Posts tagged ‘oil’

Alarmism Fail

Anthony Watt has a nice catalog of past predictions of doom (e.g. running out of oil, food, climate issues, etc).  It really would be funny if not such a serious and structural issue with the media.   I would love to see someone like the NY Times have a sort of equivalent of their reader advocate whose job was to go through past predictions published in the paper and see how they matched up to reality.  If I had more time, it is the blog I would like to start.

Update:  One of his readers Dennis Wingo took the resource depletion table from Ehrlich's Limits to Growth and annotated it -- the numbers in red show the resources Ehrlich predicted we should already run out of.

However, rather than ever, ever going back and visiting these forecasting failures and trying to understand the structural problem with them, the media still runs back to Ehrlich as an "expert".

I Would Go Where the Jobs Are

Bloomberg does a ranking of where one should go if he is unemployed.  Before we go to their ranking criteria, lets think about what criteria I would recommend to someone:

  1. Go where the jobs are.  Duh.  Pay particular attention to where there are jobs that match your skills, but in general a rising tide will lift all boats (e.g. you don't just have to be an oil field worker to find opportunity in North Dakota, they are paying a fortune for waitresses and retail clerks to handle the new demand).
  2. Look at pay for your skills vs. cost of living.  Manhattan may pay the most for waitresses but living costs there are insane.  You can get good work in Vail, Colorado over the winter but good luck finding a low cost place to live anywhere nearby.
  3. Think about tax rates.  You may be exempt now, but hopefully as things get better you will care about income tax rates, and if you are unemployed you certainly are going to care about sales tax rates

OK, so let's look at Bloomberg's ranking criteria.  They also have three:

  1. Unemployment rate.  So far so good.  Go where the jobs are.
  2. State unemployment payment rates.  Seriously, their criteria is not cost of living or average payments for new workers, but how much one can extract from the government for NOT working?  But OK, this still makes some sense  (though there are a lot of barriers to crossing state lines for a better unemployment deal).
  3. Income inequality.  WTF?  What in heavens name does this have to do with unemployed people and how easily they can improve themselves.  Is this psychological -- ie you will feel worse about being unemployed if there are a lot of rich people around?  The average unemployed American is a service worker (if you are a skilled manufacturing worker, say a machine operator, and can't find work, you are in a minority).  Rich people drive demand for service workers.

Oil Drilling (or Lack Thereof) on Federal Lands

Via Mark Perry.  This issue came up in the debates, when Obama claimed that he tried to take credit for the recent oil and gas boom, when in fact all of the boom is occuring on public lands (oil and gas production on federal lands is actually falling during this boom).  Here is one reason whyL

Anti-Trust Law and the Corporate State

Kevin Drum is uncomfortable that Google got off the hook on anti-trust charges merely because it was not harming consumers

Google made a number of arguments in its own defense, and consumer welfare was only one of them. Still, it was almost certainly the main reason they won, and it's still not clear to me that this is really what's best for consumers in the long run. Did Google users click on the products they highlighted? Sure. Did they buy some of the stuff? Sure. Were they happy with their purchases? Sure. Is that, ipso facto, evidence that there's no long-run harm from a single company dominating the entire search space? I doubt it. After all, John D. Rockefeller could have argued that consumers bought his oil and were pretty happy with it, so what was the harm in his controlling the entire market?

The tech industry moves fast enough that antitrust might genuinely not be a big issue there. In the end, it wasn't antitrust that hurt IBM and Microsoft. It was the fact that the industry moved rapidly toward smaller computers and then the internet, and neither company was really able to react fast enough to dominate these new spaces. Nonetheless, I'm skeptical of the tautology at the heart of the consumer welfare argument. If a company is successful, then by definition people must be buying its stuff. On this basis, bigness is simply unassailable anymore. That has broad societal implications that I suspect we're not taking seriously enough.

He seems to be arguing that we consider returning to a pure bigness standard without reference to consumer harm.  I am not sure that we ever followed such a standard, but certainly today the alternative to a consumer harm standard is not a bigness standard but a competitor harm standard.  Whether he knows it or now, this is essentially what Drum is advocating.  We see this in the article he quotes:

But while the F.T.C. said that Google’s actions might have hurt individual competitors, over all it found that the search engine helped consumers, as evidenced by Google users’ clicking on the products that Google highlighted and competing search engines’ adopting similar approaches.

I am not sure what Drum really wants, but the result of eliminating the consumer-harm standard would be an environment where every failed company can haul its more successful competitors in front of the government and then duke it out based on relative political pull rather than product quality.  It is pretty well understood out there that this anti-Google FTC claim was initiated and championed by Microsoft, certainly not among the powerless typically championed by progressives, and a company well known to have missed the boat on Internet search and which is apparently trying to do now through government fiat what it has not been able to do in the marketplace.  Microsoft learned this technique from Sun and Oracle, which took Microsoft to the FTC in the famous browser case where Microsoft faced years of anti-trust scrutiny for the crime of giving the public a free product.

Already, anti-trust law is an important tool of the corporate state, to allow politically powerful companies to squash competition from those who invested less money in their Washington office.  I am not a legal expert at all, but this consumer standard in anti-trust strikes me as a critical shield stopping a hell of a lot more abuse of anti-trust law.

