Archive for the ‘Energy and Environment’ Category
Be Afraid — Be Very Afraid
Light rail is on the ballot this November in Kansas City and Seattle. Commuter rail is on the ballot in Sonoma and Marin counties, California. BART heavy rail is on the ballot in San Jose.
These rail plans will cost billions of dollars each (hundreds of millions in the case of Sonoma-Marin), yet take few to no cars off the roads. The energy, pollution, and greenhouse gases generated during construction will vastly outweigh any operational savings, which in some cases will be nil. The plans are supported by a baptists-and-bootleggers combination of rail nuts and companies, like Parsons Brinckerhoff, that expect to make millions during construction.
But the real ballot measure to fear is California’s proposition 1A, which would authorize the sale of nearly $10 billion in general obligation bonds to build a high-speed rail network from Sacramento and San Francisco to Anaheim and San Diego. This $10 billion, combined with $10 billion from the feds and $5 billion in private money, was supposed to pay for the $25 billion system. The plan was to turn the system over to the private investors, who would operate it and keep 100 percent of the profits.
No Dice, Pickens!
Last Thursday on public radio’s Marketplace Morning Report, Bob Moon interviewed billionaire T. Boone Pickens about his highly self-publicized energy plan, which centers on using wind power to replace a portion of the natural gas used to create electricity, and then using that replaced natural gas to power cars. As it happens, Pickens has invested in a big way in windmills and is extremely well placed to profit from an increase in the use of natural gas-powered vehicles. But the part that bothers me most isn’t the fact that a billionaire is running a propaganda campaign in an effort to rig the regulatory structure to force consumers to buy what he sells — though that bothers me plenty. The part that bothers me most is the mixture of toxic nationalism and egregious economic illiteracy in the ads Pickens is airing to plump for his plan. Which brings us back to Moon’s interview with Pickens:
Moon: Let me ask you to respond to something that Will Wilkinson of the Cato Institute said in a commentary on Marketplace the other day. Here’s some of his criticism of you:
Will Wilkinson clip: He’s leaning hard on our worst nationalist impulses. What he’s really saying is, why buy the things you need from dangerous foreigners when you could be paying more to buy them from rock-ribbed Americans, like T. Boone Pickens.
Pickens: It’s more than me. I mean, this is about America. This isn’t about Boone Pickens and whether Pickens’ wind farm makes money or whatever happens to it. But I mean, here with $700 billion going out of the country, and let’s say that we could cut it in half — $350 billion in the United States, can you imagine how that would multiply for jobs here. I’d much rather that gonna $350 billion was being used here than to give some for foreign oil.
Allow me to point out that Pickens’ reply is nonsense. He continues to insist on characterizing mutually-beneficial exchange across borders as hundreds of billions of American dollars “going out of the country.” But, in a nutshell, the reason Americans bought all this oil from abroad was that they had no way to get more energy bang for their energy buck. Unless the prices of domestic energy sources decline relative to that of foreign oil, shifting domestic consumption to energy from domestically-produced sources will require Americans to pay more for energy–leaving them less for everything else.
This is not a recipe for multiplying jobs. Rather, it would leave less money in the economy to start new businesses and to expand successful ones. This is a recipe to make ordinary American consumers poorer and energy corporations, like the ones Pickens owns, richer. If Pickens was making sense, the implication would be that Americans would be better off if we “in-sourced” everything. T. Boone Pickens, meet David Ricardo.
Either one of the world’s wealthiest men doesn’t understand elementary economics, which clearly tells us that his plan will make Americans poorer, or his plan is not really “about America.”
Here’s my July 31st Marketplace commentary on Pickens. And here’s Cato’s Jerry Taylor in March debunking “energy independence.”
Bipartisan Nonsense on “Energy Independence” and Trade
Sen. John McCain reinforced his bipartisan credentials Thursday evening by sounding as confused as the Democrats on the nation’s assumed need for “energy independence.”
