Topic: Energy and Environment

Do as We Say, Not as We Do (Enviro Edition)

If you want pure, unadulterated, gibbering environmental madness, you want to visit the Guardian or the Independent. Within those pages, you’ll find more over-the-top, doom-saying hysteria than in virtually any other collection of newspapers combined. And naturally, if you read the Guardian or Independent, you’re statistically quite likely to be among the most stone-cold envronmental extremists on planet Earth. 

What you won’t be, however, is someone who is statistically likely to live the life you propose to force others to live. In fact, you’re likely to be a far bigger environmental villain (at least, as Guardian readers would define the term) than those evil conservatives who read other U.K. newspapers and broadsheets. You’re less likely to invest in energy efficiency, less likely to economize on fuel, and, well, less likely to do just about anything that you want the government to force your fellow man to do. 

That, anyway, is the conclusion of a striking series of recently released studies reported, with some obvious chagrin, in the Guardian itself.

I’m not particularly surprised. A few years ago, I was in Aspen and had dinner with a friend and a large group of his acquaintances. One of them was quite exercised about the fate of the planet and quite proud of his solar-powered house … until my friend pointed out that his house was bigger than anything outside of a Third World palace and that the solar panels could scarcely keep his energy bills south of the annual GDP of half the counties in the United States. OK, I think that was an exaggeration, but after seeing the house from a distance, it probably wasn’t by much.

Global Warming — What Would Rawls Do?

If we accept the simplistic version of Rawls’ Theory of Justice — that we should measure the moral and ethical fiber of any society based upon the well-being of its worse off (and I’m sure Will Wilkinson will correct me if I screwed that up) — then what should we make of this story hot off the wires suggesting that global warming means more sex for weaker grey seals?

Whether we’re talking about John Rawls or Lou Rawls, I think you know the implications of this….

Another Blue Ribbon Energy Report Falls Flat

Yesterday saw the publication of yet another blue ribbon style report on energy policy, this one called Recommendations to the Nation on Reducing U.S. Oil Dependence, from the Energy Security Leadership Council.  The press went wild.  Color me unimpressed.

The authors of the report are convinced that America’s reliance on foreign oil is a dangerous thing.  But why?  Panicky narratives abound, but none of them are particularly well informed.

Consider the widespread concern about the prospect of being cut off from supply.  Relying on foreign producers for oil means that we might find ourselves without physical access to petroleum if those foreign producers were to decide to shut us out.  But that worry is only plausible if you fail to understand and fully appreciate the fungible nature of the global oil market.  As MIT oil economist M.A. Adelman once wrote:

Rarely has a word [“access”] been so compact of error and confusion. Nobody has ever been denied access to oil: anyone willing to pay the current price could have more than he wanted. One may assume what he likes about future demand, supply, and market control, and conclude that the future price will be high or low, but that price will clear the market in the future as in the past. The worry about “access” assumes something queer indeed: that all of the producing countries will join in refusing to sell to some particular buyer—for what strange motive is never discussed … it takes only one other country, with a desire for gain, to cure this irrationality. 

The 1973 oil embargo proves the point.  As Adelman notes,  

The “embargo” of 1973–4 was a sham. Diversion was not even necessary, it was simply a swap of customers and suppliers between Arab and non-Arab sources… .  The good news is that the United States cannot be embargoed, leaving other countries undisturbed. 

In short, the only way for producers to keep their oil out of America is to impose a military blockade of U.S. ports.  Market agents – not agents of the producer states – decide where oil goes when it enters the market.  As long as someone is willing to buy oil from a producing state and then sell it to the United States, no shut off is possible absent military force.

OK, so physical access isn’t the problem – our vulnerability to producer-induced price spikes is the real worry.  Or is it? 

Recent macroeconomic studies suggest that the economy is nowhere near as vulnerable to oil-induced recessions as once thought.  How else to explain the world’s gangbuster economic performance in the teeth of the present price spike?

Nor is it reasonable to fear that producers might shut down drilling platforms in an act of global economic spite.  Producers need oil revenues more than consumers need the oil.  Even vitriolic anti-American regimes such as revolutionary Iran, Iraq under Saddam Hussein, and Libya prior to our recent rapprochement, have shown no interest in committing the economic and political suicide entailed in shutting down the only significant source of revenue they have.

Supply disruptions can and do happen, but they have historically tended to be modest and temporary.  Over the past 50 years, we’ve had 12 supply crises with an average of a 5.4 percent reduction in global oil supply for each event, and none of those supply disruptions lasted for more than 9 months.

