Archive for November, 2011

« Newer Entries
Older Entries »
h1

Pipelines and politics, or “Flow my tears, but not in a pipeline crossing U.S. borders because we’ll never get the permit approved at the State Department”

November 11, 2011

Michael Giberson

A few days ago, Geoffrey Styles was assessing the potential role of energy issues in the 2012 U.S. presidential election:

Even though $4 gasoline was still fresh in the minds of voters, energy played only a minor role in the outcome of the 2008 election, overshadowed by two wars and a crippling financial crisis. Will that be the case again in 2012, or will energy loom larger, propelled by its close connection with the economy? Several Republican candidates have already raised energy as a campaign issue, and the administration has repeatedly emphasized the linkages between energy, jobs and taxes. Whether any of those arguments gains traction in a race that at this point seems likely to be dominated by unemployment and deficits could depend on how deftly the administration handles decisions such as the Keystone XL Pipeline permit, as well as the degree to which voters become interested in the details of the country’s shifting energy balances. (Emphasis added.)

And then yesterday, this story: “Administration delaying Keystone XL decision until after 2012 election“:

The Obama administration said Thursday it will consider alternative routes for the Keystone XL oil pipeline to avoid ecologically sensitive areas of America’s heartland — a move that delays a final decision on the controversial project until after the 2012 election.

The move solves a political dilemma for President Barack Obama, who risked alienating key voting blocs no matter what decision he made on the pipeline that would carry Canadian oil sands crude from Alberta to Port Arthur, Texas. The project pitted environmentalists against some labor unions and the oil industry, and Obama would have been delivering a verdict before an election that could turn on who can do the most to turn around the nation’s ailing economy. (Emphasis added.)

Shall we think this point through a bit? According to the article, the election may turn on “who can do the most to turn around the … economy,” and so the Obama administration is using the State Deparment’s Washington, D.C. focused regulatory processes to imposes a politically convenient (to Obama)  delay on a decision until after an election even though this politically convenient (to Obama) delay will produce significant collateral damage to the economy.

And isn’t it a bit curious that the State Department’s review is getting hung up on domestic environmental concerns raised by Nebraskans? Via the NewsHour:

RAY SUAREZ: It’s unusual to have the U.S. State Department making pronouncements on Nebraska, isn’t it? Why is the State Department ruling on a pipeline that runs for almost its entire length through the United States?

JULIET EILPERIN: Interestingly, the reason they have jurisdiction is simply because it’s a pipeline that crosses the U.S.-Canada border. That makes it something that comes under the purview of the State Department, and not other agencies, like the Department of Transportation, which has an agency which traditionally looks at pipelines and how they are handled and constructed.

RAY SUAREZ: Does redrawing the path of the pipeline mean, in effect, starting from scratch, really going back to the drawing board on this?

JULIET EILPERIN: It doesn’t mean starting from scratch, but it certainly raises questions about the economic viability of a project that’s been under scrutiny for more than three years, and now we’re adding at least 15 months to this decision.

The regulatory process has been cranking on the project for more than three years (i.e. since the last months of the G. W. Bush administration and for all of the Obama administration), and now for the political convenience of the President the State Department is using the regulatory process to further delay the decision on a permit.

If nothing else, the action is testament to the President’s stand on the economy.

(The cynic in me thinks this is just an effort by the “committee to re-elect the president” to hold the attention of environmental and business and labor groups through the campaign, and by “hold the attention of” of course I mean “shake down for campaign contributions.” And the GOP candidates are likely delighted because continued politicization of the issue will help them “hold the attention of” potential campaign supporters as well.)

HT to CS.

Posted in Energy markets, Politics, Regulation | Tagged | Comments Off

h1

Massachusetts observes that green power mandates may be raising consumer costs

November 10, 2011

Michael Giberson

Let’s just say when the best example of a success story is a long-term contract signed by a utility and the Cape Wind project, you haven’t exactly resolved concerns about the practicality or cost-effectiveness of the law.

