Just last week I wrote about how the Government is making the same mistakes in allocating funding to the Great Barrier Reef (GBR), as it did with the Murray-Darling Basin (MDB) over the period 1997-2009.
It turns out that they are repeating the same errors again with the MDB. The Senate is set to vote tomorrow (8th May, 2018) to amend the MDB Plan. This involves scrapping the requirement for some additional 600 gigalitres (GL) of water to be kept for environmental purposes in the Basin, which was a commitment of the original MDB plan.

Instead, the government is proposing to spend $1.3 billion on variety of programs, mostly to be implemented in Victoria and NSW, which are supposedly going to save some 600 GL of water, thus somehow offsetting the equivalent back-down on environmental water commitment.The big problem with this is that the projects to be funded are going to be hugely cost-ineffective, just like all the environmental projects that were implemented in the MDB in the past.

Public funds are going to be spend, and special interests in Victoria and NSW are going to be served, with very little positive environmental outcomes, and at enormous costs per unit of environmental outcome (i.e $/ML of water saved). This is all something that we have already seen, analysed, and showed that it is a poor way to go about securing environmental water in the MDB. But, the government doesn’t seem to care. Elections are coming, and pork-barreling is the name of the game! Sad, really!

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You can tell elections are around the corner when governments start announcing nice, round-number plans to save this and that. This time it is the Great Barrier Reef (GBR), with the Commonwealth Government just announcing a $500 million program to tackle several problems that threaten the wellbeing of the reef (I note the really awkward reference to driving and protecting jobs in the Government’s announcement. It seems like a really cheap attempt to stamp ‘jobs’ over pretty much anything, even if it is not relevant at all).

Most people would agree that this is a worthy initiative. Knowing this full well, the government has just made the announcement without providing much detail on how the pledged funds are going to be spent. From government’s perspective, the point is to play the tune that the electorate would like to hear, and not to worry about the details. However, when it comes to complex and wicked problems, such as the health of the GBR, all the devil is in the detail.

We have seen time and time-again governments committing huge amounts of funding to rectify problems with high electoral salience, only to find out that all those money spent were to very little avail. A good example is the Murray Darling Basin (MDB): some $25 billion dollars were committed and spent on various programs to improve environmental conditions in the basin over the period 1997-2009 (Lee and Ancev, 2009) with very little actual effects. Indeed, even today environmental problems in the basin are rife.

I can see nothing in the government announcement on the GBR that would suggest that this time it’s going to be different. Funding is committed to broad areas, and typically to areas that will keep various stakeholders quiet for some time. For example, sugar cane farmers who have been repeatedly linked to the poor water quality in the reef due to excess use of fertilisers that ends up running off into the reef, are set to gain some $200 million under the program. This will effectively amount to subsiding cane farmers in their efforts to reduce nutrient runoff. I am not a big fun of subsidies, not in this nor in other cases, as we know that they create serious perverse effects, as well as negative fiscal implications. The evidence from the MDB is that subsiding irrigators to reduce their water use did not work very well. There is nothing to suggest that subsidies will work in the case of the GBR. In addition, I am particularly averse to subsiding production of sugar, as it has huge negative effects not only on environmental health, but also on human health.

Taking initiative on improving the state of the GBR is a worthy cause. Of course it is very important, and of course it requires funding. I just wish that politicians can resist opportunities for quick positive publicity by committing large sums of public money to programs that are not well thought through. We could be doing so much better with that kind of money! We could be really saving the reef, rather than just posing and appealing to popular views and to special interests!

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A recent statement by the Australian Medical Association caught my attention. The medicos are declaring a war on sugar, calling for taxes on sugary drinks, ban on advertising unhealthy food to children, and removal of vending machines selling unhealthy food and drinks in medical facilities. This last point I particularly like.

I have been noticing all these vending machines around the campus at Sydney University. What are they selling: the worst possible drinks and snacks, loaded with sugar and other nasties. And who are they selling to: typically to students and academics stuck at Uni after hours, when all cafes and regular shops are closed. But the type of food and drinks on offer is something that is least needed in that situation. An apple, a banana, some walnuts or almonds, or some plain milk (perhaps soy milk) would do those folks so much better than a can of Coke, or a Kit Kat bar.

