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Assorted links

Posted by Daniel Hall on November 7, 2008

1. What is the likely direction of energy and climate policy under the new Obama administration and a Democratic Congress?  Joe Romm gives his thoughts on E&E TV; here is a panel of respondents at Green Inc.  There is a fair amount of wishful thinking floating around.  Count me among the skeptics that a cap-and-trade bill will pass in calendar year 2009.

2. Henry Waxman has launched an insurgency against John Dingell, attempting to take over as chairman of the Energy and Commerce Committee.  If you have an E&E Daily subscription there is a good article here.  Brad Plumer also provides ungated commentary at the Vine.  I don’t really know much about this but I will take a shot in the dark and predict that Dingell is not going anywhere.

3. Obama will keep Bush’s ethanol mandate.  Blech.

4. Here is another (longer) version of that story about carbon sequestration that Rich linked below.  Here is Sarah Forbes of WRI talking about guidelines they have published for CCS.

5. The Economist has a story this week on urbanization, largely touting its benefits.  It is a nice mix of economic geography and history.  Hmmm, no byline of course, but could this be the work of urbanist Ryan Avent?  Speaking of Ryan, he is blogging from a conference this week on urban design in a post-oil age; here he discusses the role of urban design in solving climate change.

6. And in (mostly) non-environmental economics news, everyone is aware, right, that one of the worst wars/humanitarian crises of the last half-century has now reignited in a big way in eastern Congo?  (Yes, I could make this on topic for the blog by discussing the natural resource curse but given the scale of the crisis at the moment that seems coldly academic.)  For those who are perplexed by (shamefully cursory Western) media coverage of events I recommend this post and its four predecessors from Wronging Rights.

Posted in 2008 Elections, Biofuels, Climate Change, Coal/ CCS, International, Natural Resources, Urban | Leave a Comment »

$1141 divided by $53 times…

Posted by Daniel Hall on June 26, 2008

Just to put some numbers on the point Rich made about ANWR this morning, here’s the abstract of a paper [ungated version here] from one of my former professors:

This paper provides model-based estimates of the value of oil in Alaska’s Arctic National Wildlife Refuge (ANWR). The best estimate of economically recoverable oil in the federal portion of ANWR is 7.06 billion barrels of oil, a quantity roughly equal to US consumption in 2005. The oil is worth $374 billion ($2005), but would cost $123 billion to extract and bring to market. The difference, $251 billion, would generate social benefits through industry rents of $90 billion as well as state and federal tax revenues of $37 billion and $124 billion, respectively. A contribution of the paper is the decomposition of the benefits between industry rents and tax revenue for a range of price and quantity scenarios. But drilling and development in ANWR would also bring about environmental costs. These costs would consist largely of lost nonuse values for the protected status of ANWR’s natural environment. Rather than estimate these costs and conduct a benefit–cost analysis, we calculate the costs that would generate a breakeven result. We find that the average breakeven willingness to accept compensation to allow drilling in ANWR ranges from $582 to $1782 per person, with a mean estimate of $1141.

And from the section of the paper on the benefits of drilling:

As stated previously, two benefits of drilling in ANWR that are often put forth are a decrease in the price of oil and reduced reliance on foreign imports. The numbers above suggest, however, that neither of these benefits is likely to be consequential. Domestic oil prices are determined in a world market and would be unaffected by the relatively small annual flows from ANWR. Moreover, the quantity of oil in ANWR, 7.06 BBO, is merely 0.55% of the proven reserves worldwide (EIA, 2006b). Analysts also recognize that even if ANWR’s supplies were large enough to affect world prices, the Organization of Petroleum Exporting Countries (OPEC) would countermand the increase in production and thereby negate any price effects (EIA, 2004; Gelb, 2005). It is also clear, with ANWR accounting for a maximum of 3.2% of domestic consumption in 2025, that something other than drilling in the Refuge will be necessary to substantially reduce our dependence on foreign oil.