From the Boston Herald, “AG: Energy costs rising under Mass. renewables law“:

The Green Communities Act, signed in 2008 by Gov. Deval Patrick, was intended to help Massachusetts wean itself off fossil fuels and reduce emissions that lead to global warming.

In remarks prepared for a legislative oversight hearing, [Massachusetts Attorney General Martha] Coakley indicated that a review by her office found plenty to like about the three-year-old law, along with some concerns.

“In short, we have found a number of benefits — including increased energy efficiency programs that lead to savings for many consumers,” Coakley said. “But we also have found that the (law’s) programs have escalating costs that will cause an increase in electricity rates.”

The cost of implementing the law will exceed $4 billion over the next four years, Coakley said, resulting in the estimated 7 percent increase in the total delivered costs of electricity to consumers and businesses. She noted that Massachusetts electric customers already pay some of the highest rates in the nation and that the state is “likely to remain at the top of that list.”

Okay, so they’ve identified the costs at over $4 billion for the next four years. The article doesn’t mention any estimate of the benefits created.

(Note that it wasn’t Coakley that cited the Cape Wind deal, but rather the state’s Secretary of Energy and Environmental Affairs and the chairwoman of the Department of Public Utilities.

“A long-term contract provides the certainty that can be critical in making financing available,” [DPU chairwoman Ann] Berwick said.

Of course she is right! A long-term contract can transfer a substantial portion of the riskiness from the private investors to the utility’s locked-in ratepayers. It can be a great deal for the investor, and I’m sure the investors are quite happy to have government policy and state policymakers helping to ensure a good return on their private investments.

Uh, and by the way ratepayers, your already high rates are going higher.)

Posted in Electricity, Environmental policy, Regulation | Tagged , , | 1 Comment »

h1

StubHub and Major League Baseball

November 10, 2011

Michael Giberson

It’s been a while since we’ve commented on the secondary market for sports event tickets. Partly, I think, the practice has become legal and common in most circumstances and the on-line markets make the practice more transparent. What was once a seemingly repugnant transaction has been normalized. Or, at least, it is becoming normalized.

At the same time, the expansion of the ticket resale market does have some effect on the one issue at the heart of the sports business: revenue. If you want to get up-to-date on ticket resales and baseball, Dennis Coates at The Sports Economist points to a story from the Sports Business Journal about StubHub, MLB, and other resellers.

Posted in Economics, Professional sports | Tagged , | 1 Comment »

h1

Paul Krugman comments on hydraulic fracturing and solar power

November 9, 2011

Michael Giberson

Paul Krugman commented on hydraulic fracturing for natural gas and on solar energy the other day.

His main thrust is the good news he finds on solar energy, but he detours into a few comments on fracking to generate a charge of political hypocrisy. Fracking is, he says, “a technology that imposes large costs on the public.”

We know that it produces toxic (and radioactive) wastewater that contaminates drinking water; there is reason to suspect, despite industry denials, that it also contaminates groundwater; and the heavy trucking required for fracking inflicts major damage on roads.

Economics 101 tells us that an industry imposing large costs on third parties should be required to “internalize” those costs — that is, to pay for the damage it inflicts, treating that damage as a cost of production. Fracking might still be worth doing given those costs. But no industry should be held harmless from its impacts on the environment and the nation’s infrastructure.

Yes, fracking produces toxic and radioactive wastewater and there are cases in which that wastewater has spilling into streams. Yes, there are reasons to believe that in some cases gas drilling (but not the fracking process itself) has contaminated groundwater. But these cases are relatively rare and, at most, locally significant for a little while. Krugman doesn’t, and I don’t think he can, justify his claim that fracking “imposes large [external] costs on the public.” Still, Krugman’s “internalize the externalities” is pretty basic economic policy advice.

(I’ll agree that the heavy trucking required for fracking can inflict major damage on minor roads, but I assume that those trucks pay diesel taxes and other fees just like any other commercial vehicle would. The tax is supposed to “internalize the externality” of road use, just like Krugman wants. What is the complaint?)