Question #1 – don’t market agents have every incentive to insure against such events?  That, after all, is what futures contracts, oil inventories, and energy efficient technologies are for.  To argue that government must act to hedge against such possibilities is to argue that governmental actors are better risk managers than market actors.  And that is a fairly dubious proposition.

Question #2 – what sense does it make to say goodbye to an energy source that is cheap most of the time but expensive some of the time (oil) and hello to an energy source that is expensive all of the time but presumably more price stable (biofuels)?  If any individual company or consumer wants to go that route, then fine.  But why should the government dictate energy choices for every single person and corporate entity in the United States?  Are market actors so incapable of making intelligent decisions about what to buy that the feds have to step in?  And if so, why not have the feds grab the reins in other sectors of the economy?  

The final worry is that our dependence on foreign oil requires military expenditures and foreign policy contortions to keep producers safe and friendly.  But this is nonsense.  If the U.S. didn’t pay to secure oil production and tanker traffic abroad, producers would do so as long as the marginal costs associated with security expenditures were less than the marginal benefits associated with oil production – as they certainly are.  The U.S. military “oil mission” is really a welfare program in disguise.  And friendly relationships have nothing to do with it.  As noted above, without oil revenues, producing states could not pay their troops, fund their secret police, build luxurious palaces, or even feed their people (read: keep riots from breaking out).  Whether they like us or not, they have to produce, and as long as they produce, we will have oil to buy as long as we are willing to pay the market clearing price.

All of this is well known and completely uncontroversial to oil economists of the Left, Right, and Center.  But it’s a complete revelation to foreign policy mavens and military professionals, who simply do not understand a single thing about the oil market.  Unfortunately, too many people in Washington listen to the latter but not the former.

And yes, it simply kills me to see that Cato board member Fred Smith (CEO of Federal Express) is one of the two co-chairmen of the group that issued this report. 

NYT Nails Stern Review

OK, The New York Times per se has not weighed in with harsh criticism, but Prof. Hal Varian of U. Cal. Berkeley, a contributor for the NYT’s excellent “Economic Perspectives” column, weighs in today with a nice summary of the problematic assumptions made by Sir Nicholas Stern in the oft-quoted Stern Review on the Economics of Climate Change.  For those who don’t recall, Stern argued that it makes sense to spend 1 percent of the world’s GDP to reduce greenhouse gas emissions because the costs associated with those emissions might total anywhere between 5-20% of global GDP some time down the road.

Regular readers here will notice that Prof. Varian’s arguments closely mirror those I made earlier on this page (for the curious, here and here, with a minor correction to the latter here).

So it’s not just me folks …..

Cheer Up, Kirk Douglas

Kirk Douglas is celebrating his 90th birthday with a new book and a jeremiad on the state of the world.

“Let’s face it,” he writes to “America’s young people”:

“THE WORLD IS IN A MESS and you are inheriting it. Generation Y, you are on the cusp. You are the group facing many problems: abject poverty, global warming, genocide, Aids, and suicide bombers to name a few. These problems exist, and the world is silent. We have done very little to solve these problems. Now, we leave it to you. You have to fix it because the situation is intolerable.”

I ponder his analysis and recommend Indur Goklany’s book The Improving State of the World: Why We’re Living Longer, Healthier, More Comfortable Lives on a Cleaner Planet to him at the Guardian’s Comment is free.

Saving the Planet One Scientist at a Time

Good article just out in Rolling Stone about a dirt-cheap, sure-fire way to cool the planet if we ever decide the Earth is getting too warm for our liking: atmospheric particles.  Turns out there’s little doubt we could cool the planet substantially for about $100 million a year - less than the price of a good-sized wind farm. 

The author of the piece thinks this is nuts, but it’s unclear to me exactly why.  There’s little doubt that it would work.  There’s little reason to fear secondary, unanticipated consequences.  And it’s a lot cheaper than the alternatives. 

The real objection for many, I think, is that a substantial segment of the enviro community wants to fundamentally remake human civilization and the global economy.  Conventional greenhouse gas emission controls offer up that possiblity.  A half-dozen 747s sprinkling particulates across the arctic skies does not.

apoCOWlipto

According to a report out last week from the UN Food & Agricultural Organisation, the humble cow (all 1.5 billion of them) is responsible for more greenhouse gas emissions than all the world’s planes, trains, and automobiles combined.

If I have to choose between shutting down coal-powered power plants and cleansing the earth of cows, I’ll give up Mayor McCheese.  But would that mean another jihad - this time, with the Hindus?  Life is never easy …..