Archive for October, 2010

« Newer Entries
Older Entries »
h1

Natural gas, helium, offshore wind power, and cap-and-trade design issues

October 14, 2010

Michael Giberson

A handful of stories of interest:

  • The boom in shale gas has been a boon to homeowners who use gas, local economies with the resource, and manufacturers who make stuff with it, but it has “upended the ambitious growth plans of companies that produce power from wind, nuclear energy and coal. Those plans were based on the assumption that supplies of natural gas would be tight, and prices high.”
  • So I wonder about the implications of low natural gas prices for ambitious off-shore wind power plans. My general attitude is that so long as it is shareholder money being risked, not ratepayer money, then go for it.  Unfortunately, renewable power policies will ensure that ratepayers and taxpayers end up covering all or most of the excess costs. Anyone willing to guess whether the external benefits from these projects is sufficient to justify the high cost?
  • The nation’s strategic helium reserve is running out. Peak helium? No, just awkward federal pricing policies as the government winds down its stockpile according to the Washington Post. Related: a new helium production facility being built in Wyoming. What I didn’t know before: helium is generally found commingled with natural gas, though only a few fields have high enough concentrations to make recovery economical.
  • Policies change over time, and the transitions between old and new regimes can either go smoothly or not. If a national cap-and-trade program were to be established, we can be sure that the program will be changed from time to time.  Scholars at Resources for the Future have examined how the EPA has handled policy changes affecting the NOx and SO2 cap-and-trade systems. Short answer: sometimes well and sometimes badly.

Posted in Energy markets, Environmental policy | 2 Comments »

h1

Roast potatoes, Elinor Ostrom, Whole Foods competitors

October 14, 2010

Michael Giberson

Some food for thought. For months and months, it seems, these three items – “Roast potatoes,” “Elinor Ostrom,” “Whole Foods competitors” – have dominated the “Top Searches” list in the Knowledge Problem site stats. We blog a lot about energy, economics, and public policy. Once in a while a bit of food or drink or music gets a brief mention. I’m beginning to wonder whether we’re giving the readers what they want.

Here we are trying to push the energy economics we think you need and, apparently, you our readers are trying to organize complex community organizations to solve common pool problems using roast potatoes purchased from high-end grocers that aren’t Whole Foods. Maybe we need a post on “pot luck dinners as a common pool resource.”

Posted in Economics, Food and wine | Tagged | Comments Off

h1

The sound and fury of the shale gas fracking debate

October 13, 2010

Michael Giberson

Holman Jenkins’s Wall Street Journal column on the shale gas fracking debate seems to be right on the money.

Jenkin’s writes:

As a report from the Houston investment firm of Tudor Pickering shrewdly predicted in June, there will be no fracking ban. Too much money, too many jobs, too much revenue for state government is at stake. Instead: “The gold-rush-like endeavor called shale drilling will morph from trial-and-error into a more institutionalized affair. . . . Bigger companies will have a growing advantage, because they can better afford to prevent spills and leaks and correct them when they happen.”

Yep, the sound and fury of the fracking debate is really just the noise of the fracking phenomenon being domesticated.

[...]

An entire region of the country is unexpectedly being transformed by a new industry. Toes are being stepped on, but money and politics will slop around in ways designed to reduce the opposition to manageable proportions. That’s what politics is for.

A lot of noise is being made at present about environmental and other concerns surrounding fracking, but the prospect of a lot of money to be made will win out in the end. It isn’t that there are no real environmental concerns, but the environmental risks associated with development are small.  In fact, the environmental risks of developing shale gas are likely smaller than the environmental risks associated with not developing the resource.

And development allows access to a huge quantity of low-cost natural gas in a region of high energy demand. Lawmakers and utility commissions often strain to fund low-income energy assistance programs, but I’m guessing such programs are a pittance compared to what advancements in fracking technology are doing for energy consumers. If natural gas prices were still in their pre-shale gas boom relationship to world oil prices, we’d likely have $8-$9 natural gas right now instead of a NYMEX price under $4 per mmBTU.

[HT to TMc. Thanks.]

