Japan

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Why has Japan avoided the rising inflation – a more solidaristic approach helps

Published by Anonymous (not verified) on Mon, 04/07/2022 - 1:37pm in

A few years ago, various policy makers, but mostly central bankers were keen to disabuse anyone of the notion that they were ‘doing’ Modern Monetary Theory (MMT). Some were aggressive in denial, such as US Federal Reserve boss Jerome Powell, who on February 26, 2019 announced to the US Senate Banking Committee that MMT was ‘just wrong’. There was a general pile on from other central bankers and commentators. No way, they were doing MMT. Okay, they were right, one doesn’t ‘do’ MMT, given it is an analytical framework (see below). But, curiously, now, the commentators are falling over themselves claiming that MMT is dead in the water given that it has been tried over the course of the pandemic to date and failed because inflation is out of control. Hilarious really. But what is interesting is Japan (as always). And I wonder whether any of these MMT critics now have considered why the Bank of Japan has not followed the lead of the other central banks that are rushing to exacerbate the temporary inflation spike by deliberately creating unemployment. It seems that there are different paths that policy makers can take within a capitalist monetary economy. They can allow corporations to profit gouge at the expense of the workers and then turn on the workers (creating unemployment) or they oversee a system where all parties (workers and corporations) take real income hits as a result of imported price pressures and wait it out. Japan is in the second category to its credit.

On whether one does MMT, I wrote about this misperception in this blog post – The erroneous ‘lets have a little, some or no MMT’ narrative (February 20, 2019).

As regular readers will know, I consider Japan to be the most interesting economy of all to study.

I will be working there for an extended period from the end of September 2022 on a Japanese government fellowship hosted by the University of Kyoto.

I hope to be able to publish the products of that period of working with my Japanese colleagues in the coming months.

There are a lot of interesting issues to explore, not the least being the curious case of low inflation in Japan.

Today, I am offering a starting point to understand this phenomemon.

Why is inflation so low in Japan?

Inflation rates have risen in almost all nations since the supply disruptions arising from the on-going pandemic started to come up against spending growth maintained, in part, by government fiscal policy support.

Those supply pressures were then exacerbated by the price gouging behaviour of the OPEC oil cartel which has pushed energy prices up to ridiculous levels.

Then Mr Putin decided to invade the Ukraine which has put further pressure on supply chains, particularly food commodities and created increased demand for non-Russian energy products.

Taken together, the All Items CPI for the US, for example has risen by 13.3 per cent since January 2020, while the Energy component of the US All Items CPI has risen by 48.8 per cent and the Food component has risen by 15.7 per cent.

Taking Food and Energy out still leaves a 10 per cent rise in the US CPI since the onset of the pandemic.

However, for Japan the following has happened since January 2020:

1. All Items – risen by 1.3 per cent.

2. Energy – risen by 14.6 per cent.

3. Food – risen by 3.2 per cent.

4. All Items less Food and energy – has actually fallen by 0.01 per cent.

The US experience is mirrored around the world, which makes the Japanese experience an outlier.

The following graphs tell the story that has to be explained.

The first graph is the All Items annual inflation rate for Japan and the US (indexed at 100 as at January 2020).

Pre-pandemic – the two indexes were moving more or less in lockstep.

But from mid-2020, the divergence has been stunning.

The next graph shows the Energy component in the respective CPIs.

A fairly similar story for both nations.

The next graph shows the Food component – again divergence.

So with both nations experiencing the energy price shock in a similar manner, why has Japan been able to avoid the high inflation rates of the rest of the world?

The first thing to note is that producer prices in Japan has followed global trends.

The Bank of Japan produces – Producer Price Indexes – on a monthly basis, and the latest release for May 2022 – Monthly Report on the Corporate Goods Price Index – shows that in the year to May 2022, the index has risen by 9.8 per cent.

The Import price index has risen by 42.2 per cent over the same period (on a yen basis).

The following graph is taken from the latest Bank of Japan release:

So local producer input prices are being largely driven by higher import prices – energy and timber being the most prominent of these imports.

Second, the dramatic drop in Communication costs is a factor.

Further analysis of the CPI sub-groups reveals that the Communication component index has fallen from 99.9 points in January 2020 to 66.2 points by May 2022.

Why has there been such a large decline in communication costs?

The national government has been pressuring the telco carriers to push down mobile phone costs to consumers, which has led to an almost 34 per cent decline in charges.

The Japanese Communications Minister said in October 2020 that they were going to push down mobile phone charges (Source):

… with a sense of urgency … We are confident this will bring fees more in line with international standards.

The campaign to persuade/pressure the telcos worked very well.

The Communications component, though, is a relatively low weight in the overall index, which means other explanations are required.

