Tag Archives: energy

12.04.2012 | Austin and Oakland: A Tale of 2 Cities

Sort of, we can “celebrate” a birthday. 5 years ago, the Great Recession began.

And that takes us to Texas where they can celebrate. Among the large metropolitan areas in the US, Austin (#1), Houston (#2), San Antonio (#4) and Dallas (#7) are in the top 10 for employment numbers that have surpassed their 2007 totals.

Why Texas? The Economist suggests it is because of mortgage regulations that precluded a severe housing crisis, population increases, and of course, energy.

Based on BLS (Bureau of Labor Statistics) data, this Economist chart illustrates the employment divide between Texas and California.

Sources and Resources: My facts are from The Economist and business cycle data from the NBER (National Bureau of Economic Research).

Posted by: adminEcon
Tags: California, December 2007, employment, energy, Florida, great recession, subprime housing crisis, Texas, unemployment
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02.06.2012 | High and Low Energy Markets

Let’s rewind to 2008 for a moment. At $13 per thousand cubic feet, the price of natural gas was soaring. Close to $91 a barrel, the price of oil was exceeding recent highs. Selling for more than $200 per kilogram, even the price of the silicon used to manufacture solar panels was very expensive.

At the U.S. Department of Energy, people were saying that we had better figure out some better alternatives. Soon, primarily for solar projects, billions dollars of loan guarantees and subsidies poured from federal coffers to support new clean tech energy production.

And then, everything changed. New technology emerged for natural gas production and its price declined from $13 to less than $3 per thousand cubic feet. The recession diminished the demand for oil and its price plummeted. Meanwhile, the solar panel world was radically changing. Attracting new producers, high silicon prices soon plunged when the supply side of the market was deluged.

Our bottom line: The power of the market.

This Wired article tells the whole story.

The Economic Lesson

During the 18th century and part of the 19th century, energy and illumination were all about whale oil. Comparable perhaps to Exxon Supreme or Gulf Premium, oil from the sperm whale was considered the best. Originating in the large cavity of the sperm whale’s head, the spermaceti produced the highest quality whale oil to light the home and use in the factory.

Always, though, the march of creative destruction continued as new resources emerged. Oil wells in Pennsylvania, Thomas Edison and electricity, new uses for coal…wind, solar, coal, nuclear, petroleum, natural gas. And consistently, the market has selected the “winner.”

An Economic Question: Knowing “the power of the market,” how much through subsidies, taxes, and grants should government encourage the trajectory of our energy usage?

Posted by: adminEcon
Tags: energy, loan guarantees, natural gas, oil, solar panels, subsidies, whale oil
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01.09.2012 | Government’s Venture Capital

The Erie Railway went bankrupt multiple times. Primarily government funded, it originally connected 2 small NY communities and cost 4 times more than initial projections when it was completed in 1851.

Citing the financial woes of the Erie Railway, a calamitous 1913 decision to build a steel plate manufacturing plant, and the Solyndra bankruptcy, financial historian John Steele Gordon says government repeatedly is a “bad venture capitalist.”

By contrast, a recent paper from the Hamilton Project tells us that sometimes, when the private sector has no incentive to innovate, the government has to step in. Focusing on energy, they suggest that government should fund basic research, development and demonstration.

The Economic Lesson

Deciding whether a government investment is successful takes us to private and social benefit. Sometimes a business can be a financial failure but have so much of a social benefit that it might be called worthwhile. One example is the Midwestern U.S. canals that declared bankruptcy during the 19th century. As links in a broader transportation infrastructure, some believe that they should be judged on the basis of the role they played. As a result, the financial cost of these canals is offset by their intangible social benefits.

An Economic Question: Explain why you support more or less government venture capital activity.

Posted by: adminEcon
Tags: energy, Erie Railway, government subsidies, social benefit, venture capital
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11.08.2011 | The Future of Oil

When will we run out of oil? A room full of pistachios might have the answer.

In the first several pages of The Invisible Heart: An Economic Romance, a teacher says you have been given a room filled 5 feet high with pistachio nuts. The nuts are free, you are a nut lover, and you have only one rule to follow. The empty shells have to remain in the room. At first, you dive in. Eventually though, you are searching for uneaten nuts through mounds of empty shells. Finally, you stop looking. Why? It costs you too much time, energy, effort. It is “cheaper” to switch to cashews.

Reading “Could Shale Gas Ignite the U.S. Economy” reminded me of pistachio nuts. The U.S. currently gets almost half of its electricity from coal, one-quarter from natural gas, one-fifth from nuclear, and the rest from hydro and wind. Saying, “The United States has the capacity to become the Saudi Arabia of natural gas,” the CEO of an energy company explains why shale rock could represent the future of electricity and “reduced oil dependence for transportation.”

This takes us to George Mitchell, the son of an immigrant Greek goat herder and the “kitchen” in which hydrocarbons “cook.” Mitchell, now 92, discovered how to get the gas in the “kitchen,” the shale rock, to flow up and out through a well. Others honed the process, massive U.S. shale rock formations have been identified, and the rest is history…or probably will be.

Here is a past econlife post that also connects innovation to natural gas.

The Economic Lesson

With coal environmentally problematic and foreign petroleum dependency undesirable, the opportunity cost of acquiring energy in the U.S. is becoming unacceptably high.

Just like with pistachio nuts, when you have a high opportunity cost for your current energy sources, you look for alternatives. Or, as with natural gas, you innovate until you create a lower opportunity cost.

An Economic Question: Starting with questions about techniques used to access natural gas, an environmental opportunity cost has been cited. Looking at the 8 page Bloomberg Business Week article and this MIT study, how would you assess the cost and benefit of shale sourced natural gas?

Posted by: adminEcon
Tags: coal, demand, electricity, energy, innovation, natural gas, oil, opportunity cost, shale
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05.23.2011 | The Real Cost of a Car

To see how much a car costs, just add up the purchase price, insurance, gas and a yearly service. Yes? According to one group of researchers, a car that is driven 100,000 miles costs $19,000 more than you might think.

The $19,000 relates to external costs. Pollution from autos creates health spending. Congestion generates delays, alternative plans, noise. Accidents means fatalities, days lost at work, medical expenses, property damage. In addition, more gas takes us to oil dependency and carbon emissions. Not included in the $19,000 total but also a cost is bridge and road maintenance and construction.

What does that extra $19,000 mean? It says that the cost of driving is both private and social.

Citing the private and social cost of driving as one of many examples, a new paper from the Hamilton Project, “Strategy For America’s Energy Future: Illuminating Energy’s Full Costs.” suggests we need to rethink public policy in 4 areas: 1) Changing the incentives that shape consumer and business energy use; 2) Enabling innovators to capture more of the profit of new technology; 3) Using more accurate cost benefit analysis for regulatory policy; 4) Pursuing global solutions to environmental and climate concerns.

The Economic Lesson

Economists see positive externalities wherever a transaction between two parties affects a third individual or group in some beneficial way. They see negative externalities when the impact on a third party is harmful. Vaccines usually have positive externalities while pollution is the typical example of a negative externality.

Taking externalities an economic step further, we can look at cost. On a demand and supply graph, the equilibrium price of a decision that has a positive externality is too high because of the benefits experienced by society. Correspondingly, the equilibrium price of a decision with negative externalities is too cheap because of the associated costs that result.

An Economic Question: Which business or individual decisions have a social benefit that (theoretically) offsets the private cost? Which business or individual decisions have a social cost that (theoretically) adds to the private cost?

Posted by: adminEcon
Tags: autos, energy, gas, negative externality, private cost, social cost
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