Governments must hurry and tax ultra-cheap oil

Posted by Eberhard Rhein on 26/01/15

International oil prices have declined to $ 50/barrel, levels not seen for years; but governments fail to neutralise these ultra-low prices by raising excise taxes. They seem to be much more interested in pleasing consumers than in seizing the opportunity for reducing their budget deficits and fighting climate change.

This is irresponsible! Have governments completely stopped being guided by long-term concerns. Are they no longer able to be flexible?

Why have we not heard calls from IEA or OCDE to resort to higher oil taxation?

Why does the UN in charge of the December Climate Conference in Paris remain silent? Should a rise or the introduction of excise taxes on gasoline, diesel and heating fuels not a be a simple “contribution” against climate change which it has invited all governments to submit before the Paris Climate Conference ?

Why has the EU Commission not recommended member states to raise their taxes ?

If it takes so long to decide on a simple excise tax, how long will it take governments to take more complex action against climate change?

In a rapidly changing world, governments must learn to act much faster than last century!

Brussels 25.01.2015 Eberhard Rhein

The Catholic Church should review its Encyclica of Human Life

Posted by Eberhard Rhein on 23/01/15

It is 50 years since Pope Paul VI proclaimed the famous Encyclica of human life asking the 1.2 billion Catholics living today on earth to regulate births exclusively by “natural means”, i.e. abstaining from sexual intercourse during the periods of ovulation.

This appeal has failed. The Church has vastly over-estimated the intelligence and discipline of the believers to regulate births in a way, which contradicts Nature calling for sexual activity during the fertile days of the cycle.

The Catholic Church therefore has to acknowledge its responsibility for the ultra-rapid global demographic growth, with more than doubling of the population from 3.4 to 7.3 billion people during the last 50 years.

Countries with Catholic populations have seen their population grow faster than non-Catholic countries. In South-East Asia, Catholic Philippines continues to be the country with the highest fertility, three children per woman, though fertility more than halved since the mid-1960s.

Thanks to legislation introduced since 2012 against the frantic opposition from the Catholic Church the Philippine government has been enabled to offer all women free access to the public family planning service, which gives a fair chance to the country to reduce fertility rates to the replacement level of two within less than two decades.

But this is not good enough for Humanity. The Church wields big influence in many sub-Sahara African countries where fertility rates continue to be excessively high.

If it were to preach its African disciples that 2-3 children are enough and encourage governments and international donors to introduce education for all girls and the beginnings of old -age pension systems, it would help global population stabilise below the 10 billion that are being projected by the UN for the middle of the 21st century.

This would help reduce misery and poverty in Africa, Latin America and Asia and make a big numbers of human beings healthier and happier.

Pope Francis would have the power to introduce such a reform. He has openly declared that Catholics should “not breed like rabbits”; he knows more about the misery in slums than any of his predecessors. Hopefully, he might realise during his forthcoming visit to Africa that the message of “Human Life” is too demanding for the masses of uneducated women and therefore cannot work.

In one or two years the time might be ripe for revising the “Encyclica of Human Life” which however brilliantly written has put some dust on since 1968!

Brussels 20.01.2015 Eberhard Rhein

 

A plea for concrete climate action in Paris

Posted by Eberhard Rhein on 22/01/15

In the 21st century the international community will increasingly have to cope with issues going beyond the scope of individual or groups of states.

These issues should be dealt with by UN; but the UN is handicapped by the absence of a proper political authority and the consensus required for all decisions.

In 2015, the international community will be bluntly tested on its ability to take long overdue decisions and implement these if it wants to successfully fight climate change. So far it has failed in its endeavours to fix clear objectives, let alone a fair burden sharing among the 195 countries of the international community. These have not been able to understand the urgency of finding an effective solution. For the last two decades that climate change has been on the international agenda no country really has felt responsible. This might go on indefinitely until climate change may have reached dimensions for effective action to come too late.

The 21st international climate conference (COP 21) to take place in Paris December 2015 will be the crucial test for the international community to start taking necessary action to avoid dramatic consequences for mankind.

Climate change is a particularly complex issue for the international community to decide and deliver.

Only some 20 countries are responsible for having damaged the global climate by emitting rising amounts of green house gases or destroying tropical forests. It would be enough for these countries to agree on taking concrete action to reduce their emissions by 80 per cent until 2050.

But the UN Secretary General, the authority competent to propose such a solution, does not dare to take an initiative. He is only too well aware that 180 mostly poor countries affected by but so far hardly responsible for climate change want exploit their numerical force to extract financial “concessions” from the “developed” countries that have been so far largely responsible for the accumulation of green house gases in the atmosphere.

