Commodity speculators are now the center of the debate over oil prices and presidential candidate Barack Obama says he will do something about it. The Washington Post reports today:
Sen. Barack Obama rolled out a proposal yesterday to curb speculation in energy markets, which his advisers said would help stabilize soaring gasoline prices.
Speculators are those who believe the price of oil will be higher than it currently is and are buying today in an effort to sell for a higher price later. They "speculate" that the cost will rise. They do this for a variety of reasons. They may believe that supply will be limited by environmental regulations. They may believe we have already used most of the world's oil and are gradually running out. They may believe that demand overseas is growing so fast that capacity won't be able to keep up. Whatever their reason, they believe prices will be higher in the future than they are !
Interestingly, Barack Obama appears also to believe that the price of oil will (and perhaps should) be higher in the future. He supports environmental policies that limit supply, keeping oil reserves out of reach.
He also has made it clear that he doesn't object to the current price of oil. In a response to a question about whether Congress was actually keeping oil prices from falling, Obama told an interviewer, "I think that I would have preferred a gradual adjustment." In other words, the problem isn't the price, it is the rate of price increase. In this, however, he certainly has a sense that prices should be higher, not lower. Thus, Obama has an idea about what the proper price range of gas should be. That idea is based on...speculation. He speculates about the proper price of oil.
There is really no difference between Obama and the oil speculators he decries. Both are offering policies based on the future price and availability of oil. The only difference is that speculators risk their own money and Obama is risking the energy policy of the world's largest economy. Which is more dangerous?
Today's Seattle P-I has a story about the Blue-Green coalition which is asking government to subsidize the creation of a "green" sector here in Washington state. I am quoted criticizing this effort.
"We're going to end up spending tax money and increasing costs to consumers just so we can say we have an (renewable energy) industry here," Myers said. "I don't think we should turn Bill Gates into a windmill manufacturer unless that's what he's best at. Bill Gates should sell software and buy lots of windmills, rather than making them in his back yard."
The response, in the article, is interesting. Environmental activists argue that Europe is ahead because of government subsidies, and that we now need our own subsidies. My question is, who pays for and who benefits from those European subsidies?
The answer is that Europeans pay and we benefit, both in terms of increased prosperity and environmental quality.
First, when we purchase a windmill from Denmark, the price is lower than it would normally be because the Danish government subsidizes the cost. Instead of costing $1 million, let's say, it costs $800,000. Danish taxpayers are putting $200,000 in our pocket.
But what about jobs? Aren't they taking jobs away from American workers? No. We now have more money (thanks again Denmark, Germany, et al.) and can hire workers to do other jobs, like in biotechnology or other industries. We may not meet an artificial target of 25,000 jobs in a particular sector, but we have more money and more jobs in the state, but in different sectors.
Finally, this is also good for the environment. The lower the cost of the windmill, the more windmills we can buy and the more renewable energy we can generate. That's a good thing.
But won't we forgo all of the profits that the green sector will create? If the green sector is truly as prosperous as some claim, venture capitalists will put their money there. If, however, the Europeans continue to subsidize these technologies, we should continue to happily take their money and invest it effectively in other sectors.
Some say it is "unfair" that Europe gives its "green" sector a leg up with these subsidies. In reality, however, they are giving American consumers a leg up by paying part of the cost of those technologies. Foreign subsidies are essentially a rebate to American buyers. If you still think this is unfair, I encourage you to reject the manufacturer's rebate the next time you buy a car -- accepting it would be unfair to other car companies.
The problem with politicians picking and choosing technologies is that they are often severely myopic and fall prey to fads. The desire to pay more and get less when it comes to "green" technology is a good example of that trend.
Leah Ceccarelli of the University of Washington today writes a piece in the Seattle Times today calling on "defenders of science" to protect science from the sophists who question them and she cites "global-warming skepticism" as one example. This is a common refrain from those who favor particular government policies (Ceccarelli is a professor of communications, not a scientist), arguing that anyone who disagrees with them is ignoring the science.
Three things come to mind.
First, science does not dictate policy. Policy is set by weighing our value priorities and understanding the economic incentives used to achieve particular ends. Science informs the goals but often does not determine the tactics. For instance, if we agree with Ms. Ceccarelli that climate change is a concern, does science say a carbon tax or cap-and-trade is better? It doesn't. Sometimes, however, those who preach the primacy of science pretend it does. I wrote about this in February.
