Oil under $50/bbl!
With the price of oil having plummeted, there has been considerable discussion in the media and elsewhere about what will happen to the quantity supplied (pedantic note for colleagues and students: quantity supplied, NOT supply) of oil in the short run and in the long run.
This article in Slate has it almost right. The average costs per barrel of oil include considerable sunk costs that are unrecoverable. If the price of oil is expected to stay below these expected long-run average costs, then no more new wells will be started in those oil fields.
In general, if the price of oil is expected to remain below $65/bbl, then there won't likely be many new shale oil facilities that will make it beyond the planning stage. And if the price of oil is expected to remain down nearer to $50/bbl for a long period, no new projects are likely to be begun in the arctic, tar sands, or deep sea [graph from Slate link]:
But for the short run, very little if any of the existing wells will be shut down. Here's the Econ 100 explanation:
The cost of drilling those wells has already occurred. It is a sunk cost (both in jargon and literally, I guess). The only relevant decision for an oil company is whether the revenue from continued pumping will offset the extra costs of doing the pumping, transportation, and marketing. These extra costs are generally referred to by economists as marginal costs, but what we mean is "extra" or "incremental" costs. Accountants sometimes use the term "direct costs" to refer to approximately the same thing.
What are the extra costs of pumping an additional barrel of oil, and how do they compare with the extra revenue the firm gets from selling that barrel? In economics jargon, pump another barrel so long as the MR>MC. In the case of oil pumping firms, MR=P probably.
Here is a graph (also from the Slate link) of the marginal costs of pumping and selling oil from various sources. The graph labels these as "cash costs" but it means marginal costs:
This graph makes the point really well. So long as the oil companies are receiving enough to cover these marginal costs, they will keep pumping the oil. And that will occur so long as the spot price of oil exceeds about $40/bbl. Pumping oil at those prices will cover the variable costs of pumping andmake some contribution toward covering some of the overhead/fixed/sunk costs.
There is an exception not addressed in the article, however. If the costs of stopping and starting the pumping process are low, some oil companies may choose to stop pumping if they expect oil prices to rise in the future.
In this case, the marginal cost of pumping oil now is not just the extraction, transportation, and marketing cost; it is also the present value of lost higher revenues in the future, which of course depend on the expectations people in each oil company have about future prices for oil. If they expect prices to rebound in the near future, they may want to curtail some pumping; if they expect prices to remain low for the foreseeable future, they may decide to keep pumping.
Note, though, that this decision depends only on their expectations about future prices of oil and has very little to do with the marginal costs of pumping. Or, to put it differently, the marginal opportunity costs of selling oil for cheap now are the possible foregone revenues from waiting.
Six years ago, in a public presentation, people asked me what I thought would happen with the price of oil.
I had no idea. I was tempted to tell them to look at the futures market, since that would be a pretty decent predictor.
Instead I said, "I can readily imagine the price of oil will drop back to $50/bbl. Not because I have any reason to think that. It's just that I want to stick it to OPEC, including especially Iran, Venezuela, and Russia."
Well whaddya know. It isn't $50, but it's down near there.
The price for a barrel of West Texas Intermediate crude oil -- a U.S. benchmark -- closed today at $59.95, a level of great psychological significance. Ever since Thanskgiving, when member nations of OPEC decided not to cut oil production, prices have tumbled. But this is also part of a longer term pattern, a fall of over $40 per barrel since late June.
Also, see this from Slate about which countries will suffer the most from the low oil prices.
Several friends have recently posted videos of someone cooking corn on the cob using a microwave. In the videos we see someone cook the corn in its husk in the microwave, cut off the base of the ear, and then grab the ear by the tassle and shake the corn out of the husk. It looks quick, and it looks as if it saves a LOT of hassle with no need to husk the corn nor to clean the silks off the ears.
We tried it last night, and it works like a charm. We did three ears and set the microwave for 8 minutes. Next time I'll probably use only 7.5 minutes on our microwave for three ears. I'd say we had only two silk strands left on the three ears, and clean up was so much easier than it would otherwise have been. Furthermore there's no need to boil up a pot of water, saving electricity or gas from that and keeping the place cooler on a hot day.
The only drawback might be trying to do this for a large number of people.
Hmmm. I see I wrote about microwaving corn on the cob over 2 years ago. Clearly at that time I had no idea about this method (cutting off the base and shaking it out of the husk after it is cooked). That, or my short-term memory is suffering more than I thought.
With fossil fuel prices continuing to rise and be uncertain, heavy users of fossil fuels have a strong incentive to look for alternatives or to look for energy-efficient ways to reduce their uses of fossil fuels. Here is one interesting example [via JR]:
Container Ships to Use Kites to Save Fuel
Minnesota based Cargill has just signed an agreement with Skysails that aims to reduce greenhouse gas emissions in the shipping business by using a giant kite. That’s right…a kite. Skysails, based in Hamburg, has developed a patented system which uses a kite to propel large shipping vessels across the sea. The wind-harnessing propulsion system, In theory, could end up reducing fuel consumption by an impressive 35%.
Here’s how it works: A monstrous 3,444 square foot kite is attached, via rope, to a control pod that electronically manipulates the kite to maximize potential wind benefits. The kite itself flies anywhere from 300 to 1300 feet in the air, whipping around in a figure 8 formation. Since the system is controlled electronically, it requires little attention from the crew. The computer system makes all the necessary adjustments to maximize available wind and relates telemetry back to a monitor located on the ship’s bridge.
What intrigues me about this example is that these container ships will not be using solar panels or windmillls to generate electricity. They are using the wind power directly. Furthermore, they will be instituting the plan in response to market forces, not gubmnt subsidies.
Biofuels are not an answer for reducing CO2 emissions [via Gabriel].
The conclusions deal a blow to what are known as cellulosic biofuels, which have received more than a billion dollars in federal support but have struggled to meet volume targets mandated by law.
They actually increase CO2 emissions:
A $500,000 study paid for by the federal government and released Sunday in the peer-reviewed journal Nature Climate Change concludes that biofuels made with corn residue release 7 percent more greenhouse gases in the early years compared with conventional gasoline.
It looks more like cronyism than environmentalism to me.
Now that the US and The West have been shown to have made more empty threats and promises, Putin will likely be emboldened to go further. To get a good grasp of the situation check out this post at Outside the Beltway. The maps, like this one, are quite informative.
Be sure to read the comments, too.
Suppose Russia and Putin decide to continue the proclamation that the "unrest" in Ukraine is mostly vandalism and illegal activities all designed to overthrow the properly elected gubmnt. Will Russia invade the Ukraine?
Who is going to stop them?
Whether the invasion will actually occur, or how likely it is to occur, is already probably well-known by the CIA and other intelligence groups. They surely have satellite photos of troup and equipment movements. But so what? What are they going to do about it? Take it to the UN? Sure.
Will the Ukraine be like another Hungary or Czechoslovakia? Or will it turn into another puppet war with Russia supporting, arming, and re-arming the eastern, Russian-speaking Ukraine and the west (i.e. the US, primarily) supporting, arming, and re-arming the rebels? I am far from alone in suggesting that Russia might launch an invasion. See this.
Or will the Ukraine split, as I mentioned in my previous post? If so, can the split be done somewhat/comparatively peaceably?
Addendum: For more see the current issue of The Economist.
While politicians in Kiev are scared to mention federalisation because of its separatist undertones, in reality it is already happening. The biggest danger for Ukraine’s integrity is not federalisation, but that Russian interferes and exploits it. That could involve an attempt to annex Crimea, carelessly given to Soviet Ukraine by Nikita Khrushchev in 1954. Over the weekend 20,000 people were out on the streets in Crimea, welcoming back riot police from Kiev as heroes. Russian armoured vehicles have already been spotted around Sevastopol, home to the large Russian naval base.
I have long questioned gubmnt policies requiring the use of ethanol. They do little more than increase the demand for corn, driving up the incomes of corn farmers and driving up the price of corn for consumers all over the world. Furthermore, ethanol is downright harmful to the environment and possibly harmful to some internal combustion engines. From a recent entry at Snopes:
At the end of 2013, the EPA announced it was reducing the amount of ethanol that must be blended into gasoline in 2014 (in part because the overall demand for gasoline in the U.S. has dropped), requiring transportation fuel companies to blend 15.21 billiongallons of ethanol into the nation's fuel supply in 2014, down from 16.55 billion gallons in 2013. Critics of the EPA's blending requirements pointed out that the announcement came just four days after the Associated Press published a lengthy investigative article documenting substantial environmental harms caused by ethanol which concluded that "The ethanol era has proven far more damaging to the environment than politicians promised and much worse than government admits today":Ethanol mandates have spurred farmers to grow corn on relatively unproductive land that remained undeveloped prior to the mandate, the Associated Press observed.
“Five million acres of land set aside for conservation — more than Yellowstone, Everglades and Yosemite National Parks combined — have vanished on Obama's watch. Landowners filled in wetlands. They plowed into pristine prairies, releasing carbon dioxide that had been locked in the soil. Sprayers pumped out billions of pounds of fertilizer, some of which seeped into drinking water, contaminated rivers and worsened the huge dead zone in the Gulf of Mexico where marine life can't survive," the Associated Press reported.