Krugman quotes from the industry-supported website energyfromshale.org and follows it up with “it’s worth pointing out that special treatment for fracking makes a mockery of free-market principles.” Well, if Krugman is searching for free market principles, neither industry-backed websites nor politicians of any stripe are likely to be reliable resources. If instead he wants to mock politicians that mouth free-market principles as cover for corporate welfare, I’m all in favor. But c’mon Dr. K, name some names!

He turns to solar power for some happier news:

Solyndra’s failure was actually caused by technological success: the price of solar panels is dropping fast, and Solyndra couldn’t keep up with the competition. In fact, progress in solar panels has been so dramatic and sustained that, as a blog post at Scientific American put it, “there’s now frequent talk of a ‘Moore’s law’ in solar energy,” with prices adjusted for inflation falling around 7 percent a year.

This has already led to rapid growth in solar installations, but even more change may be just around the corner. If the downward trend continues — and if anything it seems to be accelerating — we’re just a few years from the point at which electricity from solar panels becomes cheaper than electricity generated by burning coal.

The declining cost of solar is, in fact, good news for consumers.

However, I think a good part of the most recent and dramatic cost declines for installed solar PV systems are not technology driven. As energy prices soared in 2008, a good deal of additional capacity to produce high-grade silicon came online. At the same time, additional capability to produce both silicon and non-silicon forms of PV panels came online. The late-2008 financial crisis suddenly cut spending on many new projects. Economics 101 tells us that when the supply is up and the demand down, the price of solar panels will drop.

Technology is improving, and contributing to cost reductions for solar PV. I’d just be cautious about drawing a line through recent year prices to forecast prices a few years hence. (Uh-oh: Checking for data at EIA shows PV installations up in 2009 and 2010 compared to 2008, so maybe the demand side of my solar story is weak. Don’t see data on manufacturing capability.)

In any case, though Krugman doesn’t mention it, his endorsement of an “internalize the externalities” approach to policy probably commits him to leaning against the Renewable Portfolio Standards, direct-to-industry grants, and production subsidy approaches to encouraging renewable power (none of these policies do a good job of linking subsidies to public benefits). On the other hand, he probably leans in favor of directly taxing various forms of pollution or, even better, application of strict liability standards when the pollution and resulting harm is readily identifiable. Those are my views, too; glad to have such a notable economist on my team.

Posted in Economics, Energy markets, Environmental policy, Regulation | 13 Comments »

h1

Price gouging allegations on cancer drugs

November 7, 2011

Michael Giberson

If you think political interference in gasoline markets is excessive, try reading about drug pricing for a while. From the Los Angeles Times: “Shortage of cancer drugs tied to simple economics, experts say.”

And by “simple economics” they mean the perverse incentives created by government regulation that induce oncologists to prefer prescribing more expensive cancer drugs. Most drugs must be purchased through pharmacists, but government rules allow oncologists to sell cancer drugs directly to patients. These days the  sales amount to about half of oncologist’s income. Government reimbursements through Medicare will only pay 6% over wholesale for these drugs. On this point the Times quotes from a column in the New England Journal of Medicine, “Why use paclitaxel (and receive 6% of $312) when you can use Abraxane (for 6% of $5,824)?”

Last week the President ordered an investigation “to gather information from drugmakers about potential shortages so the government can respond before patients’ lives are threatened and help prosecutors head off ‘price gouging.’ ” If you are like me, you laughed at the phrase “so the government can respond before…” The problem has been created by earlier government responses to earlier perceived problems. Good luck to those who think the problem will be solved by layering on another government response.

In unrelated price hike news: peanut butter prices not so sticky.

Posted in Economics, Regulation | Tagged , , | 1 Comment »

h1

A good non-technical introduction to shale gas

November 7, 2011

Michael Giberson

Paul M. Barrett, for Bloomberg, has written up a pretty good introduction to natural gas from shale. The article delves a bit into the history and geology of the subject, but focuses more on the business efforts that turned a modestly interesting rock into a significant economic resource and the environmental politics that have risen in response. Highly recommended if you want to know where the natural gas that is changing the world’s energy outlook has come from.

