The Australian Bureau of Agriculture and Resource Economics is one of Australia’s most important research institutions. In an era of rocketing oil prices and climate change, it provides a key input into the development of government policy on issues as diverse as infrastructure, long-term sustainable agriculture, and halting and reversing the growth of our carbon emissions.
Based on its record, however, ABARE continues to be one of the most seriously flawed institutions within the entire Public Service. Further evidence of this emerged during the week in Estimates hearings.
ABARE regularly forecasts the world price of oil. Tricky stuff, admittedly, and anyone who could forecast it accurately in recent years wouldn’t be working for ABARE but making billions on the stockmarket. But the extent to which ABARE has refused to accept the ongoing increase in the oil price is truly remarkable.
Here’s the comparison of the actual oil price – not even including the most recent spike — and ABARE’s predictions since 2004:
Nor has ABARE learnt from its consistent errors. In March this year, it predicted that West Texas crude would be US$86 a barrel this year, and US$82 next year.
Yesterday – for the handful of people who aren’t aware — it was nearly $130.
Christine Milne quizzed ABARE about their consistent failures on oil at Estimates this week. The response of ABARE head Phil Glyde was simple and staggering – it’s not their job to be right about the oil price, merely to explain how they arrived at the number. Everyone else can then make up their own minds using the same assumptions that ABARE has employed.
Glyde insists that ABARE’s current prediction that the price of oil will fall back into the $60+ range over the next five-six years accurately reflects the likelihood that more oil will be discovered.
So, we can all relax. No peak oil, says ABARE. Just a Pollyannaish assumption that there’s plenty more black gold waiting to be tapped. In Glyde’s view, “there is no physical limit to supply over the next 30 years… it is as simple as that.”
When asked if ABARE ever considered the views of groups who did not share his optimism about limitless oil, Glyde replied “we have dealt with them to the extent that we disagree with their view that there is a physical limit to oil availability between now and 2030. When we come to that conclusion we sort of, if you like, dismiss the view that they have.”
This is the mob who are paid to “provide rigorous and independent economic research analysis and forecasting” to the Government.
Nor is oil the only area where ABARE has been a tad optimistic in its forecasting.
Last year they had to revise their forecasts for wheat, barley and canola down more than once, having initially assumed the drought would disappear. “Big winter crop on the way,” ABARE cheerily declared in June last year, predicting a 37m tonne crop. Four months later they had revised their estimate back – having already done so once — to 18m tonnes.
Which is odd, because they’d had to do precisely the same thing to their crop forecasts in 2006.
At some point you wonder whether the concept of learning from one’s mistakes means anything to ABARE.
It isn’t just forecasting where ABARE has an irredeemably optimistic streak.
In early May, in a report entitled “Economic impact of GM Crops in Australia”, ABARE claimed that the benefit of Australia adopting GM canola, wheat, soybean, maize and rice would be approximately $8.5b.
Crikey is agnostic on the advantages or disadvantages of GM crops. But there’s a couple of problems with ABARE’s argument. Most inconveniently, GM wheat and rice aren’t even available yet. And, under questioning by Greens Senator Rachel Siewert in Estimates, some of the assumptions employed by the report were revealed by ABARE to be rather on the heroic side.
In particular, the report was based on assuming every single farmer in the country immediately switched – right now, in 2008 – to GM crops. Including non-existent GM wheat and rice.
When challenged, ABARE admitted that the report was entirely hypothetical. However, that didn’t stop Philip Glyde from declaring in a press release that “delaying GM uptake means we are forgoing significant economic benefits for regional Australia.”
ABARE’s consistent errors and unreal modelling have a common theme. They all promote a business-as-usual approach to agriculture and resource management, as promoted by large corporate interests in agriculture and resources. This approach assumes away issues major sectoral interests would rather ignore, like climate change, resistance to GM crops and peak oil.
In themselves, they represent, at best, consistently poor research and modelling. But they are not without real world consequences, because they form the basis of long-term government policy.
In part 2 next week, we’ll explore the origins of ABARE’s profoundly flawed approach, its role in supporting the Howard Government’s denial of climate change and what needs to be done to fix it.
Umm, BP and Shell ARE racing around buying solar plant etc.
BP Solar are the largest solar panel manufacturers in the world.
It’s not like there are little gnomes under the earth making oil as quickly as we burn it.
Two things:
Firstly, please don’t tell me you believe in that peak oil rubbish. Basic economics tells us that as price goes up, supply actually increases. Now the oil market has a few things going on like OPEC and nationalisation of oil assets that prevent it from behaving in an entirely efficient manner but it does not change the fact that as the price of oil increases it becomes viable to tap wells that had previously been considered too expensive to harvest. Believe me, if we are likely to run out of oil in the next 30 years then the oil companies would already know about it – they are in the best position to know of anyone. We would be paying a lot more than US$130 a barrel and BP, Shell and the like would be racing around buying up solar plants and wind farms. I don’t see that happening. ABARE have got their price forecast wrong, but using their error to legitimise the claims of peak oil is poor and irresponsible journalism. The current high price is vastly more likely to be a result of Chinese demand, supply bottlenecks and sovereign risk (that is government takeover of private oil assets now the industry is making serious money again) – not the fact that we have drained our last drop.
Secondly, last I heard, ABARE was primarily staffed by economists. Now say what you like about the quality of their economic work, one thing is for sure – they are not weather forecasters. If reliable long-term weather forecasts were available – farmers would be using them. The fact do not rely on long term weather forecasts indicates that they are extremely unreliable. Farmers generally plant hoping for the best and expecting the worst. If you were to forecast the wheat price for next year you would do so by looking at what is being planted in the ground now and then making some assumption about the weather. The safest assumption to make is that farmers get their average amount of rainfall. To make any other assumption suddenly puts economists in the business of being weather forecasters too, something they are unlikely to be trained in. Maybe their is an argument for ABARE to prepare their crop forecasts with input from BOM long range weather forecasters, but given the inherent inaccuracy of both practices I am not sure this would improve the outcome.
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John – BP Solar employs about 2000 people. The BP Group as a whole has over 110,000 employees. So less than 2% of staff are assigned to an alternative energy division when we are running out of oil in the next 30 years? I am not so naive to think that there are gnomes running around making oil but there is some evidence to support the abiogenic theory of petroleum origin, though most Western scientists support the biogenic theory. In any case ASPO keeps pushing back its date of the peak and plenty of money is being spent on oil exploration.
I’m not suggesting that we don’t try to move away from our reliance on oil (and the high price of oil will be a vastly better encouragement to do this that government policy) but that running around crying “Peak Oil” is simply alarmist and not grounded in reality.
Where is Lindsay Tanner when you need him to axe an entire department?
Look forward to it.