In his acceptance speech at the GOP convention in St. Paul, McCain pledged federal support for alternative energy so the United States can reduce the amount of energy it imports from abroad. “When I’m president,” McCain told cheering delegates, “we’re going to embark on the most ambitious national project in decades. We are going to stop sending $700 billion a year to countries that don’t like us very much. We will attack the problem on every front.”
He then pledged his support for more offshore drilling, nuclear power plants, wind, tide, solar and natural gas.
Whoa! Before we embark on a project that could cost tens or hundreds of billions of dollars, let’s get the facts straight. Specifically, where did that $700 billion number come from?
That is far more than what we pay for imported energy. In 2007, Americans spent less than half that amount—$319 billion—for imported energy of all kinds, including oil and natural gas. Even with higher energy prices in 2008, our total bill for imported energy this year will be nowhere near $700 billion.
Contrary to popular perception, most of our oil imports come such friendly countries as Canada, Mexico, Colombia, Brazil, and the United Kingdom, or from more neutral suppliers such as Iraq, Kuwait, Nigeria, Angola, Chad and Congo (Brazzaville). Only a third of our imported oil comes from the major problem countries of Saudi Arabia, Venezuela, Algeria, Ecuador and Russia. We don’t import any oil directly from Iran. [You can check out the latest Commerce Department figures here.]
Great Moments in Subsidized Train Travel
I once ran out of gas in college, so I suppose I shouldn’t throw too many stones at Amtrak’s glass house, but presumably somebody actually gets paid to make sure that trains don’t leave stations without enough fuel to make it to their next destination. According to the AP report, Amtrak will be investigating how this happened on a trip from LA to San Diego. Needless to say, don’t expect anyone to be held accountable:
A quick train trip down the coast turned into a long haul for more than 80 Amtrak passengers when their train from Los Angeles to San Diego ran out of fuel Sunday night. …The train, which had left Los Angeles at 8:30 p.m., didn’t get there until 1:15 a.m. Monday, two hours late. A train running out of fuel is “an unusual occurrence” and Amtrak officials will be looking into how it happened, Cole said.
Energy Dust-Up in LA
This week, the Los Angeles Times has invited me to participate in a daily on-line debate (a regular feature they sponsor called “Dust-Up”) with V. John White, executive director of the Center for Energy Efficiency and Renewable Technologies. Monday, we debated off-shore drilling. Today, we debated the T. Boone Pickens’ energy plan. Tomorrow, we’ll debate nuclear energy. Thursday, the issue is the future of the automobile. Friday, the topic is what America’s energy economy will and/or should look like in a generation. While our exchanges won’t be in the newspaper’s print edition, I’ll take the on-line exposure.
So far, I don’t think John has laid a glove on me. In the off-shore drilling discussion, John has a hard time differentiating between electricity markets and transportation markets. To say that we should rely on wind, solar, or whatever — and not oil — is to say that we should rely on batteries to run our automotive fleet. Well, that would be great, but until some pretty big-time breakthroughs occur in battery technology, that’s not going to happen. Regarding T. Boone Pickens’ energy agenda, I’m still waiting for a concrete argument about why markets “fail” to produce all the investment dollars that this supposedly worthy industry needs.
Tomorrow’s debate will likely produce few sparks. I’m against nuclear energy subsidies and don’t think the industry would survive without them. Thursday and Friday, however, will be more interesting. I don’t have the faintest idea what sort of personal automobiles will be on the market in, say, 2030, and even less idea what the energy economy of the next generation will look like. I suspect, however, that John thinks it’s all rather obvious where energy markets and technologies are heading and that he has the perfect master plan to most efficiently accelerate all the big-time changes that history has in store for us.
Saying “I don’t know” to questions like these is never that good of an idea if you want to dazzle people with your wisdom and insight. On the other hand, it’s hard to marshall the argument that “the oil age is over and the age of genetically modified gerbils on treadmills is coming” (or whatever) and then say that the government needs to do something to get us there. Well, if its so inevitable, then why must government act at all? We’ll find out if John can manage to resolve that tension in what will likely be his argument.