A few things are left out of this “introduction.” Of course we could dig deeper into each of the topics mentioned. The next step in the story is the international angle – shale gas is being developed in Argentina, the United Kingdom, Poland and elsewhere – with significant implications for national and international trade and public policy. Among other things, as examples, central and western Europe will likely become less reliant on Russian gas supplies, and the United States and Canada probably don’t build a natural gas pipeline from Alaska through Canada and into the Midwestern U.S. for at least thirty or forty years.

The complete story of shale gas would also delve a bit into the controversy over the size of the the resource, would go a little deeper into the particular efforts of Devon Energy, and talk about the spillover of the shale gas boom into a boost for unconventional oil. One might wrap up the story by casting it into the big picture “cornucopians vs. Malthusians” debate.

So Bloomberg doesn’t do everything in this introduction, but it is a pretty good introduction to the shale gas issue.

NOTE ALSO: For a bit more on the environmental politics of shale gas, in September the journal Nature carried a pair of articles under the heading “Should Fracking Stop?” The case for stopping was written by Robert Howarth and Anthony Ingraffea, both of Cornell University; the case for continuing was written by Terry Englander of Penn State University. Neither piece gets very close to a complete policy analysis, but both highlight a bunch of the relevant issues.

 

Posted in Energy markets, Environmental policy, Technology | Tagged | 1 Comment »

h1

The “Gary Johnson rule”, the political economy of election bias, and fundamental principles

November 4, 2011

Lynne Kiesling

A cynical, but I think accurate, political economy analysis for a Friday afternoon: One of the declared presidential candidates in the Republican primary is a successful two-term Governor of a majority Democrat state who retains a positive rating in his home state. In that office this candidate improved the fiscal standing of the state government (including Medicare and Medicaid), and made the regulatory environment for business more transparent and certain, resulting in new economic activity in the state that consequently created jobs in the state. This candidate also started a successful business as a young man, and worked to grow that business to over 1,000 employees by creating economic value for his customers. It’s common knowledge that successful governors typically make good presidential candidates, so this candidate is doing well in the campaign, of course …

… or not. In the current climate with media corporations both conducting polls and co-sponsoring debates with state Republican Party branches, this candidate has only been invited to participate in two of the debates held in 2011. Every debate has different candidate inclusion rules, determined by the media corporation in conjunction with the state party. Conveniently, these rules seem always to exclude Gary Johnson.

Thus what has become known as the “Gary Johnson rule”, as articulated by Dave Weigel as he watched the inclusion rules evolve from August through October, excluding Johnson (and Buddy Roemer, also an experienced, serious person) each time.Here’s how Dave summarizes the remixed Gary Johnson rule for the October debate:

Let’s hand it to the Washington Post, Bloomberg, and Dartmouth University: They have figured out a debate invite schematic that goes beyond polls to squeeze Gary Johnson and Buddy Roemer out of tomorrow’s debate. The rules:

     1) Received measurable popular support in a range of national polls.
     3) Is a legally qualified candidate for the Republican nomination for president.

Johnson has done both, and Roemer has at least done the second. Good so far.

     2) Campaign reported at least half a million dollars raised in its FEC filing through the 2011 second quarter reporting period.

Neither Johnson nor Roemer has done that. They’re out, no matter what else they do. Theoretically, sure, they could pass this fundraising marker for a future debate. How else to keep them barred?

     4) Participated in at least three nationally televised Republican presidential debates during the 2012 election cycle.

Brilliant! The proof that Johnson and Roemer shouldn’t share a stage with other Republicans is that they haven’t been invited to other debates. In Johnson’s case, he’s participated in two debates — he just misses the cut! Newt Gingrich, who has willed his campaign from “joke” to “interesting joke” simply on the strength of free media debate appearances, is calling for Johnson to be included. That won’t matter for tomorrow, but maybe it’s a break in this bizarre 2012 sideshow.