The prospect of reducing the negotiation format in Paris to the core emitter countries is therefore highly unlikely.

The international community should therefore focus on quantifying global and individual objectives and actions for reducing emissions.

So far it has done no more than “agree” that the average global temperature should not rise by more than two centigrade above the pre-industrial levels at the end of the 19th century. The average temperature today is only about 0.9 centigrade higher than in1870. This might reassure many people. But the rise of temperature has kept accelerating in the last two decades. This trend is most likely to continue unabated as long as green house gas emissions continue to rise.

Humanity therefore better speed up its efforts to reduce emissions. To that end, it needs to define the correlation between temperature and the volume of green house gas emissions. Climatologists have done so by introducing the notion of “climate budget”, the volume of emissions the earth can support without devastating consequences. According to their findings Humanity has spent already about two thirds of its 1000 GT climate budget.

Distributing the remaining 350 GT among 200 countries and surveying their future emissions should therefore be the decisive step to be taken before and after the Paris Climate Conference next December.

These must be quantified. To that end, the climatologists from different parts of the earth having worked on climate budget should propose before the end of April the optimal path for reducing global emissions and its distribution among countries, in conformity with the “principle of common but differentiated responsibility and capability” in order to enable the “Working Group on the Durban Platform for Advanced Action” to prepare its draft text as agreed in Lima.

Most probably the time will be too short to introduce this change which would make negotiations substantive and lead to a meaningful agreement, as demanded by UN Secretary General Ban Ki-moon at the COP 20 in Lima.

The failure of the first week of post-Lima negotiations in Bonn appears to confirm this pessimistic view.

To avoid this from happening Ban Ki-oom, assisted by the French host, must focus all its energy on the preparation of a meaningful text with substantive “contributions” annexed and announce that the plenary meeting in Paris will be deferred as long as the parties have not agreed to a succinct and credible document. The failure of the first post-Lima talks in Bonn early January, with Japan coming forward with ridiculous small contributions, proves the dire need for such an approach.

Brussels 15.01.2010 Eberhard Rhein

 

Paris Climate Conference must adopt a more constructive Format

Posted by Eberhard Rhein on 22/01/15

In 11 months from now the Paris Climate Conference (COP 21) will have terminated its work. The French President and the UN Secretary General will have hailed it as a success. But it seems prudent to anticipate another failure.

On the basis of the procedures adopted for its preparation, the COP 21 will not to stop the inexorable accumulation of green house gases in the atmosphere. CO2 emissions have risen by 65 per cent since 1990! There is little reason to believe that Humanity whose numbers and per capita energy consumption keep rising will succeed in reversing the trend. Last year global C02 emissions, the major component of green house gas emissions, have for the first time reached 40 bn tons.

According to 2014 IPPC assessments humanity has already discharged two thirds of the global “carbon budget” of 1000 Gigatons, (GT) beyond which irreversible changes for the planet will happen. Unless humanity starts reducing its C02 output now it will reach the point of no return as early as 2030. Temperatures will rise far beyond the two centigrade that the international community has fixed as its supreme climate goal in 2009.

The international debate has not sufficiently stressed the seriousness of what lies ahead. Either the three major polluters – China,USA and EU- signal their willingness to work for full-scale de-carbonisation of their energy supply by the middle of the century, or the world is heading towards a climate disaster in the second half of the century.

The COP 20 in Lima has merely invited countries to indicate their voluntary “contributions” towards a sustainable world climate.

So far only EU, USA and China have indicated what they might be ready to put on the table in Paris. Only the EU comes close to what is required: it aims at cutting its emissions by 40 per cent until 2030 and reducing them by 80 per cent until 2050.The USA aims at reducing its emissions by some 28 per cent until 2025; China so far contends itself with “peaking” them latest by 2030.

The “contributions” from the rest of the world will no doubt fall far short of those from EU or the effort announced by the USA. The best guess is for most of the countries, including the prosperous ones, to align on China and start reducing emissions by minimal steps from 2030 onward.

As a consequence, instead of declining towards zero as they should, annual global emissions are likely to exceed 50 GT by the middle of the century; and it will become impossible to stabilise global warming at 2°. Such a disaster scenario must be prevented at all costs.

Much stricter contributions will therefore be indispensable; the higher per capita emissions the bigger the contributions to be made. Developed countries will have to contribute the lions share .

