Environmental Economics

Don’t call what you're wearing an outfit

The Institute for Energy Research thinks that the "CBO underestimates revenues from expanded oil-and-gas drilling":

The Congressional Budget Office is vastly underestimating the potential revenue that could be achieved by opening more federal lands to oil-and-gas drilling, according a report released Tuesday by the Institute for Energy Research (IER), a conservative think tank. ...

Obama’s plan to avoid the $85 billion of government-wide cuts scheduled for March 1 will likely include ending subsidies awarded to the oil-and-gas industry. Obama and supportive Democrats have said nixing those incentives would save the government $40 billion through 10 years.

But oil industry lobbyists have said the industry’s incentives should not be singled out, saying many other businesses are given deductions and cost-recovery mechanisms. The oil industry also said removing the incentives would stymie domestic energy production.

In all, the IER study said expanding drilling on public lands and waters would increase gross domestic product by $127 billion annually for the next seven years, and $450 billion annually through the following 30 years. It also would boost federal tax revenues by $2.7 trillion through 37 years, the study found.

That paints a different picture than the August CBO report, which said lifting drilling bans would bring in about $7 billion through the next decade, mostly through selling exploration leases.

I don't want to be a jerk, but I'm always skeptical when a study touts something like this:

Job gains would be felt in high-wage, high-skill employment like health care, education, professional fields, and the arts.

I enjoy a good multiplier story just as much as the next guy (in this case "RIMS II final output multipliers" = 2.4 for the U.S.), but how do we know the arts will benefit? Do the oil and gas guys plan to donate 5% of their additional income to the New York arts scene?

Also, I prefer a benefit-cost analysis to an economic impact analysis, especially at the national level. Economic impact studies consider costs of production (i.e., something a business firm would like to avoid) as benefits and doesn't consider environmental costs as a negative part of the activity.

An easy way to save 187 million gallons of gas and get healthier too?

I was reading somewhere recently--OK,OK, it was Reader's Digest again--that one way we could save a significant amount of gas is to lose weight.  I don;t remember all of the details, but the logic was simple:  On average, American's weigh about 20 pounds more today than they did 20 years ago.  If we weighed the same as we did 20 years ago, our cars would be carrying aroun less weight and we all know that there is a weight/fuel consumption teade off holding all else equal, a lighter car consumes less fuel). 

So, in true Env-Econ style, I thought I would do some quick, highly stylized, most likely innacurate, back of the envelope calculations--and then leave it to you to rip it apart.

Here we go:

First some data:

• Average weight of a gas-engine car: 4,000 pounds
• Average weight of an American in 2012: 178 pounds (assuming 50/50 men and women).
• Average weight of an Ameican in 1990: 158 pounds. ("Both figures are nearly 20 pounds higher than the average that men and women reported in 1990")
• Fuel consumption reduction for a reduction in weight: 2-4% reduction in fuel consumption for every 10% redcution in vehicle weight--we will assume 3%.
• Average fuel consumption in U.S.: 8.5 million barrels per day (357 million gallons @ 42 gallons per barrel)
• Average fuel consumption In U.S.: 130,305,000,000 gallons per year (357 million x 365 days/year).

Now for some calculations:

A 20 pound decrease in vehicle+driver weight from 4,178 pounds to 4,158 pounds is a 0.4786979% decrease in vehicle weight. 

If for every 10% decrease in vehicle weight, fuel consumption decreases by 3%, then that 0.4786979% decrease in vehicle weight will result in a 0.14360937% decrease in gasoline consumption. 

Given gas consumption of 130,305,000,000 gallons per year, that 20 pound reduction in average weight will result in a savings of 187,130,190 gallons of gasoline per year. 

At an average price of $3.50 per gallon, losing an average of 20 pounds will save $654,955,665 per year--or $2.73 for every adult in the U.S. per year.

Enough to buy a non-fat, no-whip, skinny mocha latte--you know, to keep the weight off.

 

 

Only about a Gheorghe Mureșan in between

The blades reach 492 feet into the air and the planes fly 500 feet above the ground:

The nation’s largest independent wind farm developer said Friday that it has abandoned its original plans for a 49-turbine project in Eastern North Carolina.

Chicago-based Invenergy’s reconsideration of its proposed Pantego Wind Energy project comes after months of delays caused by risks that would be deal-breakers for just about any wind farm.

The Pantego project’s spinning blades pose a potential threat to bald eagles roosting and foraging in Beaufort County, and they would create a collision risk for F-15E Strike Eagle fighter jets making practice runs from nearby Seymour Johnson Air Force Base. ...