By the way, there is a modern bigness problem with corporations that is very troubling -- we have made government tremendously powerful, giving it many tools to arbitrarily choose winners and losers without any reference to justice or rights.  As private entities get larger and richer, they are better able to access and wield this power in their own favor.  The libertarian solution is to reduce the government's power to pick winners and losers.  The progressive answer is to regulate business more with tools like anti-trust.

But the progressive solution has a built-in contradiction, which why Drum probably does not suggest a solution.  Because the very tools progressives suggest to regulate business typically become the tools with which politically connected corporations further tilt the game in their own favor.  Anti-trust is a great example.  We want to reduce the number of large companies with an eye to reducing corporatism and cronyism, but the very tool to do so -- anti-trust law -- has become one the corporate crony's best tools for stepping on competitors and insulating their own market positions.

And by the way, Rockefeller's Standard Oil did a HELL of a job for consumers.  It was nominally punished for what it might some day hypothetically do to consumers.

Here are the facts, via Reason

Standard Oil began in 1870, when kerosene cost 30 cents a gallon. By 1897, Rockefeller's scientists and managers had driven the price to under 6 cents per gallon, and many of his less-efficient competitors were out of business--including companies whose inferior grades of kerosene were prone to explosion and whose dangerous wares had depressed the demand for the product. Standard Oil did the same for petroleum: In a single decade, from 1880 to 1890, Rockefeller's consolidations helped drive petroleum prices down 61 percent while increasing output 393 percent.

By the way, Greenpeace should have a picture of John D. Rockefeller on the wall of every office.  Rockefeller, by driving down the cost of kerosene as an illuminant, did more than any other person in the history to save the whales.  By making kerosene cheap, people were willing to give up whale oil, dealing a mortal blow to the whaling industry (perhaps just in time for the Sperm Whale).

So Rockefeller grew because he had the lowest cost position in the industry, and was able to offer the lowest prices, and the country was hurt, how?  Sure, he drove competitors out of business at times through harsh tactics, but most of these folks were big boys who knew the rules and engaged in most of the same practices.  In fact, Rockefeller seldom ran competitors entirely out of business but rather put pressure on them until they sold out, usually on very fair terms.

From "Money, Greed, and Risk," author Charles Morris

An extraordinary combination of piratical entrepreneur and steady-handed corporate administrator, he achieved dominance primarily by being more farsighted, more technologically advanced, more ruthlessly focused on costs and efficiency than anyone else. When Rockefeller was consolidating the refining industry in the 1870s, for example, he simply invited competitors to his office and showed them his books. One refiner - who quickly sold out on favorable terms - was 'astounded' that Rockefeller could profitably sell kerosene at a price far below his own cost of production.

Trapped Into Civic Participation, and A Note on Labor Mobility

Up until now, I had never know that there was actually a theory, propounded by people with a straight face, that trapping people in neighborhoods and institutions (like public schools) is a positive because it promotes civic virtue.  

If you own your home, then a lot of your wealth is tied in with the quality of your neighborhood. In theory, this should motivate you to vote more carefully in local elections. On the other hand, if you are a renter, and the neighborhood goes downhill, you will simply leave.

Collectivists prefer to trap households within specific government service areas. Their thinking is that with the “exit” option foreclosed, households will be forced to exercise their “voice” option, to everyone’s benefit. This is an argument against private schools. It goes back at least as far as A.O. Hirschman’s classic book, Exit, Voice, and Loyalty.

I would argue just the opposite, that this creates state monopolies ripe for abuse, and besides, is disastrous for labor mobility and thus the healthy functioning of labor markets.  People keep arguing that this recession is long because recessions after financial bubbles are always long.  I am not sure that is proven out by history.

I would argue a big reason this recession is long is that the nature of this bubble, being in housing markets, short-circuited one of the ways we get out of recessions, which is labor mobility.   Trapped in homes the government encouraged them to buy but now they cannot sell, people can't move to find new regional opportunities.  Where are the mass migrations to the North Dakota oil fields?

Why Do I Think This Penalty Would Have Been Waived on GE or Dreamworks?

Politicians certainly live in their own world:

The Environmental Protection Agency has slapped a $6.8 million penalty on oil refiners for not blending cellulosic ethanol into gasoline, jet fuel and other products. These dastardly petroleum mongers are being so intransigent because cellulosic ethanol does not exist. It remains a fantasy fuel. The EPA might as well mandate that Exxon hire Leprechauns.

As a screen shot of EPA’s renewable fuels website confirms, so far this year - just as in 2011 - the supply of cellulosic biofuel in gallons totals zero.

“EPA’s decision is arbitrary and capricious. We fail to understand how EPA can maintain a requirement to purchase a type of fuel that simply doesn’t exist,” stated Charles Drevna, president of American Fuel & Petrochemical Manufacturers (AFPM), the Washington-based trade association that represents the oil refining and petrochemicals industries.

I will remind Republicans thought that ethanol is a bipartisan turd, this particular requirement having been signed into law by President Bush.

Cap and Trade and the Corporate State

For years, one of the problems I have had with the way CO2 cap and trade systems were structured was a fear that these systems would devolve into cronyism, with the companies best able to lobby the government getting allocations while less connected companies had to pay.  It seems this is already occuring in California:

 The California Air Resources Board (ARB), the regulator of the forthcoming program, held a workshop in Sacramento on Monday where it discussed plans to give away more free permits to prevent leakage in “trade-exposed” industries like cement production, oil refining and food processing.