EU, USA. Korea, China, Canada, Australia, Saudi-Arabia, etc. will have to announce an 80 per cent reduction until 2050, while countries with minimal emissions should be granted a 10 year exemption. That will be extremely hard to achieve.

 

Thanks to impressive cost-reductions for renewable energies in the last few years it is possible to achieve a large-scale de-carbonisation of the energy supply starting with power generation and transport. It hinges essentially on the political will among the major polluter countries which must be willing to prepare long-term energy strategies to that end.

For the success of the COP 21 these issues must be clarified between the key players before the beginning of the Conference.

If the world fails on mitigation, adaptation will be a poor and excessively costly substitute. The global cost of climate-related natural catastrophes (floods, hurricanes, droughts) already exceeds $100 billion per year, the promised volume of the Green Fund. It is therefore only after the crucial issues have been settled that the secondary issue of the “Green Fund “ should be addressed. That might also happen in a extra donor conference in early 2016.

The EU role will be decisive. In the months preceding COP 21 it should organise informal meetings with China and USA to address the issue of emission reductions until 2050.

Last not least, a durable success of global climate policy will need responsible and effective UN institutions. Without something like a “Climate Security Council” to monitoring and, if necessary, sanction authority without veto !) it will be next to impossible to overcome the resistance and blockage from individual countries.

It is high time to understand that climate change is a matter of decent survival for humanity and not a normal international negotiation.

Brussels 08.01. 2015 Eberhard Rhein

Slowing population growth working against climate change

Posted by Eberhard Rhein on 05/01/15

World population is expected to increase by one third until the middle of the century, from 7.3 to to 9.5 billion. This is bound to have a negative impact on climate change. Population will essentially continue growing in poor countries whose green house gas emissions are presently close to zero.

According to the “Lima Accord” all countries are committed to communicate their plans for reducing emissions before the end of March 2015.

For most African countries it would not make much sense to submit energy-related programmes, as their per capita emissions are minimal – generally far less than one ton. Their optimal contribution to the global fight against climate change should rather consist of lowering their excessive population growth.

Lowering population growth is in their interest. It facilitates necessary investments in health, education and socio-economic infrastructure and helps reducing structurally high unemployment.

It requires little public investment except for girl schools and medical teams for distributing contraceptives or sterilisations. External help, especially from the UN and the EU which has far too long ignored demography, should be available to all governments willing to tackle their population issue. Ethiopia and Rwanda are positive examples of what can be achieved.

The new bottom-up approach to climate change should offer a new opportunity for re-assessing the positive long-term contribution from smaller populations to mitigating climate change.

The UN should therefore invite all countries with fast population growth to also submit population programmes as a valid contribution to minimising climate change.

Eberhard Rhein, Brussels, 30.12. 2014

Most national embassies and consulates will be closed by 2040

Posted by Eberhard Rhein on 16/12/14

The EU and its 28 member states maintain the most extensive network of diplomatic representations on earth. This situation will become financially unsustainable and no longer necessary after the creation of the European External Action Service which is running 140 missions today.

Diplomatic representations have become very expensive; their cost has kept rising through increased safety measures and the need to pay high salaries for qualified personnel and premiums for the growing number of hardship posts. That is why member states have come under pressure for cutting costs and closing embassies and consulates.

Thus the Netherlands will lower the expenditures for their Foreign Ministry by a quarter until 2018; and the new Belgian government has decided to reduce its diplomatic missions from 137 to 104. Both countries will do this within the framework of comprehensive reforms with the purpose of cutting budget expenses.

The EU is definitely over-staffed with diplomatic personnel and missions.

EU Delegations have largely taken over political and economic reporting for EU headquarters in Brussels and national capitals. They should also progressively assume consular duties for EU citizens, especially issuing visa where still required and organising assistance to EU citizens in situations of natural catastrophes and political unrest.

Member states` diplomatic missions should focus on promoting business contacts to the extent that joint chambers of commerce do not do so, as is the case in some major business centres like Beijing or Tokyo.

For cost reasons member states are therefore likely to close most of their diplomatic missions during the coming 25 years and rely on EU missions.

What may look like a revolution today will be perfectly normal by 2040. The transition should take place smoothly and start as of today with intermediate stages like pooling missions or offices of several member countries.

Eberhard Rhein, Brussels, 10.12 2014

Effective climate policy requires action by governments and people

Posted by Eberhard Rhein on 10/12/14

COP 20, the 20th annual climate conference, has started in Lima in a mood of increasing realism. Those who still believe in containing global warming within two degrees Celsius target are becoming rarer. The issue becomes more and more if Humanity will get away with acceptable conditions of survival or succumb to famine, non-ending natural disasters, tens or even hundreds(?) of millions of climate refugees and conflicts for water and fertile land.

