Sunday, January 31, 2010

Fee & Dividend and the trees.

Australia economist John Quiggin recently added a post dealing with the political machination of the Carbon Pollution Reduction Scheme (CPRS).

A LOT of debate ensued. In including some denialist noise making and some discussions on the merits of Cap & Trade vs Fee & Divided (F&D). It's part of that Fee & dividend stream I want to preserve here, as it has some of my 'back of the envelope' calculations on how F&D triggers more integrated farming practices.

Carbonsink's initial post.
How about we tax carbon at $20/tonne and repay the proceeds every quarter, split equally between all citizens?

Its simple. Its progressive. It compensates the poor, the old and the unemployed.

James Hansen is a smart cookie.

My first reply.
James Hansen doesn’t support a general carbon tax. He speciality supports a fossil fuel specific Fee & dividend system.
A fee-and-dividend system imposes a fee on the initial sale of a fossil fuel which is then redistributed to the public; the rising cost of carbon-intensive products would, it is hoped, encourage families to keep their carbon footprints low.

‘James Hansen rails against cap-and-trade plan in open letter‘ from the Guardian’s environment blog on 12 Jan ‘10

James Hansen doesn’t support a general carbon tax. He speciality supports a fossil fuel specific Fee & dividend system.

I know. That’s why he’s a smart cookie.

Wouldn’t it be funny if a non-economist came up with the best way to price carbon? I’d like to hear ProfQ’s thoughts on Hansen’s fee-and-dividend idea?
Governments must place a uniform rising price on carbon, collected at the fossil fuel source – the mine or port of entry. The fee should be given to the public in toto, as a uniform dividend, payroll tax deduction or both. Such a tax is progressive – the dividend exceeds added energy costs for 60% of the public.

Fee and dividend stimulates the economy, providing the public with the means to adjust lifestyles and energy infrastructure.

If global emissions trading is DOA, how about we give something else a try?

It’s not about taxing carbon, it’s about fossil fuels specially. ETSs miss the point in that carbon is not all the same. The natural carbon cycle is vast, it’s the relativity small ongoing injection of geologic carbon that’s throwing the whole biosphere/carbon cycle out of whack.

Back when the CPRS was being argured over in the press. A prosal was floated that becuase agriculture was too complex to figure out and that the ‘best approach’ was to simply include it by levying farmers on a per head (for livestock) or per acre (for crops) basis. Figures like $100/head for cattle were being banded about. That struck me as fundimentally ineffective as well as unfair, as it made no distinction between lot fed and grass fed cattle. It also had no way to take changes in farming method at the property level into account.

As a thought exercise I compare how you should treat a car, a lot fed animal & a grass fed animal to try to figure out a better way to include them. That when I realise that an ETS on carbon generally wouldn’t just work poorly, it won’t work at all!

Generally people will try to play with and bend the large natural flows of carbon to get the atmosphere CO2e figure down. Any thing but tackle the actual use of energy/fossil fuels & the problematic ‘new’ geologic carbon flows. Pushing carbon around in the biosphere is like pushing piss up hill. It ain’t going to stay where we put it long term.

The easy, knee jerk reaction is to try to ‘win’ by diverting big natural flows, rather than stopping the small problematic ones. An ETS in quantitative, a Fee & dividend is qualitative. Here is on example of how being quantitative gets it wrong. The cheap ETS reaction is to plant trees, lots of them, in large cheap monoculture forests. The qualitative and resilient approach is mixed forestry in a mosaic with other systems. An ETS here works away from a sustainable lower energy farming ecosystem that better suits local conditions.

Disclosure: I have family members involved in agriculture, including grass fed cattle production.

So how will fee-and-dividend discourage land clearing and encourage “mixed forestry in a mosaic with other systems” ?

Raising energy cost (Fee & Dividend) increases forestry & more diverse land use by a combination of product substitution and return on investment question/harvest frequency changes.

Cheap energy allows lots of product substitution. Steel and concrete for timber of every thing from houses to ships. Petrol & diesel fueled cars, trucks and trains for horses powered by hay. Synthetics for natural fibre. What this has done is remove a lot of demand to use our land surface for things other that food. In each case new fossil fuels replaced old solar based systems.

Cheap energy has also meant we’ve been able to substitute artificial fertility for natural fertility.

When the cost of energy is low, low return annual harvest systems make sense. When you dramatically raise the cost of energy, high return long rotation systems make more sense. We’ll always need a fair amount of annual harvest systems, our staple carbohydrate food stuffs are generally produced from them. If you harvest a system annually, the return is typically between 6% & 10%[1]. Plantation systems can return from 34% (over 6 years) to 310% (over 90 years). Harvest a natural system and you can get 1100% (over 300 years). If you have a cheap energy to drive an annual harvest, you can get more out of given area, over time. But the law of diminishing returns apply to the energy inputs.

Raise energy costs and some of these reverse. In construction I can easy see a time when steel and concrete are only used extensively in public building, where the engineering demands require them. Hoping we don’t have to go all the way down to riding and working horses, and building ships from oak again.

I’ve done some ‘back of the envelope’ calculations. They are based on EMERGY figures; Corn yielding at a 1.10 ratio and Radiate pine yielding at a 2.10 ratio, over 24 years. The figures also assume no cost to moving energy use between years and no yield from unused land.

Say it taken 1000 unit of energy to grow and harvest corn. The harvested corn yields 1100 units of energy. Over 24 years that’s a net gain of 2400 units of energy, for 24000 units in.

Now double the cost on energy. The farmer can now only afford 500 unit/year or 12000 in total.

If the farmer just plants corn, he can only use half the land. That 500 units of energy in and yields 550 units of energy. Over 24 years that’s a net gain of 1200 units of energy, for 12000 units in.

But if the farmer plants 47% to corn each year and plants 53% to Radiate pine in the first year, here’s what the farmer gets. 530 units are used to plant & harvest the pines plus 24 times 470 units to grow the corn each year. Total energy in is 11810 units (11280 units for corn + 530 unit for pines). The net gain over 24 years is 1711 unit (1128 from corn, 583 from pine).

By using a corn pine mix, the drop in production expected with a halving in energy usage can be reduced from a 50% drop to a 29% drop.

[1] David Holmgren, Permaculture Principles & Pathways Beyond Sustainability, p 65-7

Ultimately what my 'back of the envelope' calculation show is the when you start taking energy out of a farming system, the Law of Diminishing Returns can be used to work with you.

As energy prices go up and usage falls, the more land goes to trees, all thing being equal. Don't you love that last phrase.

In the developed world, that 'all things being equal' included only 3% (or less) of the population being involved on Agriculture, Horticulture, Forestry & Fishing.

So in a really low energy system you could end up with 1ha of market garden & orchards, 9ha of grain & 490ha of mixed trees! How to boost the system? Add labour. Go to ten families, 10ha of market garden & orchards, 90ha of grain & 400ha of mixed trees.

Ten families farming 10ha of gardens & 90ha of grains. What does that tell us? It tells us that food as a percentage of earnings is not going to stay cheap. It's that standard of living thing again. If you can't have standard of living, you gotta work on quality of life. Be happy!