Political Presents Under the Tree

December 16, 2008 in Blog

The Seattle Times reported recently that Governor Gregoire favors allocating free carbon credits to companies in Washington as part of the cap-and-trade system she advocates. Companies would be allowed to emit the same amount of CO2 as they have in the past. If they are able to reduce their emissions, they can sell the allowances they were given from the government. The allocations would decline year to year, but the initial allocation would be based on historical emissions - plus politics.

This system was used in Europe and led to some companies being given large excesses of carbon credits which they then sold on the market. In short, government gave something of value (carbon credits) to companies who then profited from them. Worse, a recent report by the Government Accounting Office found that politicians handed out presents, choosing winners and losers when it came to handing out allocations, leaving some industries short and others long.

Most power generation facilities were short whereas industrial facilities, including iron and steel; manufacturing ceramics; and pulp, paper, and board manufacturing were long. Member states allocated the shortage to the power sector because they believed this sector could reduce emissions at a lower cost than covered entities in other sectors. In addition, there were concerns that compliance with the ETS (emissions trading system) would create costs for covered entities that compete with facilities outside the EU that are not subject to carbon limits. Therefore, member states generally allocated the surplus to the globally competitive industrial sectors and the shortage to the power sector, which does not generally compete with entities outside the EU.

In other words, politicians changed the allocations arbitrarily to favor some sectors over others for political reasons. This is a major problem with cap-and-trade. Free allocations allow politicians to hand out favors to those they like and punish others. Some of these accounting games have already occurred.

It is one reason why the EU is not likely to meet the Kyoto targets. Governments over allocated credits in an effort to limit the impact on the economy, making it difficult to reach the targets.

The alternative to free allocation is auctioning. There are some advantages to this system, but the version of auctioning favored by the environmental community would be worse than free allocations and would amount to a multi-billion dollar tax increase in the middle of a recession.

A complex system like cap-and-trade invites accounting tricks and political favoritism. That's why many who once favored cap-and-trade are looking to other alternatives to reduce the risk from CO2. Unfortunately, Washington seems mired and married to a bad system.

Spending Our Way to Green Jobs and Cheap Energy

December 15, 2008 in Blog

Today's Seattle Times features a story from Les Blumenthal about a plan to create 50,000 "green" jobs by spending billions for a new green energy infrastructure. He writes:

As the current economic downturn deepens, there is talk of another major public-works project for the Northwest, one that would deliver green wind power to the Interstate 5 corridor, which connects Seattle and Portland, and by some estimates would help create 50,000 jobs.

Later, there is a cost of $1.8 billion mentioned for some, but not all, of the work. This article is a textbook example of the sloppiness of claims about "green" jobs.

First, the 50,000 jobs isn't the result of the spending but the total potential number of jobs in the wind energy sector overall. The spending advocated by Rep. Inslee and Sen. Cantwell would "help" create those jobs. They appear to be taking credit for all the jobs when this program would be only a small portion of the costs. How many new jobs are dependent on this program? They don't say, perhaps because the link is so tenuous that any claim would be unverifiable. So they offer a large number in the hopes that people will fixate on it but they qualify it to the point where it is meaningless (i.e. it "could" "help" create the jobs).

Second, the jobs come with a cost because the cost of the program will be paid by ratepayers. BPA is required to pay the costs of the new infrastructure back to the Treasury, meaning it will have to increase rates. The article doesn't estimate how much it would cost ratepayers, it only  mentions the potential increase in jobs. Thus, even if we are paying ten to do the job of one, they figure, at least we are creating jobs. When costs are considered, however, people might have a different idea.

Third, this is treated as a jobs program a la the New Deal. The assumption is that government spending can be used to create jobs effectively. There are many problems with this concept. If government spending creates jobs without cost, why not have the government control 100% of the economy? Spending, government or private, is only as good as the return on that investment (we could hire everyone into the military which would create lots of jobs but it is a bad investment). Spending on bad investments is bad for jobs and prosperity. Spending well helps growth and government is notoriously bad at choosing wise investments. Harvard economist Greg Mankiw notes that two recent studies (one by the Chair of Obama's Council of Economic Advisors Christina Romer) indicate that spending by government is about one-third as effective at creating economic growth as i!
nvestments made by business. Thus, taking money from the private sector to spend in the public sector isn't a good strategy in the medium- to long-term. And even when it provides short-term stimulus, it has a disproportionate future cost.

