Urban Densification in Copenhagen (with a special focus on the Østerbro district)

Policy’s Political Origin

In the early 1980s, policies related to urban aspects were primarily a welfare issue in Denmark, and it was not until a decade later that social resources in urban politics became a prioritization. However, the central government’s influence was strongly reduced and in late 2001, the right-wing government replaced Denmark’s political position. This political change caused a prominent shift in urban politics, with strong goals of resolving urban renewal problems. Even though there was still a welfare approach towards urban policy, the shift gradually stimulated growing social differences and segregation in the housing market.

This change in government in 2001 passed a number of new acts and modified a number of existing legislations, with the majority of them aiming to reduce immigration and turning to a stronger focus on social benefits. Within the next few years, the government proposed a new act on urban renewal that was intended to reduce costs and stimulate local private businesses. This new political position believed that selling dwellings in the least attractive parts of the cities will be able to raise living standards and revenues earned can be used towards constructing new housing or improving residential complexes. This change in government also gave rise to the introduction of a new model, where socially marginalised groups were allevated from dominating one region by evenly allocating dwellings throughout neighbourhoods.

Goals

Since in mid-1990s, the Danish government has supported densification in hopes of achieving higher urban densities and sustainability. This was because they believed that higher densities will be able to help them in to achieve sustainable urban development more successfully. Through the evolvement into higher densities, infrastructure will be more efficient and improved, as well as bringing distances between urban locations closer to each other, which in turn will improve the energy efficiency in the region.

Densifying the city is designed to achieve more efficiency in the usage of existing resources that are available, and encourage more utilization of public transit at higher urban densities over private vehicles. This prospect is also attractive to developers because they tend to be more profitable than re-developments of building complexes. Urban densification is an on-going decision in politics as building sustainable cities are becoming more and more popular, and requires the accomodation of acknowledging how another many people being added to the city would affect the desired outcome (marginal effect).

Coverage and Distributional Effects

Since Copenhagen is Denmark’s capital city, it underwent rapid urbanization and we can focus into this city to see how it has fared thus far. The district of Østerbro has felt the greatest impact from densification out of all the districts in Copenhagen. In this district, there are three main divisions: an area of housing complexes that are about 5 to 6 stories high, with a few scattered detached houses; central area where the main services like hospitals are located; and an area near the port that underwent redevelopment. As a result from all these intense building activities, this district has seen an increase of 5.9% in population density, exceeding the average increase of Copenhagen as a whole.

Figure 1: Østerbro district is circled in yellow, with regions near the port in red. Credits to Anne Skovbro1

The Copenhagen Region Development Council has proposed that the coverage of densification among the central parts of Copenhagen would expect to result in less traveling and more utilization of public transportation. However, in the future, the areas are still available for densification will eventually be limited within the central parts, and would have to take place outside the municipality of Copenhagen in the suburbs.

Currently, the housing in Østerbro has the greatest proportion of large flats compared to other districts in Copenhagen. Consisting of mainly flats with a few rooms are very common and popular among new developments in the district, and many of them are offered at sky-level prices. Needless to say, these new housing are geared towards high-income groups even though there is a need for housing for the elderly and students in the municipality as well. The region that is near the port along the harbour are where the most expensive dwellings can be found, so compared to those, the ones built in the central parts are relatively lower and more reasonable prices.

However, the urban policiy in the municipality of Copenhagen is to attract familes and high income groups. In order to further encourage and ensure that this goal is met, low income and social housing have all been ordered to cease construction, which further deters lower income familes away from the district.

In the long-run, the location near the port has attracted mostly high-income retired seniors and young families or single people with no children. The relatively lower-cost in the centre of the district is more affordable, and thus has found to be attractive to high income familes with children. However, on an overall basis, the residents living in Østerbro district typically earn a higher income than other districts in Copenhagen. Policies implemented is to attract families with higher-income groups back to the city, which also leads to social exclusion due to the city being more compact with more uniform residents. As a result, the high price housing in the metropolitan areas eventually led to displacement of the poorer people out of the core districts of the city. The on-going urban densification further strengthens and supports this trend, which is what the city has set up in its policy, but at the same time they aim for sustainability as well, and by exluding the poor people is not achieving sustainable social development as the city is unbalanced. This results in greater gaps between gender, age as well as soci-economic differences.

Those higher-income groups living near the port do not view themselves as a port of the Østerbro district because they are mostly elders who moved in from the suburbs and do not work or shop in the central district, but travel to more exclusive parts of Copenhagen, which requires traveling by car. The other group living in the central district are those who generally work and do their shopping locally in the region. Through these observed findings, we can see that those who moved into Østerbro district in Copenhagen have also brought with them their different lifestyles. The most expensive housing near the harbour is those from the suburbs, and not much effort have been done to encourage them to embrace the urban district and integrate their lifestyles with the city.

Tax Revenue from Urban Densification

Since decades ago, Copenhagen has been building many housing complexes with the goal of attracting more people into the city, since the government has experienced a significant decline in tax revenue from the 1960s to the 1980s. Thus, the municipalities in the city compete with each other to attract more taxpayers and businesses into their district.

The municipalities believe that higher revenue collected from businesses in the region and more people moving in will allow them to transfer into higher density construction, including better roads connecting the different regions. For example, right now the port area near the harbour is quite isolated from the central district because of a lack of public transport and sufficient roads linking them to the city’s core. Thus, a partial of the earned revenue goes towards new growth and urban redevelopment in the city. Since local governments are responsible for a major portion to finance their transit solutions, this additional revenue will go towards public transit and road constructions.

Effectiveness and Final Thoughts

Urban densification is trying to intensify the development within the city rather than encouraging peripheral expansion. This is believed to be more sustainable and more compact, having more services within reach with minimal private traveling required. However, consumers may not prefer to live in dense residential land because this could also mean rise in urban crime, sanitation, congestion, and problems of the like. Thus, I believe some crucial challenges that local governments and developers will face would be learning to accommodate and overcome the issues that accompany new growth within the city.