You don’t have to be a particularly astute or attentive campaign follower to see the Catch-22 of the system here — if you don’t poll well enough then you’re a fringe candidate and not worth including in debates, but if you aren’t included in debates then you won’t have the recognition and familiarity that could increase your polling, but because you haven’t polled well or been included in debates then the media corporations can choose to exclude you from their polls, and so on, and so on … Just this week, Johnson’s name has been excluded from the ballot for the Illinois straw poll that closes tomorrow, and he has been excluded from next week’s debate in Michigan co-sponsored by CNBC and the Michigan Republican Party.

As Conor Friedersdorf said in June when he wrote about CNN’s exclusion of Johnson from the debate they co-sponsored, “[t]he cable network is substituting opinion polls for judgment, and preventing voters from getting to know the former two-term governor .” In fact, Friedersdorf (who has written about Johnson frequently at The Atlantic), Weigel, and a variety of writers at Reason are the bulk of the national media coverage his campaign has received. For additional in-depth and well-written articles on Johnson and his campaign, I also recommend this Outside magazine article from November 2011 (Outside’s journalism is underappreciated) and this GQ article, also from November 2011.

Johnson’s policy positions also play a prominent rule in this story about exclusion from corporate media debates and polls. His economic policy positions are consistently fiscally responsible. While he supports the Fair Tax proposal and I can make a lot of criticisms of it, if he were to introduce the Fair Tax into the tax reform debate that will have to happen in Washington in 2012 and beyond, it would improve the ideas likely to be on the table and perhaps improve the ultimate outcome.

But what really distinguishes Johnson, even from Ron Paul, are his social policy positions: drug legalization to reduce domestic and international gang violence and reduce the social disruption and fiscal expense of prison, pro-immigration, anti-war, pro-choice, pro-gay marriage. Johnson is no social conservative; in fact, I take a page from the 18th-century Enlightenment book and claim that Johnson is a model of the kind of toleration that was a bedrock principle on which the United States was founded.

This combination of economic prudence and social toleration makes Johnson the kind of candidate that could fit the Buckley rule: nominate a Republican candidate who is conservative but can still win the general election. If you look at American culture (including the recent Gallup poll showing that a majority of the population supports marijuana legalization), our current political upheavals, and our history, that combination of economic prudence and social toleration is what can be a winner for Republicans (and, in full disclosure, would induce me to vote Republican in a presidential election for the first time in my long life). If that’s true and the ultimate objective is to win the general election, why isn’t a candidate with these traits receiving establishment support?

My hypothesis on that question has two parts:

  • The media: Corporate media operate with a simplistic, static, binary, didactic model — good/bad, red/blue, R/D, conservative/liberal, economic/social, rich/poor. They can’t fit Johnson in a box that makes sense to them in that model, and the Catch-22 described above absolves them of any responsibility or accountability for trying to understand and communicate his combination of policy positions.
  • The Republican establishment: neither the Republican National Committee nor the state-level party committees can see beyond the “fire up the base” strategy because their perspective is so strongly determined by a small group of large donors, which leads them to concentrate on social conservatism even though it does not necessarily reflect either the broader Republican Party or the priority of issues facing the electorate as a whole in 2012.

First, the media. The flawed binary lens through which they see the world is more the culprit here than “media bias”, because if there is indeed liberal media bias, Johnson’s social policy positions should be attractive to them, no? I think they see politics as a set of caricatures or, if I’m being generous, a set of “ideal types” in the tradition of Max Weber. Smooth-talking middle-of-the-road guy, check. Kind of wacky social conservative woman, check. Experienced establishment politician, check check check check check. Maverick business guy with no professional governance experience, check. Anti-war libertarian conservative, check. Oh, wait, we’ve already put Ron Paul in that box, sorry Gary, we don’t need you to fill that role in our constructed narrative.

And the sad and pathetic thing about this? We the American public let the corporate media get away with this naive, simplistic crap. To paraphrase Mencken, we get the politicians we deserve and the media we deserve, good and hard.