Second, in recent years it has been the left preaching the manta of "following the science," but their desire to do so is selective. Follow the science, they say, when it comes to climate change but not when it comes to DDT or preservatives in vaccines. With DDT and Thimerosal, a vaccine preservative, recent studies have shown definitively that there is little threat from the chemicals used to fight malaria or reduce the cost of vaccines, but in both cases the environmental community continues to ignore that science in favor of sophistry. The environmental community often cites theoretical science but ignores the empircal science ("worldwide temperatures haven't increased in a decade, but the models say they should").
Finally, if you want to see anti-scientific sophistry at work, watch this video of a recent effort to ban another dangerous chemical: dihydrogen monoxide.
Does Mayor Nickels really care about climate change? The next few days will truly tell the tale.
Seattle Parks & Recreation has announced that they want to ban or limit bonfires on Alki Beach to combat global warming. According to the Seattle P-I, a memo from Parks & Rec argues that "Mayor Greg Nickels' plan to reduce climate-threatening pollutants 'begs the question of whether Seattle Parks is acting responsibly ... to systematically reduce controllable contributions to global warming..."
Bonfires, however, don't contribute to climate change. One reason the City of Seattle and other climate activists promote biofuels (which include "biomass" i.e. wood) is that the life-cycle carbon impact is zero. Wood and crops remove carbon from the atmosphere. The wood is then burned and the carbon is released back to the atmosphere. The next tree, however, pulls the carbon out of the atmosphere, and the cycle continues. The impact of this cycle on carbon in the atmosphere is zero.
In fact, Seattle touted this very process when it announced that Seattle Steam would use waste wood to generate energy for Seattle. In the City's "Green Ribbon" Commission report from 2006, they note that "Intergovernmental Panel on Climate Change Guidelines generally state that there are zero net emissions from burning wood waste; in essence, because the natural cycle of vegetation is to absorb CO2 when growing and emit CO2 when decaying, burning vegetation only accelerates this process as opposed to being a source of CO2 emissions." Seattle Steam announced its plan to burn wood waste to generate energy and the City counts this as zero net emissions.
Instead of creating energy, bonfires create heat and entertainment. Is there any difference between burning wood for that purpose or for creating energy so I can watch the yule log on TV?
If the City does not shoot this nonsense down immediately, it will demonstrate that all of the climate activists' talk about science is meaningless and that climate change is merely an excuse used by the City and bureaucrats to increase their control over people.
Update: 4:20 pm
The PI is now reporting that "Seattle Parks and Recreation has backed off on considering restrictions on bonfires this year, and on possibly banning or charging fees for them at Alki and Golden Gardens beaches next year."
They did not do so, however, because their logic was flawed. A spokesman for Parks Superintendent Tim Gallagher said that "He thinks things are working just fine" and so they didn't need new restrictions.
We should still get a straight answer from the Mayor and his staff about whether bonfires contribute to global warming and if this is the kind of science on which they are basing climate policy.
One can't visit Hong Kong without recognizing the power of trade to create prosperity. The Hong Kong Special Economic Zone has no tariffs except on four items: cars, fuel, cigarettes and alcohol. The prosperity that has been created as a result of this completely open trade policy is so great that China has had to institute strong immigration limits. Police can ask any person for their Hong Kong passport and if they turn out to be from China, they are sent back immediately.
Thus, it wasn't surprising to me that when one of the policy experts from Hong Kong was asked what three policies developing countries should adopt to increase prosperity, free trade was the first one he mentioned.
Trade also can play a big role in environmental policy, but even Washington politicians who repeat the mantra that we are "the most trade dependent state in the nation" reflexively restrict trade in the mistaken belief that it will improve the chances of success.
For instance, environmental activists call cap-and-trade a "market based" system because the trade element allows emitters to trade carbon allocations, allowing the most efficient emitters to benefit from their efficiency by buying fewer carbon allocations or selling the ones they have more cheaply. But where cap-and-trade has been used, there has been a steady trend toward limiting trading options. One example is the increased restrictions on carbon "offsets" which have a spotty record of actually reducing CO2. Wanting to make sure the total amount of CO2 emitted is truly capped, the Western Climate Initiative is looking to limit the type of offsets that can be purchased.
