Mark Pennington: Green Leviathan or the Minimal State?

by David Bier on November 21, 2011

in Blog

Continuing with excerpts from great books on environmental and energy issues (see last week’s posts here), below is an excerpt from Mark Pennington’s brilliant new book Robust Political Economy. “Robust” political institutions are, according to Pennington, those “institutions that perform best given that people 1) have limited knowledge and  2) are prone to self-interested behavior.” He argues the case that market institutions are better suited to deal with these realities than governments. In this passage, he applies these two criteria to environmental protection.

Robust Political Economy was released in 2011

Classical liberalism does not question the view that environmental problems arise when private actors are unaccountable for their actions. What it does question is the supposition that political intervention, whether of the ‘command and control’ or ‘price-based’ variety, is the best way of ‘internalising’ the relevant externalities. There are two dimensions to this account which reflect the focus on the conditions required for a robust political economy of institutions and decisions.

The first line of analysis draws on the Hayekian understanding of the knowledge problem. Seen from this perspective, neo-classical approaches to environmental policy repeat the socialist calculation error by assuming that the knowledge necessary to correct for ‘market failures’ is somehow ‘given’ to policy-makers. In an environmental context the assumption is that trade-offs between environmental and other objectives are known and fixed.

Viewed through the Hayekian lens both command and control and price-based policy mechanisms are variations of central planning and may be inappropriate because the primary environmental problem is typically not one of giving people the right incentives to act on the basis of known environmental values, but of discovering what the relevant values are. Knowledge of these values is fundamentally dispersed throughout society and evolves in light of the changing ideas of individuals and organisations as they interact with each other and the natural world.

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A Tale of Two States

by William Yeatman on November 21, 2011

in Blog, Features

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Yesterday morning, television magazine energyNOW! ran a surprisingly* good segment on the oil boom in North Dakota. Long story short: technological advances in drilling have made possible the recovery of vast reserves of oil, which has caused tremendous job creation. According to the segment, the average oil and gas worker makes $75,000, and there is a huge demand for labor. The whole northwestern part of the state is like a wild-west mining town. At one point, a supervisor at one rig offered a job to the energyNOW! cameraman. As a result of this oil rush, North Dakota has the lowest unemployment rate in the country–a paltry 3.5 percent.

Compare this to California. Despite possessing mineral wealth, the Golden State wants nothing to do with the production of “dirty” hydrocarbons. Instead, it is the self-proclaimed leader in expensive “clean” energy technologies, like wind turbines and electric cars. To that end, the State next month is expected to finalize a cap-and-trade energy rationing scheme. The idea is to make conventional, hydrocarbon energy more expensive, and thereby boost demand for green energy. The cap-and-trade scheme was originally planned to have been a regional policy, but last week, Arizona became the sixth State (after New Mexico, Washington, Oregon, Montana and Utah) to withdraw. In a statement, the Arizona Department of Environmental Quality said it acted to “[avoid] the economic costs to industries that are subject to cap and trade.”  Now, California will absorb these “economic costs” alone. This energy tax will only worsen the state’s unemployment rate: 11.9 percent, second worst in the nation.

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In Defense of People: Julian Simon, “The Ultimate Resource Is Mankind”

by David Bier on November 18, 2011

in Blog

This week’s excerpts have shown that 1) natural resources are not as limited as experts have believed (Daniel Yergin). 2) Natural resource consumption leads to more, not less resources (Mark Mills/Peter Huber). 3) Natural resources aren’t “natural”–they are the result of human ingenuity (Robert Bradley). 4) Non-renewable, finite, depletable energy sources made economic growth sustainable (Matt Ridley). Today’s excerpt from brilliant resource economist Julian Simon’s The Ultimate Resource 2 adds to these points, particular to Robert Bradley’s point. Simon argues that the ultimate resource isn’t energy–it’s mankind.

When I began to work on population studies, I aimed to help the world contain its “exploding” population, which I believed to be one of the two main threats to humankind (war being the other)….

One spring day about 1969 I visited the U.S. AID office on the outskirts of Washington, D.C., to discuss a project intended to lower fertility in less-developed countries. I arrived early for my appointment, so I strolled outside in the warm sunshine. Below the building’s plaza I noticed a road sign that said “Iwo Jima Memorial.”  There came to me the memory of reading a eulogy delivered by a Jewish chaplain over the dead on the battlefield at Iwo Jima, saying something like, “How many who would have been a Mozart or a Michelangelo or an Einstein have we buried here?”

And then I thought, Have I gone crazy? What business do I have trying to help arrange it that fewer human beings will be born, each one of whom might be a Mozart or a Michelangelo or an Einstein – or simply a joy to his or her family and community, and a person who will enjoy life?

I still believe that helping people fulfill their desires for the number of children they want is a wonderful human service. But to persuade them or coerce them to have fewer children than they would like to have—that is something entirely different….

Enabling a potential human being to come into life and to enjoy life is a good thing, just as protecting a living person’s life from being ended is a good thing. Of course a death is not the same as an averted life, in large part because others feel differently about the two. Yet I find no logic implicit in the thinking of those who are horrified at the starvation of a comparatively few people in a faraway country… but who are positively gleeful with the thought that 1 million or 10 million times that many lives will never be lived that might be lived.

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Sometimes the Industry Playbook is Accurate

by Brian McGraw on November 18, 2011

in Blog

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The New York Times today ran its second editorial scolding the Obama Administration for its decision to delay a tightening of ozone standards in response to a lengthy article by John Broder who exhaustively detailed the big players in this decision and their thought processes. Though there are critiques of the science behind the evidence of harm from ozone concentrations of ~75 parts per billion, I’d like to focus on an outcome of the ozone tightening that the NYT implies is nothing but an industry talking point:

This page was not impressed by those arguments then and is no less skeptical of them now in light of John M. Broder’s exhaustive account in The Times on Thursday of the steps that led up to the decision. The article paints a picture of an aggressive campaign by industry lobbyists and heavyweight trade groups like the American Petroleum Institute that began soon after it became clear that Ms. Jackson was determined to tighten the rules governