Wednesday, October 31, 2007

Why Oil May Not Stop at $100

Neil King, Jr. who wrote an WSJ article stating that after an energy conference , several leading oil experts claiming that oil may go past the $100 mark per barrel due to shrinking supply and higher global demand. These oil experts state that new pockets of oil are harder to reach and more expensive to tap. Yet, two members of OPEC tend to disagree. They assert that the falling dollar is contributing factor in rising oil prices while many of the theories presented at the this year's Oil & Money conference stated that there could be many reasons as to why oil prices are so high. It's hard to pinpoint a single cause.

One concern and possible theory that oil prices are so high is that fact that a lot of production in the Middle East is done fron mature oil reserves. These oil reserves are about 41% depleted and may cause a 15 year production plateau. There are more reserves in the wait but to get to them in time would be very costly and may not be possible due to technology and lack of funding.

OPEC officials have aggressively struck down the notion that they are to blame for the high prices by insisting that the market has more control over oil than OPEC.

With 2/3 of the world's oil coming from OPEC, consumers can hardly discern whether oil prices are set by OPEC or by other factors, such as geopolitics, currencies and/or financial investments within the industry. With the Gulf of Mexico and the North Sea reserves helping to ease the control that OPEC may have thought they exuded over oil prices, these prices, like everything else, have more than just one factor to determine how the price is set. With the dollar falling, that may be a bigger factor to oil prices than OPEC.

Man slain by government lawn watering restrictions

OK, well maybe not just like that but factual errors and sensationalism are instep with the news. Anyways, according to CNN a 66-year-old man was killed while watering his lawn after a physical confrontation with a 36-year-old man. The two were arguing about SYDNEY, Australia's watering restrictions. Two things are striking, how someone watering their lawn can lead to murder and that a third of the article on CNN is about if the old man was right in watering his lawn at that time.

“I killed the last man who watered his lawn before 5.” Might be the new motto of our next generation of prison birds. Attacking someone on their own property is usually indicative of a strong motive, maybe its to steal their chain, maybe you are a contract killer, maybe you want to enforce water regulations. Who knows? Arguing about water regulation shows a deep commitment to upholding the regulation itself.

“The victim was complying with Sydney's water restrictions when he was killed.” well, that was a close call, for a second I thought this might just be a case of self-defense on apart of the young man. I mean, if water use isn't planned than we would run out of water and humans cant live without water.

The underlying message of this article is that without government intervention in resources we would be utterly lost. It ignores that prices communicate knowledge of scarcity. If water is more scarce prices increase and the opportunity cost of using water goes up. This is just one of many examples illustrating how most people are completely retarded.

A Greener California

Automobile enthusiasts around the country have dubbed California legislators as the “Emissions Nazis.” California legislators earned this nickname because in 2002 they passed laws that greatly restrict the emissions of automobiles. They also require that, by 2016, car manufacturers must reach a 30% reduction in emissions in their vehicles to sell them in California. The opponents (car manufacturers) claim that this is unfair because federal law says that it is up to the National Highway Traffic Safety Administration to set gas mileage standards. California legislators reacted to this by saying that they are not regulating fuel economy; rather they are controlling air pollution for the good of their people.

I think that California is well within their right to limit air pollution in their state. However, I do think that what legislators are doing is ridiculous. I grew up in New York City, and was both there, and in California, this past summer. I did not feel any healthier in California than in NYC. In fact, I did not notice any difference, whatsoever, in air quality. If the legislators actually had a way to measure air pollution, and determined that pollution from automobiles was harming their population then their emissions rules would be justified. However, I have never heard to people living healthier in California than in other states. However, I have heard that people will pay more for cars in California. And this is not just hear-say, this is a fact. In order to comply with emissions standards by the year 2016, consumers will most likely have to purchase vehicles such as hybrids. These vehicles are much more expensive than comparable, non-hybrid, cars. In a nutshell, what will happen is people will spend several thousand dollars more for a low emissions car, and never really see any benefits. In this case, California’s use of command and control policy, is providing no benefits to its population and will eventually cause them to have to spend more hard-earned money on cars.

IHS Essay Contest

The Institute for Humane Studies has an essay contest you might be interested in. You can find the information on the contest here. The topic is: What factors lead to prosperity, progress, and human flourishing?

