Environmental Economics

Just like Coase drew it up?

Brazen in its irony:

As the nation plans new defenses against the more powerful storms and higher tides expected from climate change, one project stands out: an ambitious proposal to build a nearly 60-mile “spine” of concrete seawalls, earthen barriers, floating gates and steel levees on the Texas Gulf Coast.

Like other oceanfront projects, this one would protect homes, delicate ecosystems and vital infrastructure, but it also has another priority — to shield some of the crown jewels of the petroleum industry, which is blamed for contributing to global warming and now wants the federal government to build safeguards against the consequences of it.

The price of oil (adjusted for inflation)

Source: http://www.nytimes.com/interactive/2016/business/energy-environment/oil-price-supply-demand-imblance.html

And here is the explanation:

United States production has surged in recent years as the shale boom took off. That has helped create a glut of oil as major producers like Saudi Arabia continue to pump at high levels.

Some pre-Christmas oil price snark

It's the end of the semester and oil prices are low.  What better time to give my thoughts on the inevitable catastrophic low oil price story.

The epic oil crash could end next year.

EPIC!  Can you feel it, see it, hear it today?

But before prices start to climb higher, they could go even lower.

...or higher.  But probably lower.  Definitely lower.  Yeah, lower.  Maybe.

It's been a catastrophic 18 months for crude oil, which has suffered a dramatic 68% plunge due to a massive supply glut.

Perspective rewrite:  It's been a glorious 18 months for consumers of crude oil based products, who have reveled in low prices due to a 68% decrease in oil prices thanks to increased production.

Oil fell to a fresh seven-year low below $34.50 a barrel on Friday.

...and Hotelling wept.

The collapse in prices has wreaked havoc on the industry, causing tens of thousands of job losses, a surge in corporate defaults and plunging stock prices.

Perspective rewrite: The decrease in prices resulted in an efficient reallocation of tens of thousands of jobs and the shutdown of the highest cost producers.

Many Wall Street oil experts believe that prices will rebound in late 2016.

Is there oil on Wall Street?

Yet more pain may be inflicted -- some say it's actually needed -- before prices bounce higher.

Can you imagine writing about the disappointment in low prices in other industries?   

"Yet more pain may be inflicted before car prices bounce higher."

"Yet more pain may be inflicted before chocolate prices bounce higher."

"Yet more pain may be inflicted before movie prices bounce higher."

"It's still a long road ahead. The oversupply problem will be with us for a little while," said Mike Wittner, global head of oil research at Societe Generale.

...maybe we need a cartel of oil producing countries that can keep oil prices artificially and inefficiently high for a long period of time.

Goldman Sachs wagers that crude oil will average $38 a barrel in February. That's lower than prices were for most of this year.

Pete Rose was banned from his industry for life for wagering.  Just sayin'.

The problem is that the long-awaited "rebalancing" of the global oil market has yet to happen.

 I don't know what that means. 

In other words, the world's supply of oil remains far above its demand. The supply glut was mostly created by skyrocketing American production.

Oh, it means that the global oil market doesn't understand Econ 101.  When Supply is 'far above demand' there is a surplus, which will create downward pressure on prices.  When there is downward pressure on prices, prices go....wait for it...DOWN. Like to $34.50 a barrel.  Like they are now.  Sounds like a pretty good rebalancing act to me. 

But OPEC, led by Saudi Arabia, has exacerbated the issue by pumping oil ferociously. It's a strategy designed partly to pressure American producers out of the market.

Competition sucks...for inefficient producers.  But guess what.  Hummer loving consumers love low price Hummers. 

Get your mind out of the gutter.

OPEC declined to cut production when it met earlier this month, reinforcing the idea it's not coming to the rescue of oil markets.

...or reinforcing the idea that OPEC is no longer a functioning cartel. 

via money.cnn.com

And YES, I do recognize that I failed to account for any externalities associated with the consumption or production of oil.  That's for other posts.  This snark-filled post is simply a demonstration of how prices fluctuate in well-functioning markets...and who benefits and who loses.  It sounds odd to call the oil market well-functioning, but it seems like its about as close to a competitive market as it has been in my lifetime.  

Now for those pesky externalities...

Daily demand and supply: perfect complements and shortages

Living in a somewhat dysfunctional three-level house, we decided to put up a second tree to better spread holiday cheer. I live in an area that grows a lot of Christmas trees so they are not hard to find. After getting the first tree at a farm with hay rides and hot chocolate on Black Friday, we hit the Boy Scout market at the side of the road and got a 6' tree for $30. Like, peanut butter and jelly and autos and petrol, Christmas trees and Christmas tree stands are perfect complements. We don't have a second stand so I went to the market ... and struck out. Walmart, Lowes, Harris Teeter and a local building supply are all out. Walmart says that they have run out twice. Twice!

Due to the shortage, I can only conclude that Christmas tree stands are priced too low. And some advice, make sure that you can buy both complements before buying one of them (e.g., don't buy a car unless you have resolved your fears about Peak Oil).

Our second tree is leaning against the garage right now and my facebook friends are helping me find a stand. 

Finally, any clues why the local business firms were not ready for the demand for stands? It's not like if you stock too many they will rot or depreciate. 

Well it's about dang time...

In the mail yesterday--get yours today (it will help our publisher recoup our whopping advance):

Couldn't drag me away

Under the Dome:

Apparently the U.S. House can agree on this much: wild horses.

The House on Monday unanimously passed the Corolla Wild Horses Protection Act. The bill, sponsored by U.S. Rep. Walter Jones, a Farmville Republican, provides for a new public-private management plan for the horses that run wild on the Outer Banks. The plan will not cost any additional taxpayer money.

Under the current plan, the maximum number of horses allowed in the herd is 60. The bill requires a new management plan that allows between 110 and 130 horses — the number scientists say is needed to maintain the herd's genetic viability. It also allows for the periodic introduction of mares from Shackleford Banks — which like the Corolla herd are Colonial Spanish Mustangs.

Colonial Spanish Mustangs — designated as the State horse — date to the arrival of Spanish explorers on the Banks in the 16th century. They currently roam thousands of acres of public and private land on the Currituck County coast.

Here is the link to H.R. 126. Apparently, the U.S. Congress is allowing private foundations to do what they would like on public land. You can make your donation here.

Those horses are cool. When peak oil hits I'm using my last drop of gas to get to Currituck. I'll be the one known as "Conquistador" who rides a Spanish pony named La Reina (Queen) adapting to the realities of historical, linear sea level rise in the Mad Max wasteland of the coastal plain of North Carolina.