Selling off our SOE's

The present New Zealand government (Nov 2011)  is proposing to sell off shares in our SOE's (State Owned Enterprises).  These include power companies and the State Airline. They propose to keep 51% of the shares in the hands of the government and to give Kiwis the first chance to buy the  shares that are 'on offer'.  At present, the dividends from these companies go into the government coffers and reduce the amount of tax the citizens of New Zealand have to pay.  Reportedy, one of the power companies that they are proposing to sell off is earning a 20% dividend on  the government investment.  Their proposal to sell off part of our SOE's is a little like a trucking company selling off  a profit making-truck to get money to pave the parking lot.  Not a great business move.  I have a problem or two with this proposal.


Ownership
My first problem is I can't see how these shares can be sold to us.  We already own them.  They have been paid for by generations of Kiwis through their taxes.  It's like taking empty bottles from the back of a convenience store and selling them back to the owner.  Since we already own these shares collectively, surly they could only be sold to a non Kiwi.  Then the proceeds should be divided up and sent to each of us - every man, woman and child of us.  How silly would that be.  Far better that we, the people of New Zealand, keep the ownership of the shares and use the dividends to defray taxes.  The present government doesn't own the shares except in-so-far as each member of parliament owns exactly the same amount of these companies as every other Kiwi.


Tax Increase
Of course, if we sell off the shares and reduce the amount of dividends going into the government coffers, taxes will have to increase.  Yes, the government will have some extra cash to do it's work  from the proceeds of the sale but when this money has been used up taxes will increase.  

Taxes will increase for all Kiwis but at least more well off Kiwis who had the spare cash to buy the shares will have some dividends to make up for the extra taxes.  Less well off Kiwis will simply pay more.  In effect we are taking money from the less well off and putting it in the pockets of the more well off.  A typical money-go-round.  The one saving grace of this whole sorry event is that we will get back a third of the dividends in taxes from the Kiwis who have bought the shares.  A very cute system.  We the people of New Zealand will no longer  own a large part of  our SOE's but we still  get a third of the dividends to defray taxes.  That is, unless the better off Kiwis have some system to avoid paying taxes.  Surly they wouldn't do that!!!!


Final Ownership
Eventually, when the owners of these shares need money or when the shares have increased in value, the owners of these shares will sell them.  In fact all we need is another economic crisis (think PIIGS*) to make people desperate to get a little ready cash in their hands.  I don't know how you read the economic climate in the world today but I suspect we have only begun to see a series  of crashes, each one more serious than the previous one.  Who will  buy these shares.  Who has lots of ready cash from selling cheap goods to the rest of the world.  They won't necessarily buy the shares directly.  There are plenty of people who are willing to be a front company or a front company for a front company etc. etc. for a share of the profits.  The shares will go overseas and we become, to a greater and greater extent, tenants in our own country.  

* Portugal, Ireland, Italy Greece and Spain

Banks are lining up to reap the benefits of selling these shares.  One estimate I have heard is that they will end up keeping 1% of the value of the companies they sell.  Do we really want this money flowing off shore to Australia (most of our banks are owned in Australia) 

These banks will likely buy and retain some of the shares.  More money in dividends flowing into Australia.  

Cap and Trade in New Zealand

My adopted country is New Zealand.  I feel very lucky to have been allowed to settle here and very proud to be a Kiwi.  New Zealand is a Quixotic little country, a green and pleasant land,  and she punches above her weight in many ways. For instance:

#We were the first to give women the vote.

#We opposed nuclear weapons, nuclear ships in our waters and the use of nuclear power.  For our efforts we were attacked by France (Rainbow Warrior) virtually ostracized by America and took a severe hit on our economy.

#We have put in a voting system called MMP which is about as close as one gets in the world, to true representative government.

#We refused to be drawn into a war of exploitation in Iraq but sent troops when the war was over to help reconstruct the country.

#During two world wars, instead of fortifying our remote little islands and hunkering down, we sent our best and bravest  to help defeat Germany and Japan.  We took huge casualties.

#We have eliminated farm subsidies so that now, farmers farm crops rather than subsidies.  We went cold turkey from a situation of heavy subsidies and it was traumatic.  Now New Zealand competes very well with countries which heavily subsidize their  farmers;  so successfully that some of these countries; the USA for instance, puts tariffs on our agricultural produce despite their heavily subsidies.

