Peter Dunne set to give away the (oil) farm

There was interesting news in the Dom a few days ago, with an announcement that a Canadian company has discovered more than 12 billion – yes, that’s billion – barrels of light sweet crude on the east coast. As it turns out, the find is not as significant as might be thought, as it’s a shale oil formation. Those who pay attention to The Oil Drum and industry commentators will know that these are typically “tight” formations where oil does not flow easily, if at all:

According to Wellington oil exploration consultant Mac Beggs fractured source rock has proved quite successful in North America over the last few years, adding quite substantial reserves.

The rock lacked the permeability for oil to flow, and had only become viable because of extraction technology breakthroughs.

In other words, this is not a conventional oil reservoir like the Tui oilfield off the Taranaki coast, and extraction will be both more difficult and more expensive than a regular field. Having said that, when oil prices inevitably rise (as they’ll do in the next few years), this will put New Zealand in a very good position when it comes to domestic resources.

Only it won’t – or at least, not if Peter Dunne has anything to do with it.

Our Mr Dunne is currently Minister of Revenue, and one of his areas of “responsibility” is overseeing the minerals regime administered by the Ministry of Economic Development. As Minister, he therefore approved the current sweetheart deal enjoyed by Australian Worldwide Exploration (AWE), the 85% owners of Tui. This involved levying only NZ$10 per barrel on the 50 million barrels of high-quality oil that is due to be produced from the field. As far as I can tell, this is the lowest levy in the OECD, at a time when many countries are either nationalising their oilfields or demanding a significantly higher royalty for their indigenous resources.

There’s an argument that says such a deal might not be that flash because it was struck before oil prices began their bull run in 2007. That might even be a reasonable argument.

However inquiring minds might care to take a look at UnitedFuture’s energy policy. It states:

It is UnitedFuture policy to:

• oppose levying the oil industry to build additional oil storage capacity – this is a strategic government policy and as such should be paid for by the government (it is really a “defence of the realm” issue)

oppose a standard royalty rate on new offshore oil discoveries being fixed in advance. We believe that the general policy should be a zero royalty rate with the government reserving the right to apply a royalty, on a case-by-case basis specific to rate of any medium to large oil field discovered.

Hmm. So there is every chance that if all that oil does turn out to be recoverable, good old friend-of-the-oil -companies Peter Dunne will effectively give it away.

And it appears there’s already a precedent for this – the current Tui oil field (50 million barrels of high-quality light sweet crude) is governed by a production sharing agreement that (apparently) only costs Australian Worldwide Exploration a measly NZ$10 per barrel. Which has to be one of the lowest royalty rates in the world.

Responsibility for signing this deal lay with – you guessed it – the Minister of Revenue.

Only One Idea

The National Party’s economic policies have a disturbing amount of deja vu to them – as I/S notes, they seem to largely revolve around tax cuts, gutting the RMA and attacking the public sector.

What’s interesting is that these policies are almost identical to the ones Don Brash was pushing back in 2005 … which are almost the same as the ones from 2002 … yet the world has changed beyond recognition in that time. You’d think that moving from the halcyon days of 2005 – main problem: too much growth – to the recession-filled 2008 – main problem: not enough growth – would result in some kind of change of direction or re-weighting of economic instruments. Not if you’re the National Party, apparently. It reflects an almost touching faith in an outmoded economic dogma.

But as the Nobel-winning Joseph Stiglitz notes in a very thoughtful article in Vanity Fair this week, the thinking that got us into this problem – specifically tax cuts and deregulation – is unlikely to get us out of it. And the traditional austerity approaches to economic management are likely to make things worse, not better:

This is not the time to turn to the old- time fiscal religion. Confidence in the economy won’t be restored as long as growth is low, and growth will be low if investment is anemic, consumption weak, and public spending on the wane. Under these circumstances, to mindlessly cut taxes or reduce government expenditures would be folly.

