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Dr Muriel Newman

Dr Muriel Newman

Corrupting Free Markets


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29 September 2007

Corrupting Free Markets

Socialism has become much more sophisticated in recent times. Socialist power no longer comes from the barrel of the gun, but from using populism to “corrupt” free market principles. There are no better examples than the present introduction of carbon trading to change the dynamics of the energy industry and the government’s intrusion into telecommunications. Both rely on “convincing” an uninformed public that a problem exists that can only be solved through government regulation.

Global Warming

In his movie “An Inconvenient Truth”, Al Gore asserts that global warming is having such a disastrous affect on the earth’s climate that the entire Greenland and Antarctic ice sheets could melt and cause sea levels to rise by 20 feet. Such scaremongering is causing huge anxiety across the globe. What’s worse is that such exaggerations are driving government policy.

The latest five-yearly report from the United Nations Intergovernmental Panel on Climate Change explains that human influence on climate has been grossly overstated. They say global temperatures are actually falling, not rising, and that the rate of sea level rise remains steady at around 2 millimetres per year (To read a summary of the IPCC Report by Viscount Christopher Monckton click here )

In spite of facts showing the Kyoto Protocol will have a miniscule effect on climate change – the National Centre for Atmospheric Research has calculated that Kyoto implemented on a constant basis by all industrial countries would avert only 0.07°C of global warming by 2050 – governments continue to race ahead trying to reduce greenhouse gas emissions. What is even more alarming is that schools around the world are now using Al Gore’s highly political and questionable film as a teaching aid – please contact me if you know of a local school that is using the movie as a teaching aid by clicking here

In light of the government’s plan to impose a new carbon tax on the public through an emissions trading scheme, I asked energy consultant Bryan Leyland for his opinion. He says, “Underpinning the government’s carbon trading regime is an assumption that greenhouse gases can – and will – be traded on an open market like any other tradeable commodity. But there is a world of difference. Trading in greenhouse gases is trading in something that you cannot see, touch, use ormeasure accuratly. Because emissions are closely related to energy, it is useful to compare carbon trading with trading on the electricity market. Electricity trading is a closely regulated business where the electricity bought and sold is measured to the accuracy of 0.2% every 30 minutes. This high accuracy is needed because the value of electricity traded every year is close to $3 billion, so a 0.1% metering error represents a gain or a loss of $3 million”.

With the government’s new emissions trading scheme likely to be worth in excess of $1 billion per year it is disturbing to see that expected measurement errors will be a whopping 10%. This is due to the variations in the quality of fuel and the characteristics of different combustion processes. Worse, when it comes to the measurement of the greenhouse effect of forests, the scientific debate over whether they are net emitters of greenhouse gases or net absorbers has yet to be established.

Bryan warns, “In emissions trading the item of ‘value’ is a piece paper signed by an auditor that states that you have purchased – orsold – the right to emit a greenhouse gas. If the buyer – or the seller – canpersuade the auditor to inflate the amount of greenhouse gases on the certificate, both parties benefit. That means that carbon trading is an open invitation to fraud”.

Even so-called ‘gold standard’ carbon credits, of the sort offered by Meridian Energy recently on Trade Me, which priced carbon up to $150 a ton, have been the subject of controversy with claims being made that some emission reduction programmes in developing countries are up to 50 times more expensive than the costs the projects should warrant. (See $6 billion Kyoto Loophole )

The government has told the public that once emissions-trading is in place, the increase in the cost of power to the average householder will be in the region of $7 a month. However, the Electricity Commission has estimated that a carbon price of $45 a tonne is needed if the government is to achieve its goal of making renewable energy sources economic against conventional generators. That would mean power prices for the average household would increase to $400 a year. While this would add enormously to our cost of living, the increase in the profits of electricity generators would deliver massive windfall profits to the government estimated to be in the region of $600 million a year.

Even though climate science shows that the world has been cooling since 1998, not warming, Labour is forcing onto us a highly political carbon trading scheme that will cost the economy an estimated $2 billion dollars a year. The lion’s share of that cost will fall on the general public through increased power costs, and the rising prices caused by the new 4 cents a litre tax on petrol.