Gasoline Affordability Reconsidered
Last Monday, the Los Angeles Times published an op-ed written by Indur Goklany and me about gasoline prices. Yesterday, it ran in the Minneapolis Star Tribune Today, that same piece has been posted at the Christian Science Monitor and it will appear in their print edition tomorrow. Our argument: Once you adjust gasoline prices in 1960 for both inflation and changes in per capita disposable income, you find that gasoline prices today are actually more affordable than they were back then. Faithful Cato@Liberty readers might well recognize this argument given that it was first offered in a blog post here a few days back by Indur Goklany.
While the predictable grousing on the newspaper comment boards followed (hell hath no fury like a motorist who thinks he was told to stop whining about pump prices), some commenters raised a legitimate issue: Would the picture change if we used median per capita income rather than mean per capita income in our analysis? Well, yes. But not by that much. Let’s walk through the numbers.
First some background. Income data come from two very different sources. Disposable income data are produced by the Bureau of Economic Analysis (BEA), an arm of the U.S. Department of Commerce, as part of its effort to estimate the gross domestic product (GDP). Data on family and household income come from surveys conducted by the Census Bureau.
Disposable income per capita or mean disposable income is simply total disposable income divided by the population of the United States. Median disposable income data, however, are not available because the GDP data do not come from household surveys. Only surveys allow us to rank order all the households (or families) and find the number that divides the bottom 50 percent from the top 50 — the definition of the median.
Median income estimates from Census data (the Current Population Survey or CPS) are available only for households and families. Data regarding median household income are only available from 1967 to the present, so the only measure available to us for longer term analysis is median family income. But BEA and CPS definitions of income differ. In 2001 for example, BEA personal income totaled $8.678 trillion while CPS money income totaled $6.446 trillion. The two income time series differ in important ways. For example, BEA data include property income and adjustments for underreporting of proprietor’s income.
With that out of the way, let’s get to the numbers.
(Leaded) Gasoline prices in 1960 averaged 31.1 cents per gallon. Median family income in 1960 was $5,620. In 2006 (the most recent year for which we have reliable data), median family income stood at $58,407. If the price per gallon were the same percent of median family income in 2006 as in 1960, the 1960 price would translate into $3.23 in 2006. Unfortunately, the (median family income) data aren’t yet available for calculations applying to 2007 or 2008.
The Answer to High Oil Prices and Global Warming? More Global Poverty, Less Immigration
Opponents of immigration are now trying to hitch their wagon to worries about high oil prices and global warming.
An ad on page A12 of today’s Washington Post asks, “If foreign oil has us over a barrel now, what happens when our population increases by another 100 million?” The text of the ad tries to provide the answer: “With America’s population at a record 300 million today, [oil] supplies are again tight in spite of record high prices. And the U.S. Census Bureau projects that another 110 million people will be added to our population between 2000 and 2040.” So, if we want lower oil prices, we need to reduce America’s population growth and that means reducing immigration. Get it?
The ad is sponsored by five anti-immigration, anti-population-growth groups, including the Federation for American Immigration Reform (FAIR) and Californians for Population Stabilization.
The ad provides no evidence that rising global demand for oil has been driven primarily or even significantly by population growth in the United States. In fact, our total oil consumption has actually declined compared to last year, while demand continues to rise in developing countries. The two previous big spikes in global oil prices, in 1973 and 1979, occurred when the U.S. population was 80 to 90 million LOWER than it is today.
The future direction of oil prices will be determined by such factors as energy efficiency, economic growth in emerging economies, oil production, and development of alternative energy sources. Immigration rates to the United States won’t matter.
As though on cue, the Center for Immigration Studies released a report this morning with the headline, “Immigration to U.S. Increases Global Greenhouse-Gas Emissions.” The report argues that immigration “significantly increases world-wide CO2 emissions because it transfers population from lower-polluting parts of the world to the United States, which is a higher-polluting country.”
What the CIS study is really arguing is that rich people pollute more than poor people, so the world would be better off if more people remained poor. The same argument could be used to oppose economic development in places such as China and India that has lifted hundreds of millions of people out of poverty in the past two decades.
