Heating houses | Brussels Blog

Heating houses

Professor Kim Swales told me that provisional results gave the long-run elasticity of demand for household energy as 1.0 or greater. He also told me:

This means that you get backfire in the long run for energy efficiency but that tax would be effective in reducing household energy use.

What does this mean and why is it important?

Keeping the lights on

Professor Kim Swales from Strathclyde University tells me about provisional results from their recent work:

We have undertaken econometric work on the elasticity of demand for household energy in the UK. We get values of around 0.4 for the short run and over 1 for the long-run.

What does this mean and why is it important?

Tax carbon. Subsidise jobs

Changing VAT to create jobs

In the 1990s I persuaded the European Commission to fund some work on economic modelling on a proposal to change Value Added Tax so that it lowered the cost of employing labour. The work was carried out by Kim Swales and Darren Holden of the University of Strathclyde, with a more thorough approach than work I had previously published. The final report can be found here. Professor Swales summarised the work thus:

Governments can influence employment levels with an appropriate tax and subsidy system.

The policy we have considered involves a fixed labour subsidy per worker, equal to 5% of the average wage, financed by an increase in VAT. This tax/subsidy scheme works by pricing workers into jobs and increasing the incentive to work. The scheme stimulates the low paid the most so the policy has favourable distribution effect. Savings on unemployment benefits reinforce the policy.

Governments are concerned about the overall level of taxation and question the desirability of automatic subsidies. However, the type of subsidy and tax plan outlined could be operated as an integrated tax scheme in which the change in the firm’s tax is calculated as the difference between the additional VAT and the per capita subsidy. As the scheme increases employment, and so reduces the cost of unemployment benefit, there is a reduction in overall tax. So the introduction of this scheme would simultaneously increase employment and reduce taxation.

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The Department of Energy Security

It is my belief that Government recognises the danger of climate change but won’t do much that would hurt “UK  interests” – the UK will try keep to the letter of international agreements but not confront difficult problems.  I believe they ignore good science that points to a more catastrophic view of climate (see Committee on Climate Change discounts important science) and downplay the climate impact of  UK activities (e.g. see Can DEFRA be trusted with the climate?, Greenwash on insulation and Buried by Defra).

But they are interested in energy security. Somone I recognise as a top political advisor – who knows the truth behind the spin – once said to me that it’s too late to do anything about climate change, we must have lots of  nuclear power for energy security and a big navy to repel borders. That policy seems to fit many of the facts. Perhaps DECC should be renamed the Department of Energy Security.

It may be that it’s-too-late-just-try-and-look-after-ourselves is a policy to be debated but I’d like to be in on the debate. I know many others that would as well. Now for some small print…

Committee on Climate Change discounts important science

Summary

• We are heading for 4.0°C increase in global temperature this century.

• Missing feedbacks in climate models mean this is an underestimate.

• The Committee on Climate Change aims to limit the likelihood of a 4°C increase to very low levels (e.g. less than 1%)

• The Committee on Climate Change recognises some of the missing feedbacks but does not include them in its assessment of the probability of dangerous climate change.

• They underestimate the probability of dangerous climate change by discounting important science.

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Lots of Challenges no Solutions

There is no shortage of Solutions in Brussels. These are not of course, of the kind that you flush down drains. I refer instead to the ones that have replaced what in the Dark Ages used to be described as “goods and services”. A few examples will make the point.

My local supermarket, sensing a certain cultural ennui surrounding the term “fastfood” has grabbed the zeitgeist and now offers “Instant Food Solutions”. Not far behind is the local patissier who offers as a panacea for all those bad farinaceous moments “Bread and Pastry Solutions”. Then there is the deeply ambiguous announcement recently spotted on a local white-van “Cleaning Solutions”. This cannot of course refer to the pink stuff that cleans windows because that would be “Cleaning Solutions Solutions” .(Its simple when you get the hang of it). However, the prize for inane branding solutions goes to the local car-hire firm who proudly announce that they “rent solutions”. I might ring them up and ask for an elegant new proof for Fermat’s Last Theorem or perhaps the answer to that old perennial, The Meaning Of Life. Just for the week-end of course, I only want a temporary solution.

Buried by Defra?

Falling greenhouse gas emissions?

A Defra press release in 2008 UK on track to meet Kyoto targets as emissions continue to fall said:

Provisional statistics published today for total UK Greenhouse Gas emissions for 2007 showed a drop of two per cent over the previous year, with 639.4 million tonnes carbon dioxide equivalent, down from 652.3 million tonnes in 2006.

The decrease in CO2 emissions resulted from fuel switching from coal to natural gas for electricity generation, combined with lower fossil fuel consumption by households and industry.

The ‘dash-for-gas’ was reducing our carbon emissions by 2% (but now we appear to be on the rise again).

Greenhouse gasses embodied in international trade

Interesting research commissioned by Defra, estimated the embodied carbon in the goods embodied in UK trade flows: Devleopment of an Embedded Carbon Emissions Indicator (2008) by Wiedmann et. al.. Appendix 13 gave estimates of greenhouse gas emissions due to imports and exports. The difference increased at an average of 8.2 million tonnes of carbon dioxide equivalent a year in the decade to 2004. The key message we can draw from this is that the UK was increasingly “exporting our greenhouse gas pollution”. Added to the calculations in the Defra press release, they cancel out much of the reductions of the “dash for gas” years.

The Wiedmann et. al. research presents an important analysis – even if a key message is has to be teased out. That message may not have been welcome to the funding department, Defra, who before they were relieved of the responsibility were charged with telling the good news about the UK’s “reduction” in carbon emissions”.

Food: Scientists vs amateurs.

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In Ireland before the famine, potatoes, with some milk and pigs could support a population density approaching 10 people per hectare (1).

The world now has about 0.5 people per hectare.

That’s about 5% of the population density of pre-famine Ireland.

Wisdom lost in knowledge

In lines from the first of his “Choruses from “The Rock” “ T.S.Eliot posed two rhetorical questions,

Where is the wisdom we have lost in knowledge?
Where is the knowledge we have lost in information?

Written eight decades ago these lines still ring true. In fact, they are probably more true of today than they were of Eliot’s time. We swim in an ever widening sea of information. Access to the internet and to the never-sleeping media provides us with an inexhausitble supply of what we perceive to be facts. We collect facts obssessively. Our work is monitored by “indicators” our ideals become benchmarks and our acheivements “deliveries”. The English language has taken on the stilted and impoverished vocabulary of pseudo-fact certainty which is peddled by the middle-managers and HR drones of business. Judgement and wisdom are out of the window. Facts are in.

Pay UK national debt with a planning permission tax

The UK can be a desirable place to live.

The UK is a country that, for many, is a pleasant and safe place in which to live and, in urban areas in particular, offers interest and excitement. These benefits are reflected in the demand for property.

Towns and cities that are attractive have experienced the highest rates of increase in property values. This is not simply a tautological and self-evident truth. The factors that contribute to “attractiveness” can be estimated independently from the value that they add to property stock. In addition, it is likely that impending environmental change will leave this country with a relatively benign climate.