Category Archives: Oil

Climate of Fear II

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Recently, the New York Times has published pieces by economists arguing that the costs of limiting climate change may be much lower than people have feared.

The Cornell economist Robert Frank has made a series of arguments in favor of vigorous action in responding to climate change. Some of them are more persuasive than are others.

First, the same people who argue that climate change isn’t certain also go to the dentist once a year. Why? Because fillings are cheaper than root canals. The same reasoning goes for the uncertain effects of an uncertain degree of climate change.

Second, the same people who want to protect capitalism from excessive regulation ignore that the market works really well. Raise the costs of pollution to producers and consumers and they will find lower-cost alternatives. Carbon taxes and cap-and-trade policies can cut pollution without pushing up over-all prices.

Third, we restrict the right of individuals to exercise their “individual liberty” when it would harm others. Same thing goes for discharging greenhouse gases.

Some of his arguments seem to come from cloud-cuckoo-land.

First, capitalism is “creative destruction.” If carbon-based industries get destroyed by prices that reflect their real costs to the environment, then investors will plow money into alternatives. What Frank fails to understand is what Catherine the Great tried to explain to Denis Diderot: “You write your reforms on paper; I must write them in human flesh.” Coal miners don’t easily convert to barristas. Look at what happened to British coal miners after the Thatcher government decided to close many inefficient coal mines. Boozing away their dole in the local.

Similarly, there are only a relatively small number of convicted felons or people discharged from mental asylums who want to obtain a permit to carry a concealed weapon, but lots of people drive cars. It is easy to restrict the rights of the former, but it will be hard to restrict the rights of the latter.

Second, what you lose on the swings you make up on the merry-go-round. That is, high taxes on pollutants would generate huge revenues that would allow other taxes to fall. What Frank fails to notice is that American taxation is highly progressive. The top one percent on tax-payers provide over a third of all income tax revenue, while the bottom fifty percent pay less than five percent. Raising gas taxes, for example, would penalize the vast majority of Americans while off-setting tax cuts would benefit the “one percent.” Good luck getting that through Congress.

However, the proponents of the carbon tax increase + other taxes decrease frankly acknowledge that the two have to run together to keep the tax effect neutral. If the carbon tax is increased without an offsetting reduction in other taxes, then it really is a significant additional cost for the economy.

Third, American leadership would give us the moral high-ground, while the threat of tariffs could be used to lever the Chinese and the Indians into following our lead. I suppose we could ask Vladimir Putin what he thinks of America’s moral high ground—and of economic sanctions.

In short, there are some interesting ideas on offer. However, the political bugs haven’t yet been worked out of the system.

Robert Frank, “Shattering Myths to Help the Climate,” New York Times, 3 August 2014.

Eduardo Porter, “The Benefits of Easing Climate Change,” NYT, September 2014.

Climate of Fear I

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Climate change is an important, but testy, issue. It involves a number of distinct, but related, problems. The problems are more political than scientific or technological.

Burning carbon emits greenhouse gases into the atmosphere. Coal, oil, and gasoline powered the previous Industrial Revolutions. Most of the greenhouse gasses of the past came from what are now wealthy Western nations. Now, non-Western nations have embarked on a headlong pursuit of industrialization as a way of raising the living standards for their people. Developing countries now produce two-thirds of all greenhouse gases, and China is the single biggest emitter. China accounts for 28 percent of all emissions. This is more than the United States and the European Union put together. The greenhouses gases of the present and future are chiefly the product of these late-industrializers.

First, how do we cut future greenhouse gas emissions without telling non-Western countries that they can’t industrialize? One answer appears to be heavy investment in renewable energy sources like wind and solar energy. Yet China and India have as much access to solar and wind energy as do Western countries. What they don’t have are well-organized, articulate environmental lobbies. Taking a coldly economic view, the rulers lean toward carbon. They aren’t very interested in developing alternative energy when they have a lot of coal.

Second, who pays for the adjustments caused by the climate change that is already underway? Much attention focuses on countries suffering from “a case of bad latitude.” Climate change threatens “nations” on coral atolls in ways that don’t seem so threatening elsewhere. The Seychelles Islands in the Indian Ocean and the Marshall Islands in the Pacific Ocean are in danger of disappearing under rising seas. Bangladesh and the Caribbean Islands could face the same fate. (If we get lucky, so could Florida.)

The expectation in some areas is that the wealthy nations of the West will pay. “Don’t tell us you can’t cut emissions, you can’t give money, while you bask in the rich way of life you enjoy now. You know your emissions are damaging us. Help us out here.”—Ronald Jean Jumeau, the Seychelle Islands’ ambassador to the UN for Climate Change. He probably shouldn’t try that attitude on with the Chinese.