Finally, advocates of alternative energy often argue that such energy sources won't significantly increase the cost of energy. This article, however, shows that they try to have it both ways. They argue that alternative energy doesn't cost more but that the billions in spending to support green energy is good because it creates jobs. We have argued in the past that incorporating the costs of the risk from CO2 into carbon-based energy is appropriate, but we need to be honest about the various costs of energy and the trade offs. Pretending there are no trade offs is precisely why politicians consistently make poor environmental and economic decisions.

There are certainly reasons to modernize the grid and reasons to diversify our energy portfolio. But we shouldn't pretend that there are no costs associated with spending to achieve a political goal, whether that is meeting an artificial alternative energy target or taxing some sectors of the economy to create jobs in other sectors.

Wanted: Auto Industry Leadership, No Experience Required

November 21, 2008 in Blog

After failing to pass a $25 billion bailout of the auto industry, Congress is now asking for a business plan so they know how the money will be spent.

"Until they show us the plan, we cannot show them the money," Speaker Nancy Pelosi, D-Calif., said at a hastily called news conference in the Capitol.

This wasn't part of the original request, but now Congress feels they need an indication of what the money will be used for. What is interesting is that they think they can be a better judge of a future business plan than auto industry execs. They have no experience in this area but since they are elected, they feel that such things are in their purview. Not that the current execs are doing well, but when facing a difficult and complex problem turning to people who have less experience and understanding (and less personal financial stake) isn't typically a good solution.

This is, of course, the problem with government involvement in business -- once the "public" has a stake, these businesses must answer to the "public" interest, whether that makes sense or not.

What might Congress decide is in the "public" interest? Here's the LA Times' idea:

If the US government—on behalf of the people—is going to spend considerable sums of public money and incur public debt to keep these institutions alive, let's insist on returns that benefit society as a whole, not merely Big Three shareholders, management, and employees. What might these public benefits be? Well, for one, isn't it time for Detroit to turn out a car that gets at least 100 miles per gallon—and to do it in three years?

Apparently the Times and the Congressional leadership believe changing the laws of physics is as easy as changing the law. It is worth considering that the LA Times editors expertise in engineering is why they work in the newspaper industry. Perhaps we should demand that the car can fly too.

All of this reminds me of a passage from one of my favorite books, Magnetic Mountain by Stephen Kotkin. He writes of another government effort to plan an industry without an understanding of the industry itself:

Some sense of the unreality of the situation can be gleaned from the fact that although there was little sense of how to design such a steel plant, a conference was convened on the time frame for the completion of the factory's construction. The debate proceeded over two alternatives, five years or seven years. [One planner] felt that building the factory within five years would constitute a miracle, but an official informed him that three and a half years was "all the party could afford." The pronouncement was followed by a temporary suspension of the discussion. When discussion resumed, the options had been reduced to either six years or three.

As poorly as the Big Three have done, what makes Congress think they have the ability to make better decisions given their lack of experience and knowledge about the auto industry, especially if they try to do so while simultaneously serving the "public interest" by adding unreasonable mandates and goals? Why will it turn out any differently than the story above?

Saving the auto kill it.

November 19, 2008 in Blog

The Big Three have spent the last few days asking for an additional $25 billion in federal money on top of the $25 billion they got earlier this year to re-tool their factories. The irony is that many of the same people advocating the bailout are also the ones trying to kill automobiles.

Those on the left argue that the Big Three are too big to fail and that allowing them to go bankrupt would cause economic hardship. Robert Tracinski of Real Clear Markets finds this gem of a quote that sums up the position of many arguing for the bailout:

Susan Helper, a professor of "regional economic development" at Case Western Reserve University tells the New York Times "From a social point of view, even if GM is not providing a return on investment, it is still providing a lot of good jobs."

The problem is that while we're looking to spend $25 billion to save the auto industry, we're also taking steps to kill the auto industry -- $22 billion just for Sound Transit in the Puget Sound. Let's be clear that the goal is not simply to increase options but, in fact, to force people out of their cars.

