Climate changes such as warmer winters, storms, droughts and forest fires have posted great challenges to our generation, and greater public concerns over environment and its impact on economy and healthcare have rised during the past decades. To address this problem, British Columbia government has taken action by implementing carbon tax policy. In this blog we will have a brief discussion about the choice, design and effectiveness of carbon tax policy in BC.
Overview of BC carbon policy:
According to Wikipedia, British Columbia’s carbon tax is a policy which adds additional carbon taxes to fossil fuels burned for transportation, home heating, and electricity, and reduces personal income taxes and corporate taxes by a roughly equal amount. The carbon tax is collected at the point of retail consumption (for example, at the pump for gasoline and diesel).
It’s estimated that B.C.’s carbon tax could reduce emissions in 2020 by up to three million tonnes of CO2 emissions annually, which is equal to taking almost 800,000 cars off the road each year. The tax on carbon emission is a critical component of B.C.’s Climate Action Plan to reduce greenhouse gas emissions by 33 per cent by 2020. (Ministry of Finance, B.C. government)
When understanding the effectiveness of the carbon tax policy, it is important to know the rationale behind the choice of carbon tax against the prevailing cap-and –trade system. Basically, three major criteria need to be considered.
The first to be considered is the cost-effectiveness. carbon tax allows us to achieve emissions reductions at a lower cost than cap-and-trade system. Cost minimization requires equating marginal abatement costs across all emission sources, which mean that all firms and households face a common price per unit of CO2 in their energy-intensive products. This cost-minimizing condition is best satisfied with a tax system applied in the upstream of the fossil fuel supply chain;
The second to be considered is the equity issue. We need to decide which instrument performs better under the uncertainty over future abatement cost. The carbon tax provides certainty about the marginal cost of abatement across all sectors, but little certainty about the amount of emission of reductions; The cap-and-trade instrument, on the other hand, provides more certainty about the amount of emissions reductions that will result but little certainty about the price of emissions. However, as the damage of CO2 depend primarily on the stock of gases, and the stock changes only slowly, the global emissions in any given year have only small impact on the stock of CO2, so the marginal benefits of controlling the amount of emissions is not obvious.
Finally and more importantly is the distributional effects, there is a common misunderstanding that the carbon tax unfairly impacts low-income British Columbians as low-income households spend a relatively larger proportion of their income in energy intensive good such as heating, gasoline and electricity, compared with more affluent households. This concern is addressed by government “a major component of the personal and business income tax cuts provided as part of the revenue neutral carbon tax is the ongoing low income climate action tax credit designed to help offset the carbon tax paid by low-income individuals and families. The credit is paid quarterly along with the federal GST credit and BC HST Credit.” On the other hand, a cap-and-trade with free allowance can actually make things worse by widening the distributional gap, as it raise profits of firms accepting free allowance, and the ultimate beneficiaries are stakeholders who are in upper-income groups. What’s more, carbon tax is much easier for governments to implement. “A carbon tax can rely on existing administrative structures for taxing fuels and can therefore be implemented in just a few months. In theory, the same applies to cap-and-trade systems, but in practice they tend to be much more complex. More time is required to develop the necessary regulations, and they are more susceptible to lobbying and loopholes. Cap-and-trade also requires the establishment of an emissions trading market.”(David Suzuki Foundation, n.d.)
How carbon tax in BC works:
The fact that the chemical makeup of the fuel that determine the amount of greenhouse gas that one unit of this particular type of fuel produces when burned, (the amount of carbon in the fuel is then computed), allows for a relatively simple administrative process for applying the carbon tax. The carbon tax then applies to the purchase of the fuels with in BC. According to Ministry of Finance in BC, “Administratively, the carbon tax is applied and collected in essentially the same way that motor fuel taxes are currently applied and collected, except natural gas which is collected at the retail level. This minimizes the cost of administration to government and the compliance cost to those collecting the tax on government’s behalf.”
The tax level:
Economic welfare-maximizing theory recommend that the CO2 level should reflect the negative results from the emissions to the future climate change impacts including the damages to agriculture and health effects. Challenges remain in the computing of the damage as there is substantial uncertainty of the extend of the impact and the data availability is low. Roughly, most estimates put the future damages from today’s emission sat around $5 to $20 per tonne of CO2(Aldy, Ley, and Parry, 2008). In BC, the tax rate is $30 per tonne of CO2 equivalent emissions, increasing by $5 per tonne from $25 per tonne imposed since July 2011. “This tax rates are deliberately set low to begin with and scheduled to rise slowly over time to send the correct price signal while giving consumers and businesses time to reduce their fuel use.”
