Many thanks to Pete Boettke for his endorsement of me and of Knowledge Problem as resources for energy economics (and particularly energy-related economics from a coordination perspective). I think of Pete and his fellow bloggers at Coordination Problem as some of our closest fellow travelers in intellectual space, and am thus honored by his compliment.
Tom Casten, a pioneer of recycled waste energy and combined heat and power technologies, recently received a well-deserved Inspiring Efficiency-Leadership award from the Midwest Energy Efficiency Alliance. For some background on Tom’s outstanding work that aligns economic profit and environmental benefit, this Atlantic article from May 2008 is a good place to start. Tom’s ideas and his relentless mental and physical energy have always inspired me, and I congratulate him on this well-deserved award.
We’ve paid a lot of attention to combined heat and power and recycled waste energy here at KP, and have followed the work of Tom Casten and his son Sean with great enthusiasm. Nothing is more consistent with economic efficiency than entrepreneurs profiting from reducing wasted resources.
Jim Surowiecki has a New Yorker column on cable bundling that does a good job of explaining some of the reasons why bundling benefits all interested parties in the transaction — the cable provider, the content provider, and the consumer. His analysis provides several examples of comparing a policy with the most likely counterfactual, as in this discussion of a la carte pricing:
So consumer advocates have been pushing for a system of so-called “à la carte” programming, expecting that this would drive down prices for consumers.
In fact, it probably wouldn’t. The simple argument for unbundling is: “If I pay sixty dollars for a hundred channels, I’d pay a fraction of that for sixteen channels.” But that’s not how à-la-carte pricing would work. Instead, the prices for individual channels would soar, and the providers, who wouldn’t be facing any more competition than before, would tweak prices, perhaps on a customer-by-customer basis, to maintain their revenue.
He then points out two consumer-focused reasons why the demand for a la carte options has never been sufficient to bring them to market. First, it’s very common for people to prefer bundles because they reduce transactions costs and search costs; second, bundles create option value for consumers (I don’t care about watching that channel right now, but I might in the future, so there’s a value to having it).
The appeal of bundling is partly that it reduces transaction costs: instead of having to figure out how much each part of a package is worth to you, you can make a blanket judgment. Bundling eliminates the problem of fretting about small expenditures, which may be one reason that flat-rate pricing is very common in the vacation industry (cruise ships, all-inclusive travel packages, and so on). It also offers what economists call option value: you may never watch those sixty other channels, but the fact that you could if you wanted to is worth something. Many consumers also perceive bundles as bargains; getting a bunch of things for one price feels like a deal, even when it’s not.
But in this era of disintermediation and ease of streaming TV and video, isn’t that likely to push consumers to want more a la carte options? Sure, and that’s why he argues that it is in the interest of cable providers and content providers to avoid the short-term profit-motivated bickering over fees (such as that between Scripps/HGTV-Feed Network and Cablevision) so they can maintain the long-term benefit of consumers who are interested in bundled goods.
Here’s a good piece of news from the fishery and common pool resource front: salmon and steelhead populations are dramatically larger in the Pacific Northwest than anticipated, and than they were last year.
… More than 680,000 Coho salmon returned to Oregon last year, double the number in 2007. The Coho run was so bountiful the ODFW called in volunteers to herd fish into hatchery pens. There were reports of creeks so choked with salmon, “you could literally walk across on the backs of Coho,” said Grant McOmie, outdoors correspondent for a television news team in Portland.
And ODFW forecasters expect more than half a million spring Chinook salmon to start swimming upstream in March, about two and half times 2009′s run, and nearly four times what came home in 2007. That would be the biggest spring Chinook run since 1938, when Oregon began keeping records of returning Pacific fish.
It is all part of a fish rebound no one expected. In 2007, one state office warned, “Populations of anadromous [or oceangoing] fish have declined dramatically all over the Pacific Northwest. Many populations of Chinook, Coho, chum and steelhead are at a tiny fraction of their historic levels.” The year before that, a naturalist in Seattle wrote: “It is hard to find the silver lining in a situation as dire as the collapse of wild salmon off the Oregon and California coasts.”
This is very good news. I don’t, though, think that we can declare victory in our challenging attempts to figure out how to govern the commons in fishing, which is extremely tricky and complex. In fact, I interpret this population surge as indicating just how complex a system a fishery is, where the set of interacting effects on fish populations is large — overfishing, pesticides, changes in glacial melting patterns, changes in ocean temperatures that affect how much plankton is available (and how nutritious it is), etc. etc. In such a complex system, flexible and adaptive institutions such as individual transferable quotas and catch shares can at least deal with the overfishing variable (earlier KP posts on fishing, ITQs, etc. are here).
“It’s very hard to move mountains on energy policy, and Pickens has not yet even moved a hill,” said Amy Myers Jaffe, an energy expert at Rice University in Houston. “The problem that Pickens faces is that in this country if you are from the oil industry, people are naturally suspicious of what you say on energy policy.”
I don’t think this is a problem unique to the oil industry. I think pretty much any billionaire jetsetting around and spending scads of money on a “public service” campaign would find it hard to move so much as a hill on energy policy (or health care policy or banking policy or anti-trust policy).
If George Lucas suddenly had a national energy policy that required lots of other people to spend their own money so that the world was remade in a way more to George’s liking, people would be suspicious. Boone Pickens is not unique in this regard.
Quote from a recent Green Inc. story.
Yesterday the California Public Utilities Commission approved a program to subsidize installation of solar hot water heaters. Green Inc. at nytimes.com provides a description of the solar hot water program. The description emphasizes the goals of the program (reduce use of natural gas and electricity to heat water, primarily in order to reduce greenhouse gas emissions) and highlights the incentives offered to homeowners and owners of multifamily commercial buildings. The description omits completely any description of who will fund the subsidy. Fortunately, the story provided a link to the CPUC decision which provided the rest of the story.
Under the program, a Public Goods Charge will be added to the bills of natural gas consumers to collect $250 million fund for replacing gas water heaters with solar thermal water heaters. An additional $100.8 million fund for replacing electric water heaters will come from California Solar Initiative money already being collected through a charge on electric consumers.
Analysis conducted for the CPUC determined the program was “cost effective for ratepayers and in the public interest,” as the state law requires, though that conclusion was disputed in regulatory proceeding. (Summarized here in the CPUC decision.) In high gas cost scenarios the program was readily found cost effective, but the CPUC focused on the stable-gas-price “Business as Usual” scenario (as the worst-case or most conservative scenario from the point of view of cost-effectiveness). Using a “society as a whole” perspective and the Business as Usual scenario, the program was determined to be cost effective if cost reductions of 16 percent relative to current costs can be achieved over the eight-year program duration.
Which kind of sounds like a conclusion that the program would not be cost effective. However, the decision assures us, commission staff have examined the tools, materials and methods use to build and install solar hot water systems, and staff concludes “a 16% cost reduction is a reasonable expectation.”
I wonder if they considered the possibility of a low-priced natural gas scenario?