A little less known sugar dispensing device is hidden in the kitchenettes of the various University departments. These are so called 'charity snacks' where you can get some chips or a Cherry Ripe bar in exchange for a specified 'donation'. Really just another type of unhealthy vending machine.

It is time we stopped this practice, and certainly Universities are good places to champion such a change. We should ask for the content of the vending machines to be replaced with much more healthy options, and we should not allow unhealthy food and drinks to be sold through vending machines on campus. It is not hard to imagine a vending machine that dispenses apples, salads, or good nuts (not just salty peanuts). This would be good for the health of academics and students, and will set an important example to the wider community.

It would also be good for Planetary Health, an initiative that was recently unveiled at Sydney University.
I have written before on this blog how sugar through its whole supply chain is not only causing human health issues, but also environmental, and even economic health problems.The more I think about it, the more I am convinced that it is an excellent example of how a supposedly sophisticated food supply chain is very detrimental to Planetary Health. Sugar is certainly not alone (just think palm oil), but it is a good place for humanity to start seriously reconsidering how we produce, distribute and consume food. Putting a stop to the practice of selling expensively packaged sugar through the vending machines would be a first step in a right direction!

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The year draws to a close in December with all the festive time, and once every couple of years the time of releasing a new Star Wars movie. This year was a ‘new Star Wars movie’ year, which inspired me to the title of the current blog entry. However, the entry is not about the movie but rather about the convulsions through which fossil fuels are going in their way out. I have written before about the inevitability of the energy transition away from fossil fuels. The speed of this transition is very much dependent on how big businesses in the energy sector position themselves in the process. And this December we saw a clear message from one of the largest energy businesses (our own BHP) that sticking staunchly to the fossil fuel energy mantra is not the way of the future. BHP has threatened to quit the local and global coal lobby groups over their essentially ‘denialist’ stance on climate change and aggressive tactics against competing non-fossil fuel energy sources.

At least locally in Australia, the year that is just passing has seen some of the nastiest campaigning against renewable energy sources, inconspicuously backed by the coal industry (I recall an issue of the ‘The Australian’ sometime in September with ‘coal is good; renewables are bad’ slogans and articles all over it). The campaign against renewables has been particularly ferocious in the light of the so called ‘energy crisis’, blaming wind and solar for reducing the reliability of the electricity supply networks and for increasing electricity prices. However, there is no clear evidence that this is so, as the reliability and prices are influenced by many factors, and not solely by the generation mix. In fact, together with a group of international colleagues I have just been awarded a small grant by the Worldwide Universities Network to investigate the effect of renewables and the mix of renewable sources (i.e. wind vs. solar mix) on the reliability of the electricity system and on electricity prices.

The process of weaning-off fossil fuel powered society is well underway. But, it will last a long time and there will be numerous turns and twists along the way. 2017 has seen some important episodes of the ‘coal wars’. Let’s hope that 2018 will bring more resolute moves into the right direction. May the cleaner energy be with us! Happy New Year!

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A newspaper article couple of weeks ago caught my attention by headlining that offsets are found to bring large savings to those who use them. The article refers to a leaked report commissioned by the NSW government, presumably looking at the effects of the new Biodiversity Conservation Act 2016, whose practical implementation commenced in late August, 2017. The report itself is not publicly available, so it is a little hard to say just from the newspaper article what are exactly its findings.

The Biodiversity Conservation Act 2016 is about much more than just the Biodiversity offset scheme, which is the focus of the article. And the apparent outrage brought by that article is that the offset scheme under the new Act is likely to create savings to those who participate in the scheme. But, there is nothing surprising there. That’s exactly what an offsetting scheme should do: attain the desired environmental and conservation objectives at lower costs. There is no point in miners or other developers paying more to attain a given environmental objective. Unless of course we want to tax them more on their activity, which is a completely different issue and, which by the way I support.

So, the issue is not in the savings for developers, even though perhaps the media likes to present it that way in order to create a sensationalist effect. Rather, the issue is with the conservation objectives embedded in the Act. Those are the ones to be scrutinised and criticised. If they are too lax, we may be further endangering our flora and fauna, irrespective of which instrument to attain those objectives is chosen.

