Since the National party moved into the Beehive back in 2008, mining has been a contentious issue. The government, looking for ways to mirror Australia, as well as speed up economic growth, focused on upscaling the mining industry. We have plenty of coal in country and, possibly, major reserves of oil and gas offshore. What’s not to like about that?

Well quite a lot really. Gulf of Mexico ring any bells? Like Chernobyl and Bhopal before, major industrial accidents can have long-term, catastrophic consequences, as well as immediate costs measured in human and economic cost. Offshore drilling carries huge risk and major negative downstream effects if it goes wrong. Onshore mining, on the other hand, is supposed to be plain vanilla these days. Apparently it’s a little like rolling up a cricket wicket and re-laying it when you’ve dug out a bit of sub-soil.

It’s safe, clean and you end up with an environment, which is as good as, if not better, than before. I was told that by the Assistant Head of Global HSE at Rio Tinto back in 2000. Actually it made sense to me…if you contain all the possible polluting effects, run a safe operation and remediate to very high standards…that could work. Perhaps that culture hasn’t quite made to to NZ. Judging by the poor practices at Pike River, one would have to ask serious questions about the management of mining in NZ. This has been reinforced by the recent shutdown of the Solid Energy mine at Spring Creek.

So I’m waiting to be convinced about this new world of clean coal and safe extractive practices. However, whilst I’m waiting, I’d like to suggest another way forward. Given that we do need certain commodities to be extracted, we need to create a risk structure that allows for exploration but with a precautionary approach. In other words, extractors must pay their way and do so in a manner that reflects the worst case scenario, such as the BP Gulf of Mexico disaster. So far BP have set aside a $20b fund for settling claims, of which $7.8b has been currently allocated. It’s an extreme event but an example of how badly things can go wrong when operating in sub-optimal conditions.

It’s time to explore environmental contingency bonds, as a way of mitigating risk and ensuring that insurance is in place before the extracting activity takes place. Just as someone renting a house has to pay a bond up front, to ensure any potential damage is covered, so do extractors have to pay an upfront amount before they start work. This upfront risk adjusted payment would be used to purchase government bonds (supposedly risk free!) or similar risk free asset, for the duration of the extractive activity. If, at the end of the activity period, there are no adverse effects, over and above what may have already been applied for, then the money is returned (plus any interest) to the extractor.

There are several consequences to this approach:

- This may increase the cost of extraction (though, in reality, this is simply a financing cost, assuming no damage occurs).

- This may spur companies towards better risk management and remediation processes. If they get it wrong, they pay. The onus of responsibility falls on the extractor and not the taxpayer and/or local community.

- In some cases, the sum demanded by the rental agent (usually the government) will be too high for the extractor to bear and this may result in the proposed project not proceeding. This isn’t necessarily a bad thing, as the priced risk is considered to be too high. An example of this may be drilling for oil in the Arctic or the new trade of the day, fracking.

How will the bond be priced? Each industry will have a different risk factor, which will be based on previous data….for example, offshore oil drilling and onshore coal mining have very different risk profiles. It’s important to note that this is not an insurance payment but a full cash upfront payment. The extractor may, of course, wish to insure their own risk on having to forfeit the bond but the important point here is that the government holds the cash and can move into remediation action as soon as any damage occurs. As we have seen with numerous disasters, insurers and re-insurers are difficult to deal with and can lock up claims for many years.

Remediating and risk management plans are great but for business, paying cash up front against possible mishaps will certainly concentrate their focus on doing the job properly and without harm. The public will be happier knowing that extractors are having to pay upfront and that they will, therefore, do their utmost to ensure their activities are not polluting, harmful or dangerous. Governments will be happy knowing that they have the cash in the bank, just in case anything does happen. The extractors? Well they probably won’t be happy at the extra cost but according to them they will leave the place in a better condition than they found it. So really they have nothing to worry about at all.

Yekaterinburg could well be a name to remember much like Maastricht, Yalta, Bretton Woods and other places that carry major political history on the back of their relative obscurity. A few weeks ago the big 4 players, Brazil, Russia, China and India, met to in Yekaterinburg to discuss the vexed issue of the $, US assets and US global financial dominance.

As I’ve discussed before there is a major shift underway in the way the global market is structured. Not just in terms of currencies but also trade and influence. The BRICs have a powerful case to make: 40% of global currency reserves and almost half the world’s population (though Russia’s population is declining, a somewhat serious issue).

There is a strong feeling that the US has acted recklessly overt he last 30 years in flooding the world with $ and creating huge imbalances which have caused such chaos in global markets. So whilst there is always plenty of posturing and grandstanding, especially from the Russians, there is a real case for the US to answer:

- Global trade imbalances.