For example, when I told the Seattle P-I that to effectively reduce CO2emissions from cars we needed to focus on improving the fuel efficiency of cars rather than mandating behavioral change to reduce vehicle miles traveled (VMT), I received a sharp rebuke. Doug Howell of the National Wildlife Federation accused me of relying on "miracles," saying:

There are two fundamental ways to reduce global warming pollution from transportation: cleaner vehicles and fewer of them. Transportation is nearly half our pollution problem. Cleaner vehicles and fuels can reduce much of the problem. But no matter how we do the math, there is no way for Washington to reach its climate goals without reductions in VMT. This argument holds true for Hummers and hybrids. The bonus: Strategies to reduce VMT also create efficiencies that benefit commuters and businesses.

Put simply, unless we force people out of their cars, we'll never achieve the CO2 reductions we want. I think Doug is simply wrong because 1) he underestimates the pace of technological change and 2) he overestimates the ability of government to force people to change their behavior (witness the fiasco known as the Seattle "Car Free Days" program). There are a couple of other fundamental problems with that view, but I'll leave it there for now.

The Sightline Institute, an ideological traveler of the National Wildlife Federation notes that there is an additional inconvenient truth: forcing reductions in VMT means, fundamentally, getting the poor off the road so the rich can cruise. In discussing comprehensive road tolling to get people off the road they note that:

The "losers" would include people priced off the roadway—folks who’d prefer to drive, but can’t afford to—as well as those who would keep on driving, but pay more in tolls than they receive in time benefits.

There is one problem with this logic. If someone is continuing to drive even when they pay more in tolls, they are deciding that, in fact, they are receiving more in time benefits than the cost of tolls. The "cost" of something varies from person to person. The concept that there is a single true cost of something is emblematic of a viewpoint that believes government can calculate and impose the best strategy.

In the end, the logic of these activities is that we need to spend $25 billion to save an industry that we are spending $22 billion locally to kill and the result will be to allow the rich (driving big cars) more space to drive the open road. 

Fix it quick before the problem goes away!

November 11, 2008 in Blog

Back in June there was a lot of angst about oil prices and the fault was laid at the feet of "speculators" who some accused of driving prices up. Here is what New Jersey Governor and Obama ally Jon Corzine said at the time:

"I think everyone believes there's too much speculation in the oil markets," said New Jersey Gov. Jon Corzine, an Obama ally who announced the proposals in a conference call with reporters. "A lot of the price of oil, I think, people put at the doorstep of speculators bidding up and holding supplies off the market."

Oil prices have fallen from $145 to $60 a barrel in six months, the fastest decline in history. Without government regulation.

Back in June I wrote that such government regulation would be risky and that I had more faith in consumers and oil purchasers to find the proper price because "speculators risk their own money." Those who bought oil at $140, or more, a barrel are not very happy right now. Consumers reduced their demand, oil consumption fell, oil purchasers became nervous about being overextended and prices fell.

During a campaign it is understandable that candidates would pander, promising to solve the issue du jour with resolute government action. The case of oil "speculation," however should be an object lesson to politicians who jump at the chance to add permanent and costly government regulation rather than allowing the aggregated decisions of millions of people to adjust prices.

The ultimate irony, however, is that Obama's supporters who wanted to crack down on speculators because of the oil price spike will now lament that cheap oil is encouraging people to drive more. Don't be surprised when those same folks call for an increase in gas prices to fight climate change.

"Driving" Green Jobs to King County

July 25, 2008 in Blog

Last week I attended a public meeting to discuss bringing "green" jobs to King County. Three things stood out at the meeting.

First, those in the audience were not asked if this was a good idea, but merely what were the obstacles to bringing green jobs here and how we could overcome those obstacles. Before the public was asked for their opinion, there was a panel of "experts" all of whom praised "green" jobs and efforts to create more of them. There was a bit of unintended candor, however, that caused a ripple through the room. Bob Markholt, the Program Coordinator of the Pre-Apprenticeship Construction Training at the Seattle Vocational Institute said he felt there is "not a nickel's worth of difference between a green job and a regular job." We have written in the past, making precisely that argument -- a low-paying green job isn't better than a high-paying job in health care, manufacturing, technology or anywhere else.

Second, the panelists admitted that global warming wasn't really their concern. It was simply the latest reason to achieve traditionally leftist goals. Jessica Coven of Climate Solutions said that she wasn't really interested in global warming until Hurricane Katrina. She said it made her realize that "global warming is a social justice issue." She went on to say that a "sustainable economy is more equitable." She did not provide any evidence of this, especially since efforts to drive the price of energy up disproportionately impact low-income families.