The expected effect of the carbon tax:
According to the IPCC 4th Assessment – Synthesis Report, “an effective carbon-price signal could realize significant mitigation potential in all sectors.” A preliminary estimate by an independent consulting company (MK Jaccard and Associates) suggests that in absence of all other GHG reduction strategies, the carbon tax alone could cause a reduction in B.C.’s emissions in 2020 by up to three million tonnes of CO2 equivalent annually. This is roughly the equivalent to the greenhouse gas emissions created by 787,000 cars per year. The carbon tax system in the British Columbia is fairly broad and comprehensive. The fuels included in the tax base account for about 70 per cent of British Columbia’s current green house gas emissions.
Reading through your blogs, I find that you guys have different interpretations for a same piece of news, some predict price would go up, some on the very contrary. So it is interesting to see how trading being a zero-sum game applies in real life just on us.
It seems in the last week, almost everyone is reflecting on their trading experience, gains and losses, lesson learned and so forth, I am no difference.
No trading for this week, it seems that trading is something apart from me for a long time, a familiar friend whom we haven’t got time to talk because of the midterm. Once separated, the mixed feeling of calling back the relationship is accompanied with the reluctant of changing of a new status.
The relatively amount of gain is really associated with how much effort paid in the game, and the quality of the blog is how we treated it and the amount of time we devoted.
I would probably continue trading, and the process can be either more exciting or a bit boring: Exciting in that I can invest in a larger variety of commodities, focus more on the area that interest me most, though I might, as before, won’t really get the time for that, this prospect is especially reinforced after receiving a tight schedule on Tuesday. Boring in that our lively atmosphere of doing things TOGETHER-trading, discussing would probably left only in memory. I will miss this time at the same time cheering for a bit relieve.
Goodbye, blog..
It seems that in the mid term week for 501, less attention is put in trading, but still there are something happened need us to take a look:
Wheat:
Wheat analysts are the most bearish since July on speculation the grain’s biggest premium to corn in three years will curb demand after farmers reaped a record crop.
The grain tumbled as much as 33 percent from a four-year high in July 2012 as drought eased in the U.S. The grain rallied 10 percent since reaching a 14-month low in August on speculation that crop damage in Russia and Argentina would boost demand for U.S. supply.
“Demand news may not live up to the expectations built into the recent rally”
The USDA raised its estimate for global wheat output to 708.9 million tons on Sept. 12. That compares with its August projection of 705.4 million tons and 655.2 million tons last year. Major exporting nations outside the U.S. will harvest 211.9 million tons compared with 208.37 million tons forecast in August and 10 percent more than 192.33 million tons last year.
Canadian farmers may harvest a record 33 million tons, 22 percent more than a year earlier, Statistics Canada said Oct. 4. Prices will drop to $6.50 in three months, 7.4 percent less than now.
Brazil and China buying to restock inventories spurred a 3.7 percent gain in prices last month, the most since April. U.S. sales since June 1 jumped 38 percent from last year as of Sept. 19 and export licenses issued by the European Union climbed 71 percent, government data show. U.S. wheat reserves as of June 1 may fall to 544 million bushels.
Cattle:
Cattle futures rose, extending a rally that began in May, on mounting speculation that improved demand for U.S. beef is tightening animal supplies. Strong demand is pushing all protein up.
U.S. Department of Agriculture price and slaughter data have been halted by the government shutdown since Oct. 1.
In the end, this is my open positions, good to see green colours..
Here is my open position and portfolio summary for Week 4.
This week, I covered my short position on corn for fear it may rise again, and without any patience with soybean, I finally put a sell stop, given my observation that the soybean price may drop further.
After hearing the Technical Analysis that Andrew gave us on Tuesday, I feel excited and could not wait to give it a try, I will use some of the basic technical analysis tools to analysis the past trend and predict the future!
First, just to familiar yourself with the structure of candlestick
First to show my simple application: Using Inverted Hammer
Here is the description of this pattern:
Indication:This pattern occurs after an extended rally and indicates that the trend is weakening and a possible reversal may be at hand.
What does the candle tell us about the psychology of the traders in this stock? The long wick indicates that the sellers stepped in and dumped a considerable position into the market, most likely because they are taking profits off the table.
We can see from the candle chart, that
In history: as shown in the left red pane, there is a obvious downward trend followed the inverse hammer.
My prediction: as shown in the right red pane, we see a surprisingly similar pattern with the left one, which hints a possible similar downward trend in the soybean price. This signal, coupled with recent news about the increased harvest in soybean gives me more confidence in the prediction.
However, the signals derived from candlestick charts cannot be used on their own, volume is also an important component of the analysis. High volume shown below gives me further confirmation that a top can be put on this candle.