#And we have adopted a financial obligation for our carbon emissions but here we are falling down.   We are either first country or right up there with the firsts few to do so.  We have done so despite the fact that on a world scale, our carbon emissions are minuscule.  Even if we reduced them to zero it would have virtually no effect on the emissions of the world.  And we have adopted Cap and Trade to the detriment of our businesses since a carbon obligation will make our exports more expensive.  We have adopted them and included Methane in the mix  despite the fact that it rather rapidly converts to Carbon dioxide.  That is another story.  And we have not insisted on the true value of our tree farming.  In so far as a tree is cut down and built into a long lasting house or piece of furniture, it is actually a net remover of Carbon dioxide from the atmosphere.  That also is another story and may be fixed soon.  However, I can't help feeling proud that we are making the gesture.  So how are we falling down.

We have just had (May 2011) James Hansen on tour in New Zealand.  For those of you not familiar with Prof Hansen, he is a top climatologist; arguably the top climatologist of the world.  He has pulled together the work of many scientists including his own and demonstrated with a very high level of probability that  a) the climate is changing  b) that it has changed rather suddenly in the past as certain limits have been passed and c) that it is very likely that if we continue on our present path, we are likely to cause a destabilization and a switch to a new climate regime.  Why does this matter.

Well it doesn't in the long term -- the very long term.  The point, though, is that human civilization has developed during the past 11,000 years in a period of relatively stable climate and our civilization is  adapted to it.  We have had some mini glitches in our climate since the end of the glacial and even they have had pretty wide spread effects.  The point is, that because of the relative stability of our climate and hence our sea levels, many of our cities have been built within 10 or so vertical meters of sea level.  Because of the stability and hence predictability of our climate we are  just about able to produce enough food for our huge population with our knowledge of how to farm in the present climate regime.  If we get a rapid climate change we will have New Orleans type floods in all our coastal cities,  our food production will plummet with the change in climate zones and huge numbers of species of animals and plants will go extinct with unforeseen consequences to the support systems that allow us to exist on our planet. 

Looked at on a 10million year time scale this won't matter at all.  It will be equivalent to one of the great extinctions and possibly include humans.  At the very least, we might achieve the Lovelock Number*.  The world will recover, new species will evolve and a remnant population of humans might even be left to breed up again and repeat the whole disaster.  The point is, that we have a reasonably comfortable, interesting existence and even civilized life in the present climate setting and are very much in danger of trashing it and putting ourselves back into a deep dark age.  Just imagine the effect of  the world wheat crop failing for even one year, not to mention  the failure of the rice, corn barley and rye crops failing as well.  Just imagine if the crop failure continued for 10 years or for even for a Milena.  Even worse, imagine if the climate flick flacked (flickering) between the two states for a decade or more as many scientists predict so that it is impossible to predict from year to year what the climate will do.  So why are we failing here in New Zealand.

*James Lovelock has predicted that within a few decades our world population will be down to a billion or so.   (it would only take a single year in which the rice, wheat, corn, barley and rye crops failed to cause epic starvation)

We have adopted Cap and Trade  and the consensis is amongst many comentators that the main effect of  Cap and Trade will be to make the banks rich.

On the other hand there is Jim Hansen's solution called tax and dividend.  Wheras the congressional document in America on Cap and trade runs to some 2000 pages, Jim Hansen's Tax and Dividend can be expressed on one side of a sheet of A4 paper---------------  double spaced.  It is highly likely to be extremely effective.  It has the added advantage, unlike Cap and Trade, of economically protecting Joe Citizen during the transition to Renewable Energy.  What is his system.


As I said, it is called Tax and Dividend and I won't even need one piece of foolscap to describe it.  Two short   paragraphs will be enough.

Paragraph 1
Hansen suggests taxing fossil fuel as it comes out of the ground or through your borders.  The tax will start low and increase gradually every year.  This of course will make everything we use more expensive.

Now here is the good part.

Paragraph 2

Every cent of this fossil fuel  tax, however collected, will be returned equally to every citizen by no-cost electronic transfer.  Jim has suggested an equal portion to every adult and a half portion to each child up to a maximum of two children per family.  I think it might be easier to give an equal portion to every human registered tax payer (people only, not businesses).  The income tax data base exists in every country and it would encourage anyone who is not registered to register.  There it is.    The downstream effects from this policy, however, take a little more paper to describe.