“The consequences are so severe that environmentalists and many scientists have now rejected corn-based ethanol as bad environmental policy. But the Obama administration stands by it, highlighting its benefits to the farming industry rather than any negative impact."
But this next bit is what prompted this posting. Here is a photo from a collection sent me by Marc that shows a gas station selling gasoline with 10% corn alcohol back in the 1940s (?).
Who knew ethanol had been around for so long?
I honestly don't know what to believe about global warming. But if, in fact, the earth is cooling because of something having to do with solar activity, wouldn't it be a good idea to create more greenhouse gases to offset the global cooling? [see this, for just one example, ht MK]
If so, maybe we need carbon fuel subsidies. Maybe we need taxes, not subsidies, for solar panels and wind turbines.
Maybe not eradication, but quite likely the strong incentives/requirements for ethanol use (and the ensuing clearing of land to raise more corn and soybeans) have seriously reduced the population of monarchs.
The number of monarchs that completed the largest and most arduous migration this fall, from the northern United States and Canada to a mountainside forest in Mexico, dropped precipitously, apparently to the lowest level yet recorded. In 2010 at the University of Northern Iowa, a summertime count in some 100 acres of prairie grasses and flowers turned up 176 monarchs; this year, there were 11. ...
[T]he greatest threat to the butterfly, most experts agree, is its dwindling habitat in the Midwest and the Great Plains, the vast expanse over which monarchs fly, breed new generations and die during migrations every spring and autumn. Simply put, they say, the flyway’s milkweed may no longer be abundant enough to support the clouds of monarchs of years past.
Soaring demand for corn, spurred by federal requirements that gasoline be laced with corn-based ethanol, has tripled prices in a decade and encouraged farmers to plant even in places once deemed worthless. Since 2007, farmers nationwide have taken more than 17,500 square miles of land out of federal conservation reserves, an Agriculture Department venture that pays growers modest sums to leave land fallow for wildlife. Iowa has lost a quarter of its reserve land; Kansas, nearly 30 percent; South Dakota, half.
Citing the above quoted piece that appeared in the NYTimes, Bjorn Lomborg writes on Facebook,
That's what you get for burning food in cars. [emphasis added]
In the US midwest, conversion from grasslands to corn and soybean fields have been so fast -- about 5-30% in just 5 years -- that the rates are “comparable to deforestation rates in Brazil, Malaysia and Indonesia.”
Dr. Jackson, a University of Northern Iowa biologist: “I can drive five hours east, five hours north, five hours south, five hours west and see nothing — nothing — but corn and soybeans.”
The ethanol programme is a shining example of the failure of gubmnt planning as policy makers capitulate to special interests [farmers and the owners of farm land] to the detriment of everyone else.
Bjorn Lomborg writes,
Biofuels in the EU take up an area of European farmland larger than the size of Belgium, enough land to feed 100 million people. And the US, whose biofuels program is about twice as large, is now burning more than 5% of all calories in the world. But while biofuels cost billions in subsidies and increase food prices around the world, they barely cut emissions and actually harm the environment.
Last week the EU could have become the first major political actor to curb the increase of biofuels. Unfortunately, the Council of Ministers failed to agree on a proposal to cap their use at 7% of total transport. This would still would have been far too high, but an improvement on the current 10%.
The reduction would have been good for the world’s poor, good for the environment and good for taxpayers. Moreover, the climb-down could have been good news for finding smarter climate solutions in the future. The unexpected delay is truly disappointing.
Read my new article in The Telegraph: http://www.telegraph.co.uk/earth/energy/biofuels/10520736/The-great-biofuels-scandal.html
This is from a month ago, but I held onto it because it just flabbergasts me. It shouldn't, I know, but the hubris of interventionists seems to know no bounds.
Ormet Corp will immediately close its 270,000-tonne-per-year aluminum smelter in Hannibal, Ohio, a casualty of historically low metal prices and "uncontrollable" power costs, the company said on Friday.
The move follows a ruling on Wednesday by the Public Utilities Commission of Ohio (PUCO), which approved some major changes to Ormet's power contract with energy supplier American Electric Power Co Inc.
The state power regulator listed a number of conditions, including requiring the company, which filed for bankruptcy protection in February, to employ at least 650 full-time workers through 2018. [emphasis added]
Under those terms, costs would have increased by some $108 million next year, rather than falling by $54 million as outlined in Ormet's plan.
Due to the decision, Ormet cannot emerge from bankruptcy and must immediately shut down operations," Ormet said in a statement.