Finally, the County appears to continue to believe that government can best determine the direction of the economy. This, of course, never works out as intended but the temptation for politicians to believe they can run every aspect of the economy is often too overwhelming. The bill developed by King County staff will "drive investment into the green economy." Given the bill's authors, it is not surprising that this misguided perception holds sway. The bill was developed by "unions, job training programs, community colleges and 'progressive' businesses." One of these "progressive" businesses was McKinstry, an engineering firm that specializes in "green" building. The President, Doug Moore, made a claim I think is probably inaccurate.

He said that building "green" has a longer timeline for return on investment than businesses typically like. "Green" elements have a 7-10 year return on investment as opposed to the more typical 5 year return timeline businesses like (I doubt the 7-10 years based on my analysis of green schools, but OK). He then added that the "green" sector was recession proof, saying that demand for his services didn't fall off during the economic slowdown during 2001. So he seems to be saying that at a time when investment capital is least available, during an economic slowdown, companies continue to invest in projects that have a lower return on investment but shelve investments that provide a return more quickly? It might be true that companies would invest in efficiency if that was the best available investment, but there is no reason why, in a situation where capital is tight, that companies would keep investing in "green" projects with a 7-1!
0 year ROI timeline but fail to invest in traditional projects with a 7-10 year, or better, ROI timeline.

It may be true that in 2001, demand for his services did not fall because "green" building was a niche or emerging industry at that time. Niche products can do better than mass-marketed products and services in a recession. When those products become mandatory or more common, they are likely to suffer the same economic pressures as all other types of investment.

The very real problem with setting up a one-sided discussion, with input only from supporters and those who have a stake in a particular outcome and hoping that government can effectively "drive" the individual decisions of millions of people is that it sets the stage for failure. Such a narrow view and unrealistic claims have led to problems with biofuels, green schools, subsidies for electric cars and other eco-fads. People, making individual choices, will far more effectively improve efficiency, cut CO2 emissions and create sustainability.

Which Will Come First?

July 18, 2008 in Blog

Al20gore America achieves 100% renewable energy:

[Al Gore] said the goal of producing all of the nation's electricity from "renewable energy and truly clean, carbon-free sources" within 10 years is not some far-fetched vision, although he said it would require fundamental changes in political thinking and personal expectations. "This goal is achievable, affordable and transformative," Gore said in remarks prepared for the conference. "It represents a challenge to all Americans, in every walk of life — to our political leaders, entrepreneurs, innovators, engineers and to every citizen.&quot!

Or, Al Gore reduces his energy use:

In the year since Al Gore took steps to make his home more energy-efficient, the former Vice President’s home energy use surged more than 10%, according to the Tennessee Center for Policy Research. ... In the past year, Gore’s home burned through 213,210 kilowatt-hours (kWh) of electricity, enough to power 232 average American households for a month.

I'm taking bets.

Prevent Asthma: Pollute the Environment!

July 17, 2008 in Blog

Asthma rates have become a surrogate for a number of environmental statistics. The reason is that the quality of air, water and other environmental metrics is improving, so environmental groups mention asthma instead, hoping you will focus on asthma rates rather than actual pollution data. A growing number of children have asthma and these groups claim that the increase is due to pollution, including indoor and outdoor air quality. For instance:

"Automobiles are the number one source of Washington’s air pollution and are a major factor in asthma rates in our cities. Kids in Seattle and Spokane suffer from asthma at a rate higher than the national average." - Washington Environmental Council, January 2005

"Why Green Building? Health. ... Increased asthma rates, EPA ranks poor indoor air quality as one of the top 5 health risks in the U.S. today." - Presentation of Rachel Jamison, Department of Ecology, January 2008

We've addressed these problems in the past. For instance, air quality has significantly improved in the past few decades at the same time asthma rates are climbing. Further, the link between green buildings and asthma is purely speculative.

So, am I arguing that a clean environment causes asthma? Well...maybe.

Today's Scientific American says that clean water and prosperity may be causing the increase in asthma. They noted that children who have a certain stomach virus have a lower rate of asthma (before we go crazy and start injecting the virus in kids we should note that the virus also causes increased ulcers later in life). What has caused the decline in the prevalence of this virus? Here's what they say:

H. pylori is acquired during childhood, usually from close contact with parents and siblings. Beginning in the early 20th century, clean water, smaller families, better nutrition and the widespread use of antibiotics in industrialized nations led to a dramatic decline in this microbe. Only about 5 percent of children in this study who were under 10 years of age were found to harbor H. pylori compared with developing nations, where most children test positive.