There are several distinguishing characteristics to explain why Japan has resisted the inflationary surge despite facing large imported cost pressures.

First, there are no wage pressures, which doesn’t really serve as a distinguishing factor because no nation is really experiencing any significant real wage resistance from workers anyway.

Second, there is clearly a different mentality among Japanese companies with respect to pass-through.

In the US and elsewhere, corporations with price setting power do not hesitate to push rising unit costs onto consumers as they defend their real profit margin.

In the 1970s, where trade unions were stronger, this market power set off real wage resistance and a price-wage spiral as worker retaliated against the real wage cuts by pushing for higher nominal wages growth.

Now, the unions are weak and the workers are being forced to take the real income cuts and thus bear the burden of the rising imported price rises.

In Japan, corporations are much more mindful of their reputation and have clearly resisted passing on the imported cost rises.

In part, they are being helped by fiscal initiatives to absorb the cost pressures (see below), but, in general, the corporate mentality is different.

Whether one wants to label the behaviour of US and other firms price gouging is moot. The fact is that these firms will not absorb cost pressures into their profit margins, whereas Japanese firms are clearly doing that (with notable exceptions).

But it is not all down to the socially-minded behaviour of Japanese firms.

There are no wage pressures and real growth in expenditure is subdued to say the least.

The following graph shows the key expenditure aggregates from the March-quarter 2015 to the March-quarter 2022.

Real GDP is still 1 per cent below the pre-pandemic level and household consumption expenditure is 1.5 per cent below.

Private non-residential investment is 6.9 per cent below the pre-pandemic level and that gap is widening.

So one can argue that the product market environment is very soft, which discourages firms from pushing up prices for fear they will lose market share.

The situation in the US, for example, is that the product market is stronger and firms have more scope to pass on the price rises.

The interesting fact though is that the unemployment rate in Japan continues to fall and in May 2022 was 2.6 per cent, well below the levels in most nations.

We often hear Anglo commentators talking about the low growth (the ‘lost decades’) in Japan in a pejorative way but they fail to mention that Japan consistently outperforms the world in terms of its unemployment status.

A nation doesn’t need strong growth if its unemployment rate remains low (and public services are excellent).

The point here is that the Anglo nations (with Europe following) are intent on creating ‘soft’ product markets through monetary policy interest rate hikes.

They think that will suppress the inflationary pressures and to some extent they will provide a disincentive for firms to pass-through cost rises.

That disincentive will be relative weak at first until firms start going broke in large numbers.

But the difference with Japan, which has much lower growth trajectories than say the US, is that the US Federal Reserve’s approach will only work (if it works at all) via substantial increases in mass unemployment.

Japan will get through the transitory import price hikes without the recourse to the destructive increases in unemployment.

And while fiscal and monetary policy is now contractionary almost everywhere, the situation is markedly different in Japan – a point I go to next.

Meanwhile back at the Bank of Japan and the Ministry of Finance

Life goes on without the obsessive fearmongering that the rest of our governments are facing from commentators intent on pressuring them to kill off the inflation by increasing unemployment and suppressing demand.

The Bank of Japan continues to target a zero yield on 10-year government bonds through its daily bond-buying program.

The Bank has accepted some depreciation in the yen as a result of the increasing differential between US (and other nation) interest rates and the on-going zero rate policy in Japan.

The Bank has clearly not fallen into the trap that many other central banks have – refusing to believe the narrative that interest rate rises will stifle the inflationary pressures without creating significant increases in unemployment.

It understands that once these transitory imported price pressures are absorbed the inflationary pressures will subside rather quickly.

Which remains my view.

Fiscal policy in Japan is also being tweaked to deal with what they consider to be temporary cost-of-living pressures.

On April 21, 2022, the Government announced a ‘supplementary’ fiscal initiative designed to support low-income households and small business firms struggling with the imported price rises.

This document (May 17, 2022) – Overview of the Supplementary Budget for FY2022 – details the stimulus measures the Government will introduce, which will total 2,700.9 billion yen.

Quite a stimulus.

1. 1,173.9 billion to address soaring crude oil prices.

2. 1,520.0 billion for a future contingency to deal with oil prices rises.

These injections include one-off 50k yen cash transfers per child for low-income families and subsidies to petrol wholesalers to help them contain pass-through to consumer prices.

The Government also indicated it preferred to use the direct action of fiscal policy to deal with these problems rather that try to hike interest rates or manipulate the yen.

You can be sure they will also not deliberately create rising unemployment to address the inflation pressures.

This really sets Japan apart from the English-speaking West.

The Anglo nations really have lost respect for the continuity of employment and workers.

Conclusion

I will write more about Japan in the coming months.

That is enough for today!

