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On The Missing Oil Crisis of 2014

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August 22, 2014    View Comment    

On The Missing Oil Crisis of 2014

Jessie, I read the material. I said what I thought about it. Beyond that we may just agree to disagree.

August 22, 2014    View Comment    

On The Missing Oil Crisis of 2014

In his classic work, "The Entropy Law and the Economic Process," Nicolas Georgescu-Roegen attributed the flaws of mainstream economics to what he called the "arithmomorphic fallacy": the notion that economic activities could be usefully expressed in mathematical form. Rather, Georgescu-Roegen argued, "you cannot be in the economic world without considering the enjoyment of life."

That is the fallacy at the root of your mathematical abstractions.

The economy is not a physical machine, although it has physical inputs, processes, and outputs.

Obscuring your subjective value judgments in mathematical myst does not make them less subjective. Politically, your calculus has no useful way to be applied other than to attempt to bolster an argument that others will dispute in any case. It does not solve the reality of conflicting political/economic interests.

August 22, 2014    View Comment    

On The Missing Oil Crisis of 2014

Styles does a good job showing that fracking etc. have tempered what otherwise would have been a sharp rise in petroleum costs. This buying time to develop better alternatives. But more needs to be done to accelerate energy innovations to meet rising demand within environmental constraints. (For more on that, see: http://j.mp/NrgInnov.)

August 22, 2014    View Comment    

On The Missing Oil Crisis of 2014

Jessie, as I have often pointed out here, internatlizing externalities is one of those academic nostrums that is far easier to pose in theory than it is to implement in practice. The too-common flaw in your argument is the use of "we." In the real world, there is no "we" to make collective decisions. Society is plural, fragmented among many political constituencies and interests that agree about nearly nothing. The problem with accounting for externalities is that being outside any market, their valuation is ultimately subjective. And value judgments about what constitutes a cost and what a benefit vary among different factions.

August 22, 2014    View Comment    

On When Politics Constraints Carbon Pricing, Part 3: Why Carbon Revenues are Just as Important as "Putting a Price on Carbon"

You raise an important issue. The distribution of investments across a portfolio of alternatives makes a big difference. Yet there is no analytical, provably correct way to do it. Venture capitalists know it comes down to gut feel. But in the public sector, allocations are skewed by intense political pressures.

I discuss this problem in more detail in my book, Energy Innovation.

August 8, 2014    View Comment    

On When Politics Constraints Carbon Pricing, Part 3: Why Carbon Revenues are Just as Important as "Putting a Price on Carbon"

Bob, I was hoping that "putting aside" would divert just the sort of comments you started with. However your last paragraph offered an answer to the question.

Too simple though. 

Re discussion here of public preferences and willingness to pay, without referenda on every proposal, it's evident that the public doesn't get to choose among particular policies. They vote for parties or particular candidates to represent general preferences. In elections, voters approve or reject the overall acceptability of the program -- the portfolio of policies -- a party/candidate represents.

If as the column suggests the portfolio of the incumbent regime imposes overall more costs than benefits, I suggest the evaluation of any particular policy should reflect that. In practice, that is the way the electorate is going to evaluate it -- especially in parliamentary governments.

Related to that, the viability of any carbon tax scheme depends on its continuity. As noted by Jesse and others here, Australia's carbon tax was finished when the party that imposed it was rejected as a whole and replaced.

The column also suggested a spillover effect of policies across jurisdictions. The author suggests that the viability of one policy adopted in BC was negatively affected by policies in California to which it was connected.

There's an analogy in healthcare: A patient with multiple conditions often has to take several medications, each prescribed by a different doctor for a particular illness. Medications often interact in ways that may block effectivenss of some or even have toxic effects. Only recently has an increased effort been made to coordinate care to make sure that all the treatments the patient receives work together to heal rather than to harm. We don't congratulate the doctor for prescribing the pill that cured the patient's skin rash but that, in combination with another medication, destroyed his liver.

August 7, 2014    View Comment    

On When Politics Constraints Carbon Pricing, Part 3: Why Carbon Revenues are Just as Important as "Putting a Price on Carbon"

This column paints a less rosy picture of BC's climate protection policies: http://j.mp/1sC46vK.