So, clean water causes!
asthma? Since the environmental community is so worried about asthma, I'm sure they'll jump on doing something about this issue immediately.

2008 Environmental Conference and Luncheon

July 16, 2008 in Blog

Bjorn_award_sm1 Yesterday we hosted the 6th annual Environmental Luncheon and for the first time hosted a half-day conference on climate change and eco-fads. More than 330 people heard The Skeptical Environmentalist Bjorn Lomborg talk about his new book Cool It and the best way to deal with climate change and why the Kyoto Protocol is expensive and ineffective. We awarded him with our annual Environmental Innovator Award for his contributions to creative thinki!
ng about how to improve the environment and the well-being of people across the globe (here I am handing him the award).

The first panel in the morning featured a lively debate between Dr. Don Easterbrook from Western Washington University and Dr. Cliff Mass of the University of Washington on the issue of climate change, its causes and effects. You can see Dr. Easterbrook's PowerPoint here and Dr. Mass's PowerPoint here.

The second session featured Dr. Matthew Manweller of Central Washington University who spoke about the unintended consequences of environmental regulations and how well intended, government-mandated approaches can actually do serious environmental damage to the very areas regulations were designed to save. You can read his op-ed published previously by the Washington Policy Center on this issue here.

He was joined by the President of the Cascade Policy Institute John Charles who discussed a range of eco-fads that have been tried over the years in Oregon. For example, he cited numerous problems with carbon offsets mandated by the State of Oregon. You can read his research on this in an excellent article called "Money for Nothing."

Thanks to all who attended, asked questions and made the event a success. For those who could not attend, we will be posting the video of all speeches in the near future.

The Carte Blanche Way to Reduce CO2 Emissions

July 11, 2008 in Blog

Yesterday I attended a presentation on how "Smart Growth" can reduce CO2 emissions and vehicle miles traveled. Reid Ewing and Jerry Walters are authors of "Growing Cooler: The Evidence on Urban Development and Climate Change." They spoke at the Seattle Chamber of Commerce and the Kirkland City Hall. The press release for their new book says "The findings show that people who move into compact, 'green neighborhoods' are making as big a contribution to fighting global warming as those who buy the most efficient hybrid vehicles, but remain in car-dependent areas." They argued that government planning can achieve these goals and that these compact communities are what people want anyway.

They provided a range of statistics on how much these strategies could reduce vehicle miles traveled (VMT). Interestingly, they noted that a doubling in transit service would reduce VMT by only 6 percent.

One statistic they did not provide was the cost of this approach. So I asked if they had calculated the cost of these strategies to society per ton of CO2 reduced. This would allow us to compare growth management to other CO2 reduction strategies. Their answer? "Nobody has calculated the true cost and who is paying it."

Put yourself in the position of a policymaker. Experts have just presented you with a strategy they say will be successful at achieving a particular goal. When you ask how much this will cost they respond that they don't know what it will cost and who will pay. Would you a) adopt their approach, or b) suggest that they go back and do more work? Which approach do you think Washington's policymakers are adopting?

Scientists Wear White. Judges Wear Black.

July 7, 2008 in Blog

SupremecourtLast week, the 9th Circuit Court of Appeals ruled that judges should not act as scientists when it comes to environmental lawsuits. The Associated Press reported:

The court said environmentalists had asked it "to act as a panel of scientists that instructs the Forest Service how to validate its hypotheses regarding wildlife viability, cho!
oses among scientific studies in determining whether the Forest Service has complied with the underlying Forest Plan, and orders the agency to explain every possible scientific uncertainty," Judge Milan D. Smith, Jr., wrote. "This is not a proper role for a federal appellate court."

Scientificmethod14This is a very encouraging decision. We've written here!
and elsewhere about the important difference between policymaking and science when it comes to environmental issues. Both policymakers and scientists like to pretend that value judgments are based on "science," when, in fact, they are not. Judging which risks we are more comfortable with, the risks of climate change or nuclear power, cannot be settled by a scientific formula. Nor can questions about which is more important, personal freedom or a reduction in CO2 emissions. Those are value judgments.