Over the first three allowance auctions, which begin in November, the state will sell 48.9 million allowances and give away 53.8 million allowances, according to ARB.

Any company deemed to have either a high, medium or low risk of leaving the state will receive all the allowances they need to comply with the program during the first two-year compliance period, from 2013-2014, rather than have to buy the permits at regular auctions.

But those in the low and medium risk groups are currently scheduled to see their allotment of free allowances start to decline in 2015 by as much as half.

ARB officials on Monday said they are conducting studies examining the leakage risk of companies based on their historical energy costs and trade flows.

Don't be fooled by the quasi-scientific-sounding language here about categories of "trade exposure."  The reality will be that companies with political clout will get the permits, and companies without such clout will not.  This is a system that will favor large manufacturers over smaller companies.  It will also, oddly, apparently shift the burden of compliance from large manufacturers to service companies  (since service companies are the least likely to be "trade exposed.")  Of course, any manufacturer still operating plants in California is crazy anyway.

Great Moments in Government Energy Policy Failure

So, why do we have all these "dirty" coal plants?  Market failure?  Industry greed?  Nope -- Carter-era government policy.  For you younger folks, here is a law you may have never heard of:

The Powerplant and Industrial Fuel Use Act (FUA) was passed in 1978 in response to concerns over national energy security. The 1973 oil crisis and the natural gas curtailments of the mid 1970s contributed to concerns about U.S. supplies of oil and natural gas. The FUA restricted construction of power plants using oil or natural gas as a primary fuel and encouraged the use of coal, nuclear energy and other alternative fuels. It also restricted the industrial use of oil and natural gas in large boilers.**

In other words, all new fossil fuel-powered boilers had to be coal-fired (which in a year or so, after Three Mile Island, translated to all new boilers since nuclear was essentially eliminated as an option).  Yes, this may seem odd to us in an era of so much environmental concern over coal, but something coal opponents don't tell you is that many of the exact same left-liberal-government-top-down-energy-policy types that oppose coal today lobbied hard for the above law several decades ago.  Here is a simplified timeline:

1.  Government energy policy sets price controls that create artificial shortages of oil and gas

2.  Government-created shortages of oil and gas lead to this law, with government demanding that all new fossil fuel-powered electric plants and boilers be coal powered.

3.  Government mandates on coal use create environmental concerns, which lead to proposals for taxes and bans on coal power.

4.  The need for government action against coal is obviated by a resurgence of oil and gas supply once government controls were removed.  However, in response, government beings to consider strong controls on expansion in oil and gas production (e.g. fracking limits).

 

** I got involved with this because I worked in an oil refinery in the 1980's.  We had to get special exemptions to run our new boilers on various petroleum products (basically byproducts and waste products of the refining process).  Without these, the law would have required we bring in coal to run our oil refinery furnaces.

 

A Response to Popular Ad Hominem, err Science, Magazine on Global Warming Skeptics

My new column is up this week, and is a response to the July 2012 issue of Popular Science which includes a long, unbalanced attack on skeptics, without once addressing their scientific arguments.

I thought I knew what “science” was about:  the crafting of hypotheses that could be tested and refined through observation via studies that were challenged and replicated by the broader community until the hypothesis is generally accepted or rejected by the broader community.

But apparently “popular science” works differently, if the July 2012 article by Tom Clynes in the periodical of that name is any guide [I will link the article when it is online].  In an article called “the Battle,” Clynes serves up an amazing skewering of skeptics that the most extreme environmental group might have blushed at publishing.  After reading this article, it seems that “popular science” consists mainly of initiating a sufficient number of ad hominem attacks against those with whom one disagrees such that one is no longer required to even answer their scientific criticisms.

The article is a sort of hall-of-fame of every ad hominem attack made on skeptics – tobacco lawyers, Holocaust Deniers, the Flat Earth Society, oil company funding, and the Koch Brothers all make an appearance.

Thousands of words about critical issues like Heartland Institute's funding, but less than two dozen dedicated to dismissing skeptic's scientific concerns.  And that is before we get to outright journalistic fraud, as the author attempts, for example, to lay blame for Obama Administration financial audits of climate scientists on, you guessed it, skeptics. Read it all

What is a Green Job?

Turns out the guy who gasses up a school bus has a green job.

When Bureau of Labor Statistics Acting Commissioner John Galvin balked on what qualifies as a green job under the agency definition, Issa responded, “Just answer the question.”

“Does someone who sweeps the floor at a company that makes solar panels -- is that a green job?” Issa asked.

“Yes,” replied Galvin, who also acknowledged that a bike-repair shop clerk, a hybrid-bus driver, any school bus driver and “the guy who puts gas in a school bus” are all defined as green jobs.

He also acknowledged that an oil lobbyist, if his work is related to environmental issues, would also have a green job.

It gets better.  Apparently, when I worked at the Exxon refinery in Baytown, TX, I had a green job:

The Bureau of Labor Statistics states a green job is either: a business that produces goods or provide services that benefit the environment or conserve natural resources, or a job in which a worker's duties involve making their establishment's production processes more environmentally friendly or use fewer natural resources

I have never encountered an industrial engineering job anywhere that was not concerned with having their processes use fewer natural resources.

I would argue the greenest of jobs are held by oil and other commodity speculators and traders.  They ensure that prices at all times accurately match our current understanding of the scarcity of each resource.  Without these accurate pricing signals, all efforts to properly invest to use more or fewer of these materials would be impossible.  Just look at the "success" of investments like Solyndra that were made irregardless of these market pricing signals.