It isn't really clear, but as I read this news item from early October, it looks as if the Ohio Public Utilities Commission is telling the firm, "We will give you a low price for electricity, but only if you guarantee that you will hire more people than you otherwise would hire.
I find this approach disturbing on two counts:
Jack sent me the following from Huffington:
A 95% chance "all hell breaks loose" on Canada's west coast in the next three years. And he hasn't moved? Why not?
In the late 1960s, I was a pretty rabid environmentalist. I had read Paul Ehrlich's "The Population Bomb" and was concerned that finally the Malthusian promise of overpopulation was coming to fruition. I was distressed by the imminent destruction of so many natural resources, including things like Lake Erie. And I clearly had a lot to learn about economics.
A couple of years later, The Club of Rome published "The Limits to Growth" in which they used computer-generated extrapolations to show the world was in big trouble. I had known two of the four authors of the book, Dennis and Donna Meadows when we were undergraduates at Carleton College; they were respectively one and two years ahead of me there. I remembered them as brilliant people, and so I was concerned that I couldn't understand and didn't believe their book.
When Robert Solow visited UWO during my first year teaching there, he pointed out a glaring error in "The Limits to Growth": it contained no accounting for prices and responses to prices. Apparently, Carleton College economics professors had failed to drive home an essential thesis of economics: People respond to incentives. Demand curves are downward-sloping and supply curves are upward-sloping.
Julian Simon saw the same problem with Ehrlich's book. Paul Sabin has described what ensued in The Bet: Paul Ehrlich, Julian Simon, and Our Gamble over Earth's Future. Jonathan Last has an excellent review of the book [via Cafe Hayek]. I'm sure I'm quoting too much from that review here, but it is hard to know what to cut:
Mr. Ehrlich, a biologist specializing in butterflies, became famous in the 1970s after publishing "The Population Bomb" (1968), in which he updated the 19th-century projections of Thomas Malthus—people were overbreeding, the supply of food and resources couldn't possibly keep up—and dialed the calamity to 11. Within a few short years, hundreds of millions of people would starve to death as civilization unraveled. Or so predicted Mr. Ehrlich. "The Population Bomb" was reprinted 22 times in the first three years alone, and its author would appear as Johnny Carson's guest on "The Tonight Show" at least 20 times, becoming a national figure and an influential player in Democratic politics. Mr. Ehrlich's ideas attracted a remarkable number of passionate adherents. They also attracted the scornful criticism of a little-known economist named Julian Simon.
... Mr. Ehrlich believed that the laws of nature that governed insects also applied to humans, that natural constraints created cycles of population booms and busts. Simon believed that man's rational powers—and the economies man constructed—made those laws nearly obsolete.
So in 1980 Simon made Mr. Ehrlich a bet. If Mr. Ehrlich's predictions about overpopulation and the depletion of resources were correct, Simon said, then over the next decade the prices of commodities would rise as they became more scarce. Simon contended that, because markets spur innovation and create efficiencies, commodity prices would fall. He proposed that each party put up $1,000 to purchase a basket of five commodities. If the prices of these went down, Mr. Ehrlich would pay Simon the difference between the 1980 and 1990 prices. If the prices went up, Simon would pay. This meant that Mr. Ehrlich's exposure was limited while Simon's was theoretically infinite.
Simon even allowed Mr. Ehrlich to rig the terms of the bet in his favor: Mr. Ehrlich was allowed to select the five commodities that would be the yardstick. Consulting two colleagues, John Holdren and John Harte, Mr. Ehrlich chose chromium, copper, nickel, tin and tungsten, each of which his team supposed was especially likely to become scarce. ...
... In October 1990, Mr. Ehrlich mailed a check for $576.07 to Simon. Mr. Sabin diplomatically reports that "there was no note." Although world population had increased by 800 million during the term of the wager, the prices for the five metals had decreased by more than 50%. And they did so for precisely the reasons Simon predicted—technological innovation and conservation spurred on by the market.
Mr. Ehrlich was more than a sore loser. In 1995, he told this paper: "If Simon disappeared from the face of the Earth, that would be great for humanity." (Simon would die in 1998.) This comment wasn't out of character. "The Bet" is filled chockablock with Mr. Ehrlich's outbursts—calling those who disagree with him "idiots," "fools," "morons," "clowns" and worse. His righteous zeal is matched by both his viciousness in disagreement and his utter imperviousness to contrary evidence. For example, he has criticized the scientists behind the historic Green Revolution in agriculture—men like Norman Borlaug, who fed poor people the world over through the creation of scientific farming—as "narrow-minded colleagues who are proposing idiotic panaceas to solve the food problem." [Emphasis added]
Mr. Sabin's portrait of Mr. Ehrlich suggests that he is among the more pernicious figures in the last century of American public life. As Mr. Sabin shows, he pushed an authoritarian vision of America, proposing "luxury taxes" on items such as diapers and bottles and refusing to rule out the use of coercive force in order to prevent Americans from having children. ...