Posted in Energy markets | Tagged , | Comments Off

h1

The differences between renewable energy and renewable power in North Carolina

October 12, 2010

Michael Giberson

Under North Carolina’s Renewable Energy and Energy Efficiency Portfolio Standard, poultry waste burned to boil water to generate steam to turn a turbine generating electricity will earn RECs which can be sold to electric utilities needing to meet the state’s new renewable energy standard. Also under the law, poultry waste burned to boil water to generate steam to be used directly as process heat in factories does not qualify to earn RECs. The distinction may frustrate plans to use the poultry waste as an industrial fuel.

The Raliegh, N.C. News-Observer reports:

An energy company that wants to burn poultry waste for fuel has lost its bid to use the bird droppings as a green energy resource because of a quirk in North Carolina law.

A ruling by the N.C. Utilities Commission means that Peregrine Biomass Development will scrap plans for now to build several industrial boilers in the state. The company had planned to burn chicken droppings as an organic fuel to generate steam for factories and other industrial applications….

Peregrine’s business model had counted on a dual revenue stream. The company had planned to sell steam to industrial customers and at the same time sell renewable energy certificates from the projects to Progress Energy, Duke Energy or regional power agencies. The renewable certificates are a subsidy to encourage development of the state’s renewable sector. Electric companies and power agencies are required to buy a certain amount of the certificates to meet the state’s renewable energy targets.

The state’s 2007 renewable energy law considers poultry waste a type of renewable resource – but only as long as the poultry waste is used to generate electricity. Peregrine’s use of poultry litter didn’t qualify as a renewable, the utilities commission ruled Friday, because the company planned to generate steam or boiling water, not electricity.

An irony here is that Peregrine’s projects would qualify for the REEEPS subsidy if they planned to boil water to generate electric power and then use the electric power to boil water, even though the extra step would involve significant additional up-front cost and be a much less efficient use of the energy source.

John Whitehead at Environmental Economics wonders what “bureaucratic-political rent seeking led to this decision” by regulators, but I suspect it is just an example of how hard it is to provide simple incentives in a complex world. State lawmakers were trying to encourage the electric power industry to rely more on renewable energy sources, so they wrote a law about electric power.  Peregrine’s approach was outside their immediate scope of interest at the time. Perhaps Peregrine can incorporate a cogeneration component to their projects, and claim a subsidy that way, or if the projects will reduce overall energy consumption they might qualify as energy efficiency programs.

By the way, the energy efficiency component seems to me to be a – what is a nice way to say “scam” – in the making. In the regulatory rule-making process at the state utility commission, Duke Energy argued that because it will take time to measure and verify energy efficiency results the utilities should be able to rely on estimates of reduced energy consumption in annual compliance reports, with “actual results” incorporated into subsequent reports. The commission added the following language to the regulations: “REPS Credits for energy efficiency may be based on estimates of reduced energy consumption through the implementation of energy efficiency measures, to the extent approved by the Commission.” (p. 60 in this NCUC order).

So essentially, a utility can get credit for its estimated reductions in energy consumption due to energy efficiency plans implemented, and maybe (though the changes to the regulations say nothing about this) eventually, a subsequent report will list “actual results.” At the least this mechanism allows a way for the utility to borrow credits from future years (by over estimating results now and then over-complying later to make up for the post-verification adjustment), but nothing in the rule governs this potentially significant program component other than the phrase “to the extent approved by the Commission.”

The whole thing is a mess, and not just because of the poultry waste.  Better policy pursues the externalities associated with electric power production – the law here mentions diversity among energy resources and improved air quality as among the policy goals – and let producers and consumers sort out the complexities.  Sure, implementing Pigovian taxes and Coasian bargains can be messy, too, but then sorting out the mess seems to be more about identifying and solving problems rather than about how to fit nicely into the economic framework imagined by lawmakers and regulators.

Posted in Electricity, Energy markets, Environmental policy, Regulation | Tagged | 3 Comments »

h1

Cole on Coase and cattle

October 12, 2010

Michael Giberson

Arizona is re-thinking its open range law. Dan Cole, blogging at Law, Economics & Cycling, is reminded of Ronald Coase (and specifically Robert Ellickson’s law review article “Of Coase and Catttle“). Cole summarizes the situation:

Arizona is an “open range” state, which means that cattle can roam at will. Ranchers do not have to fence them in (but they are responsible for collecting wandering cattle) neighbors must fence them out. From a Coasean point of view, roaming cattle and the harm they cause constitutes a joint-cost problem created by both cattle ranchers and neighbors. The chief solution to the problem is for someone to build a fence. The chief question is: who should have to bear the costs of building and maintaining fences. Ultimately, what “open range” laws do, by insulating cattle ranchers from liability (though not as much as the ranchers might believe) for trespassing cattle, is to allocate the costs of fencing out to the neighbors. The fight going on now in Arizona is about changing the law from “fencing out” to “fencing in,” which would basically just reallocate the costs to the cattle ranchers.