Third, people are afraid that the costs of stopping or—better yet—turning back climate change would cause a significant slow-down in economic growth. Alternative energy sources were estimated to cost more than our little friend, carbon, or to involve unacceptable risks (like Chernobyl). A heavy tax on carbon use offers the best means to shift consumption from carbon to non-carbon sources. Many enviro-friendly[1] people are willing to have someone pay it.

Who pays for the investment? Germany has tried taxing carbon to subsidize the development of wind and solar energy. First, they decided to exempt the export-oriented industries from the tax because these are often energy-intensive producers. Higher costs could reduce international competitiveness. German national prosperity through exports came before climate. Then the higher costs of carbon to subsidize alternative energy sources did not produce comparable supplies of wind and solar energy. Instead, energy prices went up. Now the German government has begun scaling-back the subsidies.

Justin Gillis and Coral Davenport, “Push for New Pact on Climate Change Is Plagued by Old Divide of Wealth,” NYT, 21 September 2014, p. 10.

[1] It’s too bad there isn’t some clever euphemism for this constituency in the way that “420 friendly” is a euphemism for dopers.

 

The Blood of Victory.

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Cotton may be the “fabric of our lives,” but oil makes everything run.

How much oil are we using? More and more each year: 60 million barrels a day in 1985, 84 million barrels a day in 2009; probably 114 million barrels a day in 2035. Oil use will probably accelerate as “developing nations” (Chinas, India), well, develop.

One problem is that there is a finite amount of oil in the earth. But how much is that? No one knows for sure. The current estimate is 1.2 trillion barrels. This is pretty hazy, actually. There may be lots more oil than people previously thought. Still, even “bullish” estimates suggest that we may have enough oil—produced at a rising cost—to provide oil for twenty or thirty or even forty years. So I’ll probably be dead before it runs out, but most people on the earth today will not. In the meantime, world demand for oil drives the exploration for new oil reserves into new areas.  As one oil company spokesman put it, “this is where nature put the oil.  You want to find oil, you have to go where it is.”

Some of the oil exploration sites are in extremely challenging environments.  There are undersea deposits in the Atlantic Ocean off the coast of Brazil, in the Arctic Ocean, and off the coasts of the United States. The American sites are problematic. People first started drilling for oil off-shore in the Gulf of Mexico in about 1950.  Success in the Gulf led to oil exploration elsewhere.  However, in 1969 there occurred a disastrous oil-rig blow-out in the Santa Barbara Channel in California.  The reaction put a stop to off-shore drilling wherever the oil industry was not already powerful.  Both the East Coast and the West Coast were soon out of bounds.  In contrast, Texas and Louisiana were already in the thrall of the oil industry.  Off-shore oil drilling became concentrated in the Gulf: there are about 4,000 oil rigs operating there now.

Since 2005 there has been a tremendous growth in the number of off-shore oil rigs world-wide.  There are about 2,500 off-shore oil and natural gas rigs around the world outside the Gulf of Mexico.  The number of the foreign off-shore rigs will expand.  Brazil claims a recently-discovered under-sea field 200 miles out in the Atlantic.  The oil deposits are estimated at 15 billion barrels.  Tapping into these fields would raise Brazil to the ranks of Canada and Nigeria among oil-producers.  For a rapidly developing economy with all sorts of needs and aspirations, this chance is too good for Brazil to pass up.  There are serious technical difficulties because the oil is four miles down.  The example of British Petroleum’s “Deepwater Horizon,” which blew up and blew out in Spring 2010, sends shivers down the spines of environmentalists.

Environmentalists go crazy over the risks. The “Deepwater Horizon” blow-out, and the resulting spill, gave them a lot of ammunition. How are you going to contain an oil spill four miles down if you couldn’t contain one a mile down? How are you going to contain a spill in the stormy Atlantic Ocean if you couldn’t control one in the comparatively tranquil Gulf of Mexico? Alternative oil sources don’t look much better. The Canadians have been extracting oil from “tar sands” in Alberta and the US is extracting oil from shale rock in the Western states. Getting oil out of tar sands requires six barrels of water for every barrel of oil produced. Water is nearly as scarce as is oil.

What to do? Well, if you’re running an oil company, you look in places that have weak environmental regulations and a corrupt government. “Nigeria is for drillers” bumper-stickers should start popping up all over the place. Ecuador, Peru, and Costa Guano should also start to figure in oil company reports.

See: “The search for oil,” The Week, 17 December 2010, p. 15; “Oil rigs: cities at sea,” The Week, 21 May 2010, p. 13.