One of my favorite things about Technorati is that I find new and interesting sites. Today I found Bay Sense. Wowie.
Here’s an interesting San Jose Mercury News article from Tuesday about electricity policy in California. As I mentioned earlier in this post, there are competing electricity bills in the California legislature right now, and one of the issues of contention is direct access. The Mercury News article focuses on direct access and the Governor’s support of it, as well as some of the arguments for and against it.
Terry Anderson of PERC is one of my favorite people on the planet. He’s a good economist and an effective communicator of an optimistic vision of the positive relationship between economic growth and environmental quality. As such, he’s always been a role model for me.
Terry’s got a commentary on this subject in Front Page magazine that is worth a read. A teaser:
Because of a combination of market forces and technological innovations, we are not running out of natural resources. As a resource becomes more scarce, prices increase, thus encouraging development of cheaper alternatives and technological innovations. Just as fossil fuel replaced scarce whale oil, its use will be reduced by new technology and alternative fuel sources.
Market forces also cause economic growth, which in turn leads to environmental improvements. Put simply, poor people are willing to sacrifice clean water and air, healthy forests, and wildlife habitat for economic growth. But as their incomes rise above subsistence, “economic growth helps to undo the damage done in earlier years,” says economist Bruce Yandle. “If economic growth is good for the environment, policies that stimulate growth ought to be good for the environment.”
He then goes on to discuss research with evidence that countries with higher GDP also sequester more carbon, and thus may produce less net carbon. I have a lot of detail questions about the analysis (is it GDP/capita? GDP growth rates? etc.) that will make me go find McCormick’s analysis and read it. But this is thought-provoking.
I like how Terry says “richer may well be cooler.” I hope he’s right.
Robert McTeer of the Dallas Fed had a commentary on energy in Tuesday’s WSJ (sub. req.). His argument is basically that our economy has become less responsive to energy price volatility, and therefore we should not be as concerned about the negative consequences for the economy from high oil and natural gas prices as we would have been in the past. This extensive excerpt makes his point:
There’s little mystery in the link of energy prices to recession. Consumer spending takes a hit as budgets stretch to pay more for filling up at the gasoline pumps and heating homes. Just as important, oil products and natural gas are key inputs for electricity, airlines, trucking, petrochemicals, fertilizer and a host of other industries. Those vulnerabilities haven’t gone away, and that’s why the recovery slows.
How much depends on what happens to energy prices. Take the outlook suggested by futures markets — oil prices 35% higher than previously forecast and natural gas prices about 30% above their historical relationship with oil. That puts oil at $30 to $32 a barrel and natural gas at $5 to $6 per million BTU.
Under this scenario, Dallas Fed research suggests GDP would suffer a one-time reduction of 0.9% — not all at once but spread out over several years. An economy racing forward at 3.5% to 4% annually can weather the loss of several-tenths of a percentage point. A decade or two ago, a similar run-up in oil and natural gas prices would have done more damage to the economy. Three factors explain why we’ve become less sensitive to energy-price shocks:
• First, shifts in the composition of output and investments in more efficient plants, equipment, homes and vehicles have cut the energy-to-GDP ratio by more than 50% since the early 1980s. In the airline industry, for example, the average fuel per passenger mile has fallen by about 25%.
• Second, today’s price hikes aren’t as severe as many of the past episodes. Adjusted for inflation, for example, today’s crude prices would have to rise to $75 to $80 a barrel to get where they were in 1981, which would mean gasoline prices of $3.50 per gallon or higher.
• Third, the economy benefits from experience gained over the years in dealing with higher energy prices. Companies that survived past episodes are less likely to misjudge the impact of expensive oil and natural gas on their own businesses and on others with whom they trade.
An economy less susceptible to energy price volatility comes as a blessing because prospects aren’t good for the kind of price busts that in the past brought relief from expensive oil and natural gas.
For more on McTeer’s comments, see this
Don Boudreaux beat me to the link to this Adelman article from Regulation magazine. I read it on the train home from work Monday night, and it is definitely worth a read and will provide much-needed perspective on the politicized oil question.
See also Steve Verdon on Hubbert’s Peak, one of the most misunderstood and erroneously applied data patterns I know of. The post also has a good comment thread.