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Extra, extra! Journalist writes something intelligent!

by Starvid Sat Nov 11th, 2006 at 05:08:15 AM EST

Amazingly, yesterday a journalist wrote something profound in my morning paper.

The part about the differing discount rates used in the Stern report and those used by the market he probably copied from the Financial Times, but he continues with that thought until it transports him to an interesting conclusion.

Marknaden har svårt
att hantera klimatfrågan
Hard for market to deal with climate issue
Samtidigt som marknadsekonomin firar sina globala tillväxttriumfer så finns också ett alltmer akut upplevt hot från det kanske största marknadsmässiga misslyckandet någonsin, växthuseffekten. Priset på framför allt fossila bränslen återspeglar inte alls de växande negativa externa effekterna av dess förbränning.While market economy celebrates its global growth triumphs there is an increasingly urgent perceived threat from what may be the greatest market failure of all time, the greenhouse effect. The price of fossil fuel does not at all correspond with the growing negative external effects that follow its combustion.

From the diaries ~ whataboutbob


[...] Den växande enigheten om att dagens generation måste betala för att undvika att framtida katastrofer, om säg 50 år, gör emellertid att marknadsmässiga lösningar blir mycket svåra att genomföra. För det blir en mycket stor skillnad om man använder marknadsbaserade avkastningskrav för att investera sig bort från den hotande framtida katastrofen eller om man har samhällsekonomiska avkastningskrav. I det senare fallet finns just den moraliska aspekten att dagens generation måste ta fullt ansvar för de problem som de orsakar för framtida generationer. [...]

Stern använder i sina kalkyler ett samhällsekonomiskt avkastningskrav, eller diskonteringsränta, på 2-3 procent. Ett marknadsmässigt krav skulle däremot ligga närmare tre gånger så högt medan en traditionell samhällsekonomisk kalkyl - som vid ett infrastrukturprojekt - skulle ligga på det dubbla.

För samhället blir det därmed lätt att få "lönsamhet" i att exempelvis bygga ut kärnkraften för att ersätta ett kolkraftverk, medan det i samma projekt för den privata sektorn kan framstå som högst tveksamt om de får ersättning för sin affärsrisk. Det betyder att en sådan investering, om det privata näringslivet får bestämma, försenas eller inte alls blir av.

Samhället kan visserligen påverka den privata kalkylen genom att försöka styra elpriset med exempelvis utsläppsrätter och som i Sverige, systemen med elcertifikaten. Det kan göra att de förväntade intäkterna kan räknas upp, men det sänker inte avkastningskravet. Snarare kan det vara tvärtom. Eftersom investeringar i ett till exempel kärnkraftverk har en mycket lång tidshorisont så leder den politiska styrningen av prissättningen snarast till att avkastningskravet måste ökas. Politiska beslut kan ju komma att förändra villkoren senare.

En konsekvens av detta skulle exempelvis kunna bli att energisektorn, som nyligen avreglerats och i många länder även privatiserats, vandrar tillbaka till att bli en statlig angelägenhet. Samma synsätt kan även appliceras på transportsektorn och då kanske framför allt vad det gäller järnvägstrafiken.

[...] The increasing unity that today's generation must pay to avoid future disasters, in say 50 years, however make market based solutions very hard to implement. Because there is a very big differnce if one use market based yield requirements to invest ourselves away from the impending future disaster or if on socio-economic yield requirements. In the later case there is the moral aspect that today's generation must take full responsibility for the problems it cause to future generations. [...]

In his calculations Stern use a socio-economic annual yield, or discount rate, of 2-3 per cent. A yield adjusted to the conditions of the market would be about three times as high while a traditional socio-economic yield - like the ones used at infrastructure projects - would be twice as high.

Thus, for society it becomes easy to reach "profitability" in for example expanding nuclear power to replace a coal plant, while the same project would seem highly dubious for the private sector if they can get compensation for their business risk. This means that such an investment, if private enterprise gets to decide, is delayed or do not happen at all.

Admittedly, society can affect the private cost estimate by trying to influence the price of power through for example emission rights and like in Sweden, use a system of [renewable] electricity certificates. That can make expected revenues to increase, but it does not reduce the required annual yield. If anything, it can work in the opposite way. Since investments in for example nuclear power plants have a very long time horizon the political control of the price rather to a higher required yield. Political decisions might change the rules later.

A consequence of this could for example be that the energy sector, which has recently been deregulated and in many countries also privatised, might again become a matter of the state. The same view could then be applied on the transportation sector and maybe above all on the railroads.

Now, do you think he is a closet member of the ET?

Hmm, I see my grammar isn't very good today. I guess that's what happens when you translate one sentence at a time.

Hopefully you'll understand the basic message.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Thu Nov 9th, 2006 at 06:22:06 AM EST
I read you just fine, except for the next-to-last sentence of the next-to-last paragraph (is something missing here?