Which is exactly what National seems to be planning, unfortunately – and if history is any guide, it seems beyond doubt that these policies will make the recession longer and deeper than would otherwise be the case.

National needs to get rid of its ideological baggage, and start thinking about the economy in a way that deals with reality rather than in terms of dogma. As it stands, John Key and Bill English are starting to look out of touch with our economic reality – based on the evidence, space aliens could invade Earth and enslave us all, and the National Party would still be suggesting tax cuts and RMA reform as the solution.

Remembering Muldoon

I’m old enough to recall Rob Muldoon striding across the 1970’s New Zealand political landscape like an enraged garden gnome, and this week was starkly reminded of how little has changed since he was around.

National is dead keen on more tax cuts, despite the precarious state of the economy, and it seems there are only a few ways that this can be achieved. The alternatives seem to be cutting government spending, increasing other government (i.e. non-income tax) revenue, asset sales, or borrowing.

It’s likely that John Key will attempt a mix of all four, whilst fudging the figures to make it all look affordable. And in truth, any incoming government will have to grapple with striking a balance between a set of relatively unpalatable alternatives.

But the one that scares me the most is the potential for borrowing – largely because I vividly remember the economic hangover that resulted from Muldoon engaging in exactly that approach.

For those who weren’t around at the time, Muldoon reacted to the economic shocks stemming from the 1970’s oil crisis by trying to insulate the New Zealand economy from world events. (OK, that’s an oversimplification, but will serve our purposes here.) One of his long-standing policies was to run large external deficits, which over the 9 years of his reign resulted in a massive external debt and a resulting currency crisis. It arguably took a decade or more – and a benign international economic environment – for the country to recover.

Whether you agree with the actions that Roger Douglas took once he assumed power in 1984, there’s no getting away from the fact that New Zealand was damn near broke, due to Muldoon’s complete mis-reading of the global economic situation. In practically every major economic decision over those long nine years, Muldoon zigged when he should zagged, and persistently made the wrong calls. Arguably he did so because he had the best interests of New Zealanders at heart, but his track record as an economic manager is truly shocking.

And the parallels with John Key are obvious. He’s promising what probably can’t be delivered, and clearly intends to borrow to make good on promises he should never have made. The only redeeming feature I can see is that the current seizures in the international credit markets may make it impossible to fund the kind of overseas debt he’s contemplating.

As the saying goes, history doesn’t repeat, but it sure does rhyme.

MoreFM and The War Against Stupidity

For those of you outside New Zealand, MoreFM is a nationwide network of radio stations owned by CanWest MediaWorks (who seem to Purchase Their Capital Letters By The BucketLoad. So 1998.) Like all radio stations, they go out and about in the community with their promotional vehicles, giving away sponsor’s products and embarrasing 20-somethings who still think listening to radio personalities on the morning commute is a pretty neat idea.

Good on them, I say. Live and let live.

Except when they drive a fleet of enormous petrol-powered SUVs as the promotional vehicles. Short of importing a specially-built Hummer, it’s pretty well impossible to buy a more environmentally destructive or socially obnoxious truck in New Zealand …. and these idiots have a collection of them.

The SUVs in question (according to the manufacturer’s stats) produce around 440 grams of CO2 per kilometre, and use 21 litres of petrol per 100km in urban running, which is where these things spend most of their time. They weigh around 2,400 kilos and have a full-time 4WD system, which must be fabulously useful for mounting the 10cm kerbs around Wellington. By any measure, they are 2-3 times more environmentally destructive than a standard stationwagon, which would be functionally equivalent.

So why do the Station Managers purchase these dinosaurs? Beats me. I wrote to them and asked, but as I wasn’t seeking the autograph of one of their “stars”, didn’t get a reply. What a surprise. They probably buy them because they’re big and shiny, and they’re very reassuring for ageing radio stars who might be feeling a bit challenged in the trouser department.

