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Gordon Campbell on the EQC’s funding woes, and peak oil

Gordon Campbell on the EQC’s funding woes, and a peak oil update

So, it seems, the Greens were right all along – a special levy to fund the costs involved with the Christchurch earthquake still makes good sense, if only (this time around) to replenish the funds available to the Earthquake Commission. Yesterday, it became apparent that the likely cost of the Christchurch rebuild had risen by a massive $4 billion.

This blowout means the EQC couldn’t cope with an additional major disaster (ie anything costing over $2.5 billion) and the government would have to pick up the tab, directly. There are three options on the table : (a) a special levy on all taxpayers (b) a further additional charge attached to insurance premiums already expected to rise significantly, or (c) a rise in income taxes.

One would have thought some evaluation would be being carried out on how much each method might reasonably raise, and how long they would take to do it. (One would hope that the government would also be alert to possible price gouging by insurance companies and re-insurers, but lets not dream the impossible dream.)

The recoupment time is crucial. After all, it took decades to amass the funds that the EQC is now spending in Christchurch, and a fresh catastrophe could arrive tomorrow. Superficially, an insurance premium surcharge does have a nice, user-pays ring to it – but in the real world, the reluctance of insurance companies and re-insurers to extend insurance cover to new buildings is already stalling the rebuilding of the city.

Currently, people in Christchurch in particular would struggle to afford a hefty surcharge on top of their expected rise in premiums – which would throw the burden onto the relative few able to pay, in a situation where there is now a big question mark over the willingness of the insurance companies to meet their side of their bargain within any realistic timeframe, if push ever came to shove in a fresh disaster. Given how the insurance companies ( and their re-insurers) continue to behave in Christchurch, there is going to be stiff public resistance to any purely insurance-based solution to EQC’s future problems.

That leaves the other two options: a special earthquake levy on all New Zealanders, to replenish the EQC’s coffers, or a hike in income taxes to do likewise. One advantage of doing it via income taxes is that this could be done progressively – and would enable some clawback of the recent, plainly unaffordable round of tax cuts whose benefits were disproportionately enjoyed by the already wealthy, and which created the revenue shortfall now serving as a pretext for cutting public services and jobs. Yet just like their counterparts within the US Republican Party, the Key government is as averse to tax hikes (for the wealthy) as a vampire is to garlic – so rational evaluation of that option is never going to happen.

Which means the special levy should be the only realistic option. Having trashed the Greens suggestion of this option before, it would be interesting to see how the government may differentiate it in future. Time is a-wasting, though. This time, the government shouldn’t be test- marketing the likely political fallout from each options on the table, before coming to a decision. For once, it needs to govern for the interests of the country, and not in terms of which option may do the least harm to its own political interests.

Peak Oil update Here’s a useful Forbes magazine article on the prospects facing the oil industry. Profits are up, big time – as the article says, you’d expect that when the price is up at $120 a barrel for Brent crude – but the oil production outlook, especially for non-OPEC production (which accounts for 31 billion of the 86 billion barrels per day being extracted) is not quite so rosy.

Production for non-OPEC suppliers is down by 4%, while OPEC production is up by 2%. So does that balance out? Not for long, if at all. Not when the average yield from some of the big fields, as Forbes says, is declining by 5% annually.

Here’s the gist of the story:

So what’s going on? Is Peak Oil here, at least in the non-OPEC part of the world? Maybe so. “In identifying mega-themes, we have argued that the shift from the 20th to 21st century represents the end of the oil age and the beginning of the global electricity age,” writes [Deutsche Bank analyst] Paul Sankey. “The concentration of remaining (abundant) oil reserves into OPEC hands derives an obvious corollary: the end of growth from non-OPEC supply.”

The supermajors are finding it harder and harder to pry away the remaining megaprojects from state-run oil companies. Of the biggest OPEC members like Saudi Arabia, Iran, Venezuela and Iraq, only the latter is eager to bring in the majors to help develop reserves. Add in the fact that natural decline rates on big fields average 5% a year, and it will become ever harder for Big Oil to stay big. Christophe de Margerie, the pragmatic chief executive of French giant Total, believes that global peak oil will hit within five years….

Not that you’d know it, from the way transport planning here is still being based around the perceived needs of the private motorist.


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