Post archive – by topic

Economics for five-year-olds

My neighbour’s daughter asked what my job was. “I’m an economist,” I replied.
“What’s that?”

Normally I tell people that economists think about cost and benefits; the demand and supply of goods and services. I tell them we want to maximise ‘utility’, but since we can’t measure it directly or ask people, we watch what people do instead (e.g. in markets) and use prices (money) as a proxy for utility.

From there, I explain that my field – environmental economics – is about valuing things that don’t have markets, e.g. the environment. If they’re really paying attention, I may even talk about externalities.

My neighbour’s daughter, however, is five. She doesn’t understand markets, or utility, or costs and benefits in an abstract sense. So I was stumped.

Months later, I’ve got a good answer:

An economist figures out how to share things so that everyone can be as happy as possible.

You’re welcome.


Australian electricity prices (still!) low by OECD standards

Keith Orchison on Tuesday wrote about the little-reported fact that Australian electricity prices, despite having risen 50% in the last five years – see the draft Productivity Commission report into Electricity Network Regulatory Frameworks for more on that – are still amongst the lowest in the OECD (on a PPP basis).

That information comes from the Bureau of Resources and Energy Economics via the Department of Resources, Energy and Tourism, which Senator Xenophon’s quizzed on September 25th in the Senate Select Committee on Electricity Prices about whether Australians were paying above OECD rates for electricity. Here is DRET’s response [PDF], from which I excerpt the following answer and graphs.

Using a PPP measure, residential electricity prices in Australia averaged 12.66 USc PPP/kWh in 2010 and 14.20 USc PPP/kWh in 2011. Using this measure, Australian prices are well below the OECD average in 2010 and 2011.

Graphs after the jump.

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Australian Carbon Demand in 2015-16

Updated on Monday, October 15, 2012 at 23:46 by Registered CommenterMCJ

Updated on Thursday, October 25, 2012 at 16:29 by Registered CommenterMCJ

In the September issue of Point Carbon’s Carbon Market Australia-New Zealand newsletter,  Cecile Langevin writes that

[Point Carbon] expect[s] the emitters covered in Australia’s emissions market will have 57 million fewer permits than they need in the year 2015-2016


the market price will be set by the international cost of U.N. Clean Development Mechanism (CDM) credits for the first two years, and then by EU Allowances (EUAs) the last three years of this decade.

Based on my rough calculations (below), the Australian market should demand 240-245 MtCO2-e in 2015-16, and the government’s (official) projections are even higher, so I’m struggling to reconcile that with Point Carbon’s 57 million estimate.

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Why Drop the Price Floor? Taking a Gamble on the EU

Updated on Wednesday, August 29, 2012 at 14:28 by Registered CommenterMCJ

Updated on Thursday, August 30, 2012 at 16:27 by Registered CommenterMCJ

I couldn’t make much at first of today’s announcement by Greg Combet, Minister for Climate Change and Energy Efficiency, that Australia was going to link its ETS with the EU ETS, and oh, by the way, we’re dropping the price floor.

That Australia and the EU will link their schemes good news, but it’s an expected development. Dropping the price floor, on the hand, had been speculated about (notably by the AFR; well done, Marcus Priest), wasn’t really part of the original plan.

As I wrote back in May, a price floor has some good things going for it, despite being technically challenging, and as it’s only regulation the government has the numbers to pass it even with Rob Oakeshott’s opposition. So my initial reaction was that the floor price had been put in the “too hard” basket and the ETS linkage was just used to hide the announcement somewhat.

I’ve since heard, however, that dropping the price floor was a condition of the EU agreeing to link the schemes. This makes more sense.

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The Nub of the Houston Report

Updated on Tuesday, August 14, 2012 at 19:51 by Registered CommenterMCJ

Updated on Tuesday, August 14, 2012 at 20:46 by Registered CommenterMCJ

Updated on Sunday, August 19, 2012 at 13:57 by Registered CommenterMCJ

I’m far from an expert on asylum seekers, and am still trying to wrap my head around all the stuff in the Report of the Expert Panel on Asylum Seekers (the ‘Houston Report’). Here’s the nub of the matter, though, as far as I understand it – this is essentially thinking out loud, so please do correct me if I’m wrong.