Hence MoreFM are the winners of The War Against Stupidity’s inaugural Moron Of The Month. Enjoy – you’ve really earned it, guys.

The principles of copyright

Not everybody in New Zealand cares about copyright law. For most people, it’s a pretty esoteric thing that has very little impact on the way they lead their lives – right up until the moment they discover they can’t copy the latest Coldplay CD to their iPod (at least, not unless they own a Mac.)

New Zealand copyright law was last updated in 1994, and it’s safe to say that there have been a few developments since then – most of them with “digital” written in front of them. Our legislation didn’t really anticipate any of this stuff, nor did it pay attention to what people actually did – such as making copies of CDs for the car. So there has been an update to the copyright law in the pipeline for some time, with the intention of updating the legislation to better reflect the realities of the 21st Century.

The bill – The Copyright (New Technologies and Performers’ Rights) Amendment Bill – was introduced into Parliament last week for its first reading, and after some spirited resistance from Nandor Tanczos and the Green Party, has been referred to the Commerce select committee. Submissions close on 16 February 2007.

The good stuff: The Bill recognises Fair Use, and seems to take a balanced view of copyright in the preamble.

The bad stuff: The drafting of the Bill bears little resemblance to  the preamble, and gives away practically all consumer rights in favor of a son-of-DMCA Frankenstein. Oh, and there’s the minor matter that infringements are now criminal offences with a 5 year prison term and $150,000 fine attached.

In other words, despite the noble words at the beginning, the Bill as written is a media lobbyists wet dream. So a submission to the select committee is in order. There has been some very useful discussion on the Public Address System (threads here and here, and Russell’s original post that started the whole debate), which has helped clarify my thinking on what needs to change.

Herewith, therefore, are the five principles that I think should guide the reform of copyright law in New Zealand:

Principle 1: Fair Use is desirable and should be legalised. This includes format shifting and time shifting for all types of media (not just CDs), and there’s no sunset clause on this. By Fair Use I mean transferring content that you have purchased or otherwise legally acquired between devices that you own or effectively control.

Principle 2: Obtaining content without paying for it or otherwise legally obtaining it for personal use – either by shoplifting or digitally – is illegal and carries criminal penalties, the same way that shoplifting does now. As is the case with other forms of petty theft, the penalties are set in the Sentencing Act 2005 and are commensurate with how much you’ve “obtained”.

Principle 3: Copying content for commercial gain is definitely, completely and unequivocably illegal, and carries the whole $150K fine/5 years in jail penalty, along with confiscation of the equipment used to do the copying/manufacturing. People who rip off other people’s creativity to make a dollar are scumbags and should be punished accordingly, IMHO.

Principle 4: TPMs have special protection under the law only when they are circumvented to allow illegal commercial distribution. Companies are free to add them as they see fit, but consumers are free to remove them as they see fit to restore their personal Fair Use rights. For the avoidance of doubt, this means that personal Fair Use trumps TPMs. There are no penalties or otherwise associated with TPM circumvention for personal use, on the basis that this area should be decided by the market and there should be equal power under the law for both producers and consumers. However the same penalties that apply to copying for commercial gain equally apply for circumvention for commercial gain – 5 years in jail/$150K fine.

Principle 5: Truth in advertising and promotion is required. If, by applying a TPM, the use of content is restricted by the content owner, these restrictions must be clearly stated on the packaging of material sold in NZ in a form easily understood by a typical 12-year-old. For example, if a CD contains TPMs and WMA files, it must say “won’t work with an iPod”; if a DVD is encoded for other regions, it must say “won’t work with NZ DVD players”; if a plasma TV doesn’t have an HDMI input it must say “won’t work with Sky high-definition programmes”. In the event that the item protected by a TPM doesn’t work in the manner expected, consumers are entitled to a full refund. The manufacturer or producer of the item is also liable for prosecution for deceptive and misleading conduct under the provisions of the Fair Trading Act.