Current Oil Boom Only A Surprise to Those Who Don't Understand Markets

There is nothing surprising or unpredictable about the current oil boom, except perhaps how far it has gotten in the face of an Administration that has done virtually everything it can to stop it  (thank god there is oil and gas under private land).  Your humble scribe, neither an economist nor an expert in oil markets, wrote way back in 2005:

Everything old is new again.  Back in the late 70′s, all the talk was about the world running out of oil.  Everywhere you looked, "experts" were predicting that we would run out of oil.  Many had us running out of oil in 1985, while the most optimistic didn’t have us running out of oil until the turn of the century.  Prices at the time had spiked to about $65 a barrel (in 2004 dollars), about where they are today.  Of course, it turned out that the laws of supply and demand had not been repealed, and after Reagan removed oil price controls and goofy laws like the windfall profits tax, demand and supply came back in balance, and prices actually returned to their historical norms....

 Supply and demand work to close resource gaps.  In fact, it has never not worked.  The Cassandras of the world have predicted over the centuries that we would run out of thousands of different things.  Everything from farmland to wood to tungsten have at one time or another been close to exhaustion.  And you know what, these soothsayers of doom are 0-for-4153 in their predictions. ...

The vagaries of reserve accounting are very difficult for outsiders to understand.  I am not an expert, but one thing I have come to understand is that reserve numbers are not like measuring the water level in a tank.  There is a lot more oil in the ground than can ever be recovered, and just what percentage can be recovered depends on how much you are willing to do (and spend) to get it out.  Some oil will come out under its own pressure.  The next bit has to be pumped out.  The next bit has to be forced out with water injection.  The next bit may come out with steam or CO2 flooding.  In other words, how much oil you think will be recoverable from a field, ie the reserves, depends on how much you are willing to invest, which in turn depends on prices.  Over time, you will find that certain fields will have very different reserves numbers at $70 barrel oil than at $25....

All the oil doomsayers tend to define the problem as follows:  Oil production from current fields using current methods and technologies will peak soon.  Well, OK, but that sure defines the problem kind of narrowly.  The last time oil prices were at this level ($65 in 2004 dollars), most of the oil companies and any number of startups were gearing up to start production in a variety of new technologies.  I know that when I was working for Exxon in the early 80′s, they had a huge project in the works for recovering oil from oil shales and sands.  Once prices when back in the tank, these projects were mothballed, but there is no reason why they won’t get restarted if oil prices stay high.

Postscript:  I really need to find new topics to blog about.  The adjacent article in 2005 included this, a frequent topic on this site.  I had not idea I was writing about this so long ago:

When health care is paid for by public funds, politicians only need to argue that some behavior affects health, and therefore increases the state’s health care costs, to justify regulating the crap out of that behavior.  Already, states have essentially nationalized the cigarette industry based on this argument.

Oh My God, It's The Speculators

Hey, Obama Administration!  The evil speculators are moving oil prices again.  Time to get after them.  Hello?  Anyone there?  Where did everyone go?

Engineering Intuition and The Media

I don't really want to ridicule Kevin Drum here for thinking out loud.  I really hate partisan Conservative and Liberal team-politics blogs, but I read a few to stay out of the echo chamber, and Drum is smarter and incrementally more objective (a relative thing) than most.

But this is really terrible, awful engineering intuition:

These two things together reminded me about an energy factoid that's always struck me as slightly odd: virtually every form of energy seems to be almost as efficient as burning oil, but not quite.

For example, on either a power/weight basis or a cost basis, batteries are maybe 2x or 3x bigger and less efficient than an internal combustion engine. Not 50x or 100x. Just barely less efficient. And you see the same thing in electricity generation. Depending on how you do the accounting, nuclear power is maybe about as efficient as an oil-fired plant, or maybe 2x or 3x less efficient. Ditto for solar. And for wind. And geothermal. And tidal power.

I'm just noodling vaguely here. Maybe there's an obvious thermodynamic explanation that I'm missing. It's just that I wouldn't be surprised if there were lots of ways of generating energy that were all over the map efficiency-wise. But why are there lots of ways of generating energy that are all surprisingly similar efficiency-wise? In the great scheme of things, a difference of 2x or 3x is practically invisible.

First, we have to translate a bit.  He mentions power to weight ratios for batteries in the second paragraph.  In fact, batteries have terrible power (actually energy storage) to weight ratios vs. fossil fuels, much worse than 2-3x for energy storage per unit of weight or volume.  That is why gasoline is still the transportation energy source of choice, because very few things short of plutonium have so much potential energy locked up in so little volume.  But I will assume he is comparing an entire electric drive system compared to a gasoline drive system (including not just energy storage but the drive itself) and in this case the power to weight ratios are indeed closer.

But here is the problem:  in engineering, a 2-3x difference in most anything -- strength, energy efficiency, whatever -- is a really big deal.  It's the difference between 15 and 45 MPG.   Perhaps this is Moore's Law corrupting our intuition.  We see electronic equipment becoming twice as powerful every 18 months, and we start to assume that 2x is not that much of a difference.

But this is why Moore's Law is so much discussed, because of its very uniqueness.  In most fields, engineers tinker for decades for incremental improvements, sometimes in the single digit percentages.

