Much more than the Paris Climate (photo-op) Agreement, our pied-à-terre needs revenue neutral carbon taxes

Sir, Martin Wolf writes: “In no area are global spillovers more significant and co-operation more vital than climate… The main obstacles to such action are three. First, specific economic interests, notably in the fossil fuel industry… Second, free-marketeers, who despise both governments and environmentalists, reject the science, because of its (to them) detestable policy implications. Third, few wish to…threaten their standard of living, for the sake of the future or people in poorer countries” “Climate change puts poorest nations at risk”

Not so fast! There are those of us who believe that the threat of climate change is so real that there is no need to convince us with the “people in poorer countries” argument. The best interests of our grandchildren suffice. And there are those of us that despise the idea that so much of the important sacrifices required could be dilapidated enriching governments and environmentalists. To mostly attribute “specific economic interests” to the fossil fuel industry is to be too biased.

Of course the poorer countries should be helped, but the brunch of the climate change war effort, needs to be carried out as much as possible by sending out strong market signals, letting the markets operate freely assigning resources; and aligning the incentives as best as possible.

For that I strongly believe that a huge carbon a tax, shared out entirely to the citizens, is what first should be happening. Let us for instance suppose that petrol (gas) was sold all over the world at Norway’s current price of about US$2.10 per liter (Venezuela would have to increase its prices US$2.09 per liter) and that 100% of what that tax produces, goes directly back to the citizens.

Then we would fight climate change and inequality at the same time; which would be great since as Martin Wolf rightly holds: “The linked challenges of climate and development will shape humanity’s future.”

Sir, nothing in the Paris Climate (photo-op) Agreement seems to me remotely as powerful and effective as revenue neutral carbon taxes.

Similar to what I proposed for Mexico City

http://ourpiedaterre.blogspot.com

@PerKurowski

The costs of political statements and of regulatory decisions, should as much as is possible be transparently measured

Sir, your “The hard questions of fossil fuel divestment” of October 9, daringly raises some very timely questions that might not be so political correct, at least not for the high-priests of environmental protection. Hear, Hear!

If there is one detail I miss, that is perhaps about the need to set up a small procedure by which anyone could at least measure the on-going financial opportunity cost of that fossil fuel divestment. That could be quite easily done by keeping track on what those fossil fuel investments would have produced, and then compare these to the returns on the current portfolio.

Of course, as you end up writing, “It is a political statement”, but the costs of these should also be measured, as transparently as possible, which goes for regulatory decisions too.

The Basel Committee for Banking Supervision decided initially on a basic capital requirement of 8 percent. What has been the cost of then adjusting that capital requirement based on what is ex ante perceived or decreed as safe? Will we ever know? Will ever someone try to find out? Or will the cover-it-up forces prove to be overwhelming?

@PerKurowski

World Bank has thrown a very timely and important spanner into the works on how to combat climate change

Sir, Henry Sanderson reports on a report of World Bank that states: “Technologies needed to meet the Paris climate agreement from wind, solar and electricity systems are “more material-intensive” than current fossil-fuel supply systems, a report by the bank says.

The mining or extraction of metals and rare earth elements could create environmental problems in terms of energy, water and land use” “World Bank flags up renewables resource risks” July 18.

This makes of Trump’s refusal to play along with the Paris Agreement, a truly minor event. That the reports comes up only now, further evidences how green-business’ interests is skewing the whole debate. I have for years held that if our fight for saving the environment is planned or commandeered by profiteers, we are toast.

If the world adopts a revenue neutral carbon tax the resulting price signals will not only reduce the demand for carbon containing energies but will also allow for a more efficient allocation of resources. 

@PerKurowski

We need capital requirements for banks based on the risk regulators have no idea about what they do.

“Is the Bank of England right to take climate risks seriously? The answer is: absolutely… the risks do exist… It is the job of regulators to help decision makers become aware of those risks” That is what Martin Wolf argues. “Carney is right to warn insurers of the coming tempest” October 16.

Clearly Martin Wolf and Mark Carney both believe the insurers are so inept so as not have considered the possibility of impending regulations aimed to stave off climate change, and which could have serious implications, for instance for oil. But, to consider others inept, carries its risks too.

