Squeezing Budgets: We continue to have debates about which would be better, a cap-and-trade system or a more-direct carbon tax. Ultimately, both make the use of fossil fuels more expensive, which should drive demand destruction. That's what higher gas prices have begun doing in much of the developed world.
The agency forecast in its monthly Oil Market Report that global oil consumption would average 86.8 million barrels a day in 2008, or 70,000 barrels a day below the estimate that it made in its last report. Still, that would make overall demand 0.9 percent higher than in 2007.
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The energy agency lowered its forecast for oil product demand among OECD nations by almost 130,000 barrels a day, to 48.6 million barrels in 2008.
The OECD raised its estimate for oil consumption in developing nations. The growth in nations like China and India certainly plays a part. So do subsidies.
About half of humanity, from India to Chile, now benefits from cut-rate petroleum prices. In 2008, these countries will account for all the growth in world oil demand, or an additional one million barrels a day, according to Deutsche Bank. ...
And these subsidies will cost as much as $100 billion in 2008, or twice as much as last year, estimates the International Energy Agency.
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The biggest culprits are oil exporting nations, especially in the Gulf. They continue to throw petrodollars at both fuel subsidies and big projects that consume oil.
Because of the rising costs, a number of nations--including China--have recently cut their subsidies.
Destructive Demand Destruction: For many people--especially those living in or on the edge of poverty, the cost of energy has an enormous impact on their quality of life. Ethanol has gotten more press, but the rising price of oil has been a major driver of global food inflation. The impact is magnified in poor, oil-importing nations. For instance, inflation is the highest it's been in West Africa in a decade.
"Rising prices for crude oil and imported food products in the region as well as the increase in prices for locally produced cereals due to the poor 2007-08 season harvest have led to an increase in inflationary pressures in our countries," he said.
Rising fuel and food prices have been a factor in a rash of unrest across Africa in recent months, including in Ivory Coast, Burkina Faso and Senegal, which all belong to the BCEAO.
The BCEAO is the central bank for some of the poorest countries on earth and all its members import crude oil. Its other members are Benin, Guinea Bissau, Mali, Togo and Niger.
Switching regions...
In Armenia, Georgia and Azerbaijan, rural poor people have been hit hard by the increased costs of energy such as fuel, electricity and gas. It is not only their incomes that suffer, but also the environment. Burning dung or fuel wood for heating wastes fertilizer or leads to deforestation. The introduction of fees for health care has dramatically reduced rural poor people’s access to health care services. Civil conflict and large refugee populations also tighten poverty’s hold on rural poor people.
And of course with coal being cheaper than fuel oil, a number of nations are becoming more dependent upon that dirtier source of energy. Notable is the fact that China, which leads the world in both the production and consumption of coal, is becoming a coal importer.
Until recently, Indonesia was an oil exporting nation.
A major survey of the nation's child care institutions this month found orphanages flooded with children separated from their parents not by death, but because of poverty.
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Indonesia has up to 500,000 children — or 0.6 percent of the country's roughly 85 million children — living in institutions, one of the highest rates in the world, the report said. Of those, 90 percent still have one or more parent alive.
World Bank figures show that around half of Indonesia's 235 million people live on less than $2 a day. Adding to the hardship are soaring prices of staple foods and a 30 percent increase in fuel costs in May.
A chunk of that increase was due to reducing the fuel subsidy. The reaction has been protests and a plunge in the popularity of Indonesia's president.
Surcharges: The EU has a target that nations should get 15 percent of their energy from renewable sources by 2020. Energy includes electricity, fuels, heating oil, etc. The UK figures that it will have to generate more than a third of its electricity from wind to meet the overall goal. With that entailing several thousand more turbines, the NIMBY rumbling is growing. And of course, where will the money come from to make the necessary investments in those turbines and other renewable energy sources?
Surcharges on gas and electricity are expected to reach a peak in 2020 under the government plans, as consumers help pay for £100bn investment by the private sector in wind turbines and solar panels... The first government estimates of the cost to the consumer are published at a time when British Gas customers could face price rises of a further 30-40% later this summer as a result of a steep increase in wholesale gas costs.
Energywatch, the consumer group, said that every 1% increase in power bills brought 40,000 people into fuel poverty, defined as those who spend more than 10% of their income on lighting and heating. The current number is 4.5 million.
Energywatch estimates that the surcharges could raise the number of folks in fuel poverty by another two million. Let's go back to the definition of fuel poverty.
In the UK fuel poverty is said to occur when in order to heat its home to an adequate standard of warmth a household needs to spend more than 10% of its income on total fuel use. The definition of fuel poverty does not take account of the amount that a household actually spends on fuel, nor the amount available for the household to spend on fuel after other costs have been met. ...
Adequate warmth is generally defined to be 21°C (69.8°F) in the main living room and 18°C (64.4°F) in other occupied rooms during daytime hours, with lower temperatures at night...
That's a rather sloppy metric...and one ironically enough that global warming could help shrink. Who suffers from fuel poverty in the UK? Switching links...
The proportion of households who are in fuel poverty is much higher in the most rural areas: 16% compared to 9% in village centres, 6% in rural residential areas and 6% in urban areas.