The fact that alternative energy supporters feel like their preferred technologies are just so close, meaning they are only 2x-3x less efficient than current technologies, explains a lot about why we skeptics of these technologies have a hard time getting through to them.

Food Miles Silliness and the Virtue of Prices

I have written a number of times on the silliness of food miles and the locavore movement (here and here and here).  For some reason the energy and resource intensity of foods is being judged merely on one component - transportation of the end product - which actually is only a tiny competent of food costs (and thus their resource use).  Is it really more environmentally sensitive for us Phoenicians to grow our corn in the Arizona desert, where soils are unproductive and water must be imported from hundreds of miles away, rather than have it grown in the fertile soils of Iowa and trucked in?

Someone in the media, at least in Australia, finally notices:

TWO brands of olive oil, one from Australia, the other shipped 16,000 kilometres from Italy, sit on a supermarket shelf.

Most eco-friendly shoppers would reach for the Australian oil. But despite burning less fossil fuel to get here, it may not be better for the planet.

Contrary to popular belief, ''food miles'', or the distance food has travelled before we buy it, is a poor indicator of our food's total greenhouse gas emissions, or ''carbon footprint''.

More important is the way our food is farmed and produced, and how far we drive to buy it....

It turns out that stuff like economies of scale really matter

''Local food can often have a higher carbon footprint than food from afar,'' says principal researcher Brad Ridoutt.

He says even home-grown vegetables, with ''zero food miles'', do not necessarily have a smaller carbon footprint than those bought in the supermarket.

''With my veggies, I drive to Bunnings to buy fertiliser, and I go away for the weekend and forget to water them, and in the end I only harvest a few things that I can actually eat.

''By contrast, big producers, who can invest in the latest energy-efficient, water-efficient technology, and make use of all the parts of food, can be much more efficient,'' he says.

Of course, transporting food from producer to retailer still burns fossil fuels that release greenhouse gas emissions, in turn accelerating global warming. But freight emissions are only a fraction of those released during production, meaning even imported food, sustainably produced, can have a smaller carbon footprint than local alternatives.

Even the most rudimentary reading of economics should have given greenies a clue.  In commodity products like most foods, prices tend to be driven down to a point that they reflect resources (and their relative scarcity) that went into the product.  The cheapest foods tend to be those that use the least, and least scarce, resources in production.  So buying locally grown food, which often tends to carry a price premium, should have been a flashing red light that maybe this was not the least-resource-intensive choice.

When Bad Things Happen to Well-Intentioned Legislation

My Forbes article is up for this week, and discusses 10 reasons why legislation frequently fails.  A buffet of Austrian economics, Bastiat, and public choice theory that I wrote for the high school economics class I teach each year.

Here is an example:

3.  Overriding Price Signals

The importance of prices is frequently underestimated.  Prices are the primary means by which literally billions of people (most of whom will never meet or even know of each others' existence) coordinate their actions, without any top-down planning.  With rising oil prices, for example, consumers around the world are telling oil companies:  "Go find more!"

For a business person, prices (of raw materials, labor, their products, and competitive products) are his or her primary navigation system, like the compass of an explorer or the GPS of a ship.  And just as disaster could well result from corrupting the readings of the explorer's compass while he is trekking across the Amazon, so too economic damage can result from government overriding price signals in the market.   Messing with the pricing mechanisms of markets turns the economy into a hall of mirrors that is almost impossible to navigate.  For example:

  • In the best case, corrupting market prices tends to result in gluts or shortages of individual products.  For example, price floors on labor (minimum wages) have created a huge glut of young and unskilled workers unable to find work.  On the other side, in the 1970s, caps on oil prices resulted in huge shortages in the US and those famous lines at gas stations.  These shortages and gas lines were repeated several times in the 1970's, but never have returned since the price caps were phased out.
  • In the worst case, overriding market price mechanisms can create enormous problems for the entire economy.   For example, it is quite likely that the artificially low interest rates promoted by the Federal Reserve over the last decade and higher housing prices driven by a myriad of US laws, organizations, and tax subsidies helped to drive the recent housing and financial bubble and subsequent crash.  Many will counter that it was the exuberance of private bankers that drove the bubble, but many bankers were like ship captains who drove their ships onto the rocks because their GPS signal had been altered

A Circle Has No End -- GE and the Corporate State

The arch-corporate-statist  -- and official manufacturing company of the Obama Administration is feeding at the trough again.  Apparently a perfectly profitable company cannot buy assets from another profitable company without a large subsidized loan from taxpayers.  In this case, the Obama Administration is funding the KCS in its purchase of 30 new locomotives from GE.  The Obama Administration has recently doubled-down on its backing of the US Ex-Im bank, which has been helping to fund Boeing aircraft sales to foreign airlines (each of which, surprise!, has a couple of GE engines on it).

GE knows how this political game is played, with resources allocated based on quid pro quo.  Just the other day, GE announced that it would help bail out Obama and Government Motors buy mandating that all its company vehicles be Chevy Volts, in effect committing to buy more Volts than Chevy sold to consumers all last year.  Of course, the circle has no end, so in turn GE will be rewarded with $90,000,000 in government subsidies for its 12,000 Chevy Volts, a number that could increase to $120 million if Obama's proposal to increase the per car subsidy is accepted.

By the way, the Obama Administration has criticized oil companies like Exxon-Mobil for earning excessive profits and getting overly large tax breaks.  In 2010, Exxon paid a whopping 40.7% of its income in taxes ($21.6 billion in taxes on $53 billion in profits).   In the same year, Obama subsidiary General Electric paid 7.4% of profits in taxes.

