Friday, July 26, 2013

Model of a clunky subsidy system

CLIMATE change might not be absolute crap, as Tony Abbott once suggested, but the modelling used to justify "climate action" typically is.

As pundits ponder what Australia's carbon price will be if a local emissions trading scheme gets under way next July, it is worth remembering we have no idea how curbing carbon emissions will affect the climate, let alone the economy.

Renowned economics professor Robert Pindyck of Massachusetts Institute of Technology has recently canvassed the value of so-called "integrated assessment models", which attempt to calculate the optimal social price for emitting a tonne of carbon given its ultimate impact on the climate and the economy.

"They are of little or no value for evaluating alternative climate-change policies" he concludes, "completely ad-hoc with no theoretical or empirical foundation."

The economic justification for Australia's carbon price -- be it a fixed or floating -- stems from one of various IAMs conducted here and abroad. Introducing Australia's response to climate change, the Gillard government warned that unless Australia and the world acted, average temperatures would increase across Australia by 2.2C-5C by 2070. The 2008 Garnaut review said Australia's gross national product would be about 2 per cent lower in 2050 and about 7 per cent down by 2100 from the economic damage of unmitigated climate change.

Statements such as these, Pindyck implies, create a "perception of knowledge and precision, but that perception is illusory and misleading". The problem is that "climate sensitivity" -- the speed and size of the response of temperatures to a doubling of carbon dioxide in the atmosphere -- and the "damage function", how the subsequent temperature changes affect the economy, are completely unknown.

Take the first. Since 1850 the concentration of carbon dioxide in the atmosphere has increased by about 40 per cent and will likely have doubled by 2050 unless countries change their energy habits. Science can say temperatures will increase, not when or by how much. As Pindyck observes, the "feedback loops" between CO2 and the climate are largely unknown, perhaps even unknowable. Drawing implications for economic growth -- assuming we know the sensitivity -- is even more heroic. The professor says "damage functions" are "completely made up".

"There is no economic theory that can tell us how temperature changes affect economic growth," he argues. A little amusingly, the official 2007 Intergovernmental Panel on Climate Change estimates arose from a survey of contemporary IAMs, which now tend to cite the IPCC's parameters as gospel. Given these difficulties, the G20's promise at the Copenhagen Summit in 2009 to limit the rise in global temperatures to 2C is an extraordinary example of vain statist ignorance.

On top of this, how do we value the welfare of future generations? Discounting their utility in the same way most economic models do -- reflecting how individuals tend to treat their own futures -- suggests inaction on climate change is the best policy. Of course, the fetish for phony precision is not unique to climate-change models but rife in economic analysis, from interest rate settings to social costs of smoking.

Simply because modellers cannot ascertain with any accuracy how carbon should be priced doesn't mean it should not be priced at all. Even conservative climate boffins reckon the science is well developed enough to detect a very small probability of a catastrophic rise in temperatures -- about 7C-8C on average -- by 2100. Pindyck, a professor famous among economics students for fleshing out the economic value of delay, argues that is enough to warrant action.

As individuals and businesses insure their premises against the small probability they will burn down, countries should pay a premium against a disastrous rise in global temperatures.

In Australia's case, it is too bad we are spending the proceeds of our carbon tax on prosperity-sapping handouts and corporate subsidies rather than using all the money to cut less efficient taxes.

That way, even if climate science turned out to be junk we would still be better off. Alternatively, we could have ploughed the permit revenues into developing an Australian nuclear industry. Is it not odd that a country with one-third of the world's accessible uranium reserves has only one paltry nuclear reactor?

To be sure, Canberra's carbon tax and proposed ETS is seriously flawed, given their limited scope and the raft of accompanying anti-market subsidies, restrictions and targets.

The sad part is that rather than axing the latter and using permit revenue wisely, Australia's free-market party proposes to replace an ETS with a clunky system of feckless subsidies.


Fine dodgers can lose house or car

Unpaid fines could cost fine dodgers their house or car under a law just passed by S.A. parliament

THE homes and vehicles of serial fine dodgers can be sold by the government to recoup money in extreme cases, even if they are not owned by the offender, now that new laws have been approved by Parliament in South Australia.

The laws allow officers of a new government fines recovery unit to sell a debtor's home or place of residence if they owe more than $10,000.  This includes properties that may be jointly owned by another person.

They can also clamp, impound or sell vehicles used to commit crimes that attract a fine, regardless of the owner.

This could mean employers, parents, children or partners of offenders could lose their car if someone they know or employ breaks the law and is caught while driving their vehicle.

