2007-12-17

Reducing CO2 output through market regulation

When the market cannot produce a positive outcome, oftentimes it is left up to government to change market behaviour. One way is through what I would term "old socialism", in which entire markets are nationalised and the goods and services they produce are determined by a committee rather than the marketplace.

"Old Socialism" has pretty much failed to deliver over the years but there are some segments of the marketplace that require complete government control. This would include national defence (the army, navy and air force), as well as law enforcement (police) and the judicial system (courts and judges). Moreover, it is increasingly obvious that health care outcomes under a government health system are superior to a completely market based system.

Electricity Generation - once the responsibility of government - is now increasingly seen as something which the market can provide. My father, an electrical engineer, used to work for the NSW Electricity Commission. In the decades that he worked there, he was responsible for designing some of the most important coal-fired power stations in NSW. From about the year 2000 onwards, people around NSW (and Australia) have been able to pick and choose which power company they get their electricity from. The electricity flows through the same grid, but each company raises revenue from their own power generation facilities. Many of the power stations that my father helped design are now being run by companies like Origin Energy, Energy Australia, Eraring Energy and Delta Energy. Some of these companies are fully owned by the NSW government, but only until the government has the chance to sell them off or privatise them.

But although I believe very much that electricity generation is best left to the market, I also believe that government is essential in regulating this market. When it comes to reducing CO2 levels, government regulation - rather than government spending - is probably the best way to go.

The regulation could be quite simple, say, a law which states that no electricity generated beyond 2020 is allowed to generate carbon dioxide. With such a law in place, all coal-fired power stations have essentially been given a "death date" - a date beyond which they are no longer allowed to operate. But since the timeframe is reasonably long - 12 years - it will allow energy companies time to develop, build and install power generators that emit no carbon dioxide. These would include solar panels, wind turbines, tidal generators... you name it. Moreover, by leaving the market to choose, it allows individual generating companies to make decisions based upon cost and efficiency.

Of course there is one problem with this - the electricity will cost more. That is, literally, the price we have to pay in order to reduce carbon emissions. I've always felt that, if electricity supplies are privatised, that consumers require a clear understanding of how much their electricity costs. It seems obvious that an in-house electricity meter be installed (say, near the front door), which can provide householders with an ongoing reading of how much money their power use is costing. In other words, a householder can simply check the reading every so often and see how much money his/her electricity use is costing. This will result in more judicious electricity usage, as people will turn off lights, heaters, air conditioners and appliances when required in order to save money. Since reducing electricity usage is a good thing, such meters would be mandatory in every household.

At the same time as these regulations are set up, laws would also be relaxed that would allow electricity generators (like wind and solar) to be set up easily and quickly. Electricity companies would be allowed to purchase land and use it to build generators with the minimum of fuss and red tape.

So, that's electricity generation. What about motor vehicles?

CO2 emissions from motor vehicles are not as great as those produced by electricity generation, but it still represents a significant amount. Reducing CO2 from motor vehicles is essential, not least because it will also wean us off oil.

The best regulation I can think of is to set a date whereby no new vehicles are allowed to be registered if they emit CO2. For example, say that no new vehicle can be registered that emits CO2 from 2014 onwards. This gives the market six years to prepare, and six years for mass produced battery powered vehicles to be designed. The good thing about this plan is that petrol-powered cars and other vehicles can still be owned and run after the 2014 date. But, as the years go by, more and more of these cars will be scrapped and replaced by electric ones. It also allows people who love cars and love souping them up to keep driving them for pleasure - much in the same way as vintage cars kept lovingly in a garage.

Again, this sort of regulation requires very little in terms of government spending and little in terms of taxation. It is simply a rule that the market must follow.

Of course, after 2014 and after the introduction of electric vehicles, it will become increasingly obvious that travelling the same distances to work by car will cost more. This will result in people wishing to live in more urbanised communities and ride bikes around. It will essentially become a new urbanism created and designed by the market according to people's needs (rather than being centrally planned by government).

These ideas of mine do not mean that government can't help out financially. Giving millions of dollars of grants to energy companies to help them design, build and install alternative energy generators would certainly not go astray, as would giving tax breaks to these companies.

1 comment:

Dave Lankshear said...

Hi Neil,
Given the enormity of the task I'd even be happy with legislation that said no new coal power plant could be built from today, and just close the oldest coal fired power plants that are due to be closed soonish anyway a little earlier. It's just not possible to replace ALL our coal plants in the time frames you are discussing.

EV's are good, but the demand on the electricity grid could crash the grid. And the lithium industry is already struggling to produce enough to meet laptop batteries let alone cars.

The best alternative is electric rail, trams, trolley buses, and then the BIG one... rezoning our cities so that the old homes in a defunct city plan are gradually phased out through natural attrition. The age of the private motor vehicle may indeed be over... unless something RADICAL happens in battery design.

NOTE: I'm not concerned about what's technically feasible with EV's... we already have a variety of EV's that would work for a while. (Longer trips are problematic, but the vast majority of "normal suburban driving" is already possible). But I'm looking at it ecologically from a resource point of view, and we are running out of virtually every resource. Why promote this experiment in suburban city plan that requires cars, bulldozes more environment / capita than any other city plan in history, and chews up habitat and wipes out ecosystem services that we depend on?