At heart, "The Bet" is about not just a conflict of men; it is about a conflict of disciplines, pitting ecologists against economists. Mr. Sabin cautiously posits that neither side has been completely vindicated by the events of the past 40 years. But this may be charity on his part: While not everything Simon predicted has come to pass, in the main he has been vindicated.
Hydro. For those of you not familiar with the term, that's Canadian for "electricity", especially in southern Ontario, where so much of the electricity was originally generated via hydro-electric power at Niagara Falls.
A little over a year ago, we were put on time-of-day metering programme with huge incentives to use electricity during the off-peak periods, and some minor incentives to use electricity during non-peak daytime periods. The peaks are different in the summer (afternoon is the peak) and the winter, when the early morning and early evening are the peaks.
Here is our electricity use during the past 13 months.
Two things stand out:
Time-of-day pricing makes good sense, especially now that it is feasible with low-cost technology. It encourages people to shift their usage to the non-peak periods and hence place less pressure on the capacity of the system, reducing the costs of providing electricity to everyone over the year.
From Carpe Diem via JB (my favourite drug dealer),
Charles Morris (who accurately predicted the crash of 2008) discusses the main themes of his new book “Comeback: America’s New Economic Boom” with NPR, here’s an excerpt:
It’s the best-kept secret in the economics media: The United States is on the brink of a period of solid, long-term growth rivaling that of the 1950s and 1960s. It is not a finance-driven, self-destructive boom, like the 2000s’ housing bubble. No, the new economy will be durably grounded in energy and heavy manufacturing, even though it will take several years to come to full fruition.
Why haven’t you heard about the boom? Official economic forecasters, like the International Monetary Fund and the Congressional Budget Office, simply have not factored America’s emerging new economy into their forecasts. Instead, they still see us limping along at an average of 2 to 2.5 percent real (after inflation) growth to the farthest horizon — a hobbled, aging power, borne down by debts and deficits, shorn of its old bounce-back vigor, tottering along just fast enough to stave off out-and-out stagnation.
The most salient is the sudden emergence of the United States as a major energy producer. A recent U.S. Geologic Service study concluded that the Bakken Shale in North Dakota and Montana, already crowned as the U.S.’s largest-ever gas and oil reservoir, has far greater recoverable reserves than previously thought. At about the same time, a team from the University of Texas completed a well-by-well analysis of the Texas Barnett Shale — the most intensively developed shale field in the world — and confirmed that the fields can support decades of further development. The current official estimate — that by 2020 or so the U.S. will surpass Saudi Arabia in oil output, and Russia in gas — remains on track, and the country will be a major global energy producer far beyond that, which will do wonders for the U.S. trade deficit.
Energy production is a good job producer, offering classic blue-collar jobs at high pay to people without college degrees. Oil and gas rig workers can pull down $100,000 annual incomes before they’re thirty. Daniel Yergin, a leading energy analyst,estimates that the sector now accounts for 1.7 million jobs, including energy production itself, its direct supply chain, plus the multiplier effects from the additional spending power.
Each shale well requires up to 100 tons of high-quality steel pipe; fleets of specially adapted trucks and trailers; a small hangar of earthmoving, drilling and other equipment; specialty chemicals, sands and ceramics; and some very high-end seismic and other underground imaging gear. Many of these products are now U.S. specialties. According to the annual Oil & Gas Journal survey, American oil and gas industry investments will total $348 billion in 2013, equivalent to about 2 percent of GDP, with much of the investment flowing in from overseas.
This analysis should apply equally to southern Saskatchewan and southern Alberta. Indeed, economic activity seems to be at a feverish pace in these regions as well as in ND and Montana. But if these shale fields will produce tonnes of oil and gas, so will similar fields in China, western Russia, and who knows where else.
So the global economy likely has very cheap fossil fuels to look forward to for the next century at least.
So much for "peak oil", energy dependency, and the "need" for renewable energy for a long time.
Bjørn Lomborg is one of the most realistic environmentalists I've ever read. He goes beyond alleged benefits and looks at costs and feedback effects, and he pays attention to the impacts of changed/distorted incentives. In a recent piece in Slate, he takes on the folly of Earth Hour, scheduled for March 23rd.
[T]he reality is that Earth Hour teaches all the wrong lessens, and it actually increases CO2 emissions. Its vain symbolism reveals exactly what is wrong with today’s feel-good environmentalism.