$1 Trillion for 0.13 degrees

The link to the article:,06212.cfm
This article is a great commentary about the Low Carbon Economy Act of 2007 introduced by Senators Jeff Bingaman, D-N.M. and Arlen Specter R-Pa and the big mistake it would be to enact it. To sum up the article; Steven J. Milloy (Author) said the bill would use a “cap and trade” method of reducing carbon emissions. So a limit would be set, arbitrarily set by the government of course, then sell permits to that amount of carbon emission and allow the permits to be traded. Milloy goes on to address what the EPA’s estimates of future carbon emission would be in 2095 with the LCEA implemented. There would be a 23 parts per million reduction from the non LECA world from 718 ppm to 695 ppm. For reference the current level of carbon is 380ppm. Milloy goes on to say that would be at best a reduction of 0.13 degrees from the non action scenario of a change in average temperature of 1.2 degrees. Milloy contends that the $1 trillion dollars required by this bill in the first 10 years and the possible many more trillions required in the future are not worth the reduction in average global temperature increase from 1.2 degrees to 1.07 degrees. I completely agree with this, $1 trillion dollars in more taxes to the American people is way too big of a speculative preventative measure.
Although I agree with his argument, I believe he left out another very important part to his argument. Liberty, what Milloy argues here is a good argument if Liberty is not considered. What I mean is this argument works good if the government owns the world and air. Global warming is a global issue not just an American issue. Where does the government get off in forcing me and others to pay for a global issue when the other people in the world are doing the same exact “damage” and are not paying? When the government sets an arbitrary level of carbon emissions, it is forcing me to consume at some level that I might not find acceptable for my situation when it doesn’t have the property right over the object that I am allegedly damaging in the first place. Having tradable carbon emission permits may be an efficient way of lowering the carbon emissions if that is the main intent, because people could choose the most effective profit maximization for the amount of carbon that is regulated. But, the path to efficiency may destroy liberty in the process. I say spend those trillion dollars to find better ways of enforcing or crating property rights then let the markets truly work. This way we will have an efficient level of carbon emissions and liberty will not be destroyed. That’s my opinion because I value liberty more than efficiency and believe we could achieve both at the same time, which would also be efficient.

Cheney Vs. The Environment

I recently read the above article/blog which discusses the Cheney Vice Presidency with respect to the environment. It is evident that on many occasions Cheney has sided with economic growth rather than environmental concerns. Most specifically, this article discusses an instance where Cheney chose to promote irrigation flow to farming and ranching communities in Oregon rather than protect endangered salmon on the Klamath river; the river that the irrigation canals channel off of. His reasons obviously stem from political motives in many cases but that's not the ethical implication that I want to address. Rather, I want to discuss the certain market failure implications on both sides of this matter.

First, let's look at the negative externalities associated with accomodating ranchers and farmers. If you accomodate the ranchers, that means largely draining the river and most certainly killing large numbers of Salmon. It is necessity that we discuss the fact the negative externality does not land on the fish! That is to say we should not consider the interests of the fish in deciding whether or not there is an externality. The externality, on the other hand, is going to affect the people that have decided that fish have some level of value to society, be it intrinsic, monetary, etc. Therefore those PEOPLE will be harmed because they will no longer have the pretty little salmon to look at or do whatever they want to with. By choosing to give farmers water rather than protect water levels on the Klamath, a negative externality will almost certainly be imposed on those who value the fish over farms.

Next we look at the negative externalities from the farmers' and ranchers' perpective were they to have not recieved water in the name of protecting Salmon. If, in the name of protecting the environment, water was granted to the people who value the lives of the salmon, then farmers and ranchers of that region would have most certainly lost large amounts of revenue as their already hurting growing season would have nearly come to a halt. Additionally, consumers of the goods produced from farming and ranching in that region will now be stuck with greater shortages and higher prices. So there is a negative externality or externalities on this side of the coin as well.

I think it's important to point out two things in discussing the rights and wrongs of this issue. First, we have to continually keep in mind that when evaluating externalities, we have to evaluate HUMAN harm or HUMAN gain because humans are the active members of society... not fish. Everthing non-human is merely a resource to society. So to say that there was a negative externality imposed on the fish would have been entirely false.

Additionally, I think there needs to be some level of discernment when judging whether or not to promote economic interests over environmental concerns. I would recommend that some sort of hierarchy be developed in order to evaluate this. For example, if this choice was whether or not to protect salmon over building a brand new Hilton, then I would probably have a problem with choosing luxury over the future of environmental well being. However, this was farmers and ranchers producing and selling food and basic necessities to society. I don't understand what environmentalists would have us do on this issue. Eventually, population growth requires larger amounts of food to accomodate a society. And in growing food distribution, it may have to come at the cost of some environmental characteristics.

So we've established that either way you look at it, a negative externality WILL be imposed on someone. So much for pareto optimality. Personally, I think the right decision was made to protect the water resources ranchers and farmers use for their well being. This whole issue goes back to the valuing of human interests versus animal interests. By protecting the livelihood of the salmon in the Klamath both producers and consumers would have been harmed due to the lack of water.