But while these changes to the energy sector have been well publicised, the government’s intrusion into the telecommunications industry have been taking place largely under the radar.

Telecommunications

Bronwyn Howell, a Research Associate for the NZ Institute for the Study of Competition and Regulation at Victoria University, is the NZCPR Guest Commentator this week. In her excellent paper “Defiling the Rank: How Useful are the OECD League Tables” Bronwyn exposes the government’s strategy of using New Zealand’s poor showing in OECD rankings as a technique to justify massive regulation:

“New Zealand is no stranger to the promulgation of popularly-acclaimed policies in the pursuit of OECD league table success. The Labour-led government swept into office in 1999 promising to return New Zealand’s income (GDP per capita) to the top half of the OECD with its policies recently re-branded as ‘economic transformation’. The Ministry of Economic Development-led 2006 ‘Stocktake’ of the telecommunications industry that resulted in the unbundling of Telecom’s local loop and operational separation of the company was predicated largely upon the pursuit of a top quartile OECD ranking in broadband connections per capita. Unbundling was deemed the appropriate policy to adopt because most other OECD countries had already adopted it, and it was presumed to lead to a more competitive telecommunications environment”.

She explains that the OECD uses broadband connections per capita to measure which countries are ‘winning’ in the ‘information economy’ stakes. As far as the OECD is concerned ‘Broadband Nirvana’ would be if every household and every business had a broadband connection. But as she points out, trying to regulate to increase the uptake of broadband connections in New Zealand to improve our ratings in the OECD tables is a serious policy error due to the special way New Zealanders use the Internet:

“Ironically, New Zealand’s mid-ranking position of 16th in ‘Broadband Nirvana’ is so high principally because of our comparatively small average business size. Yet, most of New Zealand’s 300,000-plus significant businesses are ‘micro-businesses’, run from home and (likely) sharing the residential broadband connection, leading to substantially overestimating achievable maximum diffusion levels. Thus, even Broadband Nirvana rankings provide a poor benchmark for policy development – to reach this level of diffusion, it would be necessary for New Zealand to adopt policies preventing business and residential broadband connection sharing”.

Bronwyn concludes her article by saying that using OECD rankings is irresponsible and dangerous if it is being used as justification for increased regulatory intervention. (To read the article click here )

Imagine if the government in its “wisdom” decided to set the goal of taking us to the top of the OECD rankings in broadband connections (just like they have announced we should lead the world in “sustainability”). While such a policy would sound progressive and responsible, in reality it would mean introducing regulations to stop us using a single broadband connection in our homes for business and residential purposes, by forcing us to purchase separate connections.

With the government’s announcement last week that it was going ahead with the splitting up of Telecom into three distinct business units, I asked Bronwyn if she could provide an analysis on what is going on for NZCPR readers. Her paper “Unbundling and Separating New Zealand’s Telecommunications Market Challenges” makes sobering reading. It essentially explains how the government’s regulation of that market will lead to a greater investment in the old local copper loop technology rather than fibre-optics. This means that over time New Zealand will get left behind as it is fibre that is at the forefront of leading edge telecommunications developments:

“Ironically, New Zealanders may stand to lose out twice. Not only are delays in building new networks likely to deprive broadband users of timely introduction of super-fast broadband, but a substantial amount of the investment in the ADSL bolt-ons… is likely to be underwritten by the taxpayer. To date, the only company reported to be openly committed to investing in every Telecom exchange to be unbundled is Orcon/Kordia, the 100% state-owned company that stands to be one of the principal beneficiaries of government-imposed local loop unbundling and compulsory separation of Telecom”. (To read her article click here )

With all of this looking suspiciously like the government is poised to re-nationalise the local loop and regulate household Internet connections, New Zealanders stand to be held back once again by a government that fundamentally opposes free market principles.

No-one should underestimate the resolve of modern day socialists. They are well educated, well researched and well connected – and their success relies on the indifference and apathy of the public at large.

Thank you to all of you who offered your support to the NZCPR over the last week – I am extremely grateful. And for those of you who found that your link to the support page did not work, please try it again by clicking here

This week’s poll asks: Do you believe the government should be interfering with the pricing mechanism of free markets? Go to Poll

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