Putting aside its evident ideological slant, it raises some ineresting questions.

If carbon pricing works as claimed -- that is, internalizing the social cost of carbon and then letting the market work -- should it not replace mandates, subsidies, and other market interventions that were supposedly needed to level a playing field tilted because fossil fuels are not priced fairly?

Looking at the same situation another way: Should not the net costs and benefits of BCs carbon tax scheme be assessed as part of the portfolio of climate protection policies established by the same parties?

 

August 7, 2014    View Comment    

On When Politics Constraints Carbon Pricing, Part 3: Why Carbon Revenues are Just as Important as "Putting a Price on Carbon"

I just came across this testimony Bjorn Lomborg gave recently at a US Senate subcommittee hearing that complements Jenkins' thesis: Examining The Effects of Unchecked Climate Change on Communities and the Economy.

 

August 7, 2014    View Comment    

On Bakken Shale Gas Flaring Highlights Global Problem

Interesting article and good comments. The conclusion of the article sounds right: It would be nice to find economical ways to use a resource that currently is just being thrown away.

Styles suggests two possibilities: Bring pipelines to where the gas is being producded; or use it to generate power there.

Extending pipelines to shale gas fields is, so far as I know, a work in progress. As it seems for most infrastructure needs in the US, the pace of progress is slow. I don't know, but I imagine that adding more destinations for pipeline extension may further burden a limited capacity for growth.

Using the gas to generate power in place raises the question of where the electricity is going to go. Some may be usable in the oil field locations themselves. Again, I don't really know enough about this but I sense from what the article says about limit local markets for the gas itself probably would apply to electric power too.

But extending the electric grid to these locations would seem to run into the same limitations that apply to pipeline extension.

I was prompted to wonder -- again on a topic I admit to knowing too little about -- whether there may be value-added products for which the now-wasted gas could be used. That is, products that might be produced nearby that, being more valuable, might be more economical to ship elsewhere by truck or rail.

A bit of Web searching led me to this article on "Value Added Opportunities from Natural Gas": http://j.mp/1sBLImW.

I'm not sure how pertinent that is to the problem discussed here, but maybe it suggests another type of solution.

August 7, 2014    View Comment    

On When Politics Constraints Carbon Pricing, Part 3: Why Carbon Revenues are Just as Important as "Putting a Price on Carbon"

Jesse, first let me emphasize that we agree that accelerating technology innovation is a far more effective, and politically feasible way to manage not only climate concerns but a thicket of other economic, environmental, and social problems that entangle our existing, largely fossil-fuel-dependent energy systems. 

But more caution about the government role is justified than what you suggest.

I starting writing an explanation of why too much enthusiasm for government-as-innovator is unwarranted. After a while it got too long to be just a passing comment here. So I will try to post the whole thing elsewhere, hopefully soon.

As a preview -- no need to jump on these now -- here are some key points:

1. Many of the advocates for expanded government activity stand to benefit from it, directly or indirectly. They are not impartial.

2. The government role is neither necessary nor sufficient.

3. Govenment activities often follow rather than lead private initiatives.

4. The failures of government efforts are not harmless.

5. Successes often come with collateral damage.

6. Objectively scoring the total impact of government activity, positive and negative, is not easy or obvious.

Stay tuned for the full version.

August 6, 2014    View Comment    

On When Politics Constraints Carbon Pricing, Part 3: Why Carbon Revenues are Just as Important as "Putting a Price on Carbon"

Joris, I am more sympathetic with your caution about the government role in technology innovation than Jesse and a number of his colleagues are. My recent ebook, Energy Innovation, explains at much greater length that there are multiple social limits to innovation that conventional government programs often either ignore or even compound. The result is that many such government activities cost more -- even doing more harm -- and accomplish less than their proponents admit or sometimes recognize.

The book also outlines my "Plan B" to navigate those hurdles and accelerate the breakthrough innovations needed by restructuring processes and using resources more efficiently, even without more public funding.

I have some more to say about this in response to Jesse below.

August 4, 2014    View Comment