Invenergy proposed the Pantego project in September 2011, with operations set to get under way in December 2012. The wind farm was approved by the N.C. Utilities Commission in March 2012 but quickly ran into trouble with the U.S. Fish and Wildlife Service and the military.

No major wind farm proposed in North Carolina has reached construction despite the fact that the state has some of the best wind resources along the East Coast.

Preliminary estimates last spring said the Pantego wind farm could kill 3.4 to 20.7 bald eagles a year. In the summer, the military warned that the project could result in pilot deaths. 

via www.newsobserver.com

Daily Demand and Supply: Supply increases lower prices

What happens when supply increases outweigh any demand increases?  Prices fall of course*:

Gas Price in Columbus, OH 12/19/2012

Gas prices have plummeted 46 cents a gallon over the past two months, according to a survey released Sunday.

 "This has been a true price crash," said Trilby Lundberg, publisher of the Lundberg Survey.

The average price of a gallon of regular gasoline is $3.38, down nearly a dime over the past three weeks, Lundberg said.

"This crash began back when refining problems around the country were being fixed, one after the other, at the same time that our seasonal gasoline demand was shrinking," she said.

Crude oil prices have also dropped after having risen steadily.

Prices at the pump should drop even more in the coming days, as refiners cut how much they're charging distributors and retailers, Lundberg said.

via www.cnn.com

John's not the only adminstrator who can brag about his research productivity today

Castilla, Carolina and Timothy Haab. "Limited Attention to Search Costs in the Gasoline Retail Market: Evidence from a Choice Experiment on Consumer Willingness to Search" Am. J. Agr. Econ. (2013) 95(1): 181-199 doi:10.1093/ajae/aas131

Abstract: We conduct a choice experiment to investigate whether U.S. gasoline consumers exhibit limited attention to the costs of searching for lower prices. When consumers search for prices as they drive, the search cost is a function of the amount of gasoline consumed while driving and the time spent searching for prices. We randomize the amount of information we provide the respondents to a survey about search costs in one of 3 ways: time, gasoline, or both. Results indicate that cognitive costs cause inattention to time costs. We also find that respondents overestimate the cost of the gasoline used while driving, thus forgoing consumer surplus.

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They're here*

Cue Carol Anne:

Federal authorities on Wednesday announced that about 1,900 square miles of Atlantic Ocean waters are open for building offshore wind farms, making North Carolina the nation’s new energy hotspot for planting forests of whirling turbines in the high seas.

The U.S. Department of Interior identified a combined sector that’s larger than any such previously designated for hosting the 400-foot turbines. Two of the maritime blocks are between Myrtle Beach and Wilmington, while one lies beyond the Outer Banks, across from Kitty Hawk, Nags Head and Manteo.

A host of developers are expected to express interest, setting the stage for a federal lease auction as early as next year to allow projects to move forward. North Carolina’s ocean waters are considered to have some of the best wind resources along the East Coast. What’s more, the offshore areas picked by the feds have the advantage of being near populated regions with existing transmission capacity and other infrastructure needed to move gigawatts of electricity onto the power grid.

But offshore wind energy remains among the most expensive forms of electricity today, and building a wind farm in the sea has proven an elusive goal in this country. The industry is still distrusted by some as a subsidy-dependent boondoggle, even though advocates depict wind energy as a clean and safe alternative to mining, fracking, energy imports and nuclear waste.

An offshore wind farm long planned in Nantucket Sound off Cape Cod in Massachusetts is tied up in legal challenges, while plans to build one in Delaware waters fell through in recent weeks because of the likely expiration of federal tax incentives for these multibillion dollar projects. ...

One company that expects to file a notice of interest in bidding for leases is Arcadia Offshore, the New Jersey company whose Delaware deal collapsed for lack of subsidies. Arcadia president Peter Mandelstam ...

... acknowledged that with historically low natural gas prices, no utility is likely to buy offshore wind power unless it’s required to do so by state regulators or lawmakers. The argument for investing in wind power is that it’s an emissions-free source of electricity with a fixed price, as opposed to wagering on natural gas, which could spike in price and strand consumers with soaring bills, he said.

via www.newsobserver.com

You can say a lot of things about me, and people do, but one thing people can never say is that I missed an opportunity to suggest you look at some of my research. 

*It has been a long time since we titled a post "A mighty wind" and I almost did it this time, but doesn't the thought of wind turbines in North Carolina send chills down your spine? No? What, are you some sort of hobgoblin?

My (economist) answer to the gas price question from last night's debate

In last night's townhall presidential debate, the second question asked from the audience was:

Your energy secretary, Steven Chu, has now been on record three times stating it's not policy of his department to help lower gas prices. Do you agree with Secretary Chu that this is not the job of the Energy Department?