It Was Never About the Ogallala Aquifer

A few weeks ago, I wrote that opposition to the Keystone was never about the Ogallala Aquifer.  Polluting the water was a simply a convenient talking point that might play better with the American public than the true goal, which is to shut down the development of new sources of North American oil.  I got a lot of comments and email that I was making this up, but in fact its pretty clear that opposition to the pipeline pre-dated knowledge even of its route.  Here is a environmental group's presentation from 2008 which advocates opposition to all pipelines (without any reference to their routes) out of the Canadian tar sands as a strategy to halt their development.

Postscript:  I really have little use for discussions about funding amounts and sources of various causes.  I find it largely irrelevent.  So I post this only because this week we are talking about the Heartland Institute's funding of climate skeptics as revealed by hero (if you are an environmentalist blog) or thief Peter Gleick.  Heartland sends a portion of its $6 million budget to support various climate skeptics, and somehow this "revelation" has environmentalists running in circles screaming rape.  But Heartland's pitiful few millions seem a joke in comparison to the environmental funding torrent.  Take this example from the Canadian tar sands issue, just a single one of a myriad of climate-related issues getting millions, even billions of dollars of funding.

Northrop’s presentation promised funding from the Rockefeller Brothers Fund and the William & Flora Hewlett Foundation in the amount of $7 million per year. Named in the presentation were 12 participating environmental pressure groups, including the Natural Resources Defense Council, Greenpeace, the World Wildlife Fund and the Sierra Club.

According to Canadian writer and researcher Vivian Krause, U.S. foundations have poured more than $300 million into Canadian environmental groups since 2000. One foundation, endowed by Intel co-founder Gordon Moore, has been single-handedly responsible for $92 million of that total, Krause wrote Jan. 17 in Canada’s Financial Post. Foundations flush with the wealth of computer pioneers William Hewlett and David Packard, she added, sent another $90 million to wage green-politics wars in the Great White North....

Tax records from the Rockefeller Brothers Fund indicate that it sent $1.25 million to Michael Marx’s organization, Corporate Ethics International, between December 2007 and November 2010. The money was earmarked “to coordinate the initial steps of a markets campaign to stem demand for tar sands derived fuels in the United States.” The Fund has not yet filed its tax return for 2011.

Among other initiatives, Corporate Ethics International launched a campaign in July 2010 to persuade American and British travelers to avoid visiting Alberta while tar sands exploration was underway. Tourism brings $5 billion to Alberta, making it one of the Canadian province’s biggest industries.

The William and Flora Hewlett Foundation, the second philanthropy Northrop mentioned in 2008 as a partner in the concerted effort to stop tar sands oil development, contributed far more.

Its tax returns indicate expenditures of more than $17.5 million targeted at tar sands oil development, including more than $15.4 million to the left-wing Tides Foundation and the affiliated Tides Canada Foundation. At the time, Tides was led by progressive millionaire Drummond Pike, and by ACORN co-founder and AFL-CIO organizer Wade Rathke.

A newer philanthropy, the Sea Change Foundation, also sent Tides $2 million in 2009, all of it to “promote awareness of an opposition to tar sands.” Another $3.75 million to Tides followed in 2010.

Funded by Renaissance Technologies hedge fund founder James Simons and his son, Nathaniel, Sea Change gave away $120 million between 2008 and 2010 in connection with energy-related issue activism. More than $18 million more of the Simons’ philanthropic funding in 2009 and 2010 went to organizations named in Northrop’s 2008 presentations, including the Natural Resources Defense Council, the Sierra Club, the World Wildlife Fund and Ceres, Inc., although Sea Change did not disclose the specific purpose of those grants.

Smaller tar sands-related contributions to Tides came from the Oak Foundation, endowed by Duty Free Shoppers tycoon Alan Parker; the New York Community Trust; and the Schmidt Family Foundation, whose millions come from Google CEO Eric Schmidt and his wife Wendy.

Tides, in turn, made at least $8.6 million in grants to 44 different organizations, each time specifically mentioning its “tar sands campaign.” Funds went to Greenpeace, the Natural Resources Defense Council, the Sierra Club, Forest Ethics, the Rainforest Action Network and dozens of others. Fully $2.2 million of that total went to Michael Marx’s Corporate Ethics International.

I have no problem with private people spending money however they want, but after throwing around sums of this magnitude, it seems amazing they feel the need to stop Heartland from spending a couple of million dollars in opposition.  It's like a rich guy telling you that your Chevy Nova is in the way of his Ferrari and could you please get it off the road.

State of the Union: Apparently, Hugh Hefner is Responsible for Abstinence

My column for this week is up at Forbes, and inevitably, deals with the State of the Union address last night.

But the portion that really floored me was Obama’s taking credit for the increase in US oil and gas production over the last several years.  It is certainly true that, against all predictions of peak oil, new technologies have helped drive a surge in US hydrocarbon production.  Combined with a recession-driven drop in demand, America’s oil imports as a percentage of its total use has dropped to 45.6%, the lowest level in over 15 years.