Copenhagen has invested quite heavily in a new Metro as well as increasing road capacity throughout many parts in the city. This has led to an obvious increase in car traffic, where private transportation in the metropolitan area increased by 23% after taking into account population growth from years 1995 to 2007. On the other hand, public transport was found to have decreased by 7%. Thus, to limit growth in car traffic, urban planners have tried to change the car-oriented culture by lobbying towards investment in public transport. In the Østerbro district specifically, metro lines have been built for bringing people to the airport and to the new offices in the proximity for those who do not live in the district. This is to stimulate greater economic growth in the district by connecting those who live in the neighbourhood with those who do not. 2

Currently, planners are making efforts to increase Copenhagen’s attraction through incorporating culture and recreational facilities throughout the city. I believe besides upgrading the housing, the city should also look at providing residential complexes at lower ends to accommodate to attract more balanced groups of people migrating into the city. This would also stimulate different types of businesses and services that are not only geared towards high-income groups, so in the long run, the city would be more sustainable with a variation of groups living in the city.

References

  1. Anne Skovbro. Urban Densification: An innovation in sustainable urban policy?
    http://www.sbi.dk/eura/workshops/papers/workshop6/skovbro.htm
  2. International Journal of Urban Sustainable Development
    http://www.tandfonline.com/doi/full/10.1080/19463138.2011.6071663.

3. http://thisbigcity.net/plan-or-be-planned-an-urban-densification-dilemma/

Melbourne’s Car Parking Levy — Effective in Reducing Congestion..?

              In hopes to reduce traffic congestion in Melbourne, the Victorian Government has passed a parking levy in January of 2006 on busy parking spaces located in the city. The purpose of introducing this levy by the government was to target those drivers that use all-day parking and to discourage them from driving during peak hours as a means of reducing congestion on the road. This levy covers three types of parking on the street: municipal, commercial, and private as well as non-residential parking. Municipal parking applies to any parking that is supplied by the city for local drivers in the city, whereas commercial parking applies to those parking spaces that has an actual ownership and is provided to customers utilizing their service, as such parking in a restaurant’s lot. Thirdly, the private and non-residential parking are those off-street parking spaces that are reserved for certain owners, such as tenants reserving them for their employees to park. When implementing this levy, the government had forecasts of generating annual revenue of $40 million, which the income will then be transferred over to improving public transport in metropolitan Melbourne [1].

              Like any policies, there are typically exemptions and it is no different in this case either. Residential spaces are exempted from this levy, such as parking spaces for guests and visitors, loading docks, motobike parking, vehicles displaying a disabled-sign, and free parking that may be provided by the owner as the owner would pay the levy in such cases. So essentially this levy was designed with the the target as drivers who require all-day parking in mind, to achieve reducing traffic congestion in the busiest parts of the city. Furthermore, with the levy implemented, drivers would be encouraged to not park all day and thus the supply of short stay off-street parking would be indirectly increased and these generated incomes can then fund better public transport. In a way, the people that would experience the greatest impacts from this levy would be those who drive and work in the downtown core, requiring to park all-day. As a result from this levy, owners of car parks will be charged a flat annual rate of $400, which got increased twice the amount to $800 in 2007 after the first year of implementation [1].

              Observing the responses of car park operators to the levy, some of them chose to discriminate against their customers by passing on the cost to only the short-stay ones rather than to their early-bird and all-day customers. On the other hand, some operators decided to partially absorb this levy cost themselves. So in a way, this levy was not implemented appropriately because it led to discrimination in how the costs of congestion are mitigated overtime. Thus, instead of effectively reducing traffic congestion and reducing costs, the levy re-organized how the costs are distributed, whereas the drivers who needed parking in the downtown core areas had to pay for them.

              Revenue was indeed generated through this implementation, but cost was not reduced and congestion did not improve. Furthermore, it also did not achieve its goal for increasing the supply for short stay off-street parking [1]. In order for the levy to be effective in achieving the goals stated, all drivers that require parking should have to face the costs in proportion to their usage. This means that this car park tax needs to tax appropriately on all users that need the resource instead of focusing on just subsets of drivers in the city. This internalizes the negative externalities, for example congestion costs, by targeting drivers in proportion to the costs that are imposed on other users of the road. Then this will be more effective in changing behaviours of drivers in response to the levy as they all now have to face a proportion of the costs, and some will decide to avoid peak hours when operators charge higher prices, opt for transit or other means of transportation.

              By not charging to the proportional amount of congestion caused by drivers, the motivation to look for alternatives is weak because those who are charged are most likely the ones able to afford parking in the first place. In a sense, demand for parking is pretty inelastic because taxing those who drive to work in downtown will need a large increase before they switch permanently to transit since driving to work in downtown are mostly the wealthier ones to begin with. Thus, the levy only causes a slight response on the demand for parking and not very effective in stimulating them to turn to other modes of transportation.

               Very obviously, the distributional effects of this levy are geared towards the rich people who can afford to drive and park all-day in downtown. The selective nature does not treat all those who create congestion equally because it has no direct penalties for those drivers who cause congestion by driving and not requiring parking. More directly, the levy does not apply to short stay off-street parking, and is only charged at an annual flat rate. However, this further encourage commercial parking operators to treat their customers differently such as by slightly increasing early-bird parking charges while significantly increasing short stay drivers due to the levy[2]. For example, when the levy was implemented in 2006, early-bird parking increased within the first few months and again increased in the beginning of 2007 when the levy was raised from $400 to $800 in 2007. However, as seen in Figure 1, the early-birds were not charged by all operators for the effects of the levy because the parking price increased by 17% from Dec. 2005 to Sept. 2007 when the levy was $800 in year 2008, and this was actually a 28% preimum on the price that was in December 2005. Since these were done in real terms, this means that the parking rate increased by just a mere 11%.

 

Figure 1. Changes in real early-bird parking charges due to levy imposed. (Source: Transport Research Forum, 2011)[2]

              In contrast, the poor are not affected as significantly by this levy if they are not driving and parking in downtown. In fact, since the revenue generated from this levy is proposed to be used towards improving public transit, then the poor would indirectly benefit somewhat from this levy in the long-run. This improvement in transit would also mean that the rich who are targeted by this levy are indirectly supporting the cost for improving public transit. As congestion has not been found to have decreased significantly from this levy since the cost is not high enough to reduce their demand for parking, the poor can be viewed as benefiting from this levy while the rich are penalized for driving to work.

              Even though this levy generates a solid and steady flow of revenue, the method is selective and achieving those stated goals are not practical with this policy. Instead of reducing congestion costs, they are shifting them to the wealthier counterparts of the city and focussing on raising revenue. Congestion is due to different traffic and times, as well as types of vehicles on the road, but this levy is pin-pointing into a small portion of road users instead of taxing everyone proportionally.

             Furthermore, since the levy is applicable to the owner of parking spaces, different operators will respond differently to the levy. Some may pass more of the costs onto their customers while others choose to absorb more themselves, and on it goes. Thus, this is also inefficient in discouraging drivers to drive into neither downtown nor changing their transportation behaviours. However, since the revenue generated from this levy goes toward improving public transit, then perhaps it can improve congestion indirectly, but this also depends on how substitutable transit and car driving is. In this case here, since demand for parking in Melbourne is already quite inelastic, then transit is not very substitutable unless revenue improves it in the long-run.

[1] https://www.propertyoz.com.au/wa/library/05%20AE%20VIC%20Melbourne%20Car%20Parking%20Levy.pdf

[2] https://docs.google.com/viewer?a=v&q=cache:0LnssGNLeVkJ:www.atrf11.unisa.edu.au/Assets/Papers/ATRF11_0071_final.pdf+&hl=en&gl=ca&pid=bl&srcid=ADGEESgcOEXdBSyrNBZrywAuStssZ3u0xLWDX5MfsW5wrvWRnKMk0iBv8qrl8NavTGgPjQ6jKQ8rhpWbRcifp4as0j14Ms3zMtdTuFcn9bYprrLqkuNZwKNoANsvZL9zPE9GyJYBTkjD&sig=AHIEtbSOFlQFMBUsHHElNn-xO53BLgFqIw

http://www.eng.monash.edu.au/news/shownews.php?nid=43&year=2012

http://www.sro.vic.gov.au/SRO/sronav.nsf/childdocs/-3A87315B22BC23FFCA2575A100441F59-EFC160ABBE873990CA2575B70020FC3B-7A9067647FE241FBCA2575D8007DF289?open

Reducing Acid Rain Emissions in the US through the Sulfur Tax

In the US, sulphur dioxide (SO2) is a by-product from coal burning electricity production.
In fact, the largest sources are from fossil fuel combustion at power plants (73%) and other industrial facilities (20%), whereas smaller sources of SO2 emissions are due to industrial processes.

Policy’s Political Origin

The problem emersed in the 1980s due to American power plants sending up vast clouds of SO2, which then fell back to earth in the form of acid rain, damaging forests, lakes and buildings across US and eastern Canada. Many environmentalists were pushing federal officials requiring utility companies to install scrubbers to remove SO2 from their exhausts. By the end of the Reagan administration, Congress had rejected 70 different acid rain bills.

It was not until the 1988 election, when the president of the Environmental Defense Fund phoned Bush’s new White House counsel, Boyden Gray, to suggest that the best way for Bush to pledge as the “envrironmental president” was to fix the acid rain problem through the approach of the cap-and-trade system. Both EDF and the Bush White House felt that emissions trading would be the ideal way to address this problem, and the system was then implemented since the early 1990s as part of the 1990 Clean Air Act.

Goals

Since the early 1990s, the U.S. sulphur dioxide cap-and-trade system has been implemented with aims to reduce acid rain emissions from power plants. Under the Bush administration to curb major threats to the nation’s environment as well as to reduce acid rain levels, urban air pollution, and toxic air emissions, the SO2 cap-and-trade was established under the 1990 Clean Air Act Amendments.

The primary goal of this Act was to reduce the nation’s annual SO2 emissions by 10 million tons below its 1980 leves of 18.9 million tons. Through limitation of the overall aggregate SO2 emissions with this cap and trade system, it also had hopes to encourage innovation and to increase efficiency in the energy production industry.  

Two Phases of the Policy Implementation

The policy sets a cap on the aggregate SO2 emissions within the U.S. electricity sector, and each permit of emissions was referred to as an “allowance”, where 1 allowance per ton of SO2 emissions was required. In order to achieve this goal, the policy was implemented in 2 phases. Phase 1 came into effect in 1995, affecting 263 units at coal-furning electric power plants across 21 eastern and mid-western states to cut their SO2 emission rates to 2.5lbs/mmBtu. New generating units built since 1978 had to limit their SO2 emissions to a lowest achievable rate of 0.6lbs/mmBtu. To provide a glimse on the magnitude, coal with 1.25% sulfur and 10,000 Btu/lb emits SO2 at 2.5lbs/mmBtu, with lower emissions produced by either lower sulfur content or higher Btu content.

Technology that was introduced during this period included the flue-gas desulfurization equipment, which aided in the reduction of SO2 emissions by 90%. The success of this in turn qualified those companies that installed this technology an extension of 2 additional years after the 1995 deadline, if they still own allowances to cover their emissions during the extension period.

Phase 2 began in 2000, tightening the annual limits of emissions imposed on large emitting plants, as well as introducing restrictions on smaller plants fired by coal, oil and gas, encompassing over a total of 200 units. All units units generating over 25 megawatts were required to limit emissions to 1.2 lbs/mmBtu by January, 2000, and were subject to a fine of $2000 for each ton emitted over their allowance, distributed as 8.95 million tons per year.  

 

SO2 emissions have decreased 5.5 million tons from 1990 levels and more than 7 million tons from 1980. Source: Credit to EPA

Exemption

This system only applies to utilities and electricity generation in the States, and is not applicable to individual households that may be using coal furnaces for heat. Also, older plants were initially exempt from the program under the “grandfather” clause, with the assumption that they would shut down soon or undergo upgrade.

However, many of those that got upgraded did not install additional pollution controls as they were required, prompting lawsuits by the EPA against these older plants. Some of these lawsuits ended in billion dollar settlements with plants agreeing to pay penalties and to install the required controls. 

