The visible hand in economics

Archive for the ‘Energy Economics’ Category

The world price of oil has now declined to under $50US a barrel, a third of it’s peak value (live prices here).

This takes me back to a post we did at the end of May – when fuel costs were pushing up at a rate of knots. The topic was covered in the name: Collusion, multiple equilibrium, and petrol prices.

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Every day I look at the blog and don’t think I will have anything to write about – then I read some of the things that are sold on the political blogs and I find myself writing posts.

Frog blog discusses the issues they have with Nationals energy policy (something I gave some early impressions on here). Now they do have some fair points (I can understand concerns surrounding the RMA – given that we don’t know what the changes will be). However, the language they use in several parts of their discussion betrays a unreasonable focus on governments ability to improve the industry.

Fundamentally, I take issue with the way they use the following two of their claims:

  1. consumers will be left entirely to the whims of the … market,
  2. businesses, which are inherently inefficient

Lets discuss these below:

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The NZ Herald has just posted up the points raised by National in its energy strategy, and I have to say, I agree with a lot of it (however, note that I have not read the actual policy document – so this is just a discussion of “the concepts”)

There are three main policies:

  1. Remove the ban on new gas power stations and introduce an ETS,
  2. Look at security of supply with greater demand estimates than the government currently uses,
  3. Loosen the RMA to take into account “national interest”.

Let me say what I think below the tab.

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Conjecture is rife regarding why petrol prices have risen so strongly. There are a number of common explanations:

  1. Rising demand for oil,
  2. The weak US dollar, increasing the US$ price,
  3. Peak Oil (Infometrics article requires a subscription),
  4. Negative real interest rates in the US (as not mining the oil is the same as investing in inventories),
  5. and speculation.

All these factors are playing a part in the saga of ever rising oil prices. However, Calculated Risk has suggested another, highly interesting way that fuel prices could have risen – a backward bending supply curve and multiple equilibrium.

This idea is pretty cool – so I thought I would spend a little bit of time explaining how it could work.

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It can get a bit depressing talking about negative externalities all the time. It’s important not to forget that solving problems like climate change isn’t just about internalising negative externalities, we can also harness positive externalities. Apparently a ‘green’ club is installing a dancefloor that will use the kinetic energy of people dancing to power the light show! Video after the jump. Read the rest of this entry »

From the Hive we see that the government may be having trouble getting its mandatory biofuel regulation through parliament. Anyone that knows me will know that this makes me glad, not because I’m a climate change denialist (I’m willing to trust the experts on this one), not because I’m concerned about biofuel not having a net positive impact on carbon emissions, but because I don’t think the scheme is properly synchronized with the fact that we have a “carbon price” (through the carbon-trading scheme).

Why does setting a price for carbon mean that we don’t need to make biofuel’s mandatory? In order to explain this I’ll look at the three main criticisms I might get for this position (I’m hoping more criticisms can be added in the comments 😉 ):

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Lots of people are ripping in to Monica Prasad after her op-ed in the NYT on carbon taxes. She says that

Denmark, Finland, Norway and Sweden have had carbon taxes in place since the 1990s, but the tax has not led to large declines in emissions in most of these countries… [T]he insight they provide is that if reducing emissions is the goal, then a carbon tax is a tax you want to impose but never collect.

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