Offsets are not perfect instruments (see couple of previous posts on this blog). No instrument is. But blaming the offsets for doing their job, i.e. reducing the costs of meeting conservation objectives is not very constructive or helpful. Rather, the focus should be on examining the objectives themselves, while making sure that offsets deliver on their promised conservation effectiveness.

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An important report was released last week by the Productivity Commission. The report looks at the current and future factors that are, and will be affecting the productivity of the Australian economy, and draws recommendations for reform in a range of sectors.

The report has been a topic of commentary among journo-economists, most notably Jessica Irvine and Ross Gittins.

Both of those are generally positive about the report, and Gittins points out that this one, unlike some previous outputs of the Productivity Commission, is people-friendly rather than business-friendly. Irvine briefly touches on the problem of adequate (or, really currently inadequate) measurement of productivity.

The inadequacy is in that national accounting practices and productivity measurement methods have been structured at a time when manufacturing has dominated the economy. Given that the economy is continually moving more towards ‘softer’, service based sectors, there is a need for amending national accounting and productivity measurement practices to reflect that change.

Some of the shortcomings of the current productivity measurement practices relate to the incompleteness of the sets of inputs and outputs that are recognised and accounted for in the analysis. For example, the use of nature-provided inputs (e.g. water, ecosystem services) is typically ignored in the analysis. In addition, many outputs of the services sector of the economy (such as health care, education, scientific research, and information technology sector), as well as the services to society provided by other environmental assets are not well defined in terms of quantity, quality or both. This could lead to double counting, miscounting, omission, underestimation or overestimation problems in currently used productivity measuring frameworks. In addition, many inputs and outputs in these sectors do not have market prices in the traditional sense. And when prices do exist, they are often heavily regulated by the government, like in education or healthcare.

In this light, the need for more integrated and better indicators of productivity has been widely recognised. We need to be able to jointly consider the multiple problems that exist in productivity measurement and to come up with an integrated approach that accounts for a broader set of inputs and outputs into productivity measurement, including things like environmental impacts, natural capital use, and differences in quality of human capital. This will give us a ‘real’ productivity metric, one fit for the twenty-first century!

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October is nearly here, but we just had the driest September for Sydney on record!
And this is on back of a very dry August. It has basically not rained at all for a while!

This has meant that the volume of water stored in Sydney’s main drinking water supply source – Warragamba Dam, has been falling rapidly over the last couple of months. The Dam is currently some 88.5 % full, which is still good, but this percentage is dropping rapidly, at some 0.5% per week. If dry conditions continue, we are going to see the percentages dropping to 70% and 60%, and that’s when the Sydney desalination plant starts to kick in. Current operating rules for the plant stipulate that it will start operating when the level of the water stored in the dam falls below 60% and continue until the level climbs back over 70% again. These numbers used to be 70% and 80% respectively, but were changed recently with the 2017 Metropolitan Water Plan. A good change!

On the other hand, the same 2017 Metropolitan Water Plan puts in place new rules for environmental flow releases downstream from the Warragamba dam into the Hawkesbury river. While having more environmental flows is clearly beneficial and will provide significant improvement of river health, the full cost of providing those flows seem not to have been considered in the plan. In particular, there are ‘shadow’ costs of environmental flows in terms of speeding up the lowering of the water volume in the dam, and thereby speeding up the breaching of the threshold that will trigger the operation of the desalination plant. Now, the cost of the water supplied from the desalination plant is substantially (2-3 times) higher than the cost of supplying water from the dam. So, the sooner the desal is activated, and the longer it operates over a given time horizon, the higher the costs to municipal water users. Environmental flow releases contribute to these higher costs. Some simulations that we ran show that the extra costs from activating the desalination plant and having it operate for longer as a result of environmental flow releases are quite high.

In addition, we ran some optimization scenarios, where we used dynamic optimization methods that allow us to account for the ‘shadow’ costs of environmental flows, and to determine economically optimal quantity of environmental flows. The results show that combined net benefits of environmental flows and net benefits to municipal water users are significantly higher (about $15.3 million higher on average per annum) under optimized environmental flows that take into account the shadow cost, compared to the current environmental flow rules.

Environmental flows sent downstream from the dam are good. However, some of the costs at which they come are ‘hidden’, or not immediately apparent. These costs ought to be considered if benefits to whole society are to be maximized!

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