Policy Implementation and Cost-Effectiveness

In the long-run, this program has delivered desirable results as SO2 emissions have been reduced faster and at lower costs than anticipated, yielding wide-ranging health and enrivonmental improvements. To be more specific, a study in 2003 by the Office of Management and Budget found that the SO2 cap and trade program accounted for the largest quantified human health benefits – over $70 billion annually- of any major federal regulatatory program implemented in the last 10 years. In other words, the benefit to cost ratio is over 40:1.

In 2002, SO2 emissions from power plants were 9% lower than in year 2000 and 41% lower than 1980. This in turn leads to better air quality by reducing human exposure to pollutants that are known to cause health effects. Ambient concentrations of SO2 have decreased by as much as 40% since 1990 in the Northeas and Mid-Atlantic.

Analyses from the Environmental Law Institute, Environmental Defense, and MIT’s Center for Energy and Environmental Policy Research have all examined emissions trading under this program to have found that the result of this policy has not resulted in geographic shifting of emissions due to trading. On the other hand, the highest emitting sources have tended to reduce emissions by the greatest amount. This may be due to the fact that trading occurs under a nationwide cap that represents a reduction in total emissions and improvements in regional air quality. On-going evaluation of local emission impacts under the cap and trade program is important.

Compliance with ths program has been consistently high (over 99%), due to stringent penalties which provide a strong incentive for compliance and require that any excess emissions are offset. The cost of compliance has been substantially lower than estimated. Achievement of the required SO2 emission reductions in 2010 is now projected to cost between 1 to 2 billion dollars annually, which is a mere quarter of the original EPA estimates.

Distributional Effects

There are independent power plants that do not have an allocation of SO2 allowances. Usually it is the largest firms that are receivers for the allowances, which typically further adds to their increasing profits. This then in turn gives the large firms an even greater boost in being competitive over the smaller firms. Thus, income distribution is not evenly distributed due to this program’s intervention. Also, smaller firms that struggle to adapt to the newer technologies and installations often suffer from this unbalanced distribution.

Concluding Thoughts

Undeniably, the cap and trade system for SO2 emissions in the States has been overall very successful in reducing aggregate emission levels at a lower than predicted cost. On top of that, it also motivates firms to embrace innovation and adapt to new technologies in the course of reducing emissions.

Since the firms receive these allowances for free, then the policy rents from the system is also received by these firms rather than the government. In other words, they receive a valuable asset with a market price attached to it. However, due to higher firm profits from these permits, these firms will also be taxed at the corporate level and personal level, which then a portion indirectly goes to the government. If these partial government revenues are used to reduce labour taxes, then this system will produce an indirect revenue-recycling effect as well.

 

References

1. http://dbp.idebate.org/en/index.php/Argument:_US_cap-and-trade_in_sulfur_dioxide_was_successful
2. http://www.epa.gov/airmarkets/trading/factsheet.html
3. https://docs.google.com/viewer?a=v&q=cache:_zjUVXxe-QQJ:www.rff.org/documents/rff-dp-03-46.pdf+&hl=en&gl=ca&pid=bl&srcid=ADGEESiYThRY61wBlaTxK4QkP8z7JGQbST7uY-8uci6XO9ClkLH36L_Id6kTi4GjHeKyzvo0hDlJzB6KcEnEqApL7o4YsGSC6Swq12WFaJq99-VTDExKLITMlDXnE9QSm_j1xqTA21U0&sig=AHIEtbQ-RRAjfnXns-GafEnrhLuItYtnsw
4. http://www.oecd.org/dataoecd/24/33/2105265.pdf
5. http://en.wikipedia.org/wiki/Acid_Rain_Program

 

 

 

 

 

Ireland’s Carbon Policy

Placing a tax on carbon emissions can act both as a deterrent and as a source of revenue with which to finance clean energy solutions.

Policy’s Political Origin
The carbon tax was actually first introduced back in 2004, but was rejecterd by the Irish Government. It was not until 3 years later in 2007 when the Fianna Fail-Green Party coalition government was formed and promised to reconsider the idea. This then eventually led to Ireland’s first carbon tax policy budgeted for 2010.

The governing coalition was formed along with the Progressive Democrats, economically centrist favouring private enterprise and low taxes, as well as with the Green Party. As a result, the carbon tax policy was realized in with the Green Party in charge of setting environmental legislation supported by the largest political party in Ireland.

In February 2011, the Fianna Fail party lost its political position and was replaced by the Fine Gael party, which has a centre-right focus. A number of the legislations with regards to environmental policy are still on-going and continually being developed for long-term increases in the country’s efficiency.

Goals
In September 2008, the Irish government officially announced that the country had entered into a recession period. Once considered to be one of the world’s biggest economic success, Ireland became one of the worst casaulties of the 2008 global recession. During the depths of Ireland’s financial crisis, the Carbon Tax was initiated to help reduce its staggering deficit and improve the country’s environmental and economic outlook.

Ireland implemented environmental policies with the aim to reduce its current emissions by 80% by the year 2050. One of the greatest means to achieve this is through the Carbon Tax. The government imposed taxes on most of the fossil fuels used by homes, offices, vehicles and farms, based on each fuel’s carbon dioxide emissions. On May 1 of 2010, the Carbon Tax was applied to kerosene, marked gas oil, liquid petroleum gas, fuel oil and natural gas.

To provide a glimpse of the price increases, the Carbon Tax resulted in a price increase of kerosene (heating oil) by 4.3 cent a litre, meaning an extra €43 Euro on 1000 litres, which is about 6.5% increase in 2010. Adhering to the 4 year National Recovery Plan as released by the Irish government in 2010, the Carbon Tax would be doubled by 2014. Furthermore, household trash is weighed at the curb, and residents are being billed for anything that is not getting recycled. Other taxes are tied to automobile emissions, and the Irish pay purchase taxes on new cars as well as steep annual registration fees in proportion to their vehicle’s emssions.

 

What Emissions are Exempted?
The Carbon Tax does not apply to electricity since the cost of electricity in Ireland is included in the pricing under the Single Electricity Market, its electricity sector. Similarly, users of natural gas can also be exempted from this tax, given that they have proof of utilizing the gas to generate electricity. Furthermore, a partial relief from the tax is granted for natural gas used that is covered by a greenhouse gas emissions permit issued by the Environmental Protection Agency. Producers of pure biofuels are also exempted from being charged the Carbon Tax as well.