Then, have a look at all these turning points
It is amazingly clear that almost all of the turning points can be found within one of the patterns shown below:
Here I want to say more about the engulfing patter:
Engulfing pattern is a major reversal sign that is composed of two opposite color real bodies. The basis of this pattern is that the current bars’ real body engulfs the prior bars real body, not necessarily the shadows. The bullish engulfing occurs after a sharp move down while the bearish engulfing occurs after a sharp move higher.
Bullish engulfing formations are most powerful when they are combined with previous support levels. and the larger the candles, the more reliable the signal is. Basically, a rule of thumb is that you can set your stop loss below the lowest low of the two candles involved; a move below this level would negate this pattern.
However, take a closer look, it does not always applies:
As shown above is a beautiful hammer pattern which predict a downward trend, however the price actually soared.
So, technical analysis has weakness:
1.Bias: Just as with fundamental analysis, technical analysis is subjective and our personal biases can be reflected in the analysis. It is important to be aware of these biases when analyzing a chart.
2.Too late: It has been criticized that by the time the trend is identified, a substantial portion of the move has already taken place.
3.Not all technical signals and patterns work: When start to study technical analysis, you will come across an array of patterns and indicators with rules to match. That’s why I was excited at first and when I move further I got frustrated and lost in the numerous choices available and each choice gives a different answer.
Therefore, there is always something happening beyond our prediction, we can never get one-hundred percent for sure of where the future goes, but the tools would help us get closer to the possibilities.
PS.
Thanksgiving is around the corner, “thank god” that I can stay in such a beautiful place in such a nice weather with such colorful leaves out there, but never have chance to enjoy and my plan to hike up the Grouse Mountains has been indefinitely postponed… As for me now, all I want are quite simple:
1, see beautiful scenery
2, meet good people
3, try out fine foods
Hope I can fulfil some of these wishes after the mid-term.
Enjoy your long weekend!
My portfolio summary for Week 3
Nothing expect wheat received positive return.
My feelings: Terrible. Because I actually fall behind for the whole week ( not the ranking but how much I really “learned”), let alone my goal of getting more insight into trading! I did some impulse trading based on the recent news hoping to gain from the short trend. But everything turned out to be quite messy. I knew from the Monday morning that I should short corn but I did something else, too lazy to catch the chance at the right time.
Just have a brief overview of my week 3 trading before moving on to the lessons learned:
1.About my darling cattle
I strongly recommend Airlie’s blog “Just an Udder Trading Week” for live cattle, Interesting and insightful, looking through her blog made me feel that any word from me would just be some minor repetition but much less attractive 😛
2. Milk, what did I do?
I made a stupid some mistake again… see what did I bought, a futures contract of September 13th? That’s what I got from a whole night’s sleeplessness…
So do not attempt to make important decisions without a good night’s sleep. ==
3. Corn, painfully say goodbye
Finally I decided to close my position even though I belive the price would bounce back sometime later. I wanted to short it on that day and probably buy it back the next day—just to win a small margin, but the fact is: I forgot about everything the next day, so I lost the chance, and now even more loss.
Feeling reluctant to say anything more about other commodities, I thought about buying more diversities every time I see some positive signals in new area. However, I did refrain myself doing so. Now I just think– why not?
What I harvest: First try in short, stop and limit.
Something besides trading:
1.It seems that what we’ve learned in 585 applies well into futures trading:
a. Good decision don’t always get good outcome, something out of our control is always happening.
b.Prediction is based on historical information, but it never gets to the right result.
2. What I learned from my fellow peers:
G: Get valuable information on Monday morning and make wise decision.
V: A tiny mistake at the beginning may grows to be fatal, searching for help and suggestions from wise peers and keep a positive attitude, nothing can prevent us from getting lessons and learning new things even if we were in the worst position.
A: Passion, insight…. Orz
3. Lazy kills me.
4. Balance my life. Sometimes I find the simple reason that I did not achieve the goal I set is simply because I did not balance my leisure and work well. It is more than just study, but about how to live a life.
5. One harvest what he sowed. I simply did not pay enough effort on the trading this week, and my decision was too impulse and non logical, my loss in trading and now painful feeling of writing this blog are the result.
I decide to work hard, and as Jim said, put unnecessary things on hold. The future “me” will be thankful to a hardworking “me” at present. Same to everyone.
Good luck!
Here is my trade and portfolio for Week 2:
My actions and reasons:
1. Buy live cattle
From the chart above we can see a spike in cattle futures price which goes up all the way from June.
The reason is that the last year’s record drought- which is the worst from 1930s- has negatively affect the beef herds, farmers don’t have enough pasture conditions or enough corn at the right price to feed their animal, so the production of beef shrunk a lot. News has it that the number of cattle placed in U.S. feedlots in August fell 11 percent from a year earlier to their lowest level for that month in 17 years. Supplies is predicted to be tight through the middle of next year .