This surge in energy production is a fabulous reminder of how markets work.  For years I have written that the peak oil folks were missing something fundamental by performing an overly static analysis.  They looked at current “proven” reserves of oil and gas and projected forward how many years it would take for these to run out.  But oil and gas reserve numbers only make sense in the context of a particular set of technologies and pricing levels.  As hydrocarbons run short, rising prices tend to spur both innovation and new, more expensive exploration activity.  Oil and gas companies are once again proving Julian Simon’s addage that the only true scarcity is human brain power, and they should be given a lot of credit for the recent production boom.

The one person who deserves no credit for this boom is Barack Obama....

Read it all.

Sense of Scale -- Keystone XL vs. Wind

One thing that many green energy advocates fail to understand is the very scale of US energy demand in relation to the output of various green sources.

Let's consider wind.

The Keystone XL pipeline would have provided 900,000 barrels of oil per day, roughly equivalent to 1.53 billion kw-hr per day.  A typical wind turbine is 2MW nameplate capacity, but at best actually produces about 30% of this on average.  This means that in a day it produces 2,000*.3*24 = 14,400 kw-hr of electricity.  This means that the Keystone XL pipeline would have transported an amount of energy to the US equal to the output of 106,250 of those big utility-size wind turbines.

Looked at another way, the entire annual output of the US wind energy sector was about 75 terra-watt-hours per year or about 260 million kw-hr per day.  This means that the Keystone XL pipeline would have carried energy equal to over 5 times the total output of wind power in the US.

Of course, this is just based on the potential energy in the fuel, and actual electricity production would be 50-65% less.  But even so, this one single pipeline, out of many, is several times larger than the entire wind power sector.

The Worst Polluter

This country has made great progress in cleaning up its waterways over the last four decades.  Conservatives like to pretend it's not true, but there is absolutely nothing wrong from a strong property rights perspective in stopping both public and private actors from dumping their waste in waterways that don't belong to them.

The problem today with the EPA is not the fact that they protect the quality of the commons (e.g. air and water) but that

  1. New detection technologies at the parts per billion resolution have allowed them to identify and obsess over threats that are essentially non-existent
  2. Goals have changed such that many folks use air and water protection as a cover or excuse for their real goal, which is halting development and sabotaging capitalism and property rights
But there is one actor that is still allowed to pollute at unarguably harmful levels.  You guess it, the government.

What might surprise Brougham and many other New Yorkers who were appalled by last summer’s sewage discharge is that there’s nothing particularly unusual about it. Almost every big rainstorm causes raw sewage to flow into the city’s rivers. New York is one in a handful of older American cities — Baltimore, Philadelphia and Washington, D.C., are others — that suffer from poor sewer infrastructure leading to Combined Sewer Overflows, or CSOs. New York City has spent $1.6 billion over the last decade trying to curb CSOs, but the problem is so pervasive in the city that no one is sure whether these efforts will make much of a difference.

CSOs occur because the structure of New York City’s sewage system often can’t cope with the volume of sewage flowing through it. Under the city’s streets, thousands of drains, manholes and plumbing systems converge into a few sewage mains. These pipes can handle the 1.3 billion gallons of wastewater that the five boroughs produce on a typical day — about as much water as would be generated by a 350-year-long shower. But whenever the pipes gather more water than usual — such as during a rain- or snowstorm — the pumps at the city’s 14 wastewater treatment plants can’t keep up with the flow. Rather than backing up into streets and homes, untreated sewage systematically bypasses the plants and heads straight into the waterways.*

In this way, 27 to 30 billion gallons of untreated sewage enter New York City waterways each year via hundreds of CSO outfalls, says Phillip Musegaas of Riverkeeper, a New York clean water advocacy group. Musegaas says he finds it especially upsetting that city officials don’t effectively warn the thousands of people like Brougham who use the waterways and could encounter harmful bacteria during overflow events.

I thought this correction was funny:

This story originally read that New York City’s sewage system could “barely” handle the city’s wastewater, an untrue statement. As long as there’s little surplus stormwater entering the system, it’s adequate to handle the flow.

Oh, so everything is OK, as long as it does not rain.  Which it does 96 days a year.  I am just sure this reporter would say that BP's offshore safety systems were "adequate" if it only spilled oil 96 days of the year.

Do You Want to Be A Farmer?

I have zero desire to be  a farmer.  But that would seem to be the logical end result if we take Obama's recent statement to its logical conclusion.  He said in his Kansas "OK, I really am a socialist after all" speech:

Factories where people thought they would retire suddenly picked up and went overseas, where workers were cheaper. Steel mills that needed 100—or 1,000 employees are now able to do the same work with 100 employees, so layoffs too often became permanent, not just a temporary part of the business cycle. And these changes didn’t just affect blue-collar workers. If you were a bank teller or a phone operator or a travel agent, you saw many in your profession replaced by ATMs and the Internet.

As has been pointed out by economists everywhere since the speech, Obama is fighting against the very roots of wealth creation and growth and our economy.  Productivity improvement has always been the main engine of a better life for Americans, but here Obama is decrying it.

This reduction in employment in major industries due to productivity is not new.  It began with the agriculture.  Check this out from the always awesome Mark Perry

This is exactly what Obama is criticizing.  Without productivity improvements of the type Obama seems to hate, nine out of ten of you would be laboring in a field rather than reading this on the Internet.   Are you poorer because you don't have to grow your own food?  Of course not.   Every time we increase productivity in a major industry, we fee up labor for the next big thing.  We couldn't have had the steel or auto or oil industries if agricultural productivity improvements had not feed up labor for them.  The computer revolution would be impossible if we all were working in steel mills.

