Monthly Archives: November 2009

What the iPod tells us about Britain’s economic future – Telegraph Blogs

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First, nationality matters. While the iPod is manufactured offshore and has a global roster of suppliers, the greatest benefits from this innovation go to Apple, an American company, with predominantly American employees and stockholders who reap the benefits… Apple keeps its product design, software development, product management, marketing and other high value functions in the U.S. This is not necessarily because the U.S. work force has superior capabilities in all of these areas, but because Apple has developed very specialized knowledge and ways of doing things that reside within the company and would be difficult to transfer to external locations.

Second, innovation matters. The producers of high value, critical components capture a large share of the value of an innovative product… For the 30GB Video iPod, the highest-value components are the hard drive and the display, both supplied by Japanese companies. Thus Japan captures the next largest share of the value of the iPod, thanks to its companies’ strengths in those technologies. US chip makers such as Broadcom and PortalPlayer [one might also add Wolfson of Edinburgh which provides the audio codex chip] provide less costly inputs, but earn high margins and thus bring additional value to the U.S. By contrast, Inventec, which was actually responsible for assembly of this iPod (the activity that most people think of as “making” a product), earns a relatively modest share of its value. So in general, the greatest value from providing inputs to an innovative product goes to the countries whose firms provide critical, differentiated technologies.

Third, trade statistics can mislead as much as inform. For every $299 iPod sold in the U.S., the politically volatile U.S. trade deficit with China increased by about $150 (the factory cost) plus the cost of shipping. Yet the value added to the product through assembly in China is at most a few dollars. Even if we included the direct labor involved in making various parts and components in China, it would still add only marginally to China’s share of the value.

via What the iPod tells us about Britain’s economic future – Telegraph Blogs.

Power giants crying foul? What a joke!

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The threat to close them is empty. If the generators failed to maintain the stations during the transitional period to cleaner electricity supply, the State Government has emergency powers that allow it to take over and run the assets.

But it wouldn't come to that. The politicians in Canberra have put together a CPRS that will give free pollution permits worth anything between $7 billion and $20 billion over 10 years, depending on whether the cap is reduced 5 per cent or somewhere up to 25 per cent following the eventual Kyoto Mark II agreement. Only a mug would give up the chance to get their hands on this cash flow.

The generators say they don't get the money unless the price of electricity rises. True. Macindoe said after the Government/Opposition deal was announced that the price of electricity would double in the next four to five years if the CPRS went ahead as planned. If that happens then the value of the free permits will more than double to $15 billion to $20 billion and the generators might then be worth $8 billion or more expressed as the present value of the stream of future earnings.

There are a number of scenarios that could bring this massive bonanza about, including bullying the Government into generous long-term fixed contracts and converting the brown-coal generators to natural gas, which would reduce carbon dioxide emissions by 75 per cent and allow the generators to sell all their free permits. Under the CPRS rules, they can buy unlimited supplies of cheap, dodgy carbon offsets from Indonesia and PNG to avoid using any of their free permits to actually produce electricity. In other words they will be able to sell their free permits by simply replicating, with minor variations, the multibillion-dollar rort by EU generators of the EU carbon trading system since its establishment.

The flawed CPRS should be replaced with a broad-based carbon tax. If it was set initially at $10 a tonne it would be hardly noticed, it would raise $5 billion a year and all the money could be spent on green infrastructure instead of the financial bubble if the CPRS goes ahead.

via Power giants crying foul? What a joke!.

Carbon scheme better than it seems or is it?

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…if a power station has been given all the permits it needs, those permits have an opportunity cost because they could be sold to some other company that needs them, at the market price for permits.

This leaves the power station with an incentive to switch to gas-fired generation, for instance, and sell the permits it no longer needs. And since its free permits are valuable, it will still raise its prices to customers, requiring them to compensate it for its opportunity cost in not selling its permits.

via Carbon scheme better than it seems.

I cannot agree with Ross Gittins here. If the overall price of carbon is capped at $10 per tonne by the government and the households are compensated for the extra increase in prices how will they change their behaviour? Does not seem logical.

Rather than this half-cooked scheme Australia could have waited for a couple of years.

India gives conditional green light to emission cuts – Yahoo! News

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India should go the way of china and announce energy efficiency targets which the world believes is credible. This is the right thing to do in India’s state.

“India is willing to sign on to an ambitious global target for emissions reductions or limiting temperature increase but this must be accompanied by an equitable burden sharing paradigm,” Singh said in a speech, the text of which was released by his office in New Delhi.

via India gives conditional green light to emission cuts – Yahoo! News.

China’s carbon statement – a good economic and political decision.

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From the Australian:

China will cut the intensity of carbon dioxide emissions per unit of gross domestic product in 2020 by 40 to 45 per cent from 2005 levels, said a statement from the State Council, or cabinet.

“This is a voluntary action taken by the Chinese government based on its own national conditions and is a major contribution to the global effort in tackling climate change,” the statement said.

The announcement marks the first time China has put specific numbers on a September pledge by President Hu Jintao to reduce the intensity of its carbon emissions as a percentage of economic growth by 2020.

This is a fantastic economic decision. Cleverly China is talking about voluntary decrease of carbon intensity and not any specific carbon emission reduction. If I was running China, I would do the same. It is a economic decision to save energy, be more efficient and conserve energy in a world where it’s getting expensive.