But still worthwhile - thanks for making this accessible to us!

The fact is that what we're experiencing right now is a top-down disaster. -Paul Krugman

by dvx (dvx.clt ät gmail dotcom) on Thu Nov 9th, 2006 at 11:32:50 AM EST
[ Parent ]
This one?

Since investments in for example nuclear power plants have a very long time horizon the political control of the price rather to a higher required yield.

It's supposed to be:

Since investments in for example nuclear power plants have a very long time horizon, political control of the price might require a higher yield.

[as the politicians might change the rules at any time you want to get your invested money back even faster.]

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Thu Nov 9th, 2006 at 02:48:47 PM EST
[ Parent ]
Excellent, an economic case for nationalisation.

Sadly I can't imagine getting much traction trying to sell that to Murdoch or G Brown.

keep to the Fen Causeway

by Helen (lareinagal at yahoo dot co dot uk) on Thu Nov 9th, 2006 at 08:14:57 AM EST
Well, nationalisation might be a little too far... Heavy regulation and government loan guarantees might be enough. There isn't any reason that private companies shouldn't be allowed to run nuclear power plants, as long as they do it well and cheaply.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Thu Nov 9th, 2006 at 02:51:25 PM EST
[ Parent ]
Well you  would have to ask, what is there to stop a non nationalised company from running the plant, taking the profit, then declaring bancruptcy and leaving the population with the costs of clean up.

Any idiot can face a crisis - it's day to day living that wears you out.
by ceebs (ceebs (at) eurotrib (dot) com) on Thu Nov 9th, 2006 at 04:06:40 PM EST
[ Parent ]
Because building a nuclear power plant is very expensive and it gets more profitable to run the older it is, as the loans are then repayed and the plant generates power for like 1,5 eurocent per kWh (until it stops being profitable as it becomes to expensive to maintain safety and then the plant is shut down).

And when it comes to cleaning it up, a special levy is put on nuclear electricity. The money is put into a segregated and untouchable fund outside the government budget. The fund covers everything that has to do with spent fuel, from research to waste storage to dismantling the power plants.

Strangely, no other industry pay any taxes to dismantle their factories. They just abandon them.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Thu Nov 9th, 2006 at 04:28:16 PM EST
[ Parent ]

Strangely, no other industry pay any taxes to dismantle their factories. They just abandon them.

This is required of wind turbines as well. As you point out, this is a pretty unusual requirement in the industrial world.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Thu Nov 9th, 2006 at 04:44:34 PM EST
[ Parent ]
I didn't know they did. One step closer to the level playing field I guess. ;)

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Thu Nov 9th, 2006 at 04:54:50 PM EST
[ Parent ]
Oddly enough, something very similar to this is about to happen in the UK to one of train franchises. And possibly more than one.

If a private company running a public service declares itself bankrupt, the Treasury has no answer. The service will then be nationalised by default.

In theory it can then be reprivatised again. But if the risk/reward profile makes no sense to private sector companies, don't expect queues to form for the privilege of taking on the risk.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Thu Nov 9th, 2006 at 09:03:52 PM EST
[ Parent ]
As I have been pointing out for some time - but no newspaper in the UK will print - the Public/Private split is a spurious choice: there is in fact a "Not Proven" verdict between "Guilty" and "Not Guilty"

The reason is that "Private" means "owned by a joint stock limited liability company".

But there is another enterprise model option (in fact two) in terms of  "ownership" and "use" of public assets.

One is based upon Common Law ("Trusts") and pretty much the entire Canadian capital market is now configured using something close to this - "Income Trusts" - but these are defective both tax-wise and managerially.

The other is based upon French jurisprudence (contrats de societe) in the shape of the new UK LLP (the French aspect deriving from its Jersey origin, I suspect)

But there appears to be a conspiracy of silence about this entity which was "conceived in iniquity and born in sin"


This "Community Partnership" option is simply to keep the railway assets in trust and to bring in pension investment in their GROSS revenue streams.

The LLP allows us to bring in managers as risk/revenue-sharing "partners" and that is what makes it superior to the obsolete Company form by transcending the Principal/Agency problem and allowing new forms of stakeholder participation.

So the outcome could be:

(a) Trustee Member - which "owns" the assets;
(b) Investor Member - which is a loose consortium of "club" of investors in proportional "Equity Shares" in railway gross revenues;
(c)Operating Member - which is a loose consortium of all of the service providers who run the railway;
(d)Customer Members - which is the loose consortium, or "Club" of customers.

It really would not be too difficult to put such a structure into place organically, because my experience is that the necessary legal protocols are infinitely simpler because they are consensual.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Sat Nov 11th, 2006 at 06:22:23 AM EST
[ Parent ]

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