Incidentally, The New Zealand failure is that we brought Prof Hansen here, sponsored him, listened to him and then ignored what he had to say.  Not even the Green Party is proposing Tax and Dividend.    Lets look at the effects of his  system.  They are many.

Someone who is modest in their energy use, who has an insulated home, cycles to work, has energy efficient appliances etc. will actually end up with a net gain despite the increases in the price of everything.

Someone who drives an SUV, uses resistance electricity instead of a heat pump and has old, inefficient devices will be out of pocket.  There will be a great incentive to get efficient and in fact to use this tax money to buy LED light bulbs to replace the existing ones as they burn out, to buy locally,  to replace the family car with an electric lizi when the old one is finished and so forth.

Long before renewable electricity becomes cheaper than fossil fuel generated electricity, investment will flee.  It will be clear that as the tax on fossil fuel rises steadily year by year, fossil fuel will become more and more expensive and investing in fossil fuel, less and less worthwhile. The shift of investment to renewable energy will accelerate our climb up the learning and technological curves.  This will result in less and less costly electricity.  Better still. It will be stably priced electricity.  All renewable energy systems are fuel free. None of them use a resource that is every increasing in scarcity and cost.  Competition will also cut in and achieve the same result.  With many countries and many companies competing for the market to sell renewable energy devices, price will inevitably come down.

The pollution from the burning of fossil fuels will decrease and continue to decrease as renewables replace fossil fuel.  People will be healthier and medical costs will decrease.

With the decrease in the cost of solar panels, many households will find it worthwhile to have their own home system.  Baring a revolution in battery technology, it generally will not be worthwhile to have batteries and instead, the grid will be used as the energy storage system.  This will produce diffusely generated energy and the Internet effect will be achieved.  The Internet was invented by the military to eliminate the vulnerability of their communication systems to be knocked out by a single strike.  Likewise when our energy is generated by wind farms distributed all over our country, from hydro dams at various locations and from the solar panels on the roves of our buildings, the system becomes far more robust in the face of  human or natural disasters.

There may also be a psychological effect.  If you are generating energy on the roof, it emphasizes your connection with natural processes.  There may well be a differential between the cost of energy you buy from the grid and the cost they pay for your electricity.  It will be worth your while to vacuum, bake, wash dishes, wash clothes, charge up your electric car etc. when the sun shines and it is your own electricity you are using.  A certain awareness of natural cycles is encouraged.

And finally, if New Zealand adopts Tax and Dividend, it just might tip Australia over the edge to doing the same.  The Green Party in Australia has the balance of power this year (2011) and they could follow suit.  This just might be enough to induce China to follow suit.  They are desperate not to fall into the fossil fuel trap they way the western world has.  If this happens, the rest of the world has to follow.  I don't understand the details but apparently the agreements between countries are such that if you put a carbon tax on your own coal, for instance, and export it overseas, the receiving country doesn't tax it.  If you don't put on a carbon tax   the receiving country can.  Essentially the receiving country collects your tax for its own use.  New Zealand is too small to induce such a change, Australia with her huge exports of coal, may be large enough.  China is another story.  If she puts this in place the world must follow.  This might just be enough to save our sorry selves from ourselves as the specter of sudden climate change comes down the turnpike at us.

Wood Waste and Urea

There is a pretty wide agreement that if we don't reduce the level of greenhouse gases in the atmosphere, we are all going to hell in a hand basket. Some people believe that we have already gone too far and no matter what we do, it is too late. Others believe that with the head in the sand attitude of most world leaders, there is very little chance that we will succeed in making any significant reduction in our output of fossil carbon. Assuming that the above is true and the world will not gain control of her carbon emissions, what can New Zealand do about it.

Of course we should take measures which establish our credentials as responsible world citizens and reduce our output of green house gases. Quite cynically, this is important for our marketing.  More important, though, is to future proof New Zealand against the possibility of the break down of the ecology of the rest of the world and with it the demise of their economies. Our main trading partners are in the Northern Hemisphere and their demise is going to impact us severely.  There are many many measures we can take.  Below is one regarding our fertilizer supply which will both bolster our credentials for our export market in the near term and help future proof New Zealand against the likely coming breakdown in the world economy a few decades hence.