Near the end of year 2012, grants are being introduced for a period of time to homeowners for upgrading their old oil or gas boilers to high efficiency condensing boilers. The standard for the boiler to be considered as “high efficiency” is referred to with a “seasonal” efficiency of at least 90%. So now, under the launch of this new scheme, Irish householders can get a grant of €560 Euro towards the cost of a new efficient oil or gas boiler.

Policy Implementation Overtime
In the long-run, these introduced policies have delivered results economically and environmentally. Standing as one of Europe’s highest-per-capita producers of greenhouse gases, with levels matching to those of the US, Ireland has seen its emissions to drop more than 15% since introducing the 2008 when the recession hit. Although one can argue that much of this decline is due to the economy breakdown, it was observed that the Irish shifted to greener fuels and cars, and adopted the recycling practice quickly when they were faced with the introduction of environmental taxes.

The implementation of environmental taxes has also played a crucial role in Ireland, as it led to significantly reducing the country’s deficit. In 3 years time, the Carbon Tax has raised approximately 1 billion euros ($1.3 billion) overall, including 400 million euros in 2012. Thus, this resulted in providing the government with 25% of the 1.6 billion euros in new tax revenue. So, this revenue contributed to the narrowing of the Irish government’s budget gap in 2012 and was able to avert a rise in income tax rates as well.

Apart from the revenues that it brought in for the government, automakers such as Mercedes came out with powerful cars that had emission ratings as low as the tiny Nissans. Moreover, some landfills eventually closed due to the amount of trash being reduced, and the market for reneweable energy sources grew to be more competitive as fossil fuels became more costly, allowing Ireland’s wind power industry to thrive.

Cost-Effectiveness of the Policy
The cheapest way to meet its emission target is to set the marginal cost of emission equal for every source. It marginal costs are not equalized across all sources, then the total economic costs are higher than necessary. For example, it is the same for a ton of carbon dixoide to be emitted from power generation and a ton emitted by transportation, so it is fair to to treat them alike and tax emissions from both at the same level. However, some may argue for cost-benefit analysis and set the tax equal to the social cost of carbon, but how do we measure that? The desirable level of the Carbon Tax is complicated because others may argue that the tax should be set at a level that is sufficiently high to meet the emission target and so on.

Approximately 45% of Ireland’s carbon dioxide emission and 30% of greenhouse gas emissions are already regulated by a price mechanism – the ETS. So, one possible proposal is to set the carbon tax equal to the future price of tradeable permits. In this way, every source will pay the same per emitted ton, which is fair and economically efficient. Furthermore, even though Ireland’s emissions are a small fraction of global emissions, the Carbon Tax can also act as a signal to the country’s commitment to international climate policy.

Distributional Effects
The Carbon Tax increases the price of energy, which means that firms are less competitive on the world market, as well as households having less money to spend on their other consumptions. The economy can slow down as a result of this, but the revenue from the Carbon Tax can be used to compensate household and companies to stimulate the economy. So the tax disproportionately affect the poor, but such taxes also penalize the wealthy, who consumer more.

The prices of basic commodities rising are particularly hard on the poor, and government needs to provide subsidies for low-income families. The welfare of polluters is at the minimum when polluters are taxed to achieve environmental efficiency, since they will be charged with the abatement cost of reducing pollution and the tax associated with their emission levels.

The Active Retirement Ireland group proposed a distribution of an additional €4 per week for those receiving a state pension due to the tax. The ESRI has also speculated that the tax would weigh more heavily on rural households, which make up 42% of Ireland’s population. These added tax revenues may be redistributed to balance out these income affects. 

Final Thoughts

The Carbon Tax seems like it is adding revenue to the budget during economic recession to help it recover at the cost of polluters. This tax is least favoured by polluters, and even though a tradeable permits may be introduced, it is unlikely and unfeasible due to high transaction costs. We could probably say that a subsidy can be introduced, but this is also very unlikely since the government is still faced with problems from the recession. Sthey could review their spendings to increase energy efficiency and reduce costs, as well as new technology like wind energy that is thriving in Ireland.

 References
1.http://topics.nytimes.com/top/news/international/countriesandterritories/ireland/index.html

2.http://www.nytimes.com/2012/12/28/science/earth/in-ireland-carbon-taxes-pay-off.html?_r=0
3. http://www.planetizen.com/node/59972
4.http://www.moneyguideireland.com/category/carbon-tax
5.http://en.wikipedia.org/wiki/Carbon_tax#Republic_of_Ireland
6.http://www.trcommons.org/2013/01/why-the-new-york-times-loves-the-irish-carbon-tax/

 

525 First Week

Welcome to my blog for 525! I’ll start off my blog with a brief intro to oi sands, which has been a topic of great interest and heavily invested into by the government in Canada, in terms of the environment.

I have studied oil sands at Environment Canada, and it is a big project that will continue for quite awhile. Environment Canada conducts tests on water in tailing ponds for contaminants found in precipitation in the region.

To give a sense of what the effects of contaminants from oil sands are, this is a photo of a whitefish with a tumour, which was collected downstream from the oilsands industrial area.

University of Alberta scientist David Schindler holds a whitefish with a tumour, collected from the Athabasca watershed, downstream from the oilsands industrial development.

As you can see, the effects of contamination from oil sands can be detrimental to the ecosystem, and here is just one example of what it does to fish. How will this play a role and have an effect on humans and the environment in the long-term and short-term?

 

Last week of trading!

Last week of trading..!! Oh boy, am I going to miss it. So, like as we have been suggested, I am going to place a greater emphasis on my thoughts and reflections over these past weeks rather than a long discussion on tecnhical stuff. 

Quick Recap –  1 short, 2 short and 6 short open contracts for corn, soybeans and wheat, respectively at the end of last week, with a margin balance of 82950.

Monday Nov 14th — My strategy this week was to prepare for offsetting. This seemed to work well with the research I analyzed on Sunday, as prices of corn should go up (but maybe not a huge rally) because of a huge demand for corn from the US. This would likely cause a surge in the corn price, but may not sustained at that high level due to Euro debt crisis. However, I planned to take advantage of that forecasted price surge, so I decided to offset my short positions and take 5 long positions in corn.
Soybeans and wheat: Harvest is positive and there is increase in production as well as decrease in demand, so prices should go down. However, I want to prepare for offsetting soon, so I decided to take 5 long positions to start offsetting my contracts.

