Interest Groups and the Competition Between Green and Dirty Technologies

 

While “enlightened” entrepreneurs such as Bloomberg, Musk and Steyer celebrate the nascent green economy, there are other entrepreneurs growing rich from fracking activity.   Today there is a race between “green technologies” that have a smaller climate change impact than fossil fuel technologies.  Economists such as Acemoglu et. al. have studied how “sustainable” development could result depending on the relationship between these two technologies and government policies intended to tilt the playing field towards green tech.
In my past work, I have documented the fact that educated progressives (i.e Californians) are more likely to purchase green products.  Take a look at my hybrids work, and my solar work.
But, today — a new NBER Working Paper got me thinking about another key margin here;  workers.  At this time when there is great concern about income inequality and the well being of the middle class; does the green economy or the fracking sector create more jobs for the low skilled?  If the low skilled benefit both from cheap gas prices (as car drivers) and from employment opportunities in the fossil fuel sector (as frackers) , then they will not support carbon pricing.  My past political economy research ; read this and this,  supports this claim.  In this case, the greenhouse gas mitigation effort has a challenge in convincing the median voter.
So, this was a long winded intro for talking about this recent NBER paper;

Who Needs a Fracking Education? The Educational Response to Low-Skill Biased Technological Change

Elizabeth U. Cascio, Ayushi Narayan

NBER Working Paper No. 21359
Issued in July 2015
NBER Program(s):   CH ED EEE LS

Over the past decade, a technological breakthrough – hydraulic fracturing or “fracking” – has fueled a boom in oil and natural gas extraction by reaching shale reserves inaccessible through conventional technologies. We explore the educational response to fracking, taking advantage of the timing of its widespread introduction and the spatial variation in shale oil and gas reserves. We show that local labor demand shocks from fracking have been biased toward low-skilled labor and males, reducing the return to high school completion among men. We also show that fracking has increased high school dropout rates of male teens, both overall and relative to females. Our estimates imply that, absent fracking, the male-female gap in high school dropout rates among 17- to 18-year-olds would have narrowed by about 11% between 2000 and 2013 instead of remaining unchanged. Our estimates also imply an elasticity of high school completion with respect to the return to high school of 0.47, a figure below historical estimates. Explanations for our findings aside from fracking’s low-skill bias – changes in school inputs, population demographics, and resource prices – receive less empirical support.

So, the authors of this paper are interested in how human capital attainment choice is affected by labor demand shocks.  I’m interested in a different question; what is the economic incidence for lower socio-economic groups from a boom in fossil fuels? Their evidence suggests that Tom Steyer’s push to nudge us away from extracting fossil fuels  won’t have many supporters away from Stanford and UC Berkeley.
Self interested workers in industries that will be injured by carbon mitigation regulation have strong incentives to oppose such regulation.     How will Steyer’s team respond to this challenge? How will he avoid being painted as an elitist? Will he say that “the people” are the ones who will be hurt by climate change?  “The people” are likely to counter that if they are allowed to earn and work in these growing sectors that they will earn the $ to be able to protect themselves.
Back in 1997, John Matsusaka and I published a paper studying Californian voting on direct democracy initiatives related to environmental protection.  We found that voters in agricultural and manufacturing counties voted against specific pieces of regulation that threatened their industry’s well being (even though they protected the environment). Our paper was squarely in the University of Chicago/Peltzman School of political economy.  The same issues are very relevant today. It is no accident that President Obama (because of his war on coal) isn’t that popular in West Virginia.

Interest Groups and the Competition Between Green and Dirty Technologies
Matthew Kahn
Sat, 05 Sep 2015 15:17:00 GMT

Advertisement

Big oil companies spending more and producing less

Don’t expect cheap gas soon.

From the Wall Street Journal:

Big oil companies spending more and producing less
James_Hamilton
Fri, 31 Jan 2014 19:57:44 GMT

Does Third World Use of Newer Technology than US show the US is behind the Third World?

I found this on my facebook newsfeed.  It got me thinking.

The solar canal idea is really pretty intriguing.  There’s more information on it here.  Generate energy, but don’t take up any land, and conserve water.  Seems like a win-win for India.  the question is: does the last assertion follow that it shows the US (or other nations that don’t do this!) are on their last legs as first world powers, because they aren’t doing this?

I’m not convinced because I think the economics of solar would be much better in India where this is being done.  It makes sense they do it first.  With improving solar panels in time we may see it in the US too, but with the recent drop in gas prices, I think it’s a ways off.

 

SOLAR HAS LOWER COSTS IN INDIA THAN THE US AND EUROPE  DUE TO ITS BEING TROPICAL AND DRY MEANING LOTS GENERATION PER INSTALLED WATT  AND THE SAVED WATER IS MORE VALUABLE

First, the amount of solar energy varies from one part of the world to another.  I couldn’t confirm this, but I think that India would have more kWh per square foot from solar than would the US or most nations in the temperate zone rather than the tropics like India is.  I did manage to learn a little about the variation within the US

Based on this I’ll contend subject to correction that further south mean more sunshine based on poor solar generation in Alaska relative to the lower 48.  Less rainfall or an arid climate also helps.  The solar canals are being built in western India as shown below:

So not only is the are tropical it’s arid to semi-arid.  The point being there are lots of sunny days and likely a lot of kWh per square foot of installed solar.  Also as an arid region water is scarce and expensive as well.  Both of these things make this a good idea for this area, but not necessarily everywhere.