(c) Copyright 2022 William Mitchell. All Rights Reserved.

Albo Declares Japanese Trip A Success After Tracking Down Rare Iggy Pop Live Album In Tokyo

Published by Anonymous (not verified) on Wed, 25/05/2022 - 7:00am in

Australian Prime Minister Anthony Albanese has declared his first international trip a success after he managed to track down a rare Iggy Pop live album whilst perusing the record stores in Tokyo.

”Was such a great trip, Japan is a wonderful place, you should see all the different types of Kit Kats they have there,” said the PM. ”But, was also good to get down to brass tacks and have a chat with Boris, Joe, Narendra and Fumio.”

”Great bunch of guys, Joe was telling me about the time he saw Iggy and the Stooges in Raleigh North Carolina.”

When asked what implications the Quad gathering will have for the people of Australia, Prime Minister Albo said: ”They were very fruitful discussions that will very much benefit the country.”

”I talked trade with all leaders and fingers crossed we will start trading records relatively soon.”

”Narendra Modi in particular is a big You Am I fan so I promised to send him a few of my bootlegs that I’ve gotten over the years and who knows maybe we can appoint Timmy Rogers as a Special envoy to Mumbai.”

Mark Williamson

@MWChatShow

You can follow The (un)Australian on twitter @TheUnOz or like us on Facebook https://www.facebook.com/theunoz.

We’re also on Patreon: https://www.patreon.com/theunoz

The (un)Australian Live At The Newsagency Recorded live, to purchase click here:

https://bit.ly/2y8DH68

At school today …

Published by Anonymous (not verified) on Tue, 24/05/2022 - 12:40pm in

Tags 

Japan

今日は日本語を勉強しています。See – more.

Steering Away from a Car-Centric Society

by Mai Nguyen

Two lanes of car traffic in a city street.

Our car-centric society is in a jam. (CC BY 2.0, Oran Viriyincy)

Learning to drive scared me as a teenager. There was something terrifying about controlling a two-ton hunk of metal, and my drivers’ education teacher didn’t help by showing a graphic slideshow of injuries we could expect from a brutal car accident. This didn’t bother me much once I moved to the city; with buses, the metro, and bike or scooter shares, there are plenty of other ways to get around. However, you’ll be hard-pressed to find these same options outside the city.

Cars are ubiquitous in the USA, with 286.9 million registered vehicles on the streets in 2020. That’s almost 300 million gas tanks to fill. The EPA reported that the transportation sector accounted for 29 percent of U.S. greenhouse gas emissions in 2019. Now, coming out (we hope) of the COVID pandemic, we’re seeing more traffic again with attendant emissions.

Some people are eagerly replacing their gas-powered cars with new, “green” electric vehicles. The intentions are a good sign, but we can’t “get sustainable” simply by exchanging some of the energy we consume.

How Bad Are Cars?

Cars are massive machines that require heaps of resources, from building the vehicles to fueling them for the road. The average vehicle requires 900kg of steel and 39 different plastics and polymers. A single tire requires about seven gallons of oil for its production. The aluminum content per vehicle is also steadily increasing, projected to reach 505 lbs in 2025.

Manufacturing is also immensely energy-intensive and complex. Stages of car manufacturing include extracting ores, transporting raw materials and components from around the world, and assembling the vehicle. Though each of these steps emit plenty of CO2, it can be difficult to put an exact figure on car-production emissions. Carbon footprint researcher Mike Berners-Lee breaks it down in How Bad Are Bananas? The Carbon Footprint of Everything, finding that the carbon footprint of manufacturing a car ranges from 6–35 metric tons.

And the environmental cost doesn’t stop there. It’s no secret that fuel consumption contributes to air pollution, but a 2018 study found that, globally, passenger road travel accounted for 45.1 percent of global CO2 emissions, or nearly six times as much as passenger air travel (8.1 percent). Americans used a grand total of 123 billion gallons of motor gasoline in 2020, corresponding with 56 percent of transportation sector emissions.

It’s Electric!

The ubiquity of gas-guzzling personal vehicles can’t be a part of a sustainable future. For some, the solution seems obvious: electrify vehicles to remove the problems that come from gas-power. Tesla kicked off its precedent-setting electric vehicle (EV) line in 2008, and today car companies like General Motors and Honda are edging into the competition. (Ironically, GM could’ve led the EV revolution as early as the 90s with their wildly popular EV1 if they hadn’t killed the model for profiting less than their gas-guzzling counterparts.)

Image of a fancy electric vehicle parked in a spot that reads "Electric Vehicles Only."