My forecast: However, we are seeing more rain this year, so the pasture condition for raising cattle may recover a little bit, and the recent fall in corn price also cut down the cost of breeding, both of these news give some hope that the future cattle production would recover, even though it may take some time and would not come so soon.
So I expect the future cattle price to continue goes up for a short period before coming down again.
2. Short Milk
Analysis:
From the supply side:
As pastures recovering from the drought, they are very good at the moment heading into the peak of the milking season. Milk production in the largest diary exporter-New Zealand is rebounding to a record high, at the same time U.S. supply expands to an all-time high as well as a estimation of a 1.3 percent output expansion in EU in 2014. Overall, global production will gain 1.1 percent to a record 469.1 million tons in 2013.
From the demand side:
Strengthening demand from China’s 1.3 billion people may limit price declines as Chinese income grows. It is estimated that imports of whole-milk powder will jump 26 percent to a record 510,000 tons in 2013. Shipments expanded more than 10-fold since 2008 as contamination scares linked to local milk boosted demand for overseas supply.
China’s imports of New Zealand dairy products rose 34 percent in the first half. Should the government relax its one-child policy, annual powder demand may increase $2.9 billion.
“Demand is kind of the sleeping giant that most people aren’t paying attention to,” “Demand, especially out of China right now, is huge.
My action: Quite rush and then made some mistakes. At first, when thinking only the supply side, I short the milk. While later considering about the huge demand from China, I predict some positive trend in its price, so I covered and bought at the same time. Given another chance, I would choose to short again, because the trend is still not quite sure given the relative more volatile prices, so I expect it may fluctuate a lot but the general trend should be stable or fall a little bit.
3. Short corn
From the chart and my previous experience, it seems that it is a good time to buy corn based on the buy low sell high principle, I did so several days ago and bought some corn, but news from this video U.S. Corn Supply Grows, Sales Fall Most Since 1975 gave me some suggestions that the price may still under pressure to drop for a while, so I decided to short hoping to make use of this trend before buying back at its lowest point.
4. Buy Soybean
The chart shows a rapid rise in soybean price from August before coming down a little from this month. The news tells that the reason is mainly because the steady soybean import demand from China, and China will continue to buy U.S. soybeans until South America crops are harvested and start moving into the export channel from March 2014. Although the USDA expects this year’s harvest to be 4.4 percent larger than last year, the drought conditions expanded in parts of the Midwest in August which negatively influenced the soybean yield. Besides, Excess rain in April and May also prevented some fieldwork. Moreover, crop-insurance claims filed for 1.69 million acres of unplanted land intended for soybeans, compared with 159,579 acres last year.
So we could say that Soybeans still have a very strong demand base, and it probably would rise again after a short term adjustment.
In the last:
My analysis is basically still quite constrained and my resource are generally only the recent news, hope next week I could develop into a little sophisticate method or have a little bit more insight. This game is amazing in that it push me to pay attention to some areas which I knew I should have see more but was always too lazy to actually have a glance at!
Here is my open position for the first week(as I remembered this step is required in the module instructions)
|
Symbol |
Exchange |
Company Name |
QTY |
Currency |
Price Paid |
Last Price |
Market Value |
Profit/Loss (local curr) |
P/L % |
Margin |
|
ZK/X3 |
US |
SOYBEANS NOV 13 |
5 |
USD |
$13.18 |
$13.16 |
$329,000.00 |
($562.50) |
-0.170680827 |
$20,250.00 |
As a late beginner, thinking this trading would be much the same with my previous trading proved to be totally wrong, and my first day trying out into the futures trading seems tougher than expected. Getting up early in the morning and lock myself in a doom small room facing a field of uncertainty, pretty exciting but soon helplessly lost in a sea of information. It made me feel that as if I were a newly born baby stunned by a world of loads of “new” halting and confusing which way to go and how…
But it’s a good thing, it’s from this phase that I got to know where I don’t know and starting learning. (学然后知不足)
Still ambitious though, my plan for fist step was to simply searching out videos and articles telling about futures market and how to start my first step of trading, I find a good video on youtube telling in detail figuring about what futures trading is all about, this may seems too fundamental to many of u=_=, but I found it really helpful for a kindergarden level student like me.. https://www.youtube.com/watch?v=nwR5b6E0Xo4
My first trying was basically just trying:P. My plan for next step is to make more things clear out, go further into more trading experiences, find out reliable information resource, and develop a basic thinking and predicting pattern, not too aggressively but step by step. It’s a good start to just get our hands dirty, and don’t worry too much about the result, just keep learning and make progress!
I do find this experience ( trading, posting, sharing information, etc.) a lot of fun, hope all of you guys enjoy the excitement of exploring and improving!^^