Sunday, October 28, 2007

Take the Rocks over Oil Prices

The last time OPEC met, Sept 11th, they sought to regain there authority over there market, so they agreed to increase production by 500,000 barrels a day starting November 1st. However, even with the announcement that there was to be an increase in production, prices still rose on the day of the announcement. Since, this meeting oil prices have continued to climb, and there are two very good reasons for this, a weakening dollar, and because OPEC is a cartel. This essay will thus, discuss the reasons behind for the recent surge in oil prices, starting first with the reasons behind the weakening of the U.S. dollar.
The U.S. status in the world economy is being shaken as the value of the dollar continues to fall in the wake of enormous trade deficits and a nationwide housing recession. Recently, the International Monetary Fund Managing Director Rodrigo Rato predicted that there still is room for the dollar to weaken further. "As the IMF looks to a medium-term stability of currencies, we still see that the dollar is overvalued," he said. Other experts have also stated that the dollar could revive if U.S. domestic demand picks up again. However, they are pessimistic, predicting that it will be difficult for the dollar to regain its old glory.
It is clear to see know that the dollar is not likely to rebound anytime soon. But, why should a falling dollar contribute to rising prices? The reason is because world oil prices are quoted in dollars, and with a dollar that continues to weaken compared to a resource that continues to have an ever increasing demand, oil prices will continue to climb.
The second reason oil will continue to climb is because OPEC is a cartel. This oil cartel, which is earning extraordinary profits, will continue to do so because the willingness to pay remains constant and greatly exceeds the cost of production of the oil exporting countries and because they operate as a cartel they are able to charge monopolistic prices.
OPEC plans to meet again in November, but with prices currently at 88 dollars a barrel, it is not a stretch to think that oil prices soon reach 90 to 100 dollars a barrel. OPEC leadership has said that it is worried about the economic conditions in the world market, but they do nothing, and just keep getting richer. Prices could decrease however, if the boost in world production helps balance world supply or at the very least prices could level off, if the dollar was able to stabilize. But, with what the experts have said concerning the dollar and oil futures continuing to rise, it would be wiser to take the Rockies in seven, than to bet on oil prices stabilizing anytime soon.

"Save the Poudre"

I cant say that I'm exactly sure what criteria must be met to be designated Colorado's only "wild and scenic river" but it seems that the Cache la Poudre river is just that. The sad truth is that it loses its splendor and majesty as soon as it leaves the Poudre canyon with 90 percent of its water being diverted near Fort Collins for farming and local residents. With population forecast to expand and the looming possibility of drought there is a water district that wants to divert the remaining 10 percent of the river into two reservoirs.

The 40,000 acre-foot Galeton reservoir, located near Greeley, will be filled by waters from the South Platte River whilst the Glade Reservoir, located near Fort Collins, will have a 170,000 acre-foot capacity and will be filled by the Cache la Poudre. Water conservation authorities claim that these reservoirs are mandatory in order to preserve Colorado's existing agriculture. Water would be provided to 15 water districts on northern Colorado with the 40,000 acre feet contribution of the project. Twenty five thousand acres of farmland will also be preserved by the excess water.

Gary Wokner is an ecologist and a member of a group that opposes the use of Cache la Poudre water, cleverly named, "Save the Poudre." He contends that Colorado can meet its current and future water needs through "conservation and education, coupled with modest improvements in agricultural irrigation efficiency." The municipal planners disagree and state that conservation is not enough to combat Colorado's long term water shortage. It seems that these municipal planners are not taking into account all the economic effects of this kind of action. The local farmers would be well supplied by the entire flow of the Poudre but what of the local wildlife living in and around the river? Is the price of being prepared for supposed coming growth worth the environmental costs necessary? Should a river boasting credentials such as "Colorado's only wild and scenic river" be dammed up for the anticipated population boom of agriculture based communities such as Greeley? I think not but I'm sure the Poudre won't stand in the way of "progress."

Tuesday, October 23, 2007

Polluter Taxes

The Polluter Must Pay

The article by Meg Bortin of the International Herald Tribune discusses a poll that was conducted by the Tribune. According to the poll that was conducted in five European countries and the United States said they believed that industrial companies should be taxed according to the amount of pollution they produce. The idea behind the tax is that the “polluter must pay.”

Industry Reactions

A spokesperson at Corus, the European steel maker said they are committed to “minimizing the environmental impact of [their] operations through the adoption of sustainable practices and continuous improvement in environmental performance.” At Total, the French oil company, a spokesperson stated that they didn’t believe the industry was responsible for all emissions of greenhouse gases. Analysts believe that the poll results showed that the public wanted the responsibility for global warming to bear financial responsibility, even if the costs would be passed on to consumers.

Who is Responsible?

According to the article, “Asked who is responsible for global warming, respondents blamed themselves along with industrialists and politicians. Between 54 and 61 percent in the six countries said that industry, governments and people in general were all responsible.”