Are EVs driving us to a sustainable future, or are they another guise for green growth? (CC BY 2.0, marcoverch)

EV innovations do, in fact, look promising. Though not exactly carbon-neutral, EVs emit significantly less emissions than gas-powered cars, and they can handle just as much daily travel. EVs don’t run on empty, though. Depending on how your local power is generated, charging EVs can produce carbon emissions, and a worldwide shift to EVs would only exacerbate the global power demand. While it is generally accepted that emissions over the lifetime of an EV may be lower than a gas-powered car, the construction of EVs emits substantially more than the construction of traditional internal combustion vehicles. Specifically, a 2017 study found that the manufacturing of parts and assembly of EVs resulted in approximately 37 percent more emissions per vehicle than that of combustion vehicles.

Even though EV sales are picking up fast, we can’t bank on them and other “green” alternatives to solve limits to growth without a plan to fully transition away from fossil fuels and reduce consumption. Take the trendy plant-based alternatives filling shelves at grocery stores, for instance. Despite its massive carbon footprint, the U.S. meat market still dominates its plant-based competitors by almost $160 billion, and we’re simply “gifted” with more choices when we shop. The development of eBooks was similarly predicted to overhaul the publishing industry, but print books still outsell eBooks four-to-one.

Even if we all switched to EVs, we’d be exploiting yet another fuel source: lithium, the rechargeable battery’s key material. In 2021, global extraction of lithium was about 100,000 metric tons, about a 20 percent jump from 2020 levels. A worldwide switch to EVs would entail a 500-fold expansion of EV-battery manufacturing capacity. With the new mining boom, lithium and precious metal mining will simply replace (some) oil extraction.

The environment around South American deposits would be hit especially hard, bringing perils like wind drift of toxic chemical residue from the mines. This not only endangers the ecosystems along the Andes mountains—where the continent’s largest deposit is located—but threatens the livelihoods of farmers.

Chasing Us off the Streets

The problem with cars extends beyond their immediate environmental impact. We must examine why we find it so difficult to rid ourselves of them. Today’s suburban sprawl and congested highways didn’t come as a result of innovation for the masses; it’s more like the aftermath of an auto-industry takeover. Roads were once public spaces made for the people. Pedestrians freely crossed roadways without designated walkways and children played in the open space, while streetcars and railways catered to commuters and travelers.

Robert S. Kretshmar, Executive Secretary of AAA's Massachusetts Division; Commissioner Thomas F. Carty, Boston Traffic Department; and Mayor John F. Collins celebrate jaywalking legislation by Boston City Archives

Robert S. Kretshmar (Executive Secretary of AAA’s Massachusetts Division), Commissioner Thomas F. Carty (Boston Traffic Department), and Mayor John F. Collins celebrate jaywalking legislation. (CC BY 2.0, Boston City Archives)

It all changed with the mass production of cars in the 1910s. Over the next two decades the public was outraged at the rise of car-related fatalities, most of which involved children. A battle for the roads ensued between the masses and the auto industry. Unfortunately for the masses, car companies held sway.

A 1923 Cincinnati ordinance was proposed to limit auto speeds to 25 mph, but car companies killed the proposal—despite the 42,000 petitioners backing the plan—with a racist ad campaign mocking the city and rousing car owners. Other methods to overpower pedestrians included a slew of anti-pedestrian laws, indoctrinating children to stay out of the streets, and shaming jaywalkers.

The campaign for cars cuffed another rival, too: urban railways. Public transit has always been a key connector between low-income communities and thriving cities. It remains a major aspect of social mobility. But in the 1920s, car drivers were allowed over streetcar tracks, disrupting routes and making it nearly impossible for efficient streetcar operations. This drove transit passengers to purchase personal vehicles, further crowding the roads.

GM and other auto and fossil fuel companies bought up railways spanning 46 transit networks, only to dismantle them immediately. And while this isn’t the only reason why trolleys have fallen from grace in the USA, trolley companies were convicted of monopoly in 1949.

With the road cleared of obstacles, the auto industry set out to sell more cars. With the help of designer Norman Bel Geddes, GM debuted Futurama, a diorama portraying a car-centric future dreamed up by the company, at the New York World’s Fair in 1939 and introduced millions of visitors to something closely resembling today’s America. GM proposed a future centered around the convenience of the personal vehicle, complete with a massive interstate freeway system, suburban sprawl, and the extinction of public transportation.

The masses were sold on a car-centric America, and in 1956 President Eisenhower, with the help of Secretary of Defense Charles Wilson (who also happened to be GM’s president), leveled entire city neighborhoods to make room for highways. Minorities and low-income families comprised an overwhelming cohort of these communities, and they’ve been hit hardest by the environmental effects of “urban renewal” and the widened divide from their wealthy suburban counterparts.

Our Future Without a Map

Transportation in a car-centric society is far from sustainable or equitable. Gas-powered cars have a history of ravaging communities, and the growth of EVs won’t take us the distance. But we still need to get around, so what can we do?

Auto and fossil fuel industries fought hard in the past for political influence, but we can still take back our future. We are not fated to bumper-to-bumper traffic for the rest of our lives, and we can recenter our cities and towns around the people.

Image of several bikers riding through carless streets, with three women standing nearby a store as they pass.

In a steady state economy, communities are walkable, bikeable, and personable. (CC BY-NC-SA 2.0, UrbanGrammar)

One thing we can do is improve public transit. Access to public transportation is the key to an equitable future, but the system is in constant danger of underfunding. U.S. rail systems are far behind places like Japan, where trains are so convenient that car ownership is on the decline. Japan’s car ownership hit a low of 0.96 vehicles per household this year, while U.S. numbers have been creeping past three per household.

Fortunately, U.S. cities like Los Angeles and Indianapolis are upgrading their public transportation. Los Angeles has spent five years and $80 million on infrastructural changes to put the first electric metro bus line on the road. Meanwhile, Indianapolis is being transformed by the expansive Red Line electric bus system. These cities have shown us that commuters will jump at the chance to use public transit over personal vehicles.

Not only do our communities need access to better public transportation, but we need to foster pedestrian and cyclist lifestyles. Since 2016, Barcelona saw a 25 percent drop in pollution around the Sant Antoni market after experimenting with “superblocks,” nine-block grids of cyclist and pedestrian-first zones. Children there have room to play now, and walking and biking has increased.

In the Horta neighborhood superblock, 60 percent of survey respondents said they had become more comfortable walking on the streets and that accessibility had improved. People within the Poblenou superblock reported that the reduction in noise pollution resulted in more tranquility, improved sleep, increased social interaction, and overall improved mental wellbeing. One study estimated that widespread execution of superblocks could prevent almost 700 deaths annually.

Taking the roads back from auto and fossil fuel industries will be difficult. We‘ll have to re-envision the world around us; a world without the destructive congestion of cars. Our spaces need to be just that, our spaces, instead of streets and parking lots, dealerships, gas stations, auto parts stores, and repair shops. These profound structural and sociological changes will occur not by incentivizing the “greener” electric alternative, but by disincentivizing car culture altogether.

Widely-adopted free public transportation would be a huge step in connecting communities and promoting social mobility. We need to demand of our governments sustainable transportation for the people; that is, the expansion of our electric public transportation webs. Cars should be increasingly marginalized.

A carless society is one that is walkable, bikeable, and accessible for people with disabilities. Urban planners should prioritize the safety and mobility of the people, not cater to the automotive and oil industries. They should help us achieve a kinder, carless culture.

Mai Nguyen, editorial intern for Spring 2022 at CASSE.Mai Nguyen is the spring 2022 editorial intern at CASSE, and a junior at George Washington University.

The post Steering Away from a Car-Centric Society appeared first on Center for the Advancement of the Steady State Economy.

At school today …

Published by Anonymous (not verified) on Tue, 17/05/2022 - 1:38pm in

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Japan

今日は日本語を勉強しています。See – more.

Court Should Consider Taking Over Dept. of Correction, Warns Manhattan U.S. Attorney

Published by Anonymous (not verified) on Wed, 20/04/2022 - 8:12pm in

NYC's notorious cesspool masquearading as a jail, Rikers Island, has failed to implement mandated reforms, which may result in a Fed takeover

India: Pursuing its National Interest in the Multipolar World

Published by Anonymous (not verified) on Tue, 05/04/2022 - 3:55am in

The U.S. botches its India diplomacy as it fails to comprehend Delhi’s understanding of the new realities of the emerging multipolar world.

We have an experiment under way as the Bank of Japan holds its cool

Published by Anonymous (not verified) on Thu, 31/03/2022 - 1:06pm in

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Inflation, Japan, Music

Yesterday’s fiscal statement analysis replaced my usual Wednesday news and music blog post, so that appears today. I have hardly any time today anyway as the commitments associated with that statement are queuing up. So, today I want to reflect on the sanity in Japan and the ECB before some Duke. So we now have an experiment underway again. Most central banks are buckling under the pressure the financial markets are putting on them to raise interest rates. But the Bank of Japan, and to a lesser extent the ECB are not. We will see how that plays out. I think the Bank of Japan has its finger on the pulse and the other central banks are going down the wrong path.

The Bank of Japan holds its cool and demonstrates something important to the World – again

With the US Federal Reserve losing its cool along with the Bank of England – thinking they can solve rising inflation arising from boats not getting goods to where they are in demand and workers not being able to work because they are sick by increasing interest rates, it is good to see that the Bank of Japan is resisting the same pressures from financial markets.

The markets are pressuring central banks to life interest rates because that will help them profit from bets they have made on that happening.

On Monday (March 29, 2022), the Bank of Japan demonstrated it was not backing off defending its yield cap policy.

It entered the bond markets and offered to buy unlimited amounts of 10-year Japanese government bonds.

Japan is also facing the rising cost of imports as a result of the pandemic and the extra supply problems arising from the Ukraine War.

The Bank of Japan released this announcement – Addition to the Auction Schedule and Increase in the Amounts of Outright Purchases of Japanese Government Bonds (March 30, 2022) – where they outlined their plan to continue their bond buying program and:

… increase the amounts of purchases …

Go figure you Monetarists out there demand interest rate rises.

The Bank has told the markets it will be buying unlimited amounts of bonds over this week to maintain control over the 10-year JGB yield.

They intended to stop the yield rising above 0.25 per cent (its target is 0 per cent).

The ‘markets’ as usual are claiming the Bank will lose its nerve.

They are also buying up longer term bonds to stop the markets skewing the longer maturity yields.

The Bank is maintaining short-term rates at -0.1 per cent and the 10-year bond yield at 0 per cent.

The 10-year bond yield this morning (Thursday) four days in to the increased purchases was at 0.22 per cent and falling.

The Governor of the Bank Kuroda told the press last week that the small depreciation in the yen that is occuring at present was “generally positive” for the Japanese exporters.

So we now have an experiment under way again.

Most central banks are buckling while the Bank of Japan, and to a lesser extent the ECB are not.

All nations covered by those central banks are facing the same supply-side cost pressures and the fallout from the Ukraine War.

Let’s see how the different policy approaches play out.

For the record, I think the Bank of Japan is once again demonstrating a superior capacity to conduct macroeconomic policy.

It is supporting a fiscal policy stance that cares about keep unemployment low and maintaining first-class public services.

Levy Summer School – June 2022

While the details are still being worked out, I can confirm that I will be teaching at the Levy Summer School in the US in June this year (between June 13-18).

This is the first international trip I have been willing to make since Covid. But the Levy work is important and I always will try to support the group there.

As more details emerge, I will pass them on.

It will be good to meet up with people again (with our masks on) but I don’t think I will be doing any partying!

Music – The Duke with John Coltrane

This is what I have been listening to while working this morning.

When I was young I heard this music on the radio and my parents had some records that I used to listen to when I played truant from school and sought the peace of what in those days was called the radiogram – a sort of cheap hi fi system that working class folk had to play records and listen to the radio.

And, when I was in a position to start buying records, this was one of the earliest purchases.

The song is – In a Sentimental Mood – and this version of the classic is from the 1963 album by – Duke Ellington.

The album – John ColtraneDuke Ellington & John Coltrane – was released by Impulse Records.

The Duke wrote the music in 1935 and lyrics were added later.

John Coltrane’s tenor on this album is one of the best expositions there is.

The other players on this song were:

1. Aaron Bell – Double Bass. He was in the Duke Ellington Orchestra during the period this album was recorded but left soon after to play with Dizzy Gillespie. He later received a PhD in Education at Columbia University.

2. Elvin Jones – Drums – who was a major contributor to the modal jazz and post-bop jazz era who was playing with John Coltrane’s band during the period this album was recorded.

The question I always used to ask myself when I was young was how can four people make such sublime sounds together.

The way this song shifts between the minor key to the major key for the middle section (interlude) is the stuff of magic!

That is enough for today!

(c) Copyright 2022 William Mitchell. All Rights Reserved.

IEA Releases 10-Point Plan to Curb Oil Use: The U.S. Is Unlikely to Follow Much – If Any – of It

The IEA last week proposed 10-point plan to curb oil use. Alas, it’s unlikely that current U.S. regulators and political leaders. will provide any more than lip service to these and other long overdue measures.

Affordable electricity Decarbonization in OECD countries? Part I

Published by Anonymous (not verified) on Tue, 14/09/2021 - 12:56pm in

After eight extensive posts about the Ontario electricity sector, I am expanding my geographic coverage to look at the electricity sectors in selected OECD countries. My focus will be on the historical and relative performance of each country’s sector with respect to decarbonization and prices. As in the case of Ontario, whole volumes could and have been written about each of these countries, and the electricity sector in general, including with respect to current and future reliability and technologies and preferred vs. feasible future decarbonization pathways and other matters. To keep this manageable, my analysis will be a high-level data-driven overview of past and current generation technology mix, sector emissions and prices only, all based on internationally-comparable data from reputable sources. Interested readers should check out my earlier posts and other writing as to why my focus on the question of affordable decarbonization. In this blog I start with Canada, France, Germany and Japan. Future editions will cover additional countries.

I look at data from 1990 to 2019/20 to ensure to ensure I capture trends in the sector, which, because of its capital intensity, tend to be relatively slow-moving. I look at electricity generation mix by country based on International Energy Agency (IEA) data. I present it in seven groups: nuclear, hydro, non-hydro renewables (this includes wind, solar), natural gas, petroleum products, coal products and biomass and waste. To control for aggregate generation changes over time within a country and for country size differences, I present these in percentage terms. But these technologies are just means to an end, which is sector decarbonization – I source sector emissions directly from the respective country National Inventory Reports (NIR) submitted annually to the Secretariat to the United Nations Framework Convention on Climate Change (UNFCCC). The UNFCCC format combines emissions from public electricity and heat, which is the same combined manner that the IEA presents emissions data. Ideally, we would only include public electricity emissions but relative few countries present this on a stand-alone basis. Public heat provision, generally in the form of district heat systems, is generally a few percentage points of public electricity. To control for differences over time and country differences I present sector emissions intensity (kg CO2/MWh). From an accounting perspective, so as to not “double count”, the UNFCCC does not allocate emissions from the generation of electricity from the combustion of biomass to electricity (the Energy Sector), but rather to the Land Use, Land-Use Change and Forestry (LULUCF) sector. For this analysis, given that I am focussing on the electricity sector only, and not the economy as a whole, I include emissions from the generation of electricity from the combustion of biomass to the electricity sector. Lastly, I source household electricity prices from the IEA, which include base prices, plus any consumer-oriented or taxes and specific levies, in USD(PPP)/MWh. After I provide an overview of the countries I present some initial comparative analysis, which I expect to fine tune as I cover more countries in future blogs, including with more sophisticated multivariate regression analysis.

Country Overviews: Canada, France, Germany & Japan

Starting close to home, Figure 1 shows that the technology mix in Canada has been relatively stable over the last 30 years, with a high percentage (ranging between 70% to 80%) of generation coming from zero-emissions technologies (nuclear, hydro and non-hydro renewables). This has resulted in relatively low emissions intensity over the study period, with three phases: a decrease from the displacement of coal by nuclear and hydro from 1990 to 1996; an increase as some nuclear generation went off line from 1996 to 2003; and a steady decline from 2004 to 2019 as nuclear comes back on line and non-hydro renewables are introduced and expand to 6%, which together with gas increasingly displace coal. Household prices increased moderately during almost the entire period, but started to increase in 2015, primarily due to the increase in high-contracted-priced non-hydro renewables in Ontario (see my earlier blogs).

Crossing the Atlantic, Figure 2 shows that the technology mix in France has also been relatively stable over the last 30 years. France has had an even higher percentage (around 90%) of generation coming from zero-emissions technologies, resulting in relatively very low emissions intensity over the study period. Like in Canada, changes in emissions initially relate to the addition/subtraction of zero-emission technologies, but starting in the mid 2000’s there was also substitution away from higher-emitting coal to lower emitting gas. Household prices were stable until about 2009, after which they increased by about 6% per year in the ten years to 2020.

Moving north-east in Europe, Figure 3 shows that the technology mix in Germany has been much more dynamic over the last 30 years. For the period from 1990 to about 2016 Germany had a relatively low percentage (between 30% to 40%) zero-emission generation, resulting in relatively very high emissions intensity. This is specially given the case that its largest emitting generation was coal. Emissions decreased from 1990 to about 1999 as nuclear and hydro increased and gas displaced some coal and then stabilized over the next decade until the large policy-driven decrease in nuclear (in reaction to the Fukushima accident) in 2011 resulted in a large spike in emissions that were not bright back to trend by fast-increasing non-hydro renewables until 2015-16, which by 2020 accounted for 31% of generation. Household prices in Germany were stable until about 2000, after which they increased by more than 8% per year for 13 years to 2013, after which they increased moderately at 1% per year to 2020. As in Ontario, who modeled their Green Energy Act (GEA) on the Energiewende, the increase in prices in Germany are primarily due to the increase in high-contracted-priced non-hydro renewables.

Heading to Asia, Figure 4 shows that the technology mix in Japan has also been relatively dynamic. For the period from 1990 to about 2010 Japan had a relatively low percentage (between 30% to 40%) zero-emission generation, resulting in relatively high emissions intensity. It was lower than Germany, however, because it relied on relatively lower-emitting gas and oil and less on higher-emitting coal. Emissions decreased from 1990 to1999 as nuclear increased and then increased moderately as nuclear decreased slightly until 2010. As a policy matter in reaction to the Fukushima accident in 2011, however, Japan took most of its nuclear generation offline. This decrease resulted in a very large spike in emissions, as zero-emission generation dipped to only 10%. Emissions decreased moderately to 2019 as some nuclear was brought back on line and non-hydro renewables increased to 9% of generation. By 2019 zero-emission generation, at 21% was only half of what Japan had achieved in 1998. Household prices increased moderately until after 2011, when they increased at 4% per year to 2019.

Comparative Analysis and Discussion

Figure 5 shows the emissions intensity for the four countries from 1990 to 2019. It confirms that due to their large legacy zero-emission generation grids of 70%-80% for Canada and 90% for France these are the countries that have already deeply decarbonized their electricity sectors, both hovering around 100 kgCO2/MWh in 2019. After relatively stable but relatively very high emissions for most of the study period, Germany finally broke through the 550 kgCO2/MWh threshold in 2015 and has reduced emissions intensity by 6% since then to reach 420 kgCO2/MWh in 2019. Japan had been unable to make much progress from 350 00 kgCO2/MWh before 2011, after which emissions spiked and have since slowly been reduced to about 400 kgCO2/MW.

Figure 6 plots emissions intensity against the % of zero-emission generation for every year and country in the study. To give a sense of the direction of the movement in this two-dimensional space, I identify years 1990, 2000, 2010 and 2019 for each country. The strong negative correlation (downward sloping trendline) confirms the almost linear tradeoff between the amount of zero-emission generation and emissions. The time progression, with the exception of Japan, is from higher emission down and to the right. I am interested in seeing whether this linearity holds for the USA, a country for which much of the decarbonization has been attributed to the switch from higher–emitting coal to lower-emitting gas. Stay tuned for future blogs.

Figure 7 shows household prices for the four countries from 1990 to 2020 and confirms our earlier observation that while all prices have increased after a period of relative stability, the prices in some countries began increasing earlier and faster than in others. Germany is the outlier in this respect, where prices have almost tripled since 1990.

I am interested in exploring affordable decarbonization. From this perspective, both Canada and France had already achieved this by 1990 and so the process of decarbonization, and whether it was affordable, would involve looking further back in time. For Canada that may be 1960s to 1980s when many of current large hydro-electric projects and nuclear generation stations came online to displaced emitting technologies. For France it would be from the mid 1970’s to 1990 when its nuclear fleet displaced fossil technologies. In both cases, however, given that both countries started the period as the two lowest-priced countries in the sample, it is reasonable to assume that the transition was likely affordable, and certainly no less unaffordable than the approaches adopted in Germany and Japan prior to 1990. After that year and specially for Germany from 2000 and the coming into law of the German Renewable Energy Sources Act (EEG) and the introduction of high-contracted-priced non-hydro renewables, we see very significant price increases to 2015 but no reductions in emissions until that year because, as discussed above, Germany was in parallel reducing nuclear generation.

In these last two figures I start an initial correlation analysis, which I expect to fine tune as I cover more countries in future blogs, including with more sophisticated multivariate regression analysis. In my previous blogs I have discussed studies showing that any increases in electricity prices have been mostly due to the introduction and growth of non-hydro renewables, due to their higher-than market contracted prices and broader integration costs. This is certainly the case in Ontario, Canada and Germany. I am interested if this holds in other countries and what is the likely scale of the impact. I begin with the simple correlation analyses in Figures 9 and 10.

Figures 9 and 10 separate out zero-emission generation into dispatchable nuclear and hydro and intermittent non-hydro renewables and plots them against prices to examine any corresponding correlation. To also provide a sense of the direction of the movement in this two-dimensional space, I identify years 1990, 2000, 2010 and 2019 for each country. Figure 9 shows a generally negative (downward sloping) correlation, indicating that nuclear and hydro are correlated with lower prices. Figure 10, on the other hand, shows a generally positive (upward sloping) correlation, indicating that non-hydro renewable are correlated with higher prices. Based on prior studies, we knew that for Canada (via Ontario) and Germany this non-hydro renewables/higher price association had been shown to be stronger, of statistical significance suggesting causation, but it is good to replicate this via a simple correlation analysis. Looking at Figure 9 and 10 together, this correlation also holds for France and to lesser extent Japan. Note to my inner econometrician – there could be some time effect in the last decade or two (for example the introduction of liberalized electricity markets) that could separately be contributing to higher prices and thus could be a confounding variable to the simple non-hydro renewables/higher price association… That statistical question to be resolved down the road once I review a larger number of countries.

Next Steps

I am expecting to be able to cover four other OECD countries in the edition of this series, hopefully to come out in a few weeks, time permitting. I am aiming to include the USA, either Australia or New Zealand, and two countries in Europe.

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