In researching this I found at least one other nation in the low latitudes installing solar energy for much the same reason, lots of sun and few clouds.

 

 

SOLAR HAS LOWER COSTS IN INDIA THAN THE US  DUE TO ITS LOWER LABOR COSTS

In addition, Indian labor costs are much lower than in the US.

Solar generating equipment is likely about the same cost to purchase in India as elsewhere, but the installation cost has got to be much lower.  Construction labor is largely not tradable, so the difference in installation costs from the US to India is likely even more than about 10 to 1 as shown in the chart.  This is a good illustration of the Penn effect.  This a good idea for this area, but not necessarily everywhere.

 

IN TIME THIS MAY MAKE SENSE IN THE US AND EUROPE, BUT IT MAKES PERFECT SENSE IT HAPPENS IN THE TROPICS FIRST

Solar technology has improved dramatically, and if it continues to do so the cost of solar power could easily fall by half.  Solar canals or highways may come to be in US and Europe because of that. 

The maximum efficiency of solar cells is about 20-40% currently.  The theoretical limit is of course 100%.  Is it reasonable to suppose we can come much close to that limit and increase the power output of cells and similarly reduce the cost per generation?  History would suggest maybe so.

 

My point is that even if solar canals are less cost-effective in the US than in India, and in fact not cost-effective relative to conventional generation in US, that may not always be so, especially because the technology is improving.  But it makes perfect sense that India is doing this first, and in no ways shows the US has become a third world nation.  QED.

Where’s my Cheap Gas Dude?

Interesting question.  I have more below.

Those who have been told that oil production is booming may be wondering why the prices of oil and gasoline are climbing again.

Price of Brent crude oil, dollars per barrel, daily, Jan 4, 2005 to Feb 5, 2013. Data source: Quandl.

 

…about a quarter of the 2 mb/d supply increase reported by the EIA over the last two years came in the form of natural gas liquids. These hydrocarbons are in gas form at ambient pressure and temperature, but become liquid with less pressure than is required to liquefy single-carbon methane.

Components of total world oil supply, monthly, January 2000 to March 2012, in millions of barrels per day. Blue: crude oil including lease condensates; purple: refinery processing gain; brick: natural gas plant liquids; yellow: other liquids. Data source: EIA.

About 80% of natural gas plant liquids are in the form of 2-carbon ethane or 3-carbon propane. Ethane is primarily used to make ethylene for petrochemicals and manufacturing, while propane has a variety of uses. But neither ethane nor propane is used to make gasoline. That’s why the boom in production of NGL’s has meant rapidly dropping prices for ethane and propane but not for the price of gasoline.

Source: Growth Stock Wire.

Source: IndexMundi.

New Jersey Historical Gas Price Charts Provided by GasBuddy.com

It’s obvious from the above price charts that it makes no economic sense to add gallons of ethane or propane to gallons of crude oil to try to summarize global oil supply. But growth of natural gas liquids has been a key factor in the reported increases in “world oil supply” over the last few years and is also a key component of recent optimistic assessments of future oil production by Leonardo Maugeri and the IEA.

There is no question that the boom in production of natural gas liquids is providing a great benefit to industrial users of ethylene. But if you’re waiting for it to lower the price you pay for gasoline at the pump, you may have to wait a while longer.

In addition to the effect of propane or ‘God’s Gas.

While US supply is increasing (the amount of product US producers will deliver to market at a given price);  world demand for oil is also increasing keeping price stable as supply and demand move together.

Let unpack this a bit.  Here’s the US oil market in a simply supply and demand chart:

US Market: Increase Supply reduces US import but the price fixed in the world Market at the bold light blue line.

                                               

Increased supply reduced imports, but the price set in a world market and changes little

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

The increase in US supply of course means world supply has increased too, and world price of oil stuck.

Renaissance in U.S. Oil Production

 

U.S. oil production is undergoing a renaissance, driven by the same technologies — hydraulic fracturing chief among them — that upended the gas industry.

Renaissance in U.S. Oil Production
WSJ Staff
Wed, 24 Oct 2012 02:30:41 GMT

Update on Iran sanctions

 

The boycott of Iran has been more successful than I had anticipated, with Iranian oil production and exports down significantly from a year ago.

Alternative estimates of Iranian oil production. Source: Early Warning.

And even stronger additional sanctions may soon be agreed upon. The measures appear to be having a significant effect on the Iranian economy, with the IMF reporting an inflation rate of 20-25% and some observers claiming the true figure could be as high as 70%. There are some signs of growing political opposition to the regime.

The goal of the sanctions is to try to pressure Iran to abandon its nuclear enrichment program. There was at least one indicator last week of some progress toward that goal, as statements from Foreign Ministry spokesman Ramin Mehmanparast seemed to signal a modest move forward in negotiations.