PS- of course this does not work if the next big thing, say domestic gas productions through fracking, is blocked by the government and private investment capital is diverted by the government to cronies with a solar panel factory.

More on Solyndra

I was going to leave this topic behind, but I just couldn't resist after Krugman's bit of snark on the topic.   Please see my new Forbes column here.  One bit, actually off topic from the rest of the article, that I added as a postscript:

Perhaps the worst Administration decision of the entire Solyndra affair has yet to receive adequate scrutiny.  Just 6 months before Solyndra failed, the Administration allowed Argonaut, the largest shareholder, to grab the senior debtor position from the US taxpayer in exchange for $75 million in new financing.  The Administration’s argument was the loan was needed to buy time, but buy time for what?  Solyndra’s relative cost position was getting worse, and it was experiencing a huge loss on every unit sold.  No one involved has been able to say what the company was counting on to save it in the 6 months this loan bought it, except perhaps the opportunity to cajole another half billion out of the US taxpayer.

But the loan did accomplish two things.  First, it gave Solyndra time to sell every liquid asset it owned that might have been of value to…. Argonaut.  And once this bit of self-dealing was complete and the company was cleaned out, the bankruptcy process could be entirely controlled by Argonaut such that it will likely end up with all the assets, most important of which seems to be a $500 million dollar tax loss carryforward.  If Argonaut can take advantage of these tax shelters, it will end up costing the US taxpayer an additional $150 million or so.

In short, the taxpayer got rolled.  Again.

Update:  Marc Morano:

 'When we had (Gulf) oil spill, we immediately had moratorium on off shore drilling. The oil industry was demonized & literally shut down'

'But after the green energy debacle, they are being feted and rewarded -- $9 billion more is being sent out to 14 more companies...Solar power is less than 1% of our electricity, yet this is being feted'

One-Program Proof Technocratic Government Does Not Work

Ethanol continues to be one of the dumbest, most costly programs ever engaged in by the Federal government

"Today, about 40 percent of all U.S. corn -- that's 15 percent of global corn production or 5 percent of all global grain -- is diverted into the corn ethanol scam in order to produce the energy equivalent of about 0.6 percent of global oil needs.
Corn prices, now close to $7 per bushel, have more than doubled over the past two years (see chart above). And recent harsh weather, including floods in the Midwest and drought in the South, will likely mean a subpar U.S. corn harvest. That, in turn, will mean yet higher prices for corn, which will translate into higher prices for meat, milk, eggs, cheese and other commodities.
Environmental damage:  check
Fails to meets its goals (of reducing fossil fuel use): check
Raises food prices:  check
Raises gas prices: check
Highly regressive costs that hurt the poor most:  check
Benefits accrue to very a small group of the politically connected:  check

WTF? This is What They Mean by Oil and Gas Subsidies?

When the Left has talked about oil and gas subsidies, I have generally nodded my head and agreed that any such things should be eliminated, just as they should be eliminated for all industries.   They have in the past thrown out huge numbers for such subsidies that seemed high, but I have not really questioned them.  But then I see this chart at Kevin Drum's site

Seriously, nearly half the "subsidy" number is the ability of a company to use LIFO accounting on inventory for their taxes?  Since the proposition is to eliminate these only for oil and gas, what is the logic that somehow LIFO accounting is wrong in Oil and Gas but OK in every other industry?   In fact, at least the first two largest items are both accounting rules that apply to all manufacturing industry.  So, rather than advocating for the elimination of special status for oil and gas, as I thought the argument was, they are in fact arguing that oil and gas going forward be treated in a unique and special way by the tax code, separate from every other manufacturing industry.

In fact, many of these are merely changes to the amortization and depreciation rate for up-front investments.  Typically, politicians of both parties have advocated for the current rules to encourage investment.  Now I suppose we are fine-tuning the rules, so that we encourage investment in the tax code in everything but oil and gas.  I will say this does seem to be consistent with Obama Administration jobs policy, which has been to try to stimulate businesses that are going nowhere and hold back the one business (oil and gas drilling) that is actually trying to grow.  I am fine with stopping the use of the tax code to try to channel private investment in politician-preferred directions.  But changing the decision rule from "using the tax code to encourage all manufacturing investment" to "using the tax code to encourage investment only in the industries we are personally sympathetic to" is just making the interventionism worse.

This is really weak.  Not to mention flawed.  Unless I am missing something, a change from LIFO to FIFO or some other inventory valuation rules will create a one-time change in income (and thus taxes) when the change is made.  LIFO only creates sustained reductions in taxable income, and thus taxes, if your raw materials prices are consistently rising (it actually increases taxes vs. FIFO if input prices are falling).  Given that oil and gas prices are volatile, its hard to see how this does much except extract a one-time tax payment from oil companies at the changeover.

By the way, I am pretty sure I would be all for ending government spending on "ultra-deepwater and unconventional natural gas and other petroleum research," though ironically this is exactly the kind of basic research the Left loves the government to perform.

Obama Administration Wants Jobs Without Employers

At least that is the only conclusion I can draw.   All the talk in this administration about job creation, yet they stand staunchly athwart the only only major industry that is really trying to grow, hire, and invest right now.  Just letting off the brakes the Administration has set on oil and gas drilling would lead to the creation of a ton of jobs, and better jobs than we will get with a new WPA paying workers to dig holes and fill them back in again.