Tuesday, January 6, 2015

Low gas prices make people think poorly, so...

Many stories on oil pricing: 2 initial citations to restore sanity to the discourse, and then some on distasteful politics attempting to take advantage of a perceived crisis - that crisis being people paying less for fuel.

What is bad about low gasoline prices? Are they unusual? | Vaclav Smil:
Falling oil prices have been called shocking, unprecedented, and (most incredibly) a highly regrettable development that will end the rise of American stock market and create unrest and uncertainty around the world. However, what we are experiencing is the eighth oil price decline of more than 30 percent during the past 30 years.
Oil prices have been falling — and with them the quality of reporting and writing about this periodic event.
...my advice is to enjoy low oil prices, knowing that we are living through yet another down chapter of a prolonged undulating saga. What is the best thing to do? Old World herbalists and modern promoters of chamomile tea agree: the golden-hued beverage has a mild sedative effect, it eases anxiety and insomnia and it leaves a soothing aftertaste. I recommend increased doses of this classic tisane (with a touch of honey) as long as the current oil price fall lasts. By the time the trend, inevitably, reverses itself, your drinking of chamomile tea might become a new, and beneficial, habit — ready to ease the anxiety brought on by the rising prices.
Top 10 News Stories of 2014 | Tom Whipple and Steve Andrews
...The cause of the crash was a combination of rapid growth in US shale oil production and weakened demand for oil products largely stemming from the slowing Chinese economy and continuing weakness in Europe, the US, Japan and other countries. The result was a global oil surplus of 1.5 – 2 million b/d.
...So far there has been little decline in production attributable to the price drop, but numerous high-cost producers of shale oil, tar sands oil, and deep-water oil have announced plans for significant cuts in their drilling and other investments related to oil production during 2015. Some sectors of the oil industry such as those operating nearly depleted stripper wells, which produce some 700,000 b/d in the US, are likely to close down if prices stay low as they would be no longer economical. Those shale oil producers in North Dakota who are not connected to pipelines have seen the wellhead price of their crude fall to nearly $30 a barrel.
While some sections of the oil industry are almost certain to be hurt next year, some are wondering if a collapse of the ruble or wide scale default on the junk bonds that are financing much of the shale oil boom might trigger wider economic problems. For now conventional wisdom is saying that the end of the price drop is not in sight
...the increase in U.S. crude oil production over the last three years averaged roughly 1 million b/d each year.
....most agree the boom will lose considerable steam, starting in the second half of 2015. 
...the oil supply story from elsewhere around the world generally flies under the radar screen. Perhaps that’s because it has generally been flat, and 2014 was no exception to that trend. 
...Our view is that world oil production is now on a bumpy plateau that could see a modest peak during 2015 or soon thereafter, followed by a struggle to remain on that plateau.
My favourite on the up-and-down of energy pricing is "The Coming Glut of Energy" - written at the peak of the1970's oil crisis. It seems to me we are just at the opposite point now, but the wheel will turn again soon enough. I linked to the article in a post 3 years ago,which noted an excellent NY Times story on declining US demand and growing US supply.

On to the New England knuckleheads.
Lawrence Summers had probably the same commentary titled differently in The Financial Times and the Washington Post.
The case for carbon taxes has long been compelling. With the recent steep fall in oil prices and associated declines in other energy prices, it has become overwhelming. There is room for debate about the size of the tax and about how the proceeds should be deployed. But there should be no doubt that, given the current zero tax rate on carbon, increased taxation would be desirable.While the recent decline in energy prices is a good thing in that it has, on balance, raised the incomes of Americans, it has also exacerbated the problem of energy overuse. The benefit of imposing carbon taxes is therefore enhanced.
...
Some worry that taxing fossil fuels will hurt the competitiveness of U.S. industry and encourage offshoring. In fact, a well-designed tax would be levied on the carbon content of all imports coming from countries that did not impose their own carbon levies.
...It would be a hugely important symbolic step ahead of theglobal climate summit in Paris late this year. It would shift the debate toward harmonized measures to raise the price of carbon use ...
...A tax of $25 a ton would raise more than $100 billion each year and seems a reasonable starting point.
How should the proceeds be used? Here, too, it seems more important to reach consensus on the principle of taxation.
Progressives who are most concerned about climate change should rally to a carbon tax. Conservatives who believe in the power of markets should favor carbon taxes on market principles. And Americans who want to see their country lead on the energy and climate issues that are crucial to the world this century should want to be in the vanguard on carbon taxes. Now is the time.
It's 17+ years since Kyoto was negotiated - and America stepped aside. 
The US isn't going to lead on anything with carbon, aside from bluster.

It seems reasonable to have a big round number raised from application of a small square (of 5) - except it doesn't. There's no rationale for $25 - but if rationale was an issue the carbon tax wouldn't be related to the price of gas (temporarily low), but to the external costs of burning the stuff.

There's also a "carbon" taxation post on the frequently good Energy at HAAS blog  - Raise The Gas Tax:
So how high should gasoline and diesel taxes be? Economists have been thinking about this for a long time...
The latest study to get a lot of attention on this topic is the International Monetary Fund’s aptly-named report “Getting Energy Prices Right” (here). The study takes on the ambitious task of quantifying energy externalities for over 150 countries. For the United States, they come up with $1.60 per gallon for gasoline, and $2.10 per gallon for diesel.
Why is this so high? Let’s start with carbon dioxide. Burning gasoline emits .008 tons of carbon dioxide per gallon. Views about the external cost of carbon dioxide emissions vary widely, but most recent estimates are considerably higher than current allowance prices under AB-32. For example, the value currently used by the U.S. federal government is $39 per ton (here)....corresponds to a tax of $0.31 per gallon for gasoline and $0.40 per gallon for diesel.
And this is just the beginning. Many economists believe that traffic congestion is the most significant negative externality from driving. When you drive, you impose a negative externality on other drivers in the form of reduced driving speeds. Based on available estimates in the literature, the International Monetary Fund concludes that this externality is a whopping $0.85 per gallon for gasoline in the United States...
Perhaps even more important is traffic accidents. Our own Max Auffhammer has done innovative research on this topic (here) together with our UC Berkeley colleague Michael Anderson, finding that drivers impose accident-related costs of almost $1.00 per gallon on other drivers.
In my opinion this nonsense is why there's so much resistance to carbon taxation. If cars ran on magic, instead of gas, the most costly elements of this particular carbon tax suggestion should apply to magic cars as well. 
Clearly there's only one carbon costs in the calculation, and it's a small share of it.

A grumpy economist has an article worth a read; Carbon tax or carbon rights?
The strongest case for a carbon price is, I think, that if we're going to have anti-carbon policies and energy conservation policies -- and we do, and we are, like it or not -- then a carbon price is a far better way to implement them than direct regulations.
Prices aggregate information. Should you buy a second electric car for short trips? It costs carbon to build a car. Prices tell you. Prices are powerful incentives...
...I think Larry and the other carbon tax proponents would get further if they were to offer a deal: Let us have a carbon tax, and in exchange we will get rid of all the other horrendously inefficient laws, regulations, tax credits, and other attempts to nag us inefficiently to lower energy consumption and carbon emission.
If you like that train of thought, maybe shift gears and check out the new Fraser Institute report (which I've yet to do), which applies the same logic to a different public finance field; The Practical Challenge of Creating a Guaranteed Annual Income in Canada 


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