... Hypothetically, switching off the lights for an hour would cut CO2 emissions from power plants around the world. But, even if everyone in the entire world cut all residential lighting, and this translated entirely into CO2 reduction, it would be the equivalent of China pausing its CO2 emissions for less than four minutes. In fact, Earth Hour will cause emissions to increase.
As the United Kingdom’s National Grid operators have found, a small decline in electricity consumption does not translate into less energy being pumped into the grid, and therefore will not reduce emissions. Moreover, during Earth Hour, any significant drop in electricity demand will entail a reduction in CO2 emissions during the hour, but it will be offset by the surge from firing up coal or gas stations to restore electricity supplies afterward.
And the cozy candles that many participants will light, which seem so natural and environmentally friendly, are still fossil fuels—and almost 100 times less efficient than incandescent light bulbs. Using one candle for each switched-off bulb cancels out even the theoretical CO2 reduction; using two candles means that you emit more CO2.[emphasis added].
... To green the world’s energy, we should abandon the old-fashioned policy of subsidizing unreliable solar and wind—a policy that has failed for 20 years, and that will fail for the next 22. Instead, we should focus on inventing new, more efficient green technologies to outcompete fossil fuels.
If we really want a sustainable future for all of humanity and our planet, we shouldn’t plunge ourselves back into darkness. Tackling climate change by turning off the lights and eating dinner by candlelight smacks of the “let them eat cake” approach to the world’s problems that appeals only to well-electrified, comfortable elites.
In this 18-minute video, Matt Ridley explains why and how the use of fossil fuels is contributing to the greening of the planet:
From Reason magazine (h/t JB):
Over the past three decades, our planet has gotten greener!
Even stranger, the greening of the planet in recent decades appears to be happening because of, not despite, our reliance on fossil fuels. While environmentalists often talk about how bad stuff like CO2 causes bad things to happen like global warming, it turns out that the plants aren't complaining.
As I said before, I absolutely love windswept openness. And the west end of Molokai has LOTS of it.
The short, scrubby trees you see in the above two photos are kiawe. More about them later.
The dirt on most Hawaiian islands is red, presumably from the iron in the magma and lava (though I'm not sure). We all remember the red mud we encountered many years ago when our family climbed Olomana on Oahu, and it is abundant here, too. The dust is red, too, and it gets on everything, including inside the condo and on the roadside guardrails.
There were a number of imports to the islands that didn't work out very well. The Japanese emperor donated some small deer. These have thrived on Molokai, but during dry periods they go down into the condo complex, looking for edible vegetation.
Another import was the mongoose. Reportedly Mongeese (?) were brought to the islands to hunt the rats, but that didn't work out very well because they are active at different times of the night and day. But the mongoose holes can be serious and dangerous.
A third import, and one that is really horrid now, was the kiawe tree. I'm told it was originally imported to be raised as a source of firewood. And that might have been successful in the days when wood was the only source of carbon fuel. But the trees have spread and have nasty thorns. Several times I had thorns from downed twigs or branches stick into my shoes or sandals (fortunately, they didn't go through, but they certainly do go through flip-flops). Nevertheless, kiawe are beautiful, gnarly trees.
I recently received a call for papers from The International Journal of Sustainability Economics. I am, to say the least, skeptical about the economics that appears in such a journal.
At the beginning of 21st century the sustainability concept was mainly a basis for developing policies consistent with a continued use of resources into the future without causing environmental crisis. But the situation has evolved, and the global economic crisis in 2009 was the ultimate consequence of short-term economic thinking. We need a new form of economic development, addressing the needs of the present without undermining the needs of the future. The International Journal of Sustainable Economy (IJSE)addresses sustainability issues within economic theory and analysis.
Every time I read things on sustainability, I am struck by how rarely people mention using prices to promote sustainability.
If people are so convinced that we are going to run out of x, y, or z, I encourage them to buy up access rights and options to mine/harvest/whatever x, y, or z. If they are right, they'll serve two functions:
But nope. Most people who write about sustainability have all sorts of plans for how to interfere with the price system, plans for telling others what to do, and plans for imposing their own forecasts on others who don't share them.
I wish people who are concerned about sustainability would do more speculating and less preaching. I wish they would do more to encourage the use of prices and less to interfere with those very speculators who are doing so much to make sure we have resources for the future.
After things got off to such a questionable beginning, I was quite pleased as the day wore on.
