The energy debate continues to go in circles. Usually its starts with the renewable sector heavyweights: wind and solar. The free and usually reliable inputs of wind and sun are very attractive. The technology is improving and, in the case of solar energy, the transmission mechanism is close at hand.

One company in the US has actually started a rental program for solar heating. I like this idea because capital cost is a problem for many people. Energy as a service is a good business model.

Solar is a great option because you can localise it. Hopefully the technology will continue t to improve.

Wind has its drawbacks due to the requirements of location and serious land mass. But again it suits some places better than others. But how about small wind turbines on every roof?

Little and often i say. Every little bit counts.

Biomass is the latest technology on the block, a small step up from chucking wood in the burner which is very popular and cheap in New Zealand. We can grow a lot of wood down here. The biomass and biofuel solution reveal a problem in our approach.

It doesn’t have to be one or the other. It can be both/and. It’s clear now there is no one solution that is way better than another. Let the market continue to work it out. And this brings me to the main point which is that we must have a properly priced energy market.

This is going to require a major change. I have long banged on about pricing in environmental costs at source and whilst Trucost is doing great work in that area there is a long way to go.

So how could this work? Well here are a few examples:

Carbon

Let’s say we have established a price for “carbon”,this being a proxy for externalities caused in the combustion of fossil fuels. The most efficient way to alert the market to this cost is to price it in at source ie where the fossil fuel is sold wholesale. This would be the global oil, gas or coal exchanges.

In my paper, Climate Control, i argued for the establishment of a World Energy Agency, where all fossil fuels were sold through. Simply add on the price of carbon and leave it at that. As a one point global process it would be very simple and then that price information would flow out across the world. End of story.

But there are two issues here:

One is that we are trying to stop carbon quantities breaching certain levels. The price elasticity of fossil fuel consumption may hinder this somewhat as consumers of oil products are slow to change demand in response to price.

The second issue is interesting. What happens to that money? Who does it belong to? As a charge being levied by the WEA it has no soveriegn recipient. So i propose this “charge” goes into a Global Environmental Contingency Fund (GECF). I want to make clear this is not a tax, it is a cost. It is therefore directly related to an expense which is in this case the use or environmental services.

Let’s stop using the word tax. It’s incorrect and draws attention from the fact that we are simply paying for a service we are using.

So how could the GECF work? I have to give that some more thought but the rough idea is that it would hold those funds in bonds (sovereign) or could lend them out at low interest to fund projects that have a positive environmental benefit. This is the tricky bit. But let’s sit with the first piece. The money comes in and sits in bonds. That’s it. So it’s not being spent on projects of a dubious outcome. As the title implies its a Contingency Fund. We don’t know for sure what will happen in the future. The money can be repaid if required by discounting the price of fossil fuels if it turns out that the cost has turned out to be lower.

It’s a hard one to get right on  a global level but worth a look.

Agriculture

In New Zealand we have trouble with dairy farming, a highly profitable business which has seen huge swathes of land converted from other activities to supporting cows. The externalities of this business are numerous but center around water pollution through fertilizer run off into streams and down into the water table as well as cows crapping all over the place..oh yes and the methane burps.

Here it would be simpler. A charge would be applied per head of cattle and immediately be applied to cleaning up that pollution at source. Why should the taxpayer pick up this tab. Its a cost for the consumer to bear and if the consumer doesn’t like the slightly higher price then the producer will quickly alter his habits.

The moral of this  story is simple: We need to know the true cost of our global economic activity. Then as consumers we can respond appropriately.

Trying to say which energy source is better than another is simply guesswork.

I’ve been following the Murdoch bid for Dow Jones courtesy of Jason and it’s actually more interesting than it looks on paper.

What is the future for print? Murdoch seems to be thinking that at some point the major papers will shut down. I agree with this though the time frame in uncertain.

This article confirms that the squeeze is on(thanks Jason!) noting that the San Francisco Chronicle is taking a major bath and should be shut down. Much of this is driven by falling advertising revenue but i think there is something else at work here.

People are generally using the internet for news and general media information. Who wants the hassle of buying a paper of which you may only read 20% of the content.

Murdoch senses something more economic. The costs of running a print media are enormous and the savings he could make by putting the Wall Street Journal online could be hefty. No distribution or printing costs. Imagine all the trees that could be saved

But think out further. Why do we read a newspaper? to get news, find out stuff, see what’s on etc.

