Tuesday, 3 June 2008

Energy Economics, Part 94

A serious green policy would fix energy prices at a guaranteed constant high to make everyone use less and to make green technologies economically enticing for investors - and make incomes fairer.

- Polly Toynbee

(a) Suggest what the 'constant high' should be, in which currency etc

(b) Discuss generally

ND

45 comments:

CityUnslicker said...

this is what we already do, more so than almost any other economy on the planet. moronic woman.

Anonymous said...

"make incomes fairer".

Ah yes, in the socialist world we would ALL be broke....

Anyway, how could we get this to work? At what point would people say "I would rather be cold in the winter than pay these sorts of prices"? My guess is that to achieve any significant reduction you would have to increase energy prices until they absorbed practically the entire disposable income after tax, food and londging, because heating and lighting are part of life's basic necessities here in the frozen north.

Put prices up by that much and the entire UK economy would collapse. That should save a few watts.....

Perhaps Polly is of the opinion that we have the heating full on in August just for the sheer luxury of all that waste. But then again that big old mansion at 1 Clapham Common Road probably is a bit chilly....

Old BE said...

I am a great believer in simple measures. *IF* we are going to encourage carbon efficiency (for energy security and economic efficiency, not because of the green lobby) we should encourage it in the simplest possible way. That surely would be a flat and predictable (perhaps rising over time) tax at the source - when it is extracted or imported. Then let the market decide the most productive use of the limited supply.

Nick Drew said...

come on guys, where are your suggestions for the Constant High ?!

we need hard numbers !

you're just not trying ...

Old BE said...

£15 a litre

Nick Drew said...

Good man, BE !

now - have you thought this through ... who will get the windfall ?

... what will happen if Sterling collapses ?

... will the bus company be made to pay this amount ?

... am I allowed to run an electric car ? (or were you going to put the price of electricity up, too ?)

Any advance on £15, anyone ?

Old BE said...

£15 for personal users, taxed at the pump. number of litres allowed depends on carbon rationing points still available

fuel for public transport dyed red and untaxed

fuel for hauliers dyed blue and available on production of official hauliers' licence - tax rate linked to the price of a loaf of bread

key workers to produce a discount card at the petrol station (limited mileage per year at a discount)

MPs to get increased mileage allowance to cover higher prices

constant high price reviewed annually to keep in line with nation income

Unsworth said...

I'm sorry, I thought La Toynbee was some sort of humourous author. Whenever I've attempted to read one of her pieces I have had to stop before the paroxisms of laughter do me a permanent damage.

Have I somehow got this wrong?

Mark Wadsworth said...

Woo hoo! Back to the 1940s when everything was so-o-oo much better!

Blue Eyes, you're really getting into the spirit of things. Can we link the 'personal carbon allowance' to the ID card scheme? Please?

I also recommend that thermostats in every home be linked to a central computer so that the Carbon Police can come and smash your door in if temperature goes above the State Recommended level of 16 deg C, to be reduced by 0.5 deg annually, of course.

Drivers to keep a log of all journeys, split into essential and non-essential, available for inspection by Carbon Police (Traffic Division) for random checks and approvals. Local soviets to decide appropriate punishment for those making non-essential journeys.

Old BE said...

Carbon credits on ID cards - excellent idea.

I have changed my mind. The oil industry to be nationalised and prices fixed, all profits to the treasury. The same discounts applied but by rebate instead of at point of sale. File your carbon return in January for the previous carbon year.

All journeys of more than two miles to be pre-approved by the Civil Transport Authority, journeys of less than two miles are banned.

Chris Gilmour said...

Maybe some kind of annual subscription service, £1000 for a year, as much petrol as you like.

Tim Worstall said...

Somewhere between $2.50 per tonne CO2 (Nordhaus) and $85 per tonne CO2 (Stern).

A Pigou tax.

Of course, even at that higher rate that means fuel duty in hte UK should fall by at least 13 p per litre.

Mark Wadsworth said...

Tim, I thought we worked out "to" 13p, rather than "by" 13P?

Mark Wadsworth said...

Manc Ill, you've missed the point. If you want unlimited fuel you have to be an MP or be appointed to the Local Carbon Soviet.

Anonymous said...

As to the "high" I have no view, but it strikes me that the obvious currency should be gradually devaluing dollars/pounds/euros (or whatever is used for pricing oil) printed on .. er .. carbon paper.

Nick Drew said...

Vince Cable, sitting alongside Polly on the Daily Politics has just said - in connection with food prices - that guaranteed prices are "absolutely insane"

Polly kept her own counsel on this point, but then called for green taxes plus direct fuel subsidies for those on below-average incomes

CityUnslicker said...

Polly may dislike Tories; but she really hates the poor, she will do anything to keep them down.

Old BE said...

Lefties hate the Tories because they dare to allow the poor to become rich.

Anonymous said...