The benefits that would be real and substantial are the economic rents and tax revenues that would arise from drilling in ANWR. From a social perspective—the one used in benefit–cost analysis—it is important to recognize that the oil is not worth the total revenue that it generates. There are opportunity costs associated with finding, developing, producing, and transporting the oil, along with the required rate of return on capital. The only portion of total revenue that would generate a benefit to society is the net return, which would consist of economic rent to the oil industry and state and federal tax revenues.

We extend the USGS model (Attanasi, 2005b) to estimate the economic rents and tax revenues that would arise from ANWR oil. The first step of deriving an estimate of total revenue is straightforward. For any given price, we multiply the price times the quantity of oil indicated by the long-run marginal cost curve in Fig. 1. Using our best-estimate scenario of $53 per barrel and 7.06 BBO, total revenue is $374.2 billion. Considering the 95% and 5% certainty scenarios, the estimate of total revenue ranges from $203.0 billion to $565.3 billion. Table 1 reports the estimates of total revenue for the full range of prices evaluated under the three different scenarios. [emphasis added]

Their alternative scenarios vary the amount of recoverable oil but not the price. They don’t consider prices above $59 per barrel. I’ll outsource the commentary to John Whitehead:

It is hard to imagine nonuse values over $1000 for ANWR (even if these are for households and not individuals). The nonuse values that I played around with 2 years ago are all less than $50.

Addendum: The values are for individuals age 18 or over.

Posted in Natural Resources, Oil, Research | 1 Comment »

The curse is broken?

Posted by Daniel Hall on May 6, 2008

Why hasn’t this been reported more widely?

The correlation between resource dependence and slow growth and conflict, therefore, does not imply causation from the former to the latter. Instead, causality appears to be running from weak institutions and conflict to resource extraction as the default sector, which produces resource dependence as the final outcome. Resource dependence appears as a symptom, rather than a cause of underdevelopment.

The authors argue that previous research on the ‘natural resource curse’ has been unable to correctly identify which way causality runs:

The standard resource variable used by Sachs and Warner, as well as by Collier and Hoeffler, is primary exports divided by a measure of national income. It thus captures the resource dependence of economies, rather than abundance. A negative correlation between this variable and growth could mean that resources lead to slower economic growth, as suggested by the curse proponents. Alternatively, it could mean that poor economic development policies–leading an economy to become dependent on its primary exports–dampen growth. Similarly, although a negative correlation between the resource variable and institutional quality may imply that resources undermine institutions, it might also capture that the resource sector is the “default sector” in the absence of decent institutions when nobody is willing to invest in alternative forms of capital. Finally, a positive correlation between the resource variable and conflict may indeed mean that resources trigger conflict. But it may also be the case that conflict makes countries dependent on resource extraction–the default activity that still takes place after other economic sectors (more mobile or, perhaps, better linked to the rest of the economy) have come to a stop. If so, resources are not a curse to development, but rather a safety net to support people and economies even under adverse circumstances.

They argue that economic dependence on natural resources is endogenous in exactly this way and use data on resource endowment — rather than resource exports — as an explanatory variable for economic growth.

When using the new World Bank variable to proxy for resource abundance, we find that the direct effect of resource wealth (particularly the subset of mineral resource wealth) on income growth is positive and significant. All things considered, an increase in subsoil wealth by one standard deviation–roughly the difference between Senegal and Sweden–would have brought Senegal’s growth performance on a par with that of Mozambique or Kenya; not a huge improvement, but certainly not a growth curse.

Similarly, resource wealth also attenuated the risk of conflict. This is due to a positive indirect effect: Resource wealth raises income, and higher incomes, in turn, reduce the risk of conflict. Again, although the aggregate impact of resource abundance is slight–amounting to less than a 5% reduction in the risk of war in case of a standard-deviation increase in resources–it is still statistically significant.

If this result holds up it will be a significant finding in development economics and could overturn almost 2 decades of conventional wisdom on the curse of natural resources.  The full text is here (gated); a non-gated version is here.

Posted in Development, Economics, Natural Resources | Leave a Comment »

Fish: farmed or free?