The new laws, which passed Parliament's Upper House this afternoon, are expected to receive final approval from Lower House MPs before becoming law soon.

They create the Fines Enforcement and Recovery Office, which will employ about 85 full-time staff to recover unpaid fines, many of whom will be transferred from the Courts Administration Authority.

They will have the power to withdraw money from the bank accounts of serial fine dodgers or dock their weekly wages.

The total money owed to government has reached about $287 million.

The Law Society of SA has raised concerns that the laws will "unjustly impose a burden on someone who was not responsible for the debt".

In a letter to Attorney-General John Rau Society, president John White called on the government to retain its original policy that a debtor's house cannot be sold no matter how much was owed.

Greens MLC Tammy Franks tried to move an amendment to protect a person's primary place of residence from the measures, but it was voted down.

In relation to cars, the Law Society says the measures apply to any vehicle the offender "owns or is accustomed to drive or that was used in the commission of an offence".

"Plainly this allows the clamping, impounding and ultimate sale of vehicles that belong to someone other than the debtor," Mr White said.

Government Minister Gail Gago said "any vehicle involved in an offence that led to the debt (fine)" could be subject to the law "irrespective" of who owned the vehicle.

This could potentially apply to stolen cars, but that was "unlikely" in practice, she said.

Independent MLC John Darley said he did not support the legislation because the penalties it proposed were too harsh. However, it received the support of Liberal MPs.

During debate on the laws, it was revealed the value of unpaid fines owed to the State Government by South Australian debtors has risen to $287 million.

This includes court fees, victims of crime levies, police expiation notices, overdue council rates and parking fines.

About half the money owed is overdue. The remainder is being paid off under time-payment arrangements or must be paid soon but not yet overdue.

When Mr Rau announced he would introduce the laws in March, $267 million in unpaid fines was owed.

Opposition justice spokesman Stephen Wade said the current figure was more than double the $142 million owed six years ago, despite $171 million in debts being written off between 2010 and last year.

Mr Wade said Opposition calculations predicted that on current trends unpaid fines would top $416 million in four years.

The amount written off between 2008 and 2017 was predicted to be almost $510 million, he said.

"When the average increase in unpaid fines in recent years is more than $32 million per year, Labor has clearly sent up the white flag on fines," Mr Wade said.

"The rate at which the debt has been growing since this Bill was introduced is $6 million a month or $203,000 a day.

"It is distressing because the money that could have been collected could  have gone a long way to deliver much-needed services that South Australians have gone without."

In January last year the Government called in private debt collectors Dun &Bradstreet to recover more than $40 million in unpaid fines.

This morning Ms Gago confirmed only $2.1 million had been recovered over 12 months.

This was because many of the debts were now more than 10 years old and many debtors had changed address and could not be contacted.

Ms Gago said the more than $40 million was owed by about 50,000 people.

She said the Government would not be continuing the arrangement with Dun &Bradstreet.

The company was paid a commission of less than 50 per cent for its work.

Mr Rau has said the new fines enforcement taskforce is expected to recoup about $2.8 million in unpaid fines each year.

However, it is expected to spend $10.4 million each year from 2015-16.

This includes $1.4 million in new funding and $8.6 million in funding already going to the Courts Administration Authority.

The state's largest debtor owes $171,000.


Brisbane business wins Supreme Court case against Allianz over stormwater insurance rejection

FLOOD victims have been urged to check their insurance policies in the wake of a Supreme Court decision overturning an insurance company decision not to pay out.

In a ruling last week, a judge found that damage from water that backed up from swamped stormwater drains was covered by a Milton business's insurance policy, rejecting its insurer's bid not to pay out.

LMT Surgical, at the corner of Castlemaine and Black streets, near Suncorp Stadium, sued Allianz Australia, the country's fourth-largest insurer, for rejecting a payout on its industrial special risk policy, which covered water inundation but not flood.

The policy defined flood as the inundation of normally dry land by water "overflowing from the natural confines of any natural watercourse or lake, reservoir, canal or dam".
insurance court case

Allianz argued the water that did the damage was river flooding that came up stormwater pipes, which it said met the definition of a "canal" and so meant it did not have to pay out.

But Judge David J. Jackson said the flooding of the business was not from a canal.

"In my view the context of the flood exclusion `canal' does not include the pipes," he said.

Maurice Blackburn insurance lawyer Paul Watson said the flood exclusion wording in the Allianz policy was fairly standard even in homeowner policies, meaning homeowners could have a shot at challenging any insurance knock-backs.

Allianz controls 10 per cent of Queensland's general insurance market.