Offsets are used because they increase the number of options an emitter has to reduce emissions. Remove that option, however, and you limit the ability to trade and increase costs of compliance. The less trade, the higher the cost.
Activists quickly jump to such conclusions, throwing trade overboard, because they tend not to be comfortable with trade as a general concept, but also because they care much less about the cost of the policy than the cap. The more we move in this direction the more the policy is simply another regulatory cap without the market's advantages of increasing choice and prosperity.
And, if you want to understand the difference trade can make in controlling the costs of reducing greenhouse gases, compare Hong Kong (per capita GDP of $29,149) to China (per capita GDP of $2,460). That's the cost of restricting trade.
Last year, the luncheon speakers at the Environmental Luncheon were Phelim McAleer and Ann McElhinney who showed part of their film "Mine Your Own Business." It is a really excellent film highlighting the condescension so many Western environmentalists have for the poor in developing countries.
Now they are about to release their new film on climate change and DDT, "Not Evil Just Wrong." I got a preview at the International Conference on Climate Change in New York earlier this year. It is excellent. Phelim and Ann are at their best interviewing environmental activists and drawing out their thought process and often-unspoken beliefs. Some of the interviews they do with leading environmental activists will leave you shaking your head.
You will also recognize Patrick Moore in the film, who provides a voice of reason and was our luncheon speaker the year before Ann and Phelim.
You can see a preview for the film on YouTube. I encourage you to leave your impressions and thoughts.
Despite the fact that "An Inconvenient Truth" proves less and less accurate every day, quality filmmakers on the other side of the issue have trouble being taken seriously. Every bit of publicity and support helps overcome that barrier.
"Conservative grassroots group Grassfire.org wants people to waste as much energy as possible on June 12 by 'hosting a barbecue, going for a drive, watching television, leaving a few lights on, or even smoking a few cigars.' " - Information Week
Can someone te!
ll me how "the other side is doing something stupid so we will do something even dumber" helps? Individuals with freedom making informed choices improve efficiency, reduce environmental impacts and increase prosperity. I'm not sure how reducing efficiency and wasting wealth helps build support for that concept.
Carl Gipson noted below that, in response to higher gas prices, drivers are purchasing smaller cars and manufacturers are building more efficient cars. In the medium- and long-term, this will increase efficiency, driving down demand.
In the short-term, drivers are also responding by finding ways to conserve. The chart to the right compares the number of gallons sold in Washington for January, February and March for each of the last three years. In every case the number of gallons sold is lower in 2008 than in 2006.
In January 2006, a gallon of gas cost $2.25. In January 2008 the cost had risen to $3.13 a gallon. The total number of gallons sold fell by 1.5%. Note that this is not the per capita usage, but total gallons sold. So, the reduction occurred even as the number of drivers in Washington increased.
The same trends are evident for February and March. The cost of a gallon of gas rose 85 cents from February 2006 to February 2008 and total demand fell 1 percent. For March, the cost rose by $1.03 and demand fell 2.2 percent.
The simple lesson is that people, responding to prices, are finding big and small ways to conserve and become more efficient. They do this more effectively than government because only they know what is possible and the easiest ways to conserve. Economics is often described as the system of allocating scarce resources. Environmentalism is borne of a concern about scarce resources. The response of drivers to increasing scarcity of oil, reflected in prices, shows how effective this system is.
This is not an argument for $5 gas. Prices should be set by the supply and demand for scarce resources, not by think tank wonks or politicians. Millions of people, responding to market signals and incentives, make decisions that reduce fuel use and associated carbon emissions. It is a system that not only preserves individual freedom and choice, but does so in a way that promotes prosperity and environmental stewardship.
Lest you think that the people are sovereign and that government is instituted to serve the people, Mayor Nickels is here to set you straight.
In announcing his effort to get people out of their cars, the Mayor announced today that "Seattleites are aware of the perils of climate pollution, and they want to do their part."
Not enough apparently.
Since Seattleites aren't doing their part enough, even though they want to, the Mayor announced today that he will be closing some roads this summer for use by bikes and pedestrians only, to increase gridlock on remaining roads and the pain of driving your car.
People of Seattle...get with it! You are getting in the way of the Mayor's agenda.
I just finished reading Alan Greenspan's biography, The Age of Turbulence. It is excellent and covers a great many interesting issues.
As a free-market environmentalist, I found this particularly interesting:
If you compare the dollar value of the gross domestic product -- that is the market value of all goods and services produced -- of 2006 with the GDP of 1946, after adjusting for inflation, the GDP of the country over which George W. Bush presides is seven times larger than Harry Truman's. The weight of the inputs of material required to produce the 2006 output, however, is only modestly greater than was required to produce the 1946 output. This means that almost all of the real-value-added increases in our output reflect the embodiment of ideas.
Frequently we hear that if growth and wealth continue to increase we will rapidly deplete the Earth's resources. Year after year, we hear projections that catastrophe is just around the corner. It never seems to come because human ingenuity adjusts and innovates at an amazing rate. Market forces encour!
age that ingenuity, increasing prosperity and lifespan while taking care to economize on the use of scarce resources. It turns sand into semiconductors. Who knows what transformations will occur in the future?
Tomorrow, presidential candidate Sen. John McCain will be in Seattle to discuss his cap-and-trade proposal to reduce greenhouse gases and fight climate change. Some, however, aren't happy and will be protesting.
The State Democratic Party will be attacking McCain's effort to "boost his faux 'maverick bona fides,'." (By the way, the letters from "faux maverick bona fides" can be rearranged to spell "Scuba Rove Affixed A Mink" which can only be some secret code.) How they will be doing it, however, is interesting.
According to the Tacoma News Tribune, "The plan is to hire an airplane that will carry a special message to Republican John McCain, and everybody else who is paying attention." Maybe the banner will say "McCain: Faux Maverick Bona Fides."
So the way they are going to attack John McCain for his climate change plan is to hire an airplane to fly around in circles burning fuel. If that doesn't demonstrate a contrast, I don't know what does.
When the Washington State Climate Advisory Team began its work last year it had only one rule: no discussion of the science of climate change. The only question was how to address the crisis.
Maybe they should have eliminated even that rule. This note appeared recently on the Department of Ecology's web page on climate change regarding the CAT's January report:
"Errata for the HB1303 Interim Report:A Comprehensive Assessment of the Impacts of Climate Change on the State of Washington (Last updated: 1/24/2008) 3. Key Findings: Page 3, paragraph 1. “Based on results from a number of Global Climate Models (GCMs), we can expect annual temperature to increase approximately 0.5°C, or roughly 1.0°F, per decade over the next 50 years.” This statement should be revised to say, “Based on results from a number of Global Climate Models (GCMs), we can expect annual temperature to increase approximately 0.3°C, or roughly 0.5°F, per decade over the next 50 years."
In other words, the estimates of temperature increase, and the risks associated with that increase, were exaggerat!
ed by 100 percent. Earlier this year we noted that the new projections for sea level rise in Puget Sound had been exaggerated in a previous UW report by 300 percent.
It still makes sense to take responsible steps to reduce CO2 emissions encourage energy efficiency. These numbers, however, make it increasingly difficult to justify many of the dramatic and expensive proposals currently being offered by the environmental community.
One year ago, I wrote a piece arguing that the environmental community doesn't really care about climate change. How else to explain the many counterproductive policies some advocate? I wrote that "In Washington state, green power advocates actively oppose our largest source of renewable energy that emits no carbon – hydro power. While they claim that no new sources of significant hydro power exist, they added additional barriers by classifying major hydro as non-renewable in the renewable energy initiative passed last year."
More evidence of their disdain for clean hydro appeared today.
An op-ed in the Seattle Times, written by two environmental activists, argues for tearing down the Snake river dams. They argue, without a hint of irony, that "Climate change makes removing the dams even more important, because the salmon and steelhead that will be saved are more likely to survive warmer temperatures."
The dams provide more than 1,000 Megawatts of average power. According to the BPA, we would need to install more than 2,000 wind turbines to make that up. The Stateline wind project, by way of comparison, will produce only about 100 average MW.
Washington state has one of the lowest rates of per capita carbon emissions in the country. Hydro power is the key reason for those low emissions. Undermining that clean energy source with the hope that we can replace the capacity with a massive, and expensive, wind power project is sheer folly. Wind power can be a good source of future energy, but some environmental activists want to dig a hole in the hopes that wind power will dig us out. That strategy can only undermine efforts to reduce CO2 emissions.