Posted by Daniel Hall on December 14, 2007

The BBC News has an article summarizing a new study, published in the journal Science (gated), that reports on the negative impacts on wild salmon stocks from farmed salmon in British Columbia:

Dr Krkosek and colleagues compiled data on the numbers of pink salmon in rivers around the central coast of British Columbia.

They compared populations of salmon that had come into contact with salmon farms with those that had not been exposed, from 1970 to the present day.

Using a mathematical model of population growth rates, they show that sea lice from industrial fish farms are reducing the numbers of wild pink salmon — a Pacific salmon species — to the extent that the fish could be locally extinct in eight years or less. …

Scientists say commercial open-net salmon farms are a “haven” for sea lice – naturally occurring parasites that attach to the skin and muscle of salmon.

Mature fish can survive being infested by a few lice but tiny juvenile salmon are particularly vulnerable to attack.

They come into contact with sea lice when they swim past fish farms on their migratory routes from rivers to the sea.

The actual study compiled data from 71 rivers where salmon migrate and spawn, including 7 rivers where salmon must migrate past at least one farm. The researchers found that from 2002 to 2006 the parasite-induced mortality rate among juvenile salmon exposed to lice along these rivers ranged from 16% to 97%, with mortality commonly over 80%. The BBC News article points out, however, that there are benefits to salmon farming, and there are ways to do it without putting wild salmon at risk:

Dr Krkosek said the impact of fish farms on wild salmon has been “an emotionally, politically and economically charged debate” in Canada.

“Salmon are considered a natural treasure to Canadians, but salmon farming has a lot of economic opportunity – we really need economic activity to supplement coastal economies where fisheries and other resource centres are not doing as well,” he explained.

“So there are economic benefits to having salmon farms, but the way that it is currently being done is very damaging to the environment and there are better ways of doing it.” …

“The most obvious thing to do is to move the farm out of the way of the wild fish,” Dr Krkosek told BBC News.

“Don’t put them on the migration route, and don’t put them near the spawning rivers. Another option is to move to closed containment technology where the net pen is replaced with a physical barrier that prevents the exchange of parasites – that would solve the problem too.”

Posted in Agriculture, Natural Resources | 1 Comment »

Feeling the heat?

Posted by Daniel Hall on October 25, 2007

I have several friends who live in Southern California. From the inbox:

The Santiago Fire was a couple blocks from my place in Lake Forest. Here are some photos.

California wildfire.  Photo by Chris Jones.

SoCal is a great place to live, but I wonder if we have the optimal number of people living there given the risks of fires and mudslides. Clearly we want to have effective emergency response to disasters in order to save lives and property, but at a certain level of effectiveness should we start worrying about moral hazard? As Matthew Kahn says,

…if the firemen were less good at putting out fires and risking their own lives, would fewer people live in the fire zone?

If it’s just state and local agencies that are involved in emergency response it may not be as big an issue: Californians all over the state choose to subsidize those who live in fire-prone regions. But if the federal government steps in with disaster-assistance — essentially serving as insurer of last resort — are we just encouraging too many people to live in paradise (or hell, this week)?

Photo credit: Chris Jones.

Posted in Government Policy, Land Use, Natural Resources | 5 Comments »

Supply and demand

Posted by Daniel Hall on October 9, 2007

There’s an article in the NYTimes today about energy exploration at “the ends of the earth.” There’s lots of interesting info on various extraction technologies, as well some projections on future demand growth. Do read the article.

The article also sums up the economics succinctly:

As global demand soars and prices rise, energy companies are going to the ends of the earth to find new supplies. …

The industry’s new reach is shifting the economics of energy extraction. According to a recent study, discovery and development costs, a key indicator for the industry, tripled from 1999 to 2006, to nearly $15 a barrel. …

These higher costs mean that the industry needs higher energy prices to finance new projects.

A few years of sustained high prices for oil and natural gas have provided the impetus for a new wave of exploration.  Supply and demand work their magic again!

Posted in Energy Technology, Natural Resources | Leave a Comment »