I’m not the first to make that claim, but what about this claim about the RNC, state committees, and the agenda-setting power of large donors? Again, this is not original to me, but is rather a variation on a standard public choice model of regulation and lobbying and agenda-setting. The RNC (and the DNC for the Democrats) establishes rules and regulations; party members have incentives to donate, lobby, and act in other ways to influence those rules and regulations to reflect their personal interests. Those large donors set the agenda.

But here’s the problem, both for the establishment RNC folks and for the Johnson campaign given the current reality: the candidate traits that appeal to those large donors and the candidate traits that appeal to the vast legion of disaffected independents who either voted for Obama in 2008 or voted third party or didn’t vote are not.the.same.traits. In other words, the RNC has a classic Mancur Olson concentrated benefits + diffuse costs => wrong policy choice situation. The kind of voter I have in mind here is the one who voted for Obama in 2008, would vote for Johnson (or Paul) in 2012, but if Romney is the Republican nominee would either not vote or would vote third party. The RNC and DNC party establishments do not place any weight on those voters, and I suggest to you that they don’t place any weight on those voters because they can’t monetize those voters, even though if they put up a candidate that would attract those voters they could see a higher probability of success in the general election.

I do think that the RNC leadership and the state leaders want to see a Republican win in 2012, but through a combination of their own political philosophies and the philosophies of the major donors they look at the Buckley Rule through the lens of wanting to relinquish as little social conservatism as possible and still do that. I think technology might surprise them, though, because even though they can partner with the corporate media to control inclusion and the media narrative, they cannot control social media. They cannot stop Gary Johnson from doing as he did in June, when he posted a video on YouTube of him answering all of the questions from the New Hampshire debate from which he was excluded.

On a more philosophical note, I find this combination of corporate media and donor-driven national party exclusion of candidates like Johnson and Roemer extremely disturbing, and inconsistent with the bedrock principles of freedom, inclusion, representation, and toleration that are the hallmarks of the United States. It’s deeply unjust. At least it comes at a time when we have communication channels and media substitutes for corporate media, and when we have a justifiable deep skepticism and distrust regarding our established political party structures. Even if Johnson doesn’t get included in more debates and doesn’t win the nomination, if his candidacy can help tear down this particular example of crony corporatism, he will have made the world a better place.

Posted in Politics | Tagged , | 8 Comments »

h1

Wherein the jobs jobs jobs rhetoric hampers solar power development

November 4, 2011

Michael Giberson

If you believed what politicians say about green energy and jobs, you probably think they fit together like peanut butter and jelly squished between layers of bread. Has there been a renewable power subsidy announcement or ribbon-cutting ceremony where the word “jobs” was not featured in the first two or three sentences uttered by politicians? When it comes to public policy, job counting is the new measure of policy.

So in the outer suburbs of Phoenix, Queen Creek town officials counted up the jobs associated with a couple of solar power projects proposed to occupy a large bit of their industrially-zoned property with the help of some town economic development funds. Turns out it doesn’t take a lot of people to maintain a large-scale PV power system, and they’re mostly low level maintenance workers. The jobs-counting is giving the town second thoughts about the projects.

Now, in some big-picture, overall costs-and-benefits, thorough and balanced look at energy technologies, that it doesn’t take a lot of highly paid professionals to operate a PV solar power facility is a good thing. It is one of the reason that PV power has such a low marginal cost of operation. But in the kookier world where local economic development, renewable power rhetoric, and taxpayer subsidies collide, jobs are counted as benefits and then the analysis stops.

Two comments: First, PV power remains more expensive than alternative sources of power even admitting the presence of larger external costs for fossil-fueled power plants. We likely would be better off if money currently being used to build solar projects now were spent on additional research instead. Queen Creek may be on the right track, even if for the wrong reason. Solar advocates are promising that grid-parity is just around the corner, so why are we wasting money building inefficient projects now instead of spending that money on getting us around that corner?

Second, the number of jobs a policy is expected to create has very little relevance to the evaluation of public policy proposals. Mostly what matters is whether the benefits of a policy proposal exceed the projected costs (plus, you know, those old-fashioned ideas about the proper scope of government and trying not to infringe on people’s rights).

