Monday, May 15, 2006


The fuel, renewable and more environmentally freidnly than gasoline is already being used as a gas additive, replacing another additive that was found to pollute groundwater. The result: a squeeze on supplies that has doubled ehtanol's wholesale price, to $2.75 a gallo. With corn prices low and gas prices high ethanol's profit margin per gallon is at a record of more than $1. Last years energy bill requires gas marketers to sell at least 4 billion gallons of ehtnaol-blended fuel this year. Investors in ethanol plants will find themselves at the mercy of tow commmodity cycles: corn and gas. Corn prices over the next six years are likely to rise and ehtnaol rprices to fall resulting in a 25% drop in producers profits. What is the promise of ehtnaol replacing gas? WEll the likelyhood of this replacing gas is highly unlikely but the use of gas E85 which consists of 85% ehtanol would create better burning vehicles and less emissions, but in contrast will get worse mielage and become costlier in the end.

Thursday, May 11, 2006

Brazilian Sugar Cane Ethanol

The oil shocks of the late 1970's not only severely affected the United States, they had a tremendous impact on the rest of the world. Brazil decided right away to do something about this, and thanks to that decision, they are ahead of the biodiesel fuel revolution by leaps and bounds. Using economic reasoning, Brazil realized the most efficient means of gaining footing on OPEC was to introduce a substitute that would effectively compete. The government introduced such substantial tax breaks for ethanol cars between 1983 and 1988 that by the end of the 80's, 90% were powered by the fuel.
Now, with the introduction of "flex" vehicles, (allowing users to choose their fuel mix ratios) the consumer has more power than it did by relying solely on oil based fuel. Not to mention, creating thousands of jobs in Brazil's poorest regions also helps the economy tremendously. It not only gives jobs to those that would never previously have been able to attain one, but it substantially reduces the strain on many Brazilian cities, of which large parts tend to be slums. Producing sugar cane ethanol is "profitable as long as oil costs more than $37 a barrel."
I think from an efficiency standpoint, this seems to be an extremely efficient move by Brazil. Creating jobs within the country, reducing dependence on foreigners, reducing prices of fuel, and reducing stress on cities to support their impoverished populations are all benefits of this move. The only people that seem to be worse off are the OPEC guys.

Wednesday, May 10, 2006

California's ZEV (zero emission vehicle) program

California Air Resources Boardinitially proposed a ZEV program in 1990 in order to clean up the rampant air pollution - an obvious negative externality associated with driving a car. Originally, the plan called for 2% of new cars in the state to be ZEVs. A ZEV has no tailpipe emissions, no evaporative emissions, no emissions from gasoline refining or sales, and no onboard emission control systems that can deteriorate over time.
In 1998, car companies convinced CARB that they could not meet the deadline, and the 2% mandate was delayed until 2003. In 2002, the car companies sued the state, to which the state decided to sidestep the legal problem and continue to restore the ZEV program for 2005.
On one hand, the ZEV program has done alot in the name of progress towards increasing the potential we have to reduce air pollution stemming from vehicles. However, it has done so in an extremely inefficient manner, and has had little effect on the air quality so far.
From an econonmist's perspective, I would recommend the state cancel the ZEV program. Forcing a company to produce and sell a car that is not high on their efficiency list is just not the solution to the air problems in the state. The state should provide an incentive for consumers to purchase the more efficient products. One incentive that comes to mind is a tax credit equal to the pollution saved in a given year. Simply test the car to see it's pollution per mile, and record the mileage of the car for tax records.
From an efficiency standpoint, it helps the manufacturers utilize the market to decide what is best for them. It helps the state because more people will see the incentive in tax savings and the incentive to help clean the air and make a judgement on whether or not to buy the more efficient vehicle.

Thursday, May 04, 2006

Cafe Standards

Corporate Average Fuel Economy, or Café, standards as we know them have been set by Congress in attempt to get automobile makers to produce cars and trucks that are more fuel efficient. The recent hike in gas prices has led to a consideration by Congress to up the Café standards again. The last increase in acceptable miles per gallon set the standard at 27.5 mpg. This means that the average miles per gallon for the fleet of cars an automaker produces must be equal to or greater than this amount. If Congress were to up the standard to the proposed 33mpg there will be some high costs consumed by the automaker. It is unclear how well the automakers can absorb these costs. It is unclear if the companies even have the technology to meet the standards. These costs would eventually end up added to the sticker price of the vehicle. The consumer would ultimately foot the bill. The concern here is that the government appears to be thinking that if we have increased miles per gallon to our vehicles that we will not change our consumption habits any. The way it is understood by this author is that while even though our cars have continued to get more miles per gallon to a tank we still continue to increase our consumption of gasoline as a nation. So, I just don’t see how this will lower the price of gasonline. The price of gas is based upon the market for gas…meaning the supply and demand. If our demand continues to increase even though our cars are more efficient, I just don’t see this legislative decision to increase the required standards as a way to lower the price of gas. My thought is that it would be more efficient to put a bigger tax on gasoline. Consumers would not like to see these external costs internalized, however, that would force consumption habits to change more than an increase in the Café standards.