First, the Saskatchewan Minister of Energy said (as a minor part of an otherwise forgetable speech) that people in the West might accept the proposition that carbon taxes are a good idea, but one thing they will not tolerate is having the Canadian federal gubmnt impose carbon taxes on the western provinces and then redistribute the funds to the eastern provinces [shades of the old National Energy Programme, as I said earlier]. I don't know how the provinces will stop the feds, but I can see constitutional challenges on the horizon....
The primary afternoon session that I attended included Jeremy de Beers [law, University of Ottawa] who knows a LOT about biofuel production and trade. He and I had a great talk after his session, during which he said that if gubmnts would set a carbon tax then all the other rent-seeking nonsense would be unnecessary [my words, not his]. Another of the panelists in the session was Stever Dorey from Charles River Associates (based in Trono). He was very astute in his discussion of energy policy and noted that regulations create incentives for mischief-makers to create more mischief [a reference to rent-seeking in the guise of being in the public interest].
As I say in the title of this posting, it was a worthwhile session, seeing that there were presenters here who recognize the importance of prices, incentives, public choice mechanisms, and the private sector.
But the concluding session was a bit of a bust, again, with general, vague statements that seemed more like something from "planners" than should be taken seriously.
As I listen to the speakers and look through the programme for today's conference (available here), I see that every person on the programme is paid by taxpayers, directly or indirectly. There are professors of policy, representatives of consulting firms with gubmnt contracts, bureaucrats, and politicians. It would be a much better-balanced programme if there were representatives from, say, C.D. Howe or The Fraser Institute, here as well. As it is everyone who has spoken is really into planning, which, of course, concerns me considerably. Examples:
Where is Hayek when we need him (and I simply cannot pinch hit for him given my own inabilities). Someone needs to quote Hayek on the importance of markets to provide incentives and especially information.
Update: Hayek said it so well in 1945. Please, please read this.
The opening panel is introduced with the question "Where is Energy Policy?" I simply cannot fathom what that means, so we're off to a good start! And of course problems like gasoline line-ups (in the US! not Canada!) etc. are used as examples that we don't have an energy policy, when in fact they are the result of energy policy. The word "crisis" has already emerged.
Damn. Too bad I didn't think to set up an "Energy Policy Cliche" Bingo game.
The next cliche: Let's get people talking about these crucial issues.
Why does it matter that Saskatchewan is an energy exporter? My guess is that it matters to people in Ontario who think they have some sort of claim to Saskatchewan's energy.... shades of Canada's National Energy Programme in the 1970s.
Surprise, surprise: the provincial deputy minister of energy says it energy policy should be a provincial policy.
"Energy policy is too important to be left to economic ideology..." Says a CEO of a firm that depends on gubmnt contracts. Surprise!
I can't keep blogging this on such a detailed basis. More later.
I'm attending an all-day conference called "Taking Charge: Towards an Integratred Energy Policy for Saskatchewan." My priors are that "energy policy" means several things:
My observations and comments will follow as the day progresses.
For over five years I have been questioning the scare-writings of those who subscribe to "peak oil" hypotheses. Surely as world oil supplies dwindle, the supply curve will shift to the left and prices will be bid upward. The higher prices will reduce the quantity demanded. And surely, in anticipation of such price increases, people will step up exploration activities and and speculators will hold oil off the market now in anticipation of earning higher profits in the future. For example, see this for my earlier writing on the subject; also this.
In today's NYTimes, Michael Lynch develops these same themes. It seems people continually need to be reminded about the importance of incentives, expectations, speculation, and the basics of supply and demand. Lynch writes,
While peak-oil advocates have in the past ridiculed optimistic industry expectations, the evidence continues to confound them. Over recent decades, the consensus estimates of the amount of recoverable oil on the planet have roughly doubled. And recovery rates — the percentage of those reserves that we are technologically able to collect — have grown from 10 percent a century ago, to 25 percent a half-century ago, to an estimated 35 percent now. In some areas, like the North Sea, the figure is above 60 percent.
There are several other reasons to remain calm about Saudi reserves. Officials there have discovered approximately 70 major oil fields that they have left untapped over concerns that increased Saudi production would cause global oil prices to collapse.
He quite sensibly adds,
None of this is to say that importing Saudi oil — or any oil — is desirable in and of itself. Oil remains a political commodity, and price fluctuations can create economic havoc, so the more good choices we have for meeting our energy needs, the better. But we should not let a false panic over disappearing oil reserves lead to rushed government investments in “technologies of the future” that, all too often, end up only wasting taxpayer money.
It appears that Don Boudreaux and Brad DeLong are negotiating/feuding over the terms of a Julian Simon-Paul Ehrlich type bet about the future prices of commodities [See this]. From what I've read of their exchange, it appears that Boudreaux offered a bet to DeLong with the following terms:
let’s make a bet very much like the famous bet that Julian Simon and Paul Ehrlich made in September 1980.