Do we read it for editorial? Not anymore. Who cares what some editor thinks when there’s a million blogs all talking about the same thing. The blogosphere may be a holy mess but over time it will sort itself out into various structures and frameworks. Over at VortexDNA we have MyBlogDNA which will be rolling out soon where you can match your blog to others who share your DNA.

We are all editors now!

But imagine if you had the ability to create your own “paper” drawing from the net stories that you were interested in and were relevant to you. So order your subjects and away you go.

But you still want to hold something to read. Ok just print it off at home. With the printer technology we have now and no doubt coming soon, home printers will be able to handle a myriad of tasks. Have your own paper delivered and printed at home.

Now that will save a lot of money and energy too. No more wasted papers, sections of papers or rubbish i don’t want to read about.

Relevant advertising can come with it or without it.

Could this extend to magazines as well? Glossy Vogues printed out at home? Maybe that is a stretch too far but who knows?

What is for sure is that Murdoch seems to be ahead of the game here as he was with MySpace. I wonder how far ahead he has really thought.

Thoughts anyone?

Local government rates go up followed by interest rates.

Energy prices go up followed by interest rates.

So people are made worse off by increases in prices for goods and services that they cannot easily deflect or cut back on. That’s hard.

But wait there’s more, like a boxer climbing off the floor after a big punch they are hit again even harder by interest rate rises.

And to cap it off it’s all their fault.

I must be missing something here.

The only result of this type of policy is a regular cycle of boom and bust with more and more people forced into bankruptcy for no good reason.

It could be argued that interest rates should be cut in this scenario so that people are not forced to seek higher wages to compensate.

The main concern in the inflation issue is asset and commodity prices. But really its asset prices that are the culprit. They have been driving the global economy for many years now, most notably since financial deregulation in the 80s.

Talk has surfaced recently of the Treasurer invoking a clause in the Reserve Bank Act to move the inflation target aside in order to focus on the exchange rate. Whilst this is a bit far fetched it is another symptom of the policy malaise NZ is facing.

The Reserve Bank Governor has made the same mistake many others have before him: not understand the role and process of bank credit.

It’s as simple as that.

Using an inflation target to manage an economy is like riding a bike with one eye closed. Eventually you have a write off.

What a wonderful word efficiency is. As an economist (we all are by the way) one almost salivates over the word, knowing deep down that it exists in 2 dimensions usually in a textbook where one line meets another.

Alongside “ceteris paribus” it ranks as one of those words or phrases which we extol, use a lot but know to be shrouded in a cloak of misinformation.

One approach to dealing with climate change has been the technological one….increasing efficiency (output per input etc). One problem with this is that sometimes efficiency, in money terms, can actually encourage an increase in demand.

Witness air travel, i pods, computers, LCD tvs and the like. Craig at Celsias has an interesting post on this conundrum quoting the Khazzoom-Brookes Postulate which investigates whether energy efficiency actually saves energy.

The premise being that when we perceive an improvement in something we have been told not to use we all rush to use more of it. That makes sense. We’ve seen that with almost all new technological developments, air travel being the most obvious. See how the airlines that have cut fares have prospered by creating greater demand than expected.

The point of all this is that improving efficiency may not be the answer if demand is simply going to absorb it all. It reminds me of the Red Queen effect where we keep running just to keep up.

This has been noted in the area of organ donation and other medical advances. So once we can fly from Christchurch to London in a few hours for the same energy output we use now you can be sure a few million people will be commuting daily

In the latest RBNZ Bulletin, alongside a paper on the transmission mechanism of monetary policy, there is a paper on financial literacy and how important this is for society as a whole. Hurrah! Well almost.

I was very excited about this paper as i think financial literacy if absolutely crucial to our education system and the success of our society. However, when I read through it I felt some disappointment because the missed the most important bit out.

Money itself: What is it? How is it made? How much of it is there? How can it be created and destroyed…………and the best one: Who makes it?

Alas it focused on issues like the time value of money, risk, return, arithmetic and stuff like that. All very good and a positive step forward but it’s not enough.

This is not unexpected though. Whenever I interrogate any government official on the issue of money their eyes glaze over or they simply express incomprehension as to what I  am going on about.

There is only one political party in NZ that understand this issue and that is the Democrats for Social Credit. They are having a conference in Christchurch this weekend and you would probably learn more from that than reading the RBNZ bulletin.

Let’s have it RBNZ!

You have made a good start but let’s have full disclosure on our money system. You know it makes sense.