The 20-year history of “combating” climate change has been a succession of “too little, too late”, starting with the Kyoto Protocol that turned into a failure because of its late entry into force and the non-participation of the biggest emitter countries.

For the last 20 years, we have continued to live as if climate change did not exist. The political elites in major emitter countries like Australia, Russia or, until most recently, even USA have continued to simply ignore it, whatever the rising numbers of natural catastrophes across the planet.

No political leader has dared to impose hardship on potential voters, say gasoline prices of €3/litre or electricity rates of €0.15/kWh. Our life has remained as comfortable as ever, with no restrictions on heating, cooling and lightening our homes and using planes or cars as before the climate challenge.

The global “climate policy elite” seems satisfied with the few “positive” developments in 2014, from the bilateral China-USA“deal” with the Chinese promise to peak its emissions latest until 2030 and generate 20 per cent of its energy from non-fossil sources and the US commitment to lower emissions by close to 30 per cent until 2025.

It puts a lot of faith in the bottom-up/top-down approach for the Paris Climate Summit in December 2015, under which each of the 190-odd participant countries is expected to present a strategic road-map for reducing green house gas emissions.

Judging by the response given by China to start reducing emissions latest by 2030 and the more than wary reactions from India,which will become the biggest emitter country in a few decades the outcome from Paris will not have a a positive impact on the global climate in the first half of the21st century. After all, it will have taken the EU from 1990 to 2030 to reduce its emissions by 40 per cent and, if everything works to schedule, 60 years to reduce them by 80 per cent until 2050. And the rest of the world is far behind the EU in terms of preparedness.

Climate scientists have not stopped warning policy makers about the need to go fast. But their calls have gone unnoticed because policy makers have constantly been engaged in more pressing day-to-day issues and have not dared to confront their citizens with painful measures to be taken.

Let us therefore hope that the international community will finally get serious and step up its joint efforts, focusing on mitigation and considering adaptation as the secondary issue. Indeed, if humanity fails to mitigate emissions dramatically financing adaptation will no longer help. We must prevent the natural glaciers storage of the Himalayas from melting instead of financing artificial dams for storing water.

On December 15th, at the end of the Lima Conference, which so far has not been very successful in solving the well-known technical details, we should be better able to assess the chances of success of the crucial meeting in Paris at the end of 2015.

Eberhard Rhein, Brussels, 6/12/2014

Reforming European corporate income taxation

Posted by Eberhard Rhein on 05/12/14

The recent revelations about complex financial transactions of some 300 major companies profiting from differentials between corporate income tax bases and rates among member states and specific tax deals reducing their tax bill raise questions about the compatibility of national company taxation regimes with an economic and monetary union.

After several fruitless efforts during the past the moment may have come for a leap forward.

Ideally, the EU should introduce an EU-wide corporate income tax for financing the EU budget.

In 2014, the average corporate income tax rate of the 28 member states was 23%, varying between only 10%-15% for Bulgaria, Cyprus, Ireland and Luxembourg and rates exceeding 30 per in seven member states (Belgium, France, Germany, Italy, Malta, Portugal and Spain).

This diversity allows companies to find ways and means for having their profits taxed in low-tax countries like Luxembourg or Ireland and for governments to use low corporate income taxes and specific tax arrangements to allure companies establish their legal headquarters kin their countries, though the bulk of the business may take place in other parts of the EU.

This what Ireland, Luxembourg, Netherlands and Cyprus have practised. The approach is perfectly legal, as member states continue to be full masters of their income tax systems. But it constitutes an unfriendly act towards their neighbours whom they deprive of tax revenue of billions of Euro.

The minimum answer to these dubious fiscal practises would be a harmonisation of the corporate tax bases and rates within the EU and full transparency of tax deals with companies.

The most ambitious response would be for the EU to place the corporate income tax under EU jurisdiction, which is the case in federal federal states like USA, Germany and Brazil.

The combined revenues from the corporate income tax in the EU account for 2.6% of GDP, more than twice the amount of EU budget. The simplest way would be for the EU to introduce a corporate income tax with a rate of some 12%, enough to finance EU expenditures.

Member states would be free to maintain a corporate income tax of their own, provided they apply the EU-wide tax base. National tax deals with companies would lose their attractiveness because of lower rates throughout the EU.