Secondly, it is a great political statement. Before the Copenhagen meet it has shown commitment in a way it does not hurt the economy but actually helps China to be more productive.  India needs to do something similar.

What makes a nation rich?

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From MIT economist Daron Acemoglu:

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And yet while Sachs and Diamond offer good insight into certain aspects of poverty, they share something in common with Montesquieu and others who followed: They ignore incentives. People need incentives to invest and prosper; they need to know that if they work hard, they can make money and actually keep that money. And the key to ensuring those incentives is sound institutions — the rule of law and security and a governing system that offers opportunities to achieve and innovate. That’s what determines the haves from the have-nots — not geography or weather or technology or disease or ethnicity.

Put simply: Fix incentives and you will fix poverty. And if you wish to fix institutions, you have to fix governments.

How do we know that institutions are so central to the wealth and poverty of nations? Start in Nogales, a city cut in half by the Mexican-American border fence. There is no difference in geography between the two halves of Nogales. The weather is the same. The winds are the same, as are the soils. The types of diseases prevalent in the area given its geography and climate are the same, as is the ethnic, cultural, and linguistic background of the residents. By logic, both sides of the city should be identical economically.

And yet they are far from the same.

(from Greg Mankiw)

Australian ETS = Carbon Tax + Consumer Welfare

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I have been rooting for the ETS for a while now but with better understanding of the legislation (thanks a lot to the commentary on BusinessSpectator.com.au) I have learned that the ETS in its current form is not going to solve Australia’s problems at all. With ability to pacify any group that the government seems fit and the issue of carbon offsets there are not guarantees on how on the scheme will work.

The latest comes from Robert Gottliebsen who explains how the money from the ETS will be used as a welfare card by the labour government to stay in power.

Over the period from 2011 to 2020 the government expects to raise a staggering $114 billion from industry based on a carbon price of above $20 a tonne.

Where will that money go? John Howard retained office via the so called ‘Howard battlers’. Rudd learned from Howard so that’s where the money goes.

About $54 billion, or just under half, goes to lower and middle income people. Around 90 per cent of all low income households – or some 2.6 million households – will receive assistance equal to around 120 per cent of the overall cost increases they face.

Around 50 per cent of middle income households – about 1.7 million – will be fully compensated for overall cost increases flowing from the carbon trading legislation. And it gets better. Once the scheme starts, assistance will continue in perpetuity because these assistance payments are indexed to CPI and upfront assistance will automatically increase in line with the increasing carbon price as it affects household cost.

Think about it, if we provide people with 120% of the increase in costs; so more than what the costs have increased; then there is no hope in changing behaviour which is the goal.

Earlier I quoted Greg Mankiw on the fundamental theorem of the ETS:

Cap-and-trade = Carbon tax + Corporate welfare.

Well Greg, we have changed that in Australia. It should now read,


Cap-and-trade = Carbon tax + Consumer welfare + Corporate welfare.

Scientists vs Greenpeace on Salmon, I will go with the the boffins

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It’s generally better for the planet to eat frozen grub that's come a lot of food miles than fresh which has travelled fewer miles by air, in fact. According to the enviro-scientists:

The choice to buy frozen matters more than organic vs conventional or wild vs farmed.

There were other conclusions from the study which could be seen as flying in the face of conventional eco-wisdom. According to the assembled boffins:

Catching salmon in large nets as they school together has one tenth the impact of catching them in small numbers using baited hooks and lures.

This directly contradicts the advice offered by Greenpeace, for instance, which says “choose line-caught fish wherever possible”.

Deep waters, these.

via Eat frozen food and avoid line-caught fish, says eco study • The Register.

Urban density, public transport and the environment

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Some sane words from Paul Mees; a senior lecturer in transport planning at RMIT. His book Transport for Suburbia: Beyond the Automobile Age will be released in December.

So it is possible to compare population densities and use of ”sustainable” transport (public transport, walking and cycling) across the three countries’ urban areas. Nobody has done this before, because the data did not become fully available until last year, but it can now be assembled. I have done this, using the most recent census (2006 for us and Canada; 2000 for the US).

The results are not what might have been expected. Far from being the paradigm of sprawl, Los Angeles is actually the most densely populated urban area of all. High-rise centres are not much of a guide to overall urban densities. The 8 million residents of New York City live at high densities, but the 13 million residents of the surrounding suburbs live in more spacious surroundings than their counterparts in Los Angeles, producing a lower overall figure.

The real reason Los Angeles is such an environmental disaster is not low density, but high density – combined with a huge population that depends on cars. This concentrates traffic and pollution, maximising the environmental impacts.

Melbourne, with nearly 16 people per hectare (not five), is a medium-density city, closer to the top of the table than the bottom. We are denser than Chicago, Boston and Portland, the American poster-city for ”smart growth”.

But relatively high densities have little to do with the use of sustainable transport. The best performer is the Canadian capital, Ottawa, which is much less dense than Los Angeles and about the same as Melbourne. Brisbane has barely half Melbourne’s density and a third that of Los Angeles, but use of sustainable transport is similar to Melbourne and more than twice the level in LA.

Sustainable transport use has more to do with transport policy than density, which is excellent news for anyone concerned about the environment. It would take many decades and vast expense to substantially change the density of a city of 4 million people, and we don’t have that much time. Climate change and insecure oil supplies are urgent problems, and we need solutions now. Fortunately, transport policies can be changed more quickly and with less disruption than urban form, so we might be able to keep our leafy suburbs and still save the planet.