Profit at end of day: 80650 (I lost about 2000 because prices were decreasing, but I felt it was worth to bid for long because I cannot hold anymore short contracts, otherwise I would be unable to offset in time when the game ends!)

Nov 15th — the market continued to look very bearish for all commodities. Once again, there was reoccuring worries of the debt in Europe and all the political issues are stirring up fear among investors. It seems like this is overpowering and offsetting the other factors, so I took 5, -2, 5 for corn, soybeans, wheat respectively. Soybeans, I decided to take long because I didn`t successfully offset yesterday. The other 2 commodities, I can take advantage of the bearish outlook on prices for another day and then offset them right before the game ends!
End of day profit: 78680

Wed 16th — I made a careless mistake (found out on Thursday)! Not because of my strategy, but because the excel file went haywired! I saw that none of my bids yesterday got through, so I was still holding the same contracts before I placed my bids yesterday. However, I don`t want to offset yet because the game has not ended, and prices are dropping quite dramatically right now because of the main influence by the Euro crisis. So I bid 3, 5, 3 short contracts for the commodities of corn, soybeans and wheat since I don`t want to get out from the market just yet, and can still make some profit because I am confident that the Euro crisis will have a large impact to continue in putting a downward pressure on the prices. End of day profit = 87200

Thurs (17th) — Today, I saw I am suddenly holding 4,2 and 9 short positions. I was so confused because even if my bids yesterday were successful, I would be in no possible way to have this many contracts. So I spent a lot of time figuring what happened or if I entered the wrong thing into my bids. However, I couldn`t find anything and I was wondering how I can offset now ….especially with 9 open contracts in wheat! It didn`t make sense that I was even able to have 9 contracts when we could only bid for 5 each time, and yesterday I just bade 3 after offsetting..so where did the extra 6 come from?
So I went and calculated all my positions and prices from previous days to see what suddenly happened. Then I realized my excel file is updated now showing that I was already holding short contracts before I had bid yesterday. It all made sense to me now..!! I didn’t realize that the prices were not updated yesterday and thought my bids didn’t got in successfully, leading me to thus bid as if I was just starting anew. However, the prices got updated sometime in between, and all my bids were successful. So…all these open contracts accumulated from my bids yesterday when I thought they were unsuccessful.
The sad thing is when I found out, it was already past the time allowed for bidding — thus, I cannot offset my open positions anymore! End of day proft = 105, 670 

I have to buy goods in the cash markets right now (thank goodness they are still decreasing at low prices!!) and then turn around to deliver! End of game profit= 103,900
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All in all, I really enjoyed this trading game! It was something that we all knew of its existence, but had not one single clue of how and where to start participating in it! Over these weeks, I realize that strategies in the game are not like one size fits all — even though we are all playing the same game for the same stuff, we need to apply the strategy that feels the most comfortable in fitting our game style.

Over the first month, I basically tried to explore different strategies and find one that is not only the most logical, but most importantly, that works for me most efficiently. I realize that to be able to keep up wth the dynamic market, it’s not like homework where we complete it and can close our books. You really have to dedicate a lot of time and effort into keeping up with news that may affect the market. Over the weeks, you sort of know what news are more crucial to look out for in your strategy, so it becomes more efficient as you build up your skills. However, your strategy is not fixated…..at times, you need to adjust and fine-tune your stategy to fit the current trend, so staying updated is very important. If it was bidding for real, I would not take a break over mid-term week from the game, because we always have to be on our toes to increase our chances of making profit.

So I also learned that in the real thing, there should be no breaks- you should eat, sleep and breathe trading news, trading strategies…to make sure you can do the best (with a lil luck needed too).

Last but not least, big thank you to Andrew for guiding us through the game and Javier for monitoring and updating prices!! I will miss the game and all the blogging, tweeting that came along with it!!

Week of Nov. 7th

Next week will be our last week of trading! Oh….how I wish those 82,950 profits can be turned into real money!! hahahah…guess I should turn back to reality *sighh*
anyway…here we go:

Quick Recap — Right now I am holding 6 short contract for corn, 5 short positions for soybeans, and 6 short positions for wheat. Marginal balance at 65430.
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Nov. 8th Tues
The US dollar is facing upward pressure from a boost due to the outcome of a key budget vote in Italian parliament (http://www.proactiveinvestors.com.hk/market_news/4374-gold-holds-steady-at-1-795-as-us-dollar-climbs.html). However, the corn harvest this year is the lowest in these past 3 years, and soybeans are also continuing to decrease in annual yield over the past 3 years (http://www.mitchellrepublic.com/event/article/id/58750 ). Thus, I predict that the prices of commodities would probably increase for a bit due to the shortage in supply, but would decrease as the Euro debt crisis is having a significant impact on the US dollar. Furthermore, the supply of wheat is abundant as this year has the largest reserves in a decade of wheat production (af.reuters.com/article/commoditiesNews/idAFL4E7M90BV20111109). So, I predict the wheat should decrease, but because corn and wheat are substitutable, wheat price might be pushed up if corn price is actually going to increase, which turns investors to wheat instead. So I decided to bid for 5 long positions and 3 long positions for corn and soybeans, respectively. Margin balance was 73190

Wed. Nov 9th
Today, I read news that the production of soybean, wheat and corn are actually not as bad as yesterday’s reports. In fact, prices have decreased for all the commodities. EU debt crisis is having a large impact on the US dollar, causing it to continue appreciate http://www.torfx.com/blog/the-pound-was-generally-weaker-against-the-us-dollar-exchange-rate-following-the-u-s-non-farm-payrolls-report/10801/. However, my strategy in thinking about this decrease in commodity prices could be because wheat had large reserves when corn supply is lowest in 3 years. So, upon knowing that, investors are substituting corn with wheat instead, and thus causing the corn price to decrease as well.  I decided to offset the long contracts that I bade for yesterday, by taking 3 short positions each for corn and soybeans. Margin balance was 82380 at the end of the day.