Through the dark lens of CIS, the world is a better place when poor people remain stuck in poor countries, and poor countries remain poor.
Cato Unbound: Jim Manzi on the Costs and Benefits of Climate Policy Alternatives
In the lead essay for August’s Cato Unbound, Jim Manzi weighs various climate proposals and finds them wanting. He begins by putting the economic costs of global warming in perspective:
This is the central problem for advocates of rapid, aggressive emissions reductions. Despite the rhetoric, the best available estimate of the damage we face from unconstrained global warming is not “global destruction,” but is instead costs on the order of 3 percent of global GDP in a much wealthier world well over a hundred years from now.
It should not, therefore, be surprising that formal efforts to weigh the near-term costs of emissions abatement against the long-term benefits from avoided global warming show few net benefits, even in theory. According to the modeling group led by William Nordhaus, a Yale professor widely considered to be the world’s leading expert on this kind of assessment, an optimally designed and implemented global carbon tax would provide an expected net benefit of around $3 trillion, or about 0.2 percent of the present value of global GDP over the next several centuries. While not everything that matters can be measured by money, this certainly provides a different perspective than the “Earth in the balance” rhetoric would suggest.
This month’s issue should be a lively one, with responses on the way from Joseph Romm, Indur Goklany, and Michael Shellenberger and Ted Nordhaus. We hope you’ll find much to think about as the debate unfolds.
Inflate Your Tires; Save 100% of Your Gasoline
Here’s how.
Get your favorite politician. Democrat, Republican, or whatever; it doesn’t matter.
Connect mouth to valve.
Ask, “What’s your energy policy.” Hot air will inflate tire.
“What about the environment?” More inflation.
“Should wind be subsidized?” And so forth, until tire blows.
Flat tire! Now you aren’t going anywhere.
And — voila! — gas consumption now zero.
You’ve saved 100 percent of your gas.
… Only problem – you’ll need a new tire, which is mainly petroleum.
A Falling Oil Price Is NOT Lower Inflation
I recently explained that, “If [the price of] oil keeps falling, then headline inflation will drop below the ex-energy rate, and the ex-energy rate will itself drop thanks to cheaper transportation and petrochemicals.” This followed my equally controversial (at the time) June 3 column, “Get Ready for the Oil-Price Drop.”
Blogger Stefan Karlsson thought I had said “inflation is not a problem.” Huh?
What I said was that a monthly or year-to-year increase in the overall CPI “gives us a fair picture of what has happened to the cost of living over the past month or year. But it’s near-useless for telling us where inflation is headed in the future.”
I offered a graph and several examples. The price of oil fell this February, for instance, and that month’s CPI was unchanged – zero. Did that mean inflation was zero? Of course not. Should the Fed have eased that month because oil prices fell? Of course not. So why couldn’t reporters follow that same common sense when oil prices spiked in June?
The May 1991 CPI was 5 percent from a year earlier, I noted, “but it dropped to 2.9 percent within five months, as oil fell 35.3 percent.” When that happens again this year, it will not mean inflation is any less of a problem than it is right now. It will just mean the price of oil came down.
What I wrote is backed by recent research within the Federal Reserve:
- Todd Clark of the Kansas City Fed found “the CPI ex-energy offers statistically significant explanatory power for future [headline] inflation.”
- Robert Rich and Charles Steindel of the New York Fed found “the ex-energy measure generally maintained its better forecasting record for . . . inflation over the longer sample period.”
- On a closely related topic, Rajeev Dhawan and Karsten Jeske of the Atlanta Fed found that “using headline inflation” to guide Fed policy “appears to be a bad idea, both in terms of the output drop and the inflation impact.”
Those who thought the Fed should have raised interest rates in June because oil prices pushed the CPI up will soon be logically obliged to say the Fed should keep interest rates low or lower just because falling oil prices will be pushing the CPI down. I agree with Dhawan and Jeske on this. I think the Fed should and will raise the (fed funds and discount) interest rates on bank reserves. But I won’t revise that opinion with every up and down in the price of oil.
