Archive for the Energy Category

Jeremy Carl

 

In a time of continuing budget deficits and record-high taxes, Californians are currently spending billions of dollars annually on eleven different, often overlapping, renewable and distributed energy programs, with no clear lines of decision-making authority and little accountability or transparency.

If California is to move to an affordable and modern energy future without bankrupting the economy or bringing down the electric grid, there needs to be fundamental reform of California’s energy governance and regulatory environment.  This is the key conclusion of a report on California’s renewable and distributed electricity programs released today by myself and several colleagues on behalf of the Shultz-Stephenson Task Force on Energy Policy.

 

Mr. George P. Shultz announces Hoover task force report on California energy policy

At a Power Association of Northern California (PANC) luncheon on Wednesday, November 28th, Mr. George P. Shultz introduced a new study by the Shultz-Stephenson Task Force on Energy Policy on renewable and distributed power in California. Mr. Shultz is pictured here with PANC president Les Guliasi. (photo credit: David Fedor)

 

Thomas and Susan B. Ford Distinguished Fellow George P. Shultz announced the release of this study yesterday afternoon at a meeting of the Power Association of Northern California, a trade group comprised of leading figures in California’s power industry. Secretary Shultz has been a leader in the fight for regulatory reform in government, and has increasingly turned his attention to the importance of regulatory reform in California’s energy sector.

Click to read more.

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Victor Davis Hanson

Dependent No More

There is a revolution going on in America, but it is not driven by the tea party or the Occupy Wall Street protests.

Instead, massive new reserves of gas, oil, and coal are being discovered almost everywhere in the United States, thanks to revolutionary methods of exploration and exploitation such as hydraulic fracturing (fracking) and horizontal drilling. Recent prices above $100 a barrel make even difficult efforts at recovery enormously profitable.

There were always known to be additional, untapped reserves of oil and gas in the petroleum-rich Gulf of Mexico, off America’s shores, and in the American West and Alaska. But even the top energy experts never imagined just how vast was the energy there—or beneath far more unlikely places such as South Dakota, Pennsylvania, Ohio, and New York. Some studies suggest that the United States has now expanded its known potential gas and oil reserves tenfold.

The strategic and economic repercussions of these new finds are staggering, and remind us how a once energy-independent and thereby confident American economy soared to world dominance in the early twentieth century.

America will soon again be able to supply all of its own domestic natural gas needs—and do so perhaps for the next ninety years, at present rates of consumption. We have recently become a net exporter of refined gas and diesel fuel, and already have cut imported oil from OPEC countries by one million barrels per day.

Continue reading Victor Davis Hanson…

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James Huffman

How Green Is My Folly

European parliamentarians want the upcoming United Nations Conference on Sustainable Development to demand that all nations hew to a sweeping legal claim: that international law forbids nations to amend or repeal laws designed to protect the environment.

Most of the European Parliament’s nonbinding resolution is a catalog of the usual appeals for green this and sustainable that, backed by mind-bending assertions such as the scarcity of resources is a “new and emerging problem” and “that a green economy must be focused on decoupling economic activity from resource use.” Hasn’t resource scarcity been the central theme of economic history? And exactly how would the green economy get by without resources?

The resolution also reiterates the well-trod “precautionary principle.” That’s the idea that the burden is on developers to prove their projects are without risk to the environment, rather than on environmentalists to prove environmental costs of development will exceed the benefits. If adhered to, the precautionary principle is like a trump card that can be played to stop almost any project. It’s the card that author Bill McKibben and his merry band of Keystone pipeline protesters have maneuvered Barack Obama into playing, notwithstanding the U.S. State Department’s carefully considered conclusion that the environmental risks of the pipeline are extremely low in relation to significant economic benefits.

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Paul Gregory

The venerable New York Times has been a reliable cheer leader for electric and hybrid cars in its A “news” section. Its "Business Day" section is for readers who base business decisions on what they read. They don’t want to be bothered with political correctness – just the facts. Except for a slip here or there, there is little difference between the Times Business Day and Wall Street Journalbusiness reporting. With its table “The Cost of Higher Fuel Economy,” the Times has blown the cover of the electric or hybrid car. They do not make economic sense even at much higher gas prices.

I see that Drudge has picked up this story. Now everyone will know the house of cards on which the Volt is built.

In its Payoff for Efficient Cars Takes Years (April 5), the Timespublishes a table that shows that buying an electric or hybrid car makes little business sense as compared to buying the closest conventional model from the same manufacturer. For example, a buyer choosing between a Chevy Cruze Eco and a Volt requires 27 years to break even. The best buy appears to be the Jetta TDI (which sells for only $500 more than the conventional Jetta) and breaks even in a year.

It takes much too long for the fuel savings to pay for the higher sales prices – even at $5 or $6 gas. It would take $12.50 gas to make the Volt a decent buy even after the $7,500 government credit.

The Times article concludes that people buy Volts and Fiesta SFE’s because it makes them feel better and more civic minded. That is not a very solid foundation on which to build a market.

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Gary Becker

More or less every American president starting with Dwight Eisenhower, and prioritized by Richard Nixon, called for American self-sufficiency in energy sources. In fact, America is now about self-sufficient in natural gas, and America’s oil imports have declined as a fraction of its total oil consumption from a peak of 60% in 2005 to about 50% in 2011. Part of the decline is due to the Great Recession’s effects on US output and automobile use. Another part is due to rising prices of oil that reduced oil imports, but increased spending on these imports. A third and growing part is due to increased domestic production of oil and especially gas that is likely to continue to grow rapidly during the next decade.