Because of inflation, I propose that the wager be larger than the Simon-Ehrlich amount. How about $2,500? And I offer to you terms similar to those that Julian offered to Ehrlich. Like Ehrlich, you can choose whichever bundle of five or more raw materials you like, and choose which (professionally respected) means to be employed for adjusting nominal prices for inflation.
The bet will be for a duration of at least ten years, but no longer than 15 years. (You choose.)
DeLong countered with this offer of a bet:
... that the real price of West Texas Intermediate crude oil would be higher than $20 per barrel in 2031.
When Boudreaux responded that he was on the way to a funeral and would respond completely in a day or so, DeLong posted that Boudreaux had declined to accept the bet. [for which he has since apologized]
I think DeLong's counteroffer is ridiculous; why not make a Simon-Ehrlich type bet about future prices relative to current prices? But if Delong doesn't think his counteroffer is ridiculous, he can take me up on this one:
Brad DeLong, if the price of West Texas Intermediate crude oil is less than $100,000/barrel (US $) on Jan 1, 2025, you owe me $100 Cdn. If the price is greater than $100,000/barrel (US $) on Jan 1, 2025, I owe you $100 US.
Since I'm old, I'll even make the outcome of the bet an obigation for my estate, if you wish.
A very telling suggestion for renaming the Chevy Volt. The Coyote Blog points out that not only will the Volt Bastiat be expensive, it won't save much on fuel costs and it won't reduce the carbon footprint much [h/t Kip].
I am thinking about renaming the Chevy Volt the Chevy Bastiat. Because the entire vehicle concept is based on the hope that people will ignore the unseen. Specifically, those pushing the vehicle are hoping that buyers will just assume the electricity for the vehicle is free (after all it is not separately metered) and that the CO2 footprint is zero (despite the fact that in states like Michigan, an electric car is essentially powered by coal combustion.
For more on Frederic Bastiat, see this.
Update: a colleague writes, "I guess its more symbolism - almost like wearing a religious symbol.. The Chevy Hairshirt?"
I posted the video yesterday, with comments by Ross McKitrick, one of the calmest, most level-headed researchers about climate and the environment that I know of. As one might readily imagine, others are less reserved with their comments, but some of the better ones are summarized here by Ed Driscoll. Many of the comments reproduced there are witty, others are insightful. And there are several additional examples of tasteless videos produced by various organizations.
Also, Chris Essex, a co-author (with McKitrick) of Taken by Storm, points out in an e-mail message that the very scheme of the 10:10 video is nonsense:
Aside from the passive-aggressive blood letting, 10% [reduction of carbon use] per year over ten years would take you down to about a third. All of the suggestions that were warmly received in these skits have not the slightest hope of doing this. Turning out the lights and sitting in the dark won't even do it. This is completely empty even for people who are game for the numbers. So we must conclude that this it not about numbers. It's about whether you are with the mindset. Believe or else.
Addendum: The rabid moralists impose a death fatwah on the non-believers.
What Paul Heyne refers to as "The Law of Demand" says that as prices rise, ceteris paribus, people will in general want to buy less of the product. It is true for energy as well as every other product.
So if additional energy conservation is somehow "a good thing", then a great way to reach that goal is force energy prices up. In fact, that is what has been done in Copenhagen:
How, then, has Denmark been so successful in managing its carbon emissions? The answer lies not with the source of power, but with the price of power. At 30 cents per kilowatt hour, electricity costs anywhere from three to five times what the average North American would pay. And, not surprisingly, Danish households consume a fraction of the power that we do....
The other reason commonly cited for Denmark’s success at carbon management is cars—or, more precisely, the lack thereof. Nearly everyone in Copenhagen seems to be riding a bicycle. At first I thought this was testament to the environmental consciousness of the populace, or at a minimum, to a commitment to physical fitness. Then I checked out what it costs to buy a car....
Depending on how many horses are under the hood, Danish car buyers pay a tax ranging anywhere from 100 to 180 per cent of the sticker price of the vehicle. In other words, when you purchase a car in Copenhagen, you can pay almost as much as if you were buying three cars in North America. At that tax rate, I’d be riding a bike too.
What I learned from my trip to Copenhagen is that you don’t have to be a world leader in green energy technology to cap your carbon emissions. Just charge 30 cents per kilowatt hour for power, and slap a 180 per cent surcharge on vehicle prices. Consumers will do all the rest.
That piece is by Jeff Rubin and appeared in The Globe and Mail. It's a great example of how to use prices to conserve scarce resources, assuming there is a good reason to conserve them.