The issue is more complicated than who pays for damages to vegetable gardens inflicted by wandering cows.  An important current issue in Arizona is car-cattle collisions. Under “open range” rules, the driver may be liable to damage to the cow, whereas with a “closed range” rule the rancher may be liable to damage to the vehicle.

Cole offers some additional detail and nuance, so go read his post.

Posted in Economics, Law | Tagged | Comments Off

h1

Getting hooked on Hayek

October 8, 2010

Michael Giberson

Streetwise Professor dubs F.A. Hayek’s Road to Serfdom “An Intellectual Gateway Drug.” Craig Pirrong writes: “Amazingly, Hayek’s 60+ year old Road to Serfdom is the subject of contemporary political discussion even though in many ways it is about a world that disappeared long ago–and in, fact, never really existed, though Hayek feared that such a world was impending.” He concludes:

For me, Road to Serfdom was like a gateway drug to Hayek.  It was sufficiently interesting and provocative and informative to me when I read it at age 21 or 22 to make me want to read Hayek’s non-polemical work.  And what a revelation that was.  RTS contains the kernel of the Hayek’s key ideas, and hence it is a good thing if more people read it and become familiar with those ideas.  But it is a pale imitation of the real thing.

I’ll confess openly here that I’ve never made it to far down the Road. I came to it relatively late in my economics eduction. It seemed unsubtle and polemical and I was used to, and much preferred, Hayek as a careful examiner and builder of ideas.  But then, I had already read a lot of Hayek before trying to read Road to Serfdom (and Milton Friedman and Thomas Sowell’s Knowledge and Decisions and Don Lavoie’s National Economic Planning and James Buchanan and Gordon Tullock and The Incredible Bread Machine and more).

Hah! It has probably been years and years since I last thought about The Incredible Bread Machine. No doubt I’d find it sophomoric and unsubtle if I re-read it today. Like the Road for some people, I found Bread Machine to be  a bit of a mind-bending experience when I first encountered it.  If Road is helping to open some minds to the wider world, I’m all in favor.

Posted in Economics, Liberty | Tagged | Comments Off

h1

Review of Kiesling and Kleit (eds.) Electricity Restructuring: The Texas Story

October 7, 2010

Michael Giberson

In the current issue of Regulation, Tim Brennan reviews Electricity Restructuring: The Texas Story, edited by Andrew Kleit and our own Lynne Kiesling. After a lengthy introduction discussing how deregulation came to the electric power business (mostly it hasn’t, but parts of the industry have been reorganized), Brennan gets down to the book at hand.  He tells us, “The subject of their important book is why Texas appears to have succeeded where the rest of the country has failed.”

Electric Restructuring: The Texas StoryBrennan finds the book useful as a guide to what Texas has been doing with its electric power market and how they got to where they are today. He finds the book a bit full of “inside baseball,” stocked as it is with contributions from many of the state commissioners, regulatory staff and other folks who were front-line participants in the developments discussed. Brennan would have liked to see more external evaluations of market performance to complement the insider views.  He also found that the book missed opportunities to convey some of the lessons learned in the Texas experience, as with Texas’s initial choice of a zonal market design and subsequent switch to a nodal market design. Finally, with the book’s heavy focus on the Texas experience, it neglects discussion of developing issues of interest.

Overall, despite the mild criticism, Brennan finds the book a valuable contribution on a subject of importance. I’ll endorse that view. Anyone who wishes to be up-to-speed on electric power restructuring policies in the United States should read this book.

 

 

Posted in Books, Electricity | Tagged , | Comments Off

h1

Uncapping prices in secondary ticket markets

October 7, 2010

Michael Giberson

David Harrington has an article in the new issue of Regulation on the consequences of state repeal of laws that put caps on ticket resale prices: “Uncapping Ticket Markets.” Harrington used StubHub data to compare NHL ticket resale prices in states that repealed price caps on resales to prices in states that hadn’t changed laws. As the article subhead puts it: “In hockey at least, liberalizing scalping laws has benefited fans.”

