High Gas Prices: Demand-Driven

Lynne Kiesling

I am so in professional platonic love with Tim Haab right now that it’s not even funny. This Environmental Economics post is so wonderful on so many levels:

So let’s take a quick look the basics and then use it to explain why the current high gas prices are your fault. …

The price per mile of travel is increasing (gas prices are increasing) and miles traveled are increasing relative to last year. The only thing consistent with higher prices and higher quantity is an increase in demand. If high gas prices were supply driven we would see consumption decreasing, not increasing.

Do go read the whole thing. I wish every member of Congress and every state’s Attorney General would read this post. I’m very glad that my students will be able to!

Making Use of Captured Carbon

Lynne Kiesling

I’ve been waiting for something like this for years! A company called Blue Source has a potentially commercially viable carbon capture business model that involves the captured CO2 actually being useful:

Blue Source is piping industrial carbon dioxide from a natural-gas processing plant in southeastern Colorado to an undisclosed oil producer that will, in turn, pump it into an aging oil field. The result should be increased crude production and a carbon-dioxide emissions reduction equivalent to taking 70,000 cars off the road.

Blue Source’s project is innovative not technically–the company employs off-the-shelf technology–but financially: it is among the first whose business plan hinges on the sale of both the captured carbon dioxide and carbon offsets, a financial derivative generated from the emissions reduction.

I hope this works; it’s precisely the not-sexy-but-clever type of innovation that I think will be an effective tool for carbon management, particularly in the face of all of the uncertainty we currently have about most aspects of carbon’s effects, anthropogenic vs. non-human, and carbon policy.

Cap-and-trade characters: Hoarders, speculators and do-gooders

Michael Giberson

Rich Sweeney, at Common Tragedies, writes about three common characters that populate some of the industrial/bureaucratic commentary over cap-and-trade carbon permit systems: hoarders, speculators and do-gooders.

A hoarder may be a low-carbon intensity electric generator seeking to bid up the cost of carbon permits to drive up costs for rivals and drive up the price of power in the region. A speculator is a financial player — for example a Wall Street bank or a hedge fund — with perhaps complex multi-market holdings that would benefit from high prices or otherwise tightly constrained carbon permit markets. Do-gooders are simply folks willing to buy and hold carbon permits as a way to hasten reductions in carbon emissions.

Sweeney notes a few good reasons not to be too worried about these characters. While on the one hand the inherently political nature of the program raises concern about program stability (aka “regulatory uncertainty”), on the other hand if things start going too badly, too quickly expect politicians to intervene. Such a possibility will quash most extreme hoarder, speculator, or do-gooder strategies. In addition, a number of simple program design choices can limit the likelihood that these kinds of strategies could disrupt the market or undermine program goals.

Still, it is worthwhile to think through the possibilities. Sweeney’s post provides a place to start thinking.