Environmental economist John Whitehead is right to hope that environmental policy creates few jobs, because, as he explains, it would mean that businesses have found lower cost ways to get cleaner air and water.

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

h1

Beacon Power files for bankruptcy; Boulder CO contemplates municipalization of power assets; other energy stories of note

November 2, 2011

Michael Giberson

Brief notes about other energy stories in the news.

  • Flywheel energy storage company Beacon Power has filed for bankruptcy. News stories have highlighted the point that Beacon was a recipient of federal energy technology loan guarantees, which will give an additional boost to Solyndra critics, but I predict the apparent lack of high-level political involvement will prevent Beacon from turning into a second scandal. I hope the problem wasn’t skepticism about the value of their flywheel patents.
  • In Boulder, Colorado, citizens are contemplating creation of a municipal power utility to displace Xcel in the city. Xcel’s problem is, apparently, not moving fast enough on renewable power and other environmental issues for some residents of the famously eco-aware college town. Boulder’s problem may be that their affinity for renewable power has heretofore been subsidized by less-enthusiastic Xcel customers elsewhere in the state.
  • Cheniere Energy, owner of an expensive and not too useful facility to import LNG into the gas saturated U.S. market (the modern natural gas equivalent of “carrying coal to Newcastle“) has entered into a long-term contract to export LNG, a seemingly more sensible goal at the moment. More sensible because currently world LNG prices are much higher than U.S. domestic gas prices, but I wonder whether that price difference will persist long enough to justify the time and expense of retooling the import facility?
  • In a related matter, Daniel Yergin sums up some changes in the world energy market for the folks that read the Washington Post. Readers here should be familiar with the pieces of his story: Improving drilling technologies and better data analysis have conspired to yield increasing oil production in Alberta, oil production growth in Texas and a real boom in North Dakota, and significant off-shore oil discoveries off of Brazil.
  • The wind power lobby is becoming concerned about the the forthcoming 12-31-2012 apocalypse (i.e., expiration of the production tax credit for new wind power projects), especially in a political environment in which some politicians are willing to pull the plug on all energy subsidies. Maybe it is just the issues that the reporter focuses on, but all of the wind lobby arguments in favor of the subsidy sound like no more than the obvious claim that the industry would grow more with the subsidy than without it. Of course existing projects with a PTC would continue to enjoy the subsidy for their first 10 years of operation, and the growing wind-on-wind competition in some of the better wind resource locations may tip existing wind project owners toward not being in favor of continued subsidies for new competitors.

Posted in Electricity, Energy markets, Environmental policy, Regulation, Technology | 4 Comments »

h1

When price ceilings become price targets

November 2, 2011

Michael Giberson

From the most recent American Law and Economics Review, “Retail Gasoline Price Ceilings and Regulatory Capture: Evidence from Canada.” The authors find statistical support for the conclusion that “the enactment of [price ceiling] regulation is correlated with a 1–1.2 cents per liter rise in self-service retail gasoline prices, controlling for all else.” They suggest that the price ceilings may serve a coordinating “focal point” function for competitors, making it easier for them to cooperate to secure higher returns.

The authors said, “While we cannot confirm collusion due to the necessity of firm-level data, our results demonstrate that the actual results of price ceilings in Canada are contrary to the probable public interest objective of such regulation.”

FULL ABSTRACT:

We evaluate the efficacy of price ceiling legislation by employing weekly data on retail gasoline prices for eight cities in Eastern Canada between 1999 and 2007. The use of these data allows us to pool “treatment” cities in the Atlantic provinces with “control” cities in Ontario and Quebec. Ordinary least squares and instrumental variables estimates demonstrate that the enactment of such regulation is significantly correlated with higher prices. A potential explanation for these results is that price ceilings act as “focal points” enabling firms to set higher prices, thus suggesting the possibility of regulatory capture.

Posted in Economics, Energy markets, Regulation | Tagged | 1 Comment »

« Newer Entries
Older Entries »
Follow

Get every new post delivered to your Inbox.

Join 47 other followers