Disclosure: I own shares in an ETF that shorts oil (DUG) and a mutual fund than shorts precious metals (SPPIX). This is called putting your money where your mouth is. SPPIX was $16.81 on July 18 when my inflation article appeared, but up 26% to $21.22 by August 5.
McCain, Obama, and Clean Coal
After you’ve watched federal policymaking for a number of years, you realize that the actual effectiveness of federal programs has absolutely no bearing on their survival or level of funding. That’s because the purpose of federal programs is not to solve problems, but to provide a menu of levers that politicians can pull to appeal to certain types of voters.
We see this at play in the 2008 election with “clean coal,” which has attracted the attention of both candidates. Obama wants to “significantly increase the resources devoted to the commercialization and deployment of low-carbon coal technologies.” Meanwhile, McCain has pledged to spend $2 billion a year on clean coal technology if elected.
Since these pledges make for good bullet points in speeches, the campaigns don’t really care about the actual track record of federal subsidies to clean coal. But after the election, the next president should hesitate to increase such corporate welfare. Here is what I noted in Downsizing the Federal Government:
The federal clean coal program funds projects that burn coal in an environmentally friendly way, but the program is not very taxpayer-friendly. The Government Accountability Office found that many clean coal projects have “experienced delays, cost overruns, bankruptcies, and performance problems.” [GAO-01-854T] The agency examined 13 projects and found that “8 had serious delays or financial problems, 6 were behind their original schedules by 2 to 7 years, and 2 projects were bankrupt.”
One clean coal project in Alaska gobbled up $117 million of federal taxpayer money during the 1990s.[Washington Post, April 24, 2005] But the project never worked as planned, it cost too much to operate, and it was finally closed down as a failure. But project failure is not a problem in Washington because costs are benefits to politicians. Thus in 2005 Republican legislators inserted $125 million of taxpayer money into an energy bill to revive the failed Alaska project.
Choosing What to Worry About
Paul Krugman’s column in today’s NYT laments the lack of a national policy to combat global warming. He writes:
It’s true that scientists don’t know exactly how much world temperatures will rise if we persist with business as usual. But that uncertainty is actually what makes action so urgent. While there’s a chance that we’ll act against global warming only to find that the danger was overstated, there’s also a chance that we’ll fail to act only to find that the results of inaction were catastrophic. Which risk would you rather run?
He then cites the work of Harvard economist Martin Weitzman, who surveyed the results of a number of recent climate models and found that (in Krugman’s words) “they suggest about a 5 percent chance that world temperatures will eventually rise by more than 10 degrees Celsius (that is, world temperatures will rise by 18 degrees Fahrenheit). As Mr. Weitzman points out, that’s enough to ‘effectively destroy planet Earth as we know it.’”
Krugman concludes, “It’s sheer irresponsibility not to do whatever we can to eliminate that threat” and he calls for opprobrium against those who might impede global warming legislation: “The only way we’re going to get action, I’d suggest, is if those who stand in the way of action come to be perceived as not just wrong but immoral.”
There is merit to the argument that society should consider a policy response to the threat of global warming. A small chance of an enormous calamity equals a risk that may deserve mitigation. That’s why people buy insurance, after all.
However, Krugman doesn’t accept that argument — at least, not when applied to other worrisome risks that trouble people whose politics are different than his. Less than two months ago, he wrote this about another future crisis:
[O]n Friday Mr. Obama declared that he would “extend the promise” of Social Security by imposing a payroll-tax surcharge on people making more than $250,000 a year. The Tax Policy Center estimates that this would raise an additional $629 billion over the next decade. But if the revenue from this tax hike really would be reserved for the Social Security trust fund, it wouldn’t be available for current initiatives. Again, one wonders about priorities. Whatever would-be privatizers may say, Social Security isn’t in crisis: the Congressional Budget Office says that the trust fund is good until 2046, and a number of analysts think that even this estimate is overly pessimistic. So is adding to the trust fund the best use a progressive can find for scarce additional revenue?
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