- Cowboy capitalism.

- Turbo boosted monetary expansion.

- Instability in global financial markets.

It’s also interesting that the meeting of the SCO (Shanghai Cooperation Organization) was held at the same tim and the US was not invited even though it wanted to attend. There is a strong argument that there is no real alternative to the $ but that doesn’t excuse the facts. One dominant currency has not helped create a stable system. It has simply allowed to issuer to experience huge profits from seigniorage and wield extraordinary political and economic power.

And can we really take the rating agencies seriously? They are all US based organisations. Ultimately whether the $ loses influence or not depends on the alternatives. I still believe a commodity backed currency is a likely development, given the nations involved.

At the same time the development of local currencies will help create a more stable and complex system. For now though expect more talk about a $ alternative and expect it to be driven by the BRIC crew starting with the upcoming G8 summit in Italy.

Another high level global conference and another list of innocuous plans and goals.

Fiddling whilst the plant burns seems to be infectious. With the global economy collapsing around their ears policymakers have never had a better opportunity to declare a move to a quota based system of fossil fuel extraction.

With oil prices at 5 year lows, down $115 from the highs earlier in the year, I am sure that producers would be willing to sit down and listen.

Whilst global demand is down there is an opportunity to slow emissions at source by setting a target as per the Sustento Framework and making it stick. All the talk of the last few years has been about increasing demand for fossil fuels and the impossibility of reigning that in.

Well right now any demand would be welcome. There has never been a better time to lay it on the line. It’s time to stop pissing around with talk fests and policies which will never actually reduce emissions in any meaningful way.

Set a target for global annual fossil fuel extraction and then stick to it.

It’s taken a bit of time but someone decided to publish my climate change proposal. After being rejected by the Journal Of Climate Change for being too grand, the Environmentalist, the publication of the Institute of Environmental Management and Assessment in the UK, published an amended version last month.

You can read it here if you haven’t read the old version.

The key theme is that we must control what we take out of the earth rather trying to control emissions after use. It also stresses the need for a global carbon budget.

Nothing has happened in recent years to change my thoughts on it. It is a large canvas with many themes to explore. If anyone wants to take on some of those themes in a new piece of research just let me know.

The NZ government has announced a delay in implementing the proposed Emissions Trading Scheme. The 5 year pushback for the transport sector comes at a time when fuel prices are going through the roof and the government is concerned about the impact of further price rises on consumers.

Forgive me for wondering if that isn’t the whole point. First up it was the carbon charge which was dumped back in December 2005 and now the brand spanking new ETS which looked full of holes and now is barely recognisable as a piece of effective policy.

The main concern cited by “critics” is that higher costs may be passed onto consumers. Well the goal of the carbon charge and the ETS is to raise prices in order to lower demand. However, fuel prices are generally regarded as inelastic i.e. demand does not fall as prices rise, which consigns a price approach to the bin. Of course, there is some level of price at which demand will certainly fall. According the research it is when the price increase exceeds income rises i.e. the is the affordability as opposed to higher prices.

Or to put it more succinctly as long as money is available fuel will be purchased regardless fo the absolute price. So the supply of money is a major player in this equation. Now with the credit crunch bedding down money has become less available and so the impact of higher fuel prices is starting to kick in.

So given fuel prices have nearly doubled in the last 3 years, one would expect to have seen a huge fall off in fuel consumption. This has not been the case.

One can conclude that price measures will not reduce emissions and therefore any policy based on this approach is doomed to fail.

Why, you may ask, is no one clamouring for quotas to be implemented? The answer to that is very simple. It’s too hard.

So let’s keep pouring millions of $ into schemes that won’t do the job and keep the veneer of pretending to do something about climate change. They’d be better off spending the money on something important like child poverty and education.

Following a huge campaign the death sentence on Pervez Kambaksh was lifted and we finally heard from him about his experience at the hands of the Afghani justice system.

Stories about the Taliban’s treatment of women and those who try to help them are legendary in their barbarism.

Now we hear about the treatment of women in Saudi Arabia. It’s one thing to treat women with violence (we have plenty enough of that terrible behaviour in the non-Islamic world) but the dis-empowerment via lack of rights and education is really unacceptable at the most basic level. It means there really is no escape from a life of slavery.

This extremist form of Islam does a dis-service to mainstream Islam and shows how vast and wide that congregation is in terms of beliefs and practices.

You wont hear anyone in power being critical of Saudi Arabia because their strategic position is so important and of course they buy a lot of weapons and sell a lot of oil. The hypocrisy of human rights and trade is summarised nicely here.

This year it’s the 60th Anniversary of the UN Declaration on Human Rights. The UN better start pulling its finger out before it gets done under the trades description act.