Stephen Marshall also has a very useful set of blog posts that look at the detail of the Bill – well worth a browse if you’re interested in the legal implications of some of the proposals.

There are a couple of other implications that are worth exploring – but I’ll leave those for another post.

Making bets about the future

Making purchasing decisions about all kinds of consumer “durables” – from fridges to cars to houses – is a key part of living in any Western capatalist society. We routinely spend significant amounts of money on these energy-consuming objects, and as the old saying goes, we tend to buy things for emotional reasons and then justify them logically afterwards.

The effect – in my case – is a car that I thoroughly enjoy driving, but which spends most of its time in the garage due to the convenience of public transport for my daily commute. The emotional reason for not selling it is the sense of freedom and enjoyment I get from occasional drives; the rational justification is that trying to get ten bags of groceries home from the supermarket on the bus is a complete pain. (The astute will notice that infrequent trips from supermarket to home via taxi would be a couple of orders of magnitude cheaper than hanging onto the car … thus exposing the tissue-thin nature of post-facto rational justifications.)

As it turns out, I’ve been thinking a fair bit about the various consumer durables in my life, particularly the car. In these high-petrol-prices-and-excess-CO2 times, I’ve been eyeing up the latest generation of diesels, thinking that lower fuel consumption and lower CO2 emissions may be a sensible investment. In fact, the putative benefits of half the CO2 (emotional reason) can at least be partly funded by the lower fuel costs (post-facto rationalisation) … and the massive overtaking urge of the Audi A4 with the 3-litre twin-turbo diesel I was test driving the other week is only incidental to the discussion!

Every time we weigh up the pros and cons of these kinds of decisions – what kind of car should I drive, how close to town do we need to live, I think our household may need a bigger fridge – we’re really making bets about the future.

In my case, a diesel Audi would be my bet that oil prices will continue to rise over the next few years and that global warming is a real issue that demands I take some action. These seem like sensible bets – you can’t read The Oil Drum or see An Inconvenient Truth and conclude the world will not change in the future. In fact, it seems an exercise in perversity to assume that we can simply go on as we have in the past, and – miraculously! – neither global warming nor peak oil will bite New Zealand in the arse.

What amazes me is that a great many people see no connection between their buying decisions and their bets about the future. That decision to buy an SUV or invest in coastal property is as much a prediction about what the world is going to be like as it is a lifestyle decision. If you buy a big truck, you’re effectively assuming petrol will be $1.50 a litre, and not $10 a litre. A beachfront property is a half-million-dollar bet that sea levels won’t rise. Trying to get rid of the buses from your suburb full of McMansions is a bet that you’ll always be able to afford the commute.

Needless to say, only one side of these bets is going to be correct. If sea levels don’t rise, the coastal property will be a damn good investment and I can look on with envy from my place on the hill. If the levels do rise, the beachfront place will be a total loss.

And that’s the bit that seems quite surreal. Most of the bets I’m making don’t seem to have much downside – the diesel car is not much different to the petrol car, so if the price of petrol doesn’t change I haven’t lost anything. The place on the hill has different views to the place on the beachfront, so if the sea levels stay the same it’s just a different lifestyle decision.

But if my bets are correct – petrol hits $5 or $10 per litre, and sea levels rise half a metre – the SUV and the waterfront house are total losses. They will be worth nothing. Nada. Zilch. And losing that amount of equity will be an horrific, stressful process for the people involved. They are also running the risk – placing a bet, if you like – that when the beach place is destroyed in a big storm, the insurance company will pay out instead of saying “you knew global warming was occurring, yet you bought the place anyway – so tough luck, we’re denying your claim.”

The only reason I can think of for these poor decisions is the emotional factor – a big SUV makes me feel safe, I love the feel of sand between my toes. I’m as susceptible to these as anyone else. But when I see otherwise smart people making bad bets, I can’t help wondering how the emotional appeal of the consumer durable manages to switch their brains off altogether.