Thurs Nov 10th
Today I read that there is huge panic about the massive debt in Italy, which is worsening the Euro crisis, along with the political issues between Italy and Greek. Also, even the European Union has warned that next year they may slip into “a deep and prolonged recession”. This caused the US dollar to rally sharply and regained its ground as investors are turning to the safe-haven once again. Thus, I am expecting the prices of commodities to be bearish because of this significant impact of the Euro crisis. Since my bids were unsuccessful yesterday, I am going to attempt for 4 short positions in corn, 3 short for soybeans, and 1 short contract for wheat.
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Currently, I am holding 1,2,6 short positions for corn, soybeans and wheat, respectively. My margin balance is 82,950. For this last week, I plan to continue bidding for a few more short contracts for corn and soybeans since my bids the previous 2 days were all unsuccessful (predicted a higher price), should I expect the commodities to be bearish.

Week of Oct. 31st

Recap of last week’s holdings
I was holding 2 short contracts for corn, 2 short contracts and 1 short contract for soybeans and wheat, respectively.
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Tues, Nov. 1st
Since Japan has announced that they plan to buy US dollars to curb the its Yen appreciation, there will then be a limited supply of US dollars leading to appreciation and thus lowering prices of commodities. This downward pressure on prices of commodities would hold for as long as Japan continues to intervene in this manner (http://www.dailymarkets.com/forex/2011/10/31/crude-oil-futures-drop-as-u-s-dollar-rallies-on-japan-move). I predicted that the prices of commodities would continue to look bearish, with further support from news that European Debt concerns are resurfacing again, which is encouraging investors to turn back to the “safe haven” – US dollar (http://toronto.ctv.ca/servlet/an/local/CTVNews/20111031/tsx-stocks-eurozone-deal-fears-111031/20111031/?hub=TorontoNewHome). I bid for 3, 3, and 1 short contracts for corn, soybeans and wheat, respectively.If I were successful, then my open short positions would be 5 contracts in all 3 commodities, which allows me to easily offset should I need to. My margin balance at end of day was 75,800.

Wed., Nov. 2nd
In Jim’s class, we learned that there are correlations in crop prices due to substitution. So, this means there is a fixed amount of land used for planting the 3 different crops. For example, If more land is used for soybean, less land would then be available for growing corn. Thus less corn would be supplied and its price would increase. However, this is not taking other external factors into account. The price could increase a lot due to unfavourable weather, demand increase and such, or it could decrease due to a huge drop in demand for the crop. So, we really need to take into account many factors, but this does give us an expectation and idea into how these prices would change depending on how substitutable the commodities are.

Global economic uncertainties remain from Europe’s debt crisis, so the US dollar is continuing to appreciate because investors are still favouring the relative safety of the US dollar. So the commodities would most likely still be following a bearish trend in the short-run. Also, in terms of weather news, heavy rainfalls have also boosted the harvest of soybeans, and it would likely continue to decrease as well. So it seems reasonable for me to take short positions, however, as I am already holding short positions for all 3 commodities now, I will only bid for 1 more short contract for each commodity, as I don’t want to hold too many should anything changes that will turn the prices from bearish to bullish. My margin balance at the end of the day was 80,580.

I also read the news that Argentina’s soybean processing workers are on strike and export loading has been disrupted. So, this mean the supply of soybeans would decrease and prices would be expected to increase. However, I believe coupled with US dollar appreciation, the increase in price would not have such significant effect. I decided to hold onto my short contracts and wait for more research information before I offset too quickly.
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My current margin balance is 68,690. RIght now, I am holding 6,7 and 6 open short contracts across the 3 commodities for corn, soybeans and wheat, respectively. For the upcoming trading week, I plan to start offsetting some short contracts or continue holding the same amount of short contracts, but won’t bid for more as I feel that I would lose control if I bid more even if prices continue to decrease.

 

 

Week of Oct. 24th

Recap of Last Week’s Open Contracts
I was holding 4 long contracts for corn, 1 long contract for soybeans and 1 long contract for wheat. Since we did not trade last week because it was Midterm week, I tried to offset my long contracts to get out of the market before, but was unsuccessful. As prices for all these 3 commodities have increased moderately over the past week, I was losing profits so I planned to start the week off anew by offsetting my open contracts.
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Tues Oct.  25th
China’s demand for wheat from Australia would have a shock on the global supply of wheat (http://af.reuters.com/article/commoditiesNews/idAFL5E7LP2HV20111025). Supply of wheat on the market was expected to decrease from this, so the price should face an upward trend. For corn and soybeans from the techical analysis perspective, they show a bullish trend. Usually, when the prices of commodities are increasing, I would bid for futures long contracts. However, I was already holding long contracts for all commodities at that time, but was losing great profits. I did not understand why, because the prices indeed rallied moderately, but I was losing from my open long contracts. I decided to offset all my contracts and start anew (maybe there was a glitch since prices have not been updated since the past week….so I decided I will get out from the market first).

My findings are further strenghtened from my US exchange expert group findings, as the US dollar is expected to depreciate for a couple more days over the Europe debt crisis debate (http://www.fxstreet.com/fundamental/market-view/daily-us-forex-summary/2011/10/26/), but clearly forcasted to rebound as investors gain favour over the US dollar since the crisis has not been resolved yet. Margin balance at 77,650 by the end of the day.

Wed Oct. 26th
I was successful in ofsetting all my long contracts for all 3 commodities.. Thus, just like how I had planned, I can start anew as I now have 0 open contracts. My plan is to bid for short positions now because just like how we had predicted in our US exchange rate expert group, the US dollar has rebounded because of the European debt not coming to terms, so investors are once again turning to the safe haven “US dollars” (http://www.rttnews.com/Content/CurrencyMarket.aspx?Node=b3&Id=1742922).

With the US dollar appreciating now, prices are already decreasing as US exports are more expensive resulting in lowered demand for their exports, and thus supply is more abundant, driving the prices down. Indeed, all prices for the 3 commodities have already shown a decrease in their prices, so I am going to bid for short contracts. Since I was not holding any open contracts, I decided to bid for 5 short, 4 short, and 4 short for corn, soybeans and wheat, respectively.

Usually I would only bid for 2 to 3 contracts each time, but since I was out of the markets at that moment, even if I was successful in my bids, the most number of open contracts I would be holding would still only be 5 short for corn. This is not too risky in my opinion, because I still have the flexibility to turnaround and offset immediately should I need to, and also because prices were already decreasing due to the US dollar appreciating. Margin balance at 77,700 at the end of the day.

Thurs. Oct. 27th

I am glad that I have left myself with flexibility to offset my open contracts should I need to because now, I really need to! The futures prices for both soybean and corn are higher because of support from a more positive economy outlook now after the EU debt crisis agreement news (http://www.porknetwork.com/pork-news/latest/Crop-markets-close-strongly-higher-on-Thursday-132729088.html).

On top of this, the U.S. dollar index has fell lower because of they are increasing their money printing, and thus increasing the amount of US dollar supply on the world market. In fact, due to the increased money printing, it has now reached a six-week low due to being overly inflated and is also forcasted to have a downward trend in the short term (http://www.forbes.com/sites/kitconews/2011/10/27/comex-gold-sees-more-solid-price-gains-amid-sharply-lower-u-s-dollar-higher-crude-oil/).

Thus, I have decided to 3 long contracts for corn, 2 long and 1 long for soybeans and wheat, respectively. I do not want to offset all my short positions at the moment yet because there is quite a bit of fluctuality right now, as well as the price of wheat is still steadily increasing. However, I do believe that that I should not hold as many short positions in case the US dollar would have a stronger effect on the commodities’ pricings soon.
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My current margin balance is 67,450. RIght now, I am holding 7 open contracts across the 3 commodities: 2 short, 2 short, and 3 short positions for corn, soybeans and wheat, respectively. For the upcoming trading week, I plan to pay more attention onto the US dollar index movement as I believe the EU debt crisis will have a significant impact on the commodities’ prices.

 

 

Week of Oct 11th

Recap of Last Week’s Open Contracts
I was holding 1 long contracts for corn, 2 short contracts and 1 short contracts for soybeans and wheat, respectively. I have been trying to offset my short positions since last week as prices of commodities have rebounded. However, I was able to only successfully offset corn.
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Tuesday Oct. 11th
Although it has not been confirmed as of yet, but China is expecting to increase their demand for corn. Thus, because of China’s expected huge corn demand, I predict that the prices of corn would continue to rally. However, I will do this cautiously to leave myself with some flexibility as I am already holding 2 long contracts for corn. Weather news have reported that harvest may be delayed for about a couple weeks, meaning corn supply would not increase yet. However, once harvest takes place, prices could possibly decrease so I decided to bid for 1 long contract in corn.

Soybeans and Wheat – Prices have rebounded since last week, so I wanted to offset my open contracts. News have reported that although there is a lower demand for soybeans than anticipated, the soybeans production was also lower than predicted. Thus, I decided to bid for 3 long contracts, because if I successfully offset my 2 short contracts, I would then hold 1 long contract. The demand for wheat has fallen, and Russia’s government said that fees for wheat (grain) exports would be imposed as an action to prevent grain exports. Thus, supply for wheat on the market would expect to decrease so prices should increase. I decided to bid for 2 long wheat contracts.   Profits = Corn:2250, Soybeans: -7720, Wheat: -2660. Margin balance at 74630 (decreased from 82,760 last week) by the end of the day.

Thursday Oct. 13th
China has confirmed on their huge purchase of corn, so I expect the price would continue to rally. I decided to bid for 2 long contracts because from news articles and reports, I predict that China’s demand for corn should have a significant impact on the corn price. Indeed, corn price has already been reported to increase since a couple days prior to the news release. This reflects the impact that China has on the corn market with its huge demand. Furthermore, USDA’s National Agricultural Statistics Service has reported that the crop’s forecasts of corn and soybean production both dropped from production estimates.

Soybean – USDA’s National Agricultural Statistics Service has reported that soybean production is lower than was predicted, I expect that prices would continue to rally. Furthermore, it is forecasted to be at 3.06 billion bushels, which is an 8% decrease from last year’s production. Statistics show that this forecast yield is the second-lowest yield since 2003. I predict the price would thus continue to rally. So, I decided to bid for 2 long contracts.

Wheat – From the research that I have gathered this week, it seems like it has been a roller-coaster week for the wheat market. From the technical analysis p.o.v., the wheat price has rebounded and recovered some ground from last week’s low. Also, the Russian goverment has announced an export tariff about to be introduced in Russia, as an attempt to prevent exports (so their wheat prices would decrease domestically). This would then lead to a decrease of supply on the global wheat market, so prices should be expected to increase. However, the US Department of Agriculture has reported that there is a much larger global wheat supplies than expected, which caused the wheat price to decrease on Wednesday. This is the largest stock for the last 10 years and 7 million more tonnes than traders had originally anticipated. Thus, due to contradictory factors, I decided to get out from the wheat market to observe what is going on and which factors are influencing the price most significantly first. I took 1 short position to offset my 1 open long contract. Profits-> Corn: 400, soybeans: 650, wheat: 230.  _______________________________________________________________________
My current margin balance is 77, 080. At this moment, I am holding 4 long contracts for corn, 1 long contract for soybeans and 1 long contract for wheat. I’m going to observe the market and am planning to reattempt in offsetting my open long contract for wheat to get out from the wheat market. I will research on the different factors that will have an effect on the wheat price and try to determine which factor(s) would be the most influential before I take any further action on wheat bids.

References:
FRE 501 Twitter
FRE 501 WIKI  http://wiki.ubc.ca/Course_talk:FRE501
News Articles:
Corn and Soybean Production Both Drop on USDA Forecasts http://nationalhogfarmer.com/nutrition/corn-soybean-production-drop-1012/

Russia said it could introduce a new cap on grain exports http://www.ft.com/cms/s/0/b2ffc95a-f42f-11e0-bdea-00144feab49a.htmlhttp://www.washingtonpost.com/business/markets/corn-and-wheat-prices-fall-after-usda-predicts-bigger-surpluses/2011/10/12/gIQALMSgfL_story.html