And most of the wind turbines will be sited in rural areas. Returning to the original article in this section...
Higher fuel costs would not be felt until after 2010 and the main increases would come from 2015 onwards, according to the government's renewable energy consultation paper. "In 2020, as a result of the new incentives, domestic consumer bills are expected to increase 10-13% in electricity and 18-37% for gas bills," it says.
The government said the cost of building new green infrastructure, and therefore the price to the consumer, had been based on an oil price of $70 per barrel. If the price was $150, this would knock 35-40% off the relative cost of renewables. The price of oil is currently in the mid-$130s.
But when will renewables be expected to compete without lavish subsidies?
Green Income Redistribution: On Wednesday, British Columbians will begin paying a carbon tax. What will this entail?
The carbon tax will apply to virtually all fossil fuels, including gasoline, diesel, natural gas, coal, propane, and home heating fuel, making it among the broadest and most comprehensive in the world.
The carbon tax will be phased in to give individuals, businesses, and industry time to adapt, innovate, and reduce the impact of the tax. The carbon tax starts at a rate based on $10 per tonne of associated carbon, or carbon-equivalent, emissions and will rise by $5 a year for the next four years — reaching $30 per tonne by 2012. This works out to 2.41 cents per litre for gasoline, rising gradually to 7.24 cents a litre by 2012. For diesel and home heating oil, it works out to 2.76 cents per litre, rising to 8.27 cents over the same five-year period.
2.41 cents per litre coverted to U.S. units is currently 9.12 cents per gallon. Considering that gas there is running roughly $5.30 per gallon, how much demand destruction will another nine cents cause? And when it comes to the price of electricity, note that about 80 percent of BC's power is hydro.
The government estimates that the carbon tax will generate about $1.85 billion (dollars and loonies are almost equal in value at the moment) over the next three years. Where will that money go?
The carbon tax will be revenue neutral. Legislation will require a plan to be tabled in the legislature each year, showing how the revenue raised will be returned to taxpayers. All revenue generated by the carbon tax will be returned to individuals and businesses through reductions to other taxes. None of the carbon tax revenue will be used for expenditure programs.
Let's not forget though the growth in BC's bureaucracy to manage the carbon tax. That cost is being ignored when claiming that the new tax is revenue neutral. At any rate, who gets the money the carbon tax generates?
The bottom two personal income tax rates will be reduced for all British Columbians resulting in a tax cut of 2 per cent in 2008 and 5 per cent in 2009 on the first $70,000 in earnings — with further reductions expected in 2010 ($784 million over three years);
Effective July 1, 2008, the general corporate income tax rate will be reduced to 11 per cent from 12 per cent — with further reductions planned to 10 per cent by 2011 ($415 million over three years);
Effective July 1, 2008, the small business tax rate will be reduced to 3.5 per cent from 4.5 per cent — with further reductions planned to 2.5 per cent by 2011 ($255 million over three years); and
Beginning July 1, 2008, the new Climate Action Credit will provide lower-income British Columbians a payment of $100 per adult and $30 per child per year — increasing by 5 per cent in 2009 and possibly more in future years ($395 million over three years).
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Separate from and in addition to the tax reductions made possible by the revenue-neutral carbon tax, every British Columbia resident will receive a one-time, $100 Climate Action Dividend to encourage the transition to a greener lifestyle.
But surely there are winners and losers in this elaborate income redistribution scheme. Well for instance, truckers aren't thrilled. Cruise ships with a port-of-call outside of BC are exempt, as are international ships and all aircraft with a destination outside the province. And here are a few more exemptions listed at that link...
- Fuel used on, or delivered to, native reserves by aboriginal people
- Fuel used to manufacture anodes in an electrolytic process for smelting aluminum
- Fuel used as a reductant in the production of lead or zinc
- Truck a load of organic carrots up the road to the local farmers market and you get whacked with the carbon tax. But import a truckload of lettuce across the border from California, and that foreign food enters B.C. carbon-tax-free.
- "Industrial processes" in the cement and oil-and-gas sectors and "fugitive emissions" from farms and landfills.
In other words, this carbon tax is far more style than substance. But what if the entire nation of Canada adopted a revenue-neutral carbon tax, as the Liberal Party leader has proposed? Here's what a think tank working with a group of community and business leaders recently came up with.
It would force exporters to jack up their prices, putting them at a disadvantage in world markets. To protect Canada's share of global trade, Ottawa might have to exempt products destined for sale abroad from the tax.
It could induce energy-dependent manufacturers to move to countries with lax environmental policies. The one percentage point cut in corporate tax rates that Dion is offering, plus the incentives for investing in green technologies, may not be enough to stem the outflow.
Imposing a carbon tariff could contravene Canada's trade obligations. It is unclear how a Liberal government could penalize imports from countries with lax environmental policies without violating the World Trade Agreement.
Putting a price on pollution would hurt some regions more than others. The impact would be particularly severe in the industrial heartland, which is already reeling from high energy prices and a sputtering economy; and the western oil sands, which spew huge amounts of greenhouse gas into the atmosphere.
In fact, many in Alberta figure that the proposed carbon tax is mostly a strategy for taking some of the province's oil wealth and spreading it elsewhere.
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