Sawdust into urea
It has been proposed by our New Zealand SOE, Solid Energy that they turn their lignite deposits into urea for the farmers. At present we import some of our urea so this would help our balance of payment, provide jobs and enrich holders of shares in Solid Energy (MP's???). So far so good. However, it would become the largest emitter of Carbon Dioxide in the country, even surpassing our large coal fired power station at Huntly. It would increase our atmospheric carbon output by 20%.  Is there another way. Well, yes there is*. You can make urea from almost any carbon based substance from methane to pure carbon. You can also produce urea from wood wastes.

*here is yet another way to obtain our fertilizers.

In New Zealand, we have a number of sources of such wood wastes. This includes the branches cut off pine plantations when they are trimmed to make clear wood (lifts), it includes trimmings during logging, the sawdust and off cuts from lumber mills, the left over wood ends from building construction and furniture manufacture plus wood from demolition sites. In addition, all waste paper and cardboard, which is nearly pure cellulose, can be added into this mix. It is pretty clear what the objection of Solid Energy is. Clearly they want to make profit by the vertical integration of their lignite deposits and a Urea plant. The first objection they will make is that the transportation costs of bringing this material from all over the country to their plant will make the feed stock(wood, paper etc) too expensive. So lets agree that whatever happens, they will pay the same for this material as it would have cost them to mine their lignite and transport it to the urea plant. If necessary, we will use government subsidies to make the use of wood waste instead of lignite, financially neutral.  This may sound counter productive at first but bear with me a moment.

However.............Of course we must take into account the carbon tax they will be charged if they do decide to use their lignite.  We have been generous to a fault by signing up to Koyota and have taken upon ourself the obligation to pay a carbon tax.  The use of lignite will incure an added cost which must be taken into account.  Once the Carbon tax is taken into account it remains to be seen, if a subsidy would still have to be paid for getting the wood waste to the company. Wood and paper have no carbon cost because they are recycled carbon recently removed from the air.   We must also factor in the likely effect on our tourism industry and our food exports of becoming the bad boy of the OECD with respect to our lack of carbon abatement. When all this is taken into consideration, it may well be that the use of wood and paper waste to make urea will be cheaper to New Zealand than using lignite.

Then we come to the effect on our railroads. Rail is the ideal medium for transporting high bulk low value products. What is good about transporting wood waste by rail is it gives them another revenue stream which can be used for maintaining and upgrading their infrastructure. This contributes to making the shipment of all other goods by rail more cost effective. We might even put the wood-transport revenue stream into electrifying our railways, further reducing our carbon footprint and so further increasing New Zealand's financial viability with respect to our carbon output. (not to mention our clean green credentials).

Another important aspect is the greenness of our meat exports.  New Zealand meat is for the most part grass fed.  In so far as this is true, our meat is carbon neutral.  The carbon contained in our meat is carbon recently removed from the air by the grass the animals eat.  At present we use fossil fuel to produce our urea which puts a carbon cost on our meat.  When other countries such as the UK try to interfere with our meat imports to their country, they often quote carbon miles.  In actual fact, the carbon footprint of our meat, even when transport is taken into account, is lower than meat they produce.  If we produce our urea from wood waste, our meat is even more carbon neutral.

There is a desperate need to calculate true costs when making economic policy. In this case, with our blinkers on, the use of lignite might be less expensive than the use of wood waste to produce urea. However, when all the benefits of using wood waste and the costs of using lignite are taken into consideration, the outcome is very likely to be quite the opposite.

ps.  On Jul 26,2011 on morning National Radio there was an announcement of plans to construct a turpentine plant for producing, not surprisingly, turpentine from forest waste.  This points to a couple of things.  First, it is apparently going to be financially feasible to bring the feed stock from the forests to the plant.  This suggests that it also might be feasible to bring wood waste to a urea plant.  The second thing is that as far as I know, after turpentine is distilled out of forest waste, what remains is the wood minus the pitch.  This is cellulose, hemicellulose and lignin which is exactly the feed stock that is needed for a urea plant.  All the other feed stocks mentioned above can also  be fed in.  Some of them, such as the offcuts from lumber mills may also be usable for turpentine production. Right beside the turpentine factory would be the ideal site for a urea factory.   The transport cost to each factory is cut in half.

pps.  If our production of urea from wood and other cellulostic waste exceeds our needs, the possibility opens up to export green urea at a premium.  Of course no nitrogen source is green if it is used in excess such that it contaminates ground water but in so far as it is produced from cellulose rather than fossil fuels, our urea would be completely green.