Flood victims have six years from the inundation date to take legal action.

"What this shows is insurers get it wrong and it's not hopeless for those who had their claims declined," Mr Watson said.

Insurance law expert Peter Mann, a partner in Clayton Utz, said the decision had "some precedent value" especially for nearby victims who had similarly worded policies.

Campbell Fuller, spokesman for the Insurance Council of Australia, said only that it was a "matter for the insurer involved".

Allianz Australia spokesman Nicholas Scofield said the company was reviewing the case and whether to appeal.  "We're considering the judgment and taking advice," Mr Scofield said.

LMT Surgical's director and legal representatives declined comment.

More than 20,000 homes and businesses in the Brisbane area were flooded in January 2011. Some were damaged by drain backflows rather than directly from overflows of rivers and creeks.

Maurice Blackburn is still pursuing a class action, "no-win, no fee" lawsuit against the state's dam operators for alleged negligence.

More than 4000 people have registered an interest in joining that suit, expected to be filed by year's end.


Weird flight attendant forced on Virgin airline by regulator

Australia's male flight attendants: let your hair grow long. But only if you've got a mental illness, and the medical evidence to prove it.

Virgin Australia has lost an appeal to stop a flight attendant, sacked for not conforming to the carrier's hairstyle bible, from getting his job back.

Flight attendant David Taleski now hopes to be back in the air by next week, his lawyer says.

Early this year, Mr Taleski won an unfair dismissal battle against Virgin, which the airline appealed.

The airline had struggled for 15 months to get Mr Taleski to comply with the company's personal grooming manual, The Look Book, before sacking him in October 2011.

But Mr Taleski provided medical evidence to the Fair Work Commission to show that he felt compelled to wear his hair long because he was suffering from a body-image disorder.

He had even taken to the skies in a wig to try to solve the impasse.

The struggle over Mr Taleski's hairstyle involved many meetings with senior airline management and at one point Virgin chief executive John Borghetti was asked to intervene.

The unfair dismissal case before the Fair Work Commission took a year, two failed marathon conciliations and reams of evidence, much of it relating to haircuts, The Look Book and wigs.

After Mr Taleski emerged victorious in January, the airline took the case back to the commission to appeal.

This morning, the commission's senior deputy president, Jennifer Acton, refused Virgin's appeal, writing in her judgment that she was not convinced there were any errors in January's decision to reinstate Mr Taleski.

"No significant errors of fact have been established and we do not consider it is in the public interest or otherwise to grant permission to appeal. We decline to grant Virgin permission to appeal in this matter," she wrote in her judgment.

The commission had heard evidence in the original hearing from a Virgin manager denying the haircuts authorised by The Look Book were too conservative and that it simply "reflected how a typical guest expects a male employee to look".

The manager conceded, though, that the manual "reflected the most conservative interpretation of what the typical guest would expect".

The trouble started in July 2010 when the attendant told his bosses he would be growing his hair longer than the stipulated collar-length for religious reasons, but soon afterwards said the new hairstyle was due to a medical condition that he was uncomfortable discussing.

During the next 13 months, Mr Taleski provided Virgin with five medical certificates which, he argued, proved he was suffering from body dysmorphia disorder, relating to the length of his hair.

But Virgin never accepted that the certificates provided a diagnosis that explained the attendant's persistent refusal to cut his hair.

After he was grounded because of his hair in April 2011, Mr Taleski suggested a slicked-back ponytail look as a compromise, only to be rebuffed by airline managers because The Look Book has no male ponytails.

The section in The Look Book for females, however, describes a ponytail as "sleek, practical and shows off healthy hair to its full advantage".

At haircut talks held with his bosses the following month, a new alternative style was also scotched after one manager formed a belief that Mr Taleski had used bobby pins to achieve his latest look.

The cabin crew member was allowed to return to the skies wearing a wig between July and October 2011, despite his worries the hairpiece would expose him to ridicule and interfere with his hair transplant.

But Virgin sacked Mr Taleski in October 2011 claiming that he had failed to provide medical evidence when asked for, that he persistently refused to conform to The Look Book, and had behaved improperly by trying to involve the airline's chief executive.

Fair Work commissioner Anna Lee Cribb in January found Mr Taleski's hairpiece could confirm with The Look Book because the manual was effectively silent on the matter of a wig.

She also found that the attendant had provided medical evidence to back his claims of body dysmorphia disorder and although Mr Taleski was not entitled to go over his managers' heads in the dispute, his conduct did not warrant dismissal.

She ordered Virgin to give Mr Taleski his job back.


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