The main reason for the expansion in domestic gas and oil production is a technique called “hydraulic fracking”. Texas wildcatter George Mitchell was the most important person responsible for the development of the fracking method to extract gas from shale formations in the 1980s. This method uses large quantities of water under high pressure with added chemicals to crack open rocks and extract the gas, and sometimes oil, hidden in these rocks. The cost of using fracking for natural gas extraction has become so competitive that most US natural gas production comes from fracking. As a result, the price of natural gas has fallen from a peak of about $10.80 per million BTUs to $2.20 currently. Instead of building terminals that could import liquefied natural gas, energy companies are now trying to export more natural gas. US natural gas inventories are so bloated there is a possibility that the price temporarily could be forced down toward $0, or even to a negative level.

Continue reading Gary Becker…

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David Henderson

This is from Jim McTague, “Obama is Humbled by the Market,” Barron’s, March 24, 2012. Greg Mankiw linked to it this morning. I’m guessing that what caught Greg’s attention was the article’s advocacy of a tax on gasoline. I won’t bother revisiting that well-worn debate.

Instead, I want to focus on a paragraph that I bet Greg didn’t focus on, the one I reproduced above. I wrote about a similar proposal, a variable import fee on oil, in two articles (here and here) in the Energy Journal in 1989. A variable gasoline tax is not quite the same, but it would have a similar unintended, but completely predictable, consequence.

The argument I’m about to give rests on the assumption that the world oil market has an entity in it, OPEC, that has some market power. If you don’t believe that, then you won’t find the rest of the argument convincing. But notice that McTague does believe it. Check the quote from his article above.

Continue reading David Henderson…

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Keith Hennessey

Here is President Obama speaking in Ohio Thursday:

We also need to keep investing in clean energy like wind power and solar power.

…  And as long as I’m President, we are going to keep on making those investments.  I am not going to cede the wind and solar and advanced battery industries to countries like China and Germany that are making those investments.  I want those technologies developed and manufactured here in Ohio, here in the Midwest, here in America.  (Applause.)  By American workers.  That’s the future we want.

The President has picked three industries and is arguing for an industrial policy to subsidize them in part because other countries are subsidizing them.

Let’s extend this logic.  Suppose China or Germany starts subsidizing the biotech industry.  Should the U.S. government subsidize American biotech firms so that “those technologies [are] developed and manufactured … here in America, by American workers?”

What if China subsidizes web development firms, Germany subsidizes auto manufacturers, France subsidizes biotech firms, Japan subsidizes advanced battery firms, Brazil subsidizes ethanol firms, and South Korea subsidizes chip manufacturers?  Should the U.S. subsidize all of those domestic industries so that we don’t cede any of them?

What if the Canadian or Mexican government were to subsidize high-tech oil production firms, or Brazil to subsidize advanced tobacco production?  Is the President’s policy to keep here in American through subsidies all industries that other governments are subsidizing, or only the “good” industries that he thinks should be kept in America?

More generally, should the U.S. government (a) subsidize particular industries and if so (b) determine those subsidies based on what other countries are doing?

If we are to subsidize particular industries over others, how do we square that with the argument, made by the President and others, that we need to remove such subsidies from the tax code?

If the rule for structuring subsidies is to make sure we don’t cede certain industries to other countries, how is that different from giving the governments of those countries control over the shape and structure of the U.S. economy?

If the President wants to subsidize wind and solar power because he wants to accelerate the development of carbon-free alternatives to coal and natural gas, he should make that argument.  If President Obama is instead going to subsidize industries either because he likes them or because other Nations’ governments are subsidizing them, then we must acknowledge that he is engaged in industrial policy, aka state-managed capitalism, with an open question about whether the managing state is based in DC, Berlin, or Beijing.

(photo credit: Maryellen McFadden)

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Paul Gregory

It took President Obama’s Press Secretary Jay Carney to shock me to my senses. As someone who favors cutting government spending on clean energy and eliminating government subsidies in general, I was particularly distressed to learn (in Carney’s words) that “I am “aggressively and deliberately ignorant of the world economy not to know and understand that clean energy technologies are going to play a huge role in the 21st century.” Even worse, I learn that “I have a severely diminished capacity to understand what drives economic growth in industrialized countries in this century.”

And I had thought that if clean energy technologies were going to dominate the 21st century, private enterprise would figure this out and develop them itself. In my ignorance, I thought that subsidies are dictated by and for special interests not by economic rationality. I also believed that Solyndra and SunPower were not aberrations but representative of what is going on in Secretary Chu’s and Obama’s energy department. What I fool I have been.

I fear there I may be many like me. I suggest the President go on television to explain to why we are better off with higher energy costs and lower standards of living so that wealthy green lobbyists fill his campaign coffers and ordinary people like me buy Volts and solar panels.  Without Presidential direction on these things, we will be lost.

Continue reading Paul Gregory…

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Paul Gregory

More Speculation Nonsense

I regret that the “profitable speculation” diagram has disappeared from economics texts. If more people knew it, we could avoid unnecessary nonsense. Even observers from the right have no idea of the positive role of profitable speculation. Bill O’Reilly this evening launched another attack on speculators.

If Bernie Sanders’ (and others’) proposals succeeded in eliminating speculation, we would experience broader price and quantity swings and would be worse off.

The concept is very simple. If speculators anticipate lower future supplies (and higher prices), they buy now and hold for future sales. If they guess right, they sell in the future at a profit. If they guess wrong, they sell in the future for a loss. The profitable speculator has moved supply from a period of relative abundance to a period of relative scarcity and has smoothed out prices. We have been made better off.

In other words, profitable speculators perform a positive service for the economy. Unprofitable speculators make things worse, but they can’t stay in business if they continue to guess wrong. They disappear. Those with a knack for speculation remain and smooth out prices and supplies.

Notice that there is no outcry when speculators conclude that future supplies will improve and they push prices down.

I guess that people will never understand this simple proposition. So we’ll have to live with this hot air.

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