Both candidates answered with typical nonsense standard talking points that effectively avoided the question. Here is how I would have answered:

The role of the government is not to judge whether prices are too high or too low and then arbitrarily try to lower or raise them based on our opinion.  The role of the government in markets is twofold: 1) ensure that markets are operating efficiently and 2) ensure that all citizens are able maintain a minimum standard of living so that they may actively participate in those effficently working markets. 

With regard to the first point, prices contain signals.  The governments role is to ensure that the policies in place allow markets to effectively adjust so as to reflect the right signals, the signals that maximize the well-being of society as a whole.  If the market is operating in such a way that the signals provided by the prices reflect a misallocation of society's scarce resources, then absolutely the government has a role in establishing policies that correct the failure of the market to do its job.  But if the market is accurately reflecting the full costs and benefits of all production and consumption decisions, then the government needs to step aside and let the prices signal what they need to signal.

As to the second point, the ability of citizens to maintain a minimum standard of living is obviously subjective and depends on how you define 'fair.'  This is where me and my opponent differ.  The problem with trying to establish a 'fair' set of prices is that the definition of fair depends on who you ask.

Do I support equal access to economic opportunity by all? 

Absolutely. 

Do I support artificial manipulation of prices to achieve that goal? 

Absolutely not.

Somehow I don't think I will ever be president.

 

 

 

Who says administration gets in the way of research*?

From the inbox:

I am pleased to accept your paper...“Inattention to Search Costs in the Gasoline Retail Market: Evidence from a Choice Experiment on Consumer Willingness to Search”...I believe it makes an interesting contribution to understanding consumer fuel purchase behavior. To increase the potential impact of your paper and the Journal, if you have a copy of this paper posted on-line please note on it that it is now forthcoming in the American Journal of Agricultural Economics.

OK, here's the citation and link to a slightly older version of the paper:

Castilla, Carolina and Haab, Timothy C., Inattention to Search Costs in the Gasoline Retail Market: Evidence from a Choice Experiment on Consumer Willingness to Search.  Forthcoming American Journal of Agricultural Economics.

*Congratulations to my advisee (and lead author) and assistant professor of economics at Colgate, Carolina Castilla.

The name of our department is Agricultural, Environmental and Development Economics, and this story has them all.

This looks like they are sending up the benefit/cost bat signal:

Four Nigerian farmers and the environmental group Friends of the Earth took oil giant Shell to court Thursday in the Netherlands to demand a proper cleanup and compensation for pollution in the Niger Delta.

The farmers want the Anglo-Dutch multinational to "clean up the oil pollution in their fields and fishponds" and make sure their pipelines are maintained and kept secure to prevent leaks in the future.

The civil case has been filed against the Nigerian subsidiary of Shell, the Shell Petroleum Development Company (SPDC), and its international headquarters in the Netherlands, Royal Dutch Shell.

Based on "years of oil pollution in three villages in the Niger Delta," it could have "major legal consequences internationally," the Dutch branch of Friends of the Earth, known locally as Milieudefensie, said in a statement ahead of the first hearing.

The three villages concerned are Goi, hit by a spill in 2004, Oruma, affected by a spill a year later, and Ikot Ada Udo, hit by various spills in 2007, according to Friends of the Earth.

Shell argues that it has cleaned up the spills to the satisfaction of the Nigerian authorities, and has no case to answer.

But Friends of the Earth says that oil pollution has had a devastating and continuing impact on vegetation, water supplies and local fishing ponds.

The campaign group says this is the first time a Dutch company has been brought before a court in the Netherlands over environmental damage caused abroad.

via www.cnn.com

Breaking wind

It is a tough market for the wind industry:

At its peak in 2008 and 2009, the [wind] industry employed about 85,000 people, according to the American Wind Energy Association, the industry’s principal trade group.

About 10,000 of those jobs have disappeared since, according to the association, as wind companies have been buffeted by weak demand for electricity, stiff competition from cheap natural gas and cheaper options from Asian competitors. Chinese manufacturers, who can often underprice goods because of generous state subsidies, have moved into the American market and have become an issue in the larger trade tensions between the countries. In July, the United States Commerce Department imposed tariffs on steel turbine towers from China after finding that manufacturers had been selling them for less than the cost of production.

And now, on top of the business challenges, the industry is facing a big political problem in Washington: the Dec. 31 expiration of a federal tax credit that makes wind power more competitive with other sources of electricity.

via www.nytimes.com

And international trade sure brings out the hypocrite in us. If a federal tax credit is a subsidy, isn't there a chance that U.S. producers selling stuff for less than the cost of production? On a personal note, I'm always happy if someone is willing to sell me something below cost (i.e., the U.S. is made better off if we can purchase cheap turbine steel towers from China).