Oi!!
Stop stealing our ideas from our 'fliers' and 'relaunches' and 'news managment' file.

rwendland said...

Funny you should post this today. Take a look at wholesale leccie prices in the last few hours:

http://www.bmreports.com/servlet/com.logica.neta.bwp_StaticSspSbpServlet?param1=NRT

Would that peak do for a constant high? 30p/KWh + transmission losses + distribution costs + profit: say 40p/KWh

That would get people to unplug standby TVs!

To compare with the pre-outage day stick 2008-05-26 into:

http://www.bmreports.com/bwh_SspSbp.htm

I think something strange might be happening in the wholesale leccie market the last few hours. That is a big high - getting on for the same as the day of the outage (2008-05-27).

Nick Drew said...

rwe - nice to see you back. You've only just commented on Friday's piece !

there was a BM £550 on the 28th.

but I never like to place too much weight on balancing prices, whch can do extreme things in many markets

HOWEVER the summer 08 forwards have looked high for a while now, which I worry about more

the real players seem to see a lot of risk in the system just now ... let's see what happens if France goes into hot-day import mode again

Old BE said...

ND, what "market" system do the French use or is it still a nationalised monopoly?

Nick Drew said...

BE - they do have a market

they export so much (staggering quantities) electricity across Europe, they've been keen to play the game at the many border-points where exports flow out of France, and the have a fairly good Exchange ("Powernext")

wholesale leccy prices across Fr/BE/LUX/NL/DE show very good convergence most of the time, which (given the larg-ish number of players) is a fair indicator of the market working reasonably well

but the froggies have been dragging their heels on introducing true competition in their retail sector (residential customers & smaller industrials / commercials): so EDF still looks pretty much like a monopoly in that department

their gas market also leaves a lot to be desired (though it's not at all as big as ours, and they are basically importers). Outside of a swathe of the industrial sector in Northern France - where plenty of gas comes in at international prices from UK/Norway/Netherlands/LNG via Zeebrugge and Dunkerque and some Dutch pipelines - there's essentially no French market in gas (GDF the monopoly)

the GDF / Suez merger will be an important event & the details of how the assets are retained / spilt will be significant. Basically it should never have happened - a typical French statist move - because Suez (= Electrabel & Distrigas) was one of rather few co's that could quickly have competed with GDF. The other is Total. But if they are forced to divest Distrigas, we could be off to the races again.

- The *Knowledgeable* Nick Drew (where did you get munificent from ? you know the moths have my wallet staked out)

Old BE said...

Interesting stuff. Munificence is relative :-))

rwendland said...

Hi ND. You covered the outage so well I had nothing to add until today!

EDF may be a pseudo-state company, but they do bring the market to domestic users' houses with the wonderful load-managing Tempo tariff - upto 22 expensive red days per year at EDF's discretion. Most days are blue days which are very cheap! Do many people use that tariff?

I gather a box gives you a blue/white/red light signal the day before to tell you the tariff. So EDF can try to reduce domestic demand on tough days. This is capitalism at the door for you - Maggie would approve!

It's a real geeky tariff. Yes please!

EDF has so much nuclear it has to run them in load-following mode rather than base-load. Crazy unless someone gives you billions of capital at near-govt interest rates!

Nick Drew said...

I wrote a bit about EDF and their department of mathematics in the comments on Friday's post

interesting tariff: who is in a position to calculate whether the discount is a fair premium for those 22 put-options (american) eh ? not many residential customers, I'd say

Sackerson said...

(a) enough to absorb all the spare cash of people educated at Badminton School and Holland Park School? But seriously:

(b) stop buggering-about with prices. Let's openly determine the degree to which there should be a redistribution of wealth from the better-off to the worst-off, and transfer money (or money's worth - e.g. educational vouchers) accordingly.

The devil's deal with the current quasi-socialist system is that the people are deemed to have been given x-worth of benefits in the form of public services, and this suits the providers (we will sort of care for you, so long as you understand that we will always quite definitely rule you), but the people have so little say in the quality they receive. If they could spend it themselves, they'd start to look for value for money.

Obviously there's a problem in areas where "competition 'n' choice" is hard to arrange. Wouldn't there be big energy savings if we had an integrated and appropriately-subsidised public transport system?

As to fair incomes, I'm still attracted by the notion of a universal citizen's basic income (as also advocated by "Wat Tyler") - blow up the means-tested benefit traps.

Anonymous said...

Am I the only one who would give Polly one? Seriously I would.. I mean why not it might cheer her up!!

Nick Drew said...

Mutt - have you ever read the comments her Grauniad stuff attracts ? I am guessing there is quite a queue of men wanting to have a little word with her ...

Steven_L said...

Wow

Good hits guys, too drunk to comment really.

Lets go on my original theory that all governments end up with a tanking £ and say $6 a gallon.

Mark Wadsworth said...

Sackerson is o/t but bang on.