Posted in Economics, Professional sports | Tagged , | Comments Off

h1

Tinderbox

October 6, 2010

Michael Giberson

The blogosphere is a tinderbox and an errant spark can trigger a storm of fire. In this case the spark was a news story about a city fire department refusing to put out a house fire for a home outside the city limits.  For Salon writer Alex Pareene, curiously, this story implies something about the moral absurdity of libertarianism. EconLog‘s David Henderson objects that policies of government-run fire departments are probably not illustrative of libertarian ideals.

Many, many other writers chime in: Tyler Cowen at Marginal Revolution, Jonah Goldberg at NRO, Paul Walker at Anti-Dismal, Ed Lopez at Division of Labour, E.D. Kain at Balloon Juice, the Huffington Post and more can be found with a little effort (<= a Google blog search currently showing over 7,000 results).

Zaid Julani at ThinkProgress gets the political story a little better, seeing it an example of conservative, no-frills government and the consequences of inadequate provision of public services. Julani, on the other hand, claims a progressive outlook and “believes in an American Dream that works for all people, regardless of their racial, religious, or economic background.” More to the case here, the progressive view seems to be that Obion County Tennessee residents should tax themselves more and buy some firefighting services, whether local voters and local elected officials prefer such policies or not.

There are some interesting angles here – moral hazard, duty to rescue, scope of public service, the enforceability of contracts signed under duress, local governance, and so on – but they ought to be informed by the local experience with other policies. If, for example, you are going to advocate a policy that has failed in the past, you ought to know it failed in the past and have a story as to why “this time it’s different.”

So for a local perspective, a statement from the Union City Fire Department (not the fire department involved directly in the story, but from a nearby city):

The Truth about Subscription Fire Service in Obion County TN.

Due to the large number of information requests and emails from individuals who have only heard one side of the story from local and national media, we have included a statement from the Union City Fire Chief to try to educate the public on the situation with the rural fire subscription service in Obion County. The following is that statement:

The events of the Cranick fire in Obion County Tennessee on Wednesday September 29th, 2010, have with no pun intended; created a “media fire storm.”

So much “finger pointing” has ensued, that the true facts of the incident have been blown out of proportion.

The first point that needs to be noted is that Obion County Tennessee does not have a county fire department.  Secondly, no county tax revenues are even ear marked for county fire protection.

The county is made up of 8 municipalities which do provide fire protection to its city residents, through city property taxes, which fund their respective fire departments.

Three of theses cities, South Fulton; Kenton and Union City allow their departments to respond outside the city limits by way of a Subscription Service which charges a $75 yearly fee to receive fire protection.  After they respond to a “members” fire, the member is billed $500 for the response.

Why the $75 and a charge of $500?  This can be compared to any insurance.  You have a premium; the $75 and then you have a deductable; the $500.  The policy, of these cities is that if the fee isn’t paid, then the fire department does not respond.  The only exception being; life endangerment. (A report that someone may be inside the home.)

These fees help offset the cost of equipment and manpower, paid for by the city tax payers to help fight fires in the county.

The remaining 5 city fire departments have for years responded into the county without a subscription service, banking on collecting fees for their services, “after the fact.”  The problem has been, that once those people have been provided the service; they often seem to choose not to reimburse.  Attempting to charge on a per call basis does not generate the needed funds nor does it give county residents an incentive to support the cities, if they can wait until they actually have a fire to pay anything….

Posted in Economics, Law | Tagged , | 3 Comments »

h1

All the life-extending benefits of caloric restriction, without actually, you know, restricting calories?

October 5, 2010

Michael Giberson

The dramatic finish to an article in The Economist:

If inherited epigenetic changes were causing daughter rotifers to produce more catalase, it would raise the question of whether a similar thing happens in other species and, if so, whether it might be induced artificially, without all the tedious business of a lifetime’s starvation.

Maybe that makes more sense if you read the full article.

In any case, yes, a lifetime of starvation (or less dramatically, “caloric restriction”) seems like a high price to pay for extending lifespan a bit. If we can brew something up in a tea, or better yet create a syrup to pour over ice cream, I’m in favor.

Posted in Food and wine, Technology | 4 Comments »

« Newer Entries
Older Entries »
Follow

Get every new post delivered to your Inbox.

Join 47 other followers