This system would greatly simplify the financing of the EU budget, which would be based on the corporate income tax, import duties/levies and penalties.

The opposition to an EU corporate income tax would be immense and come from three quarters: member countries critical of any additional transfer of competences to the EU; those with low-tax regimes and those which may feel better off with the present way of financing the EU budget.

For the EU to survive in the future it will need much more solidarity among member countries. The use of low corporate income tax rates and fiscal manipulations by mostly small and wealthy member states will no longer be tolerated when billions of Euro profits go untaxed because of fiscal paradises in certain parts of the EU.

Europe has to take the courage and  tackle these fiscal anomalies that have far too long escaped a political debate. The best way to do so is for the Commission to produce a white paper on profit taxation in Europe as a first step towards legislative proposals

Eberhard Rhein, Brussels, 25/11/2014

Low oil and fossil fuel prices are a climate poison

Posted by Eberhard Rhein on 02/12/14

Within a few months oil prices have seen a precipitous decline from $ 100/barrel to $ 70/barrel. While consumers across the globe may rejoice, this development is bound to be judged with serious misgivings by the 2000 diplomats meeting as of today in Lima/Peru for another conference with the objective of containing the emission of green house gases.

The decline of the oil prices is the result of the USA becoming the biggest oil producer, thanks to the shale gas/oil “revolution”, the slow-down of world demand due to higher efficiency and slower economic growth and the refusal by the Gulf countries, enjoying by far the lowest production costs, to curb their production and restore higher prices.

Low prices are expected to continue until 2016 or longer.

Low oil price do not fit into a global climate situation that calls for high carbon prices to reduce the consumption of fossil fuels.

Governments should therefore rapidly react to the lower oil prices.

  • Those that still afford the luxury of granting consumer subsidies should seize the opportunity for phasing them out and thus reduce their budget deficits. This goes in particular for countries whose production costs are higher than present market prices, like Venezuela, Russia, Algeria, Iran or Egypt. Failing to do so will sooner or later put them into an unsustainable budget situation.
  • On the other hand, European countries must resist the temptation to enjoy the bonanza of temporary low oil prices. On the contrary, must not hesitate to raise their excise taxes and prevent consumers from getting used to the low prices. The extra revenue would best be used for reducing their budget deficit or extending subsidies to wind and solar energy whose competitiveness will will be impaired by low prices.

EU countries should lose no time in responding to the oil bonanza.

Eberhard Rhein, Brussels, 30/11/2014

Higher inflation does not guarantee more jobs

Posted by Eberhard Rhein on 27/11/14

On Friday (21 November) Mario Draghi, the ECB President, has provoked fireworks at EU stock exchanges after promising he would do all in his power to push inflation in the Euro – zone up to 2%, the ceiling considered as the “target” for EU and US central banks.

Expectations of rising prices may give a push to investments, as they raise nominal profitability. But those having invested in savings accounts or bonds will have to pay for it by a depreciation of their assets.

If that is the price for reducing high unemployment it might be acceptable.

But is the ECB really capable of inducing more private and public investment?

After all, it can only do more of the same, i.e. inject liquidity into the market by buying private or even public bonds or mortgages.

Mario Draghi`s announcement raises, however, two more systemic questions:

Can modern economies ensure high employment only at the price of moderate inflation?

Why are economists so scared about the risks of deflation, though it has been an extremely rare and temporary phenomenon in the last 50 years? Why is the present 0.4% inflation rate in the Euro-zone a risk for the economy?

EU inflation rates reflect very different national trends, from Greece and Bulgaria with prices having fallen by 1.8 and 1.3% respectively in October 2014 and Romania, Austria and Finland registering price rises between 1.8 and 1.2 per cent.

Present inflation rates are substantially lower than the 2.2% average during 1991-2014, during which the Euro-Area registered a moderate average GDP growth of 1.5%. During these two decades a deflationary sign has appeared only once, in July 2009, in the early phase of the EU recession. Is the deflationary nightmare not exaggerated ?

We should appreciate the present price stability even if it goes along with excessive unemployment. It removes illusions about income and wealth and certain costs caused by necessary inflationary adaptations:

Changing millions of prices become as unnecessary as wage indexing.

Wage negotiations can fully focus on productivity rises.

Will Europe ever again witness growth rates of more than 2%? Where should that growth come from beyond reintegrating millions of unemployed into the labour market, rising productivity and retirement age? Has an injection of liquidity the slightest impact on these three variables?

Eberhard Rhein, Brussels, 21/11/2014

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