The least-bad form of redistribution is straightforward, non-means tested, non-taxable, non-contributory hand-outs, be they vouchers earmarked for 'merit' goods (education, health) or straight cash, irrespective of income, assets, marital status etc, or just as important, huge increases in the tax-free personal allowance (that would partly obviate the need for hand-outs in the first place).

Letters From A Tory said...

Yes, let's price old people out of the system and let them freeze to death while bleeding hard-working taxpayers out of their hard-earned money.

tory boys never grow up said...

I'm not into the intricacies of the energy markets (and I don't think I want to be- playing with lighted matches looks considerably safer) - but I am struck by how the involvement of speculators and the offering of derivative products does seem to have led to an increase in market volatility which is now hurting a lot of poor and vulnerable people.

The economic theory, supported by some on the right, that speculators and derivatives help improve market efficiency does appear to be in tatters.

If something isn't done to improve the efficiency of commodity/energy markets (and yes unlike Polly Toynbee I do believe market signals have a valuable role - if they can be given relatively clearly) then I'm afraid the state will have little alternative but to step into the market's shoes.

Probably high time something was done to make the banks (and others) which are funding the hedge funds and speculators to properly price the risks which they are taking (sounds just like a repeat of MBS doesn't it).

Nick Drew said...

TB - theory in tatters - you won't be surprised to learn that I don't agree with this

however it is certainly true that strange things happen when mug punters turn up in large numbers - in any market, this time the energy forwards. If it was their own, unleveraged money they were playing with, (a) their impact would be less and (b) who cares when they get done by the professionals, as they always will be ?

but I still maintain the oil price is not a speculative confection (see recent comments at Sackers)

the problem with risk being under-priced, IMO, is that too many financial institutions are playing the moral hazard game, they know they will get bailed out - and keep their bonuses. Let 'em burn. Any chancellor giving an interview-without-coffee to a delegation of supplicant banks should open with the words:
I take it you've cancelled all your bonuses for this year, gentlemen, and repaid the last three years ? no ? then p*** off and don't come back

Anonymous said...

Ok, Petroleum geologist/amateur energy analyist here..

The basic problem here is that people think in terms of demand and consumption. Which means thinking up some pretty nasty measures - Fuel Duty, Carbon Taxes, personal allowances, etc - that will try and force changes in the behaviour of 60 million people.

Isn't going to happen. If any of these did start to work it would cause so much pain that the party introducing the scheme would get voted out of office pretty sharpish.

In fact, if we want cheap-ish carbon free energy, the solution is already available - it's called the nuclear reactor. And electric car, of course. Replacing a few dozen fossil fuelled power plants with Nuclear is vastly easier than trying to change the behaviour of every household in the country; and bringing in pollution free cars much easier than trying to get people onto public transport.

A move from gas fired central heating to electric would also be needed, which is why you need to build a lot of fairly cheap generating capacity.

Fixing our energy problems means going to the source, not trying to change the lifestyle of 60 million people. Sorry if this means central planning - or 'leave it to the engineers' as I'd put it - but this is one of the few cases where central planning has consistently outperformed market solutions. (Heretic! Burn Me Now! But Sequester the Carbon!)

Nick Drew said...

Andy -

I can't see how, economically, you can justify space heating using remotely-generated electricity (but I we know the French do)

you're not French by any chance, are you ?

you're probably safe anyway: we'd only burn you if you were tallow and qualified as a renewable source

Anonymous said...

Nick -

Well, you could use some forms of high level nuclear waste for space heating, but no doubt people would complain about that as well..

Using centrally generated electricity may seem mad.. but liquifying natural gas, shipping it 3000 miles, deliquifying it and shipping it through a few hundred miles of piplines isn't the height of sanity either. There is surprisingly little difference in overall efficiency.

Nick Drew said...

people would complain about that as well

yes I know, there's no pleasing some folk - the ingratitude !

anyway, welcome to C@W, Andy

rwendland said...

> liquifying natural gas, shipping it 3000 miles, deliquifying it and shipping it through a few hundred miles of piplines isn't the height of sanity either.

Yep, but I doubt even that is more inefficient than the ~12% distribution losses in domestic leccy supplies. Now if we delivered "medium voltage" to homes only ~6.5% would be lost, but not practical.

But of course, it's the economics that really counts, and I doubt nucs anytime soon make sense for more than base-load. Remember those wonderful storage heaters that were cold by the evening?

Anonymous said...

Does she like get paid to write stuff? I thought she was a cartoon or a piss take or something...

Nick Drew said...

you and unsworth (@10.44) both, Mutt

Anonymous said...

Key Workers?

Notthat old chestnut again, please.

My proposed definition of key workers:

"The more nett income tax you pay, the more of a key worker you are."

Note, nett income tax - public sector earnings don't count.

Simon Fawthrop said...

How high should the price be? It doesn't matter realy because tractor production will be exempt.

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