Tuesday, May 02, 2006

CAFE Standards

Currently the U.S. is the world leader in oil consumption. The CAFE (Corporate Average Fuel Economy) standard is defined as the the minimum mileage per gallon a vehicle class must meet. In todays life styles people are buying and driving bigger cars. The average new fleet of cars had a mpg lower than the one we had in 1987 because of the fact that our automobile industry is seeing an increase in inefficent SUV's and light trucks. President Bush proposed that we need to break the light tuck category up into six different sub-categories. In these differrent categories there was trucks ranging from 21 mpg to 28mpg. Due to the recent increase in the price for oil Presedent Bush has jumped in to help. From the knowledge that I posses about the prices for a barrel of oil and the increasing gas prices I wouldnt be supprised to see gas over $4 this summer. Pesident Bush's has taken the action to ask Congress for the authority to investigate an increase in the CAFE standard. In 1990 there was a bill that was called for that would increase the CAFE standard by 40%, and if this bill was made into a law cars right now would average 40mpg and light trucks 29mpg. From the auto industries point of view since cars have to become lighter and smaller the costs of of re-enginering cars to make them more fuel efficent is expensive. By trying to reduce the weight of vehicles it reduces the size of steel content which has resulted in a 1300-2600 additonal trafic fatalities. Form an environmentalists point of view in the 80's cars were more fuel efficent, as for now cars cars have become 20 percent heavier. From another point of view as an economist mandating pollution controls is a good idea.

Monday, May 01, 2006

France: Now that's Nuclear

France is pushing forward with its new nuclear power plan. France currently has 58 nuclear power plants, which accounts for nearly 80 percent of their total power output. Due to the lack of natural resources France currently possess, it is their intention to become almost entirely nuclear dependant. The agreement was naturally (no pun intended) met with haste by Greenpeace activists, regardless, France was determined to gain its energy independence. “French environmentalists say the economic benefits of nuclear energy are far outweighed by the dangers of its byproducts and their storage. They also say nuclear facilities are potential targets for terrorists.”

So what are the economic benefits?

• Nuclear power is cost competitive with other forms of electricity generation, except where there is direct access to low-cost fossil fuels.
• Fuel costs for nuclear plants are a minor proportion of total generating costs, though capital costs are greater than those for coal-fired plants.
• In assessing the cost competitiveness of nuclear energy, decommissioning and waste disposal costs are taken into account.

The U.S. looks about the same as coal to me, but if France does not have access to coal then it would be cheaper than any of the other sources.

Market for used tires?

When I went to price out new tires, for my new truck, I came across an additional cost in the purchase that I had not accounted for. The cost was titled "environmental disposal fee" and said nothing more. I went to the company's website and found out that they have a link to an explaination of said fee. The explaination is as follows:

"Environmental fees are state-mandated charges applied when you purchase new tires.
In many states, the funds raised by the collection of environmental fees go towards research and development on recycling worn out tires as an option to placing them in landfills. You may not know this, but materials reclaimed from old tires are used to power electrical plants, stop erosion in watersheds, assist in the drainage of golf courses and greenbelts, and can even be used in the construction of new homes."

To which I said inefficient!! If the market can find a value for the disposal services of tires, why then would the state mandate a fee associated with disposal. Why aren't they paying me for disposal of tires, if after all they are valuable. Its this type of policy that makes me wish politicians should be required to have a degree in econmics.

Price Of Gas Is High!!

Who do you think makes the most money on the sale of a gallon of gas? I'll tell you. It’s not “Big Oil.” It’s Big Government. Gas taxes are worth 5 to 10 times what gas profits are. The federal and state governments use the tax money to build roads, while the oil and gas companies reinvest their profits into equipment and infrastructure.

Gas prices are higher now. That can be blamed on three groups of people.

1. The environmental lobby: They are primarily responsible for the fact that a refinery hasn't been built in America in 30 years. They are primarily responsible for the fact that no drilling goes on in the Atlantic, the Pacific or Alaska. They are primarily responsible for the switch from MTBE, which poisons groundwater, to ethanol, which does not. Where are they today? Celebrating their triumph for nature? They’re crying about their gas prices.

2. The federal government: For listening to the environmentalists and not acting faster to promote alternative fuels.

3. China and India. For increasing the demand for gas so high that it outpaces supply. That’s just plain economics.

Congress is calling for price-gouging investigations and a windfall profits tax. If price-gouging had occurred, we’d already know about it. And a tax on excess profits is simply a bad idea and sends a terrible message to other industries. Plus, the money would be wasted by the government.