Of course, lower oil production from Iran has not been without cost for the oil-consuming countries. The combined effects of the loss in Iranian production and modest gains elsewhere have left total world oil production essentially flat since the start of the year.

Alternative estimates of world oil production. Source: Early Warning.

And where will this all end? Based on prices of Intrade contracts, bettors see a 12% chance of a U.S. and/or Israeli air strike against Iran before December 31, a 39% chance before June 30, and a 51% chance before December 31 of 2013.

Price in cents of promise to receive $1.00 in event of air strike before December 31, 2013. Source: Intrade.

Those same Intrade markets, by the way, put a 40% probability on Mitt Romney winning the presidential election.

Update on Iran sanctions
James Hamilton
Sun, 14 Oct 2012 14:50:12 GMT

Bringing Down the Price of Oil

Slowing economic activity reduces oil prices and trade deficits.  So don’t see those things as always good.

When there’s negative news from abroad
And the US recovery’s flawed,
It precipitates shocks
To oil and stocks
In Chicago, New York & Riyadh.
“Be careful what you wish for; you just might get it.” Everybody wants cheaper oil, but it often comes with a cloud over it, bringing lower stock prices along for the ride. On Thursday, the Dow Jones industrials fell 1.96% as negative economic news from Europe and China combined with the announcement of a manufacturing slowdown in the Philadelphia Fed district to cast a pall over US growth prospects. US crude oil prices responded to the weak data by falling to $78.20 a barrel, a new low for the year.

Bringing Down the Price of Oil
Dr. Goose
Fri, 22 Jun 2012 04:10:00 GMT

A rational reason for high oil prices

 

"There is no rational reason for high oil prices," writes Ali Naimi, Saudi Arabian Minister of Petroleum and Mineral Resources, in today’s Financial Times. Well, I can think of one– if oil prices were lower, the world would want to consume more than is currently being produced.

…

Blue line: total world oil production, millions of barrels per day, annually, 2002 to 2011. Red line: global oil production in 2002 times (y_t/y₂₀₀₂)^0.75 where y_t denotes global world GDP in year t as reported by IMF. 2011 world GDP growth estimated at 3.9%.

The question is not whether there is a rational reason for high oil prices, but rather whether there is a rational reason the world is not producing 100 million b/d today. And if anyone knows the answer to that question, it should be Saudi Oil Minister Ali Naimi.

A rational reason for high oil prices
James Hamilton
Wed, 28 Mar 2012 19:02:47 GMT

It’s So Maddening to Bruce

Public policy should try to make prices of goods and services equal their social cost, especially at the margin.  If production of energy pay its entire social cost in for example environmental degradation, then its output should be taxed to drive the costs to producers to equal the social cost.  Monopolies should be broken up to do  the same thing.  Do our politicians seem to do that?

You be the judge from this recent event:  The Reaction of Washington to Rising Gas Prices.

Here’s what President Obama’s up to:

Obama’s lead pollster and senior strategist Joel Benenson told reporters Thursday that to appeal to voters who believe they’ve been especially hurt during the recession, the president needs to tie Republicans to lucrative benefits for the oil industry, and advocate for tax fairness and new investments in manufacturing and high-tech jobs…Although White House officials conceded early this month that there is no direct and immediate linkage between ending oil company tax subsidies and reducing gasoline prices, the president nonetheless tried to blend company profits, petroleum market speculation, and pump prices into the same populist message.

It seems the main thing the President is up to is trying to accomplish is to divert voter’s ire from himself, by having them believe that’s he trying to avoid profits for big oil, even that will do nothing to help those who buy gas.  There no apparent interest in equating the costs of producing oil with its price.

Tax policy for the oil industry should be to avoid wedges between social and private costs, not to serve some wave of outrage about profits in production of a good.

Are Republicans any better?

Take it away Senator Mitch McConnel (Republican leader in the Senate):

Senate Minority Leader Mitch McConnell, in a statement, denounced the president’s efforts to pass a version of a measure previously defeated by the Senate in 2011. Suggesting the president’s interest in repealing oil company tax breaks was an election-year gambit, the senator said he opposed the bill because it did little to lower $4-a-gallon gas and would instead “raise taxes on energy manufacturers.”

Republicans aren’t interested in letting prices rise if needed to reflect increasing scarcity of oil as an exhaustible resources.  In the end Republicans are not pro-market; they’re pro business.  It’s not good policy.

I’m not familiar with the tax policy of the oil industry that much.  If the tax changes proposed end subsidies for oil production that keep oil prices and product price below their social costs they should be repealed, as the the President has proposed.  If the tax changes proposed drive cost of oil production above or further above the social cost of its production, the Republicans are right and the tax policy should be kept unchanged.  This may be true to the extent that oil tax policy lets costs of oil production be reflected in calculated oil profits.

It does feel like our leaders are using a rational anything like this.

Explosive Breach of Condit Dam

 

A lot dam removal activity is underway in the Pacific Northwest

Explosive Breach of Condit Dam on Vimeo on Vimeo

Explosive Breach of Condit Dam
Paul Kedrosky
Sat, 05 Nov 2011 07:06:45 GMT