An Alternative to Taxes

Bortin notes that instead of taxing polluters, the European Union forces the industry to restrict carbon-dioxide emissions that contribute to global warming. “Companies may produce a certain amount of pollution and bear costs if they exceed that level: They must either pay to implement pollution-reduction measures or buy new allowances.”

Tax Everyone?

In keeping with the “polluter must pay” idea, should the participants also be taxed because they presumably drive cars? Automobiles are also responsible for emitting carbon-dioxide into the air. It is true that the participants took some responsibility for their part in pollution, however, the article did not mention that any of them volunteered to be taxed in the same manner they believe the industry’s who also create carbon-dioxide fumes are taxed.

Economic Efficiency/Cost-Benefit Analysis

Can it be said that it is efficient for the industry’s to be taxed, but not the participants of the poll who also pollute? If people were to be taxed for every type of pollution, than even infants who fill dirty diapers with noxious fumes should be taxed! This is not efficiency. One of the costs of taxing polluters is that the cost of goods and services would increase because installing, maintaining, and operating pollution control equipment would be passed on to the consumers in the form of higher prices (Titus 27). In addition, there would be higher costs associated with monitoring compliance with pollution taxes that result from regulations (Titus 27). The only benefit would be that their would not be as much contribution to carbon-dioxide emissions as their would be before the tax. In this case, the costs far exceed the benefit, therefore not allowing for economic efficiency.

Command-and-Control (CAC)

There is already a command-and-control in place in the United States regarding harmful emissions that contribute to global warming. The emission standard is a regulation that states how much an individual and their automobile can produce. The emission charge is a fee paid to the government. Isn’t this fee in a sense already a form of tax? According to the Chicago Study, CAC costs are estimated to be 14 times for expensive than is necessary (Titus 288). CAC are not cost effective nor efficient.

US Subsidy

Historically, US farmers have received subsidies to keep small farmers from going out of business by reimbursing them for losses incurred while the price of their particular crop is low. Does it make economic sense for the government to give money to farmers to compensate? Shouldn’t the market dictate the profits of these farmers?
It may make sense, in a time of crisis like the Dust Bowl, for the government to bail out a vital part of the economy. Yet when it becomes a regular occurrence, there is a major market failure. Even when the price of a particular crop is high, the farmers often receive government subsidies. Also, the farmers have fewer incentives to compete for consumers: it is economically rewarding for them when the market prices are LOW.

Environmental consequences

Subsidizing farmers also has a negative effect on the environment. The government allows farmers to drill for groundwater with no upfront cost to them. The farmers use this groundwater, with all of their straws in the same cup, competing to use the most out of the resource before it is used up by a competitor. If someone were given property rights to the valuable groundwater, the depletion may not be an issue. Many of the largest aquifers in the US are being exhausted at an alarming rate. However, the farmers in some of the driest states must use copious amounts of this water to grow “cash crops”, which are unsuitable for particular geographic areas.

Economic consequences

Recently, the crackdown on illegal workers has left many small and large farms unable to afford the costs of doing business in this economy, even with the subsidies. Many are buying land in Mexico to use similar workers legally, thereby bypassing this inconvenience. As a result, the US is growing more reliant on foreign food, and becoming much less self-sufficient. At the same time, farmers are still being subsidized at a greater rate. The system cannot hold itself up for long. Many foreign countries, such as Canada and the UK, are starting to look at the US’s subsidy program as being unfriendly and unfair.
The recent trend has been for the government to fund research into alternative fuel technologies. If we can find a crop, ethanol made from corn or sugar that replaces gasoline as a major fuel source, possibly our energy woes and our farming woes will be rectified. It is yet to be seen whether the free market will reimburse this ingenuity, or the farmers and technology will continued to be subsidized.

A city that is doing something with their trash

For many years now Seattle has had mandatory recycling , today 44% of their trash is recycled. Which is way above the national average of 30% of trash that is recycled. Their goal is to reach 60% by 2012 and 72% by 2025. Those numbers seem some what unrealistic to me if the national average does not also rise. How then can Seattle reach such large numbers? The answer to this question is quite simple. It's the law. On trash day they have three different containers outside their house waiting to be picked up; there are new laws are in place that might even add more containers. Seattle like many west coast cities are profiting from recycled goods. A big part of that is because of their location and ports; there has become a market for recycled paper predominantly in the Chinese market. Waste paper now sells for $90 a ton. I don't think that's too bad considering it used to be trash and now people are making money off it.
However, is Seattle an example for the rest of the country? My suspicion is that it is not. If it was than the numbers would be the same all over the country. Seattle succeeds because of the laws that are in place that force people to recycle. If those laws were not in place would people still recycle. Guess that someday Seattle will understand why the rest of the country does not recycle. Because we are not forced to.

Monday, October 08, 2007

Global Warming Politics

You might be interested in this story about Congressman Dingell's position on global warming policy.