Problem: Asylum seekers are risking, and losing their lives coming to Australia by boat – as ‘irregular maritime arrivals (IMAs) – rather than waiting to be processed in transition countries.

Cause: Asylum seekers believe (rightly?) that they and their family members will be accepted as refugees in Australia more quickly than if they went through the ‘proper’ channels.

Proposed solution: IMAs should not get any advantages over asylum seekers coming to Australia through approved channels, so they will instead be taken and processed somewhere else, with no chance of arriving in Australia more rapidly than if they’d used the proper channels

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A Comment on the Political Discussion of Electricity Regulations

With her speech to the the Energy Policy Institute of Australia on Tuesday, the Prime Minister Julia Gillard has moved (or at least expanded) the discussion of electricity regulations from the roundtable meetings and conferences of industry, academia, and government to the political arena. Hurrah..?

A few points:

Are there problems with dividend policy, reliability standards, and peak demand? Yes.

Have the incentives in the existing regulations led some states to act in a manner that has unnecessarily raised prices for consumers (and thus led to increased profits for the states)? Very probably.

Has this been going on for several years, including under Labor governments? Yes – but so what?

Why shouldn’t we fix these problems now, regardless of why they’ve been raised?

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The Effect of the Carbon Price on Electricity Prices

Updated on Friday, September 13, 2013 at 18:11 by Registered CommenterMCJ

Updated on Sunday, November 3, 2013 at 22:39 by Registered CommenterMCJ

In an otherwise good article, Peter Martin today wrote that

[the TD Securities Melbourne Institute price index] reports a jump in electricity prices of 14.9 per cent and a jump in household gas prices of 10.3 per cent, almost all of which would have been due to the carbon tax. [emphasis mine]

This is incorrect, and, unfortunately, he is not the first journalist to make this mistaken claim. Evidence to the contrary be found in, for example, the reports from the relevant authorities in states that regulate their electricity prices:


New South Wales

IPART’s “Final Report – Changes in regulated electricity retail prices from 1 July 2012

Figure 1-1 Drivers of increase in average regulated retail electricity prices on 1 July 2012, across NSW (nominal, %)

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Laggard to Leader: a Review

Updated on Tuesday, July 24, 2012 at 16:41 by Registered CommenterMCJ

Beyond Zero Emissions, the non-for-profit climate change group, yesterday released the latest in their series of plans to get Australia to a state of zero emissions (or below): Laggard to Leader; How Australia can lead the world to zero carbon prosperity.

The report springs from the observation, also reported by e.g. Crikey on Friday, that the UN Framework Convention on Climate Change is failing to achieve the actions required to prevent dangerous anthropogenic climate change. It then goes beyond this to suggest new means of addressing the problem, in which Australia leads the world to a zero carbon future.

Sound utopian? It’s actually reasonably well argued, by and large, even if it’s difficult to see our current crop of politicians implementing many of the report’s suggestions.

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Pricing Carbon Has Passed the Acid Test

I am quoted in today’s Sydney Morning Herald piece on the carbon pricing scheme.

Tomorrow, the nation steps over the threshold of carbon pricing into a domain where pumping out greenhouse gas has an economic price as well as an environmental one. The federal government’s Clean Energy Bill is a compromise with which no one is entirely happy. But the consensus of economists is that it is likely to work well enough to cut emissions by 5 per cent, the minimum supported by the major parties.

“If you assume the political will to implement the scheme is there, a huge ‘if’, then the question is whether the scheme is designed well enough to achieve its goals - I think it is,” says Martin Jones, a researcher at the Centre for Energy and Environmental Markets and University of NSW. “The mechanism is an effective one: emissions trading schemes have proven records of reducing emissions.”



Does It Make Sense for Australia to Restrict Its Export of Fossil Fuels?

Once we dig up and sell the coal, are we still responsible for the emissions? ‘Stop exporting fossil fuels’ has not just economic, but moral components, given that much of our fuels go to developing countries.

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