the same amount of electricity than it produces over it's lifetime we gain nothing since we can easily equate apples with apples. However when we equate dollars with energy, one dollar spent on buying a solar panel (e.g. $1 = 1Wh) only produces 1Wh back again we gain nothing from the process. Thinking this way, equating $ with Wh, how can our poor Moldovians still use their electric milking machines?

2. I'm trying hard not to believe that we gain nothing from buying solar panels. Assuming they cost (like in Moldova) the same as the value of the energy they produce. We spend a dollar on a solar panel: this dollar in infinitely divided as it swims upstream through peoples wallets, and through this process looses it's identity as my 'green' dollar and comes out representing the total resource inputs of our economy, probably more a brownish sludgy colour now. So it doesn't matter if I temporarily green wash my dollar or spend it to create a burning petrol feature-fountain in my front yard: it's all the same. However I reckon by buying a solar panel I change the resource inputs of our economy: so my dollar swims up a slightly altered stream, it still arrives a brownish sludgy dollar, but a slightly greener one.
However after my solar panel is online, the total resource pool of the economy increases, energy becomes cheaper and consumption increases to fill in the space my green dollar bought: so total polluting is not reduced. Arrghh! I thought I was arguing for solar panels!! damn. BUT.. if the federal government wants to stimulate the economy they should spend it on solar panels? Since they would be growing the economy without increasing pollution. I've lost my point. Anyway what do you think?

Cheers
Chris.

My response:

Chris. You have some very neat logical arguments here. And there is no real answer to the first one. I have been pondering this problem for about a year. I get the feeling we are getting very close to the bottom of the rabbit hole, with only one remaining theoretical explanation. Chaos! (complex adaptive systems to be more precise)

While I have given the impression that tracing resource inputs to the economy up the tree can be envisaged much like a never ending family tree, there are interactions along the way that make it a complex system, and the capacity to learn and change also makes it adaptive. There are two major problems with such systems; (1) an action cannot be isolated from the rest of the system (thus one product cannot be isolated as good or bad), and (2) the way to change the whole system is uncertain, given the complexity of actions in response to change within the system.

Further, there are major problems in my theoretical argument against solar panels due to time and technology. For starters, the energy we used to construct the power plant was from half a century ago, which came from power plants and oil wells built a century ago, which were constructed from… well you get the picture (maybe read my Hunger, humans or happiness blog). Without this previous energy use, we would not have current energy production. Thus we could arguably trace back infinitely through time the energy requirements of producing a given product, which may be a sum total of all energy use in history!

In light of these and other issues that arose in lunchroom economics discussions, I developed a ‘Theory of Private Property’, which suggests that somehow economic growth (but not human welfare) is fundamentally linked to the creation of private property. How to develop this into a comprehensive and useful theory presently escapes me, but I am yet to find contrary evidence to dispute the relationship. The point of such a theory would be to suggest that solar power cannot contribute to growth because it doesn’t involve the use of land (whereas fossil fuelled energy can due to the continued consumption of land in the form of coal or oil). If we could attach a right to the sunshine, it may help. The solar energy producers would pay rents on the rights to the sunshine.

Anyway, while that was not a short answer, it does begin to raise some important points that one might consider before proclaiming a specific behaviour as good or bad.