For instance, both Martin Wolf and Mark Carney consider bankers so dumb so as to not take into account ex ante perceived credit risks, and so they both agree on having to slap banks with capital requirements based on ex ante perceived risk. The result? An excessive consideration of ex ante perceived credit risks with all distortionary implications. Dangerously much credit to what is perceived as safe and equally dangerous little credit to what is perceived as risky…

Who on earth told banks they could leverage their equity (and the support they received from society) over 60 times to one when investing in AAA rated securities or lending to Greece? The market? Bank-shareholders? No! It was regulators, like Mark Carney the current chair of the Financial Stability Board. And why would they do a crazy think like that? Because they were scared silly banks would not consider credit risks, and would therefore perhaps lend too much to risky SMEs and entrepreneurs. 

Sir, sincerely, I guarantee you that if the current capital requirements for banks had been based on the risk that regulators would scheme, meddle and distort, not knowing what they were doing, and we had slapped Basel’s 8 percent capital on all assets to cover for that, instead of weighing for ex ante perceived credit risk, the world would not be facing its current difficulties.

Again, why did regulators decide to pick on the ex ante perceived credit risk, basically the only risk already cleared for?

How do we stop Bank besserwisser busybody hubristic bank regulators from interfering with the allocation of bank credit to the real economy?

@PerKurowski ©

Why did not Mark Carney warn long ago entrepreneurs and SMEs, they would no longer have fair access to bank credit?

Sir, Pilita Clark reports on how Mark Carney, the current chairman of the Financial Stability Board “warns investors of ‘huge’ hit as climate action ‘strands’ fossil fuel assets” September 30.

Because nervous regulators thought bankers did not see or responded sufficiently to the credit risks that were perceived, they forced banks to hold more capital when lending to the risky, than when lending to the supposedly safe, like to Sovereigns and members of the AAArisktocracy.

And so why then did not Carney long ago warn all aspiring “risky” entrepreneurs to forget their plans, since they could not any longer count on fair access to bank credit?

And is not Carney Canadian? Should he really be talking down the value of “stranded fossil fuel assets” just like that? It sounds a bit irresponsible to me.

And if Carney is so concerned, why does he then not require banks to hold capital based on the risk of the sustainability of planet earth?

For instance, if banks when financing something that supposedly helped sustainability were allowed to hold less capital, and could thereby earn higher risk adjusted returns on equity, that would at least induce them to serve a purpose. Basing it like now solely on perceived credit risk does not. It is both useless and dangerous… dangerous because big bank crisis never result from excessive financing of what is perceived risky, but from excessive financing to what is erroneously perceived as very safe.

Disclosure: My granddaughters are Canadian.

@PerKurowski

In Paris Conference we will hear many echoing Neville Chamberlain: There will be splendid planet earth for our time

Pilita Clark and Stefan Wagstyl report on “G7 in historic accord to phase out fossil fuel emissions this century”, June 9. Hurrah!

But when Stephen Harper, the Canadian premier, brings it down to reality mentioning that: “doing so would require “serious technological transformation…I don’t think we should fool ourselves, nobody’s going to start to shut down their industries or turn off the lights” it makes it all look much more that a historic hullaballoo… in preparation for all to come out of the Paris conference in December declaring, like any Neville Chamberlain: There will be splendid planet earth for our time.

As I have held for many years, any planet earth environmental agreement, if disconnected from the people will not work… and in that respect Governments, NGOs and Greens are not the people.

Also for me, to read about phasing out fossil fuel without phasing in nuclear power, which for the time being is the only available bridge between now and that “serious technological transformation”, shows this is not a real serious effort.

What do little me currently propose we do for our pied-a-terre?

For a starter… instead of allowing banks to earn especially high risk adjusted returns on equity on anything perceived as safe from a credit risk point of view, something which has no purpose and is dumb, we should give banks the incentives to earn those extra high returns on everything that seems to help sustainability (and job creation).

Put one and the same capital (equity) requirements for banks on all assets, for instance 8 percent, and then reduce these with up to 50 percent depending on planet earth sustainability ratings (or job creation ratings).

And please, please, please… stop talking about differences between rich and poor with respect to their responsibility to planet earth… we are all indigenous to our planet, and we all have the same human right to feel responsible for it. The “I am rich so I can take care of it better” has to stop.

PS. And forget about selling carbon emission indulgences for some fairly undefined sins in order to use the proceeds for some even less defined good deeds.

@PerKurowski