Energy Subsidies

Posted by on

An interesting new working paper by Hall et al. looks at the role of energy subsidies in the developing world as a problem – and potential solution – in dealing with climate change:

Many non-OECD countries currently subsidize energy, and particularly fossil fuels, thereby creating an opportunity for subsidy reform or elimination that would have a variety of domestic benefits while also reducing GHG emissions. Energy subsidies encourage the overconsumption
of fuels and increase CO2 emissions. Yet, many countries pursue these policies to accomplish specific domestic policy objectives such as social stability, access to cleaner cooking fuels, increased electrification, or industrial policy. In some cases these are worthy objectives, but the energy subsidies have significant domestic costs including budgetary pressures, decreased energy security, inefficient energy markets, black markets for fuels, and distributional consequences (UNEP 2008).4 It is worth asking whether developing countries could reform
energy subsidies and seek less costly avenues to accomplish related policy objectives while
simultaneously reducing CO2 emissions.

Hall and his colleagues figure elimination of gasoline subsidies in China are the equivalent of $11 a ton CO2 tax – more for diesel. This seems a promising approach. But energy subsidies are a tricky thing.

It could be argued that we are substantially subsidizing our own energy consumption, by not including in our energy costs all expenses associated with the energy’s production (in econojargon, not pricing the externalities). The cost of the military needed to protect oil supplies is one clear example. (See this Boyd and Chermak working paper. Data’s a bit old, but still relevant.) If you don’t associate the full cost with the commodity in question, you’ll tend to use a lot more than you should, with all sorts of nasty consequences. So while convincing those in the developing world to eliminate their energy subsidies is a win, the discussion needs to be broader.

(See Daniel Hall’s blog on this and other subjects at Common Tragedies.)

Jimmy Carl Black

Posted by on
Jimmy Carl Black

Jimmy Carl Black

A friend sent me a link the other day to a video of Jimmy Carl Black appearing on stage with Frank Zappa in the early ’80s in Albuquerque. I immediately set off in search of Black. Did he still live here in Albuquerque. (And by “set off in search”, I mean “Asked Dan Mayfield, who knows everyone.)

This morning, we have our answer:

Jimmy Carl Black, the original drummer in Frank Zappa’s Mothers of Invention, a band that helped define the sub-genre of art rock, died of cancer Saturday. He was 70.

He died in Siegsdorf, Germany, according to Roddie Gilliard, who performed with Black in recent years as part of the Muffin Men, a British group that specialized in performing Zappa’s music live.

OPEC: A Bunch of Cheaters

Posted by on

One of the problems with cartels is the extent to which members cheat. According to the EIA, OPEC’s members can be expected to cheat on their latest agreement to cut production though, oddly, EIA expects them to cheat less than usual:

A key question regarding OPEC’s October 24 announcement of a 1.5 million bbl/d output cut is how much of the announced reduction actually will be implemented now and in the coming months. All OPEC producers except Saudi Arabia have recently been producing at, or close to, capacity. EIA’s current working view is that the actual OPEC cut between October and January could reach 1.1 million bbl/d. This represents about 70 percent of the announced cut, compared to a typical 50 percent compliance rate with previous OPEC cuts. While compliance with past announced cuts has often decreased over time, current market conditions and an expected growth in non-OPEC production may help maintain discipline among OPEC members and keep OPEC crude production from rising in 2009.

On Bingaman in the Cabinet

Posted by on

My take on why Jeff Bingaman as Energy Secretary doesn’t make a lot of sense:

But there is a story I’ve heard told enough times that, if it’s not true, it ought to be. When Bill Richardson was being considered for the position of Energy Secretary in 1998, he asked Bingaman what he thought. Bingaman’s response (perhaps apocryphal, but resonant enough to be repeated frequently):

“I think it’s the worst job in Washington.”

Patriotism in the Morning

Posted by on

We used to call Nora “our little loaf of bread,” because that’s how big she was. Lissa recalled this morning taking her with us to the polls in what must have been November 1988, her very first election. Last night, I was alternately working up a frenzy and sitting in the newspaper office, waiting for results, and chatting with her on IM while she and her friends alternately watched election returns and worked up a frenzy playing Rock Band.

This morning, she wrote this:

I went downtown with friends after watching Obama’s speech and there were literally people dancing in the streets. We cheered and waved and danced.

You know how in science fiction, you get robots who get exposure to humans and end up with feelings they can’t rationalize and they have that conversation with one of the humans?

The robot turns to the human and says, “Is this love?”

And I think I stand with millions in my generation who came home from dancing with full hearts, with a question in the backs of our heads: Is this patriotism?

Because I’ve never felt anything like it before.

Please Consider Not Voting

Posted by on

Greg Mankiw reprises the argument for why you might consider not going out and voting:

Anyone who has ever entered a polling booth can easily see why roll off occurs. You come ready to vote for your favorite candidate in some race you’ve been following closely, but then you face a whole list of races and ballot questions, most of which you know little or nothing about. What do you do? You could quickly make a decision based on your scant knowledge. But what if the contest is very close? Do you really want the outcome based on your almost random vote?

So you choose another course: You skip the item. In practice, this means that you are relying on your fellow citizens to make the right choice. But this can be perfectly rational. If you really don’t know enough to cast an intelligent vote, you should be eager to let your more informed neighbors make the decision.

(Of course, it clearly does not apply to readers of this blog. Right?)

More Elasticity

Posted by on

Here’s another remarkable measure of “income elasticity” – the consumption response to being (or feeling) broke:

That’s EIA’s “petroleum product supplied”, which is a good proxy for gasoline consumption. Contrary to a bizarre story in the New York Times last week, gasoline consumption has fallen off a cliff since early September. The Times story suggests that people are returning to their cars as prices drops. But if you look at the EIA data, it looks like the Times’ Clifford Krauss has cause and effect reversed. Prices seem to be dropping because people are consuming less.

Income Elasticity

Posted by on

Elasticity – consumers’ changing demand for a good – comes in two flavors. When prices go up, we consume less. But we also consume less when we’re broke, which is what’s happening today in the auto market. Gas prices are dropping like a stone in a pond, but as James Hamilton notes, we’re not buying SUVs:

Rising gasoline prices earlier this year unquestionably contributed to the slide of domestic autos in general and SUVs in particular in the spring and summer, and the lost income and jobs that resulted may have been the factor that tipped the economic slowdown into a recession. But national losses in jobs, income, and consumer confidence are now exerting a separate influence of their own, as consumers cut back wherever they can. Domestic automakers take the brunt of that second, more damaging blow as well.