Now the court has agreed that scientists do science and judges do law. That's why their robes are different colors.

Waiting for Greens to Cheer

July 7, 2008 in Blog

The environmental community should be cheering the ruling today overturning King County's onerous and unfair Critical Areas Ordinance. The decision fits exactly with an argument they often make to justify environmental restrictions.

A common argument used by environmental activists is that those who benefit from an activity must also pay for the costs of the impact associated with that benefit. For instance, regulations are reasonable when a smokestack hurts air quality downwind. The people downwind are harmed by the reduced air quality but the factory receives all the benefit. Policies that reduce the impact or require the factory to pay for the harm are appropriate.

The same is true with the Critical Areas Ordinance. The benefits of requirements that 50 percent of rural land be left untouched accrue to all of society in the form of scenery, clean water and the societal value of preserving wildlife habitat. The costs, however, are borne only by a few -- the landowners who have seen the value of their property diminished. If, following the logic of environmental regulation, those who benefit should pay the costs, it only makes sense that society at large should pay the costs for the few who have been impacted.

This argument played a role (the case was decided on more technical issues) in the decision. The court ruled "that development conditions must be tied to a specific, identified impact of a development on a community." In other words, regulations are appropriate only when tied to the impacts of a specific development. Those who create the impacts, developers, must pay for or mitigate those specific impacts.

This is one (of many) differences between environmental activists and free-market environmentalists. Free-market environmentalists apply the rule in both directions, recognizing that environmental amenities have a value and requiring those who impact or benefit from that value to pay. Environmental activists, on the other hand, seem to follow a different rule -- do what I want regardless of the principle (or lack thereof) involved.

That's why greens won't cheer the rational application of what they claim is their own philosophy.

Combat Global Warming, Get Heat Stroke

June 30, 2008 in Blog

It was hot this weekend and most in Seattle are thankful. However, the Seattle Times notes that not everyone is happy and that there was an increase in the number of emergency calls.

This reminded me of a statistic cited by climatologist Pat Michaels at the International Conference on Climate Change this year in New York. He noted that as temperatures go up, people adjust and the number of heat-related deaths go down. He said "If we take a look at heat-related mortality in our major cities, it is going down. Why? Because people get used to it."

There was only one city that defied the trend, where as temperature went up, people failed to adjust and saw mortality increase: Seattle.

So here's my question. Given the Mayor's plan to close down roads, "limiting traffic to bikes and pedestrians on Thursdays," in an effort to reduce CO2, are we saving the planet or increasing climate-related deaths by encouraging Seattlites, who are bad at coping with heat, to expose themselves to hot summer temperatures?

Another Green School Gets Failing Grades

June 26, 2008 in Blog

Another "green" school has been open for a year and, once again, it has fallen far short of projections.

When Washington passed its green building law in 2005, advocates promised a minimum of 30 percent energy savings, reduced absenteeism and higher test scores. Lincoln High School is the most recent school to open using these new rules. In fact, it was actually part of the state's pilot study on green schools (there is an irony that the law was passed before the pilot project was completed).

The Tacoma News Tribune reports today that Lincoln is "on a lot of unenviable lists."

  • Lowest 10th-grade WASL scores among Tacoma’s five comprehensive high schools.
  • Greatest overall student body turnover – 95 percent – as measured by the combined number of admissions and withdrawals at each of the five high schools in the 2006-07 school year.

The fiscal year is not yet complete, so we do not have data on the high school's energy use.

The failure of a "green" school to reduce absenteeism or increase test scores is not surprising. The studies "green" building advocates cite on absenteeism and school test scores are pretty flimsy and our research on schools in Washington show no trends. Our research found that absentee rates of "green" schools are virtually identical to the district averages for three districts in Washington. The Northshore green school has higher absentee rates, the Lake Washington school has lower rates and Spokane is nearly identical.

Unfortunately, these schools cost more to build and, sometimes, to operate (Giaudrone MS in Tacoma spends 30 percent more on energy each year than Mason MS, a non-green school built in the same year). Rather than putting funding where it will make a difference, Washington is chasing nonexistent benefits which are likely to do actual harm to students especially as the state deals with a $2.5 billion budget shortfall.

Ironically, the Tacoma City Council is set to vote to require green building standards for city buildings next week. Perhaps they should call the school district before they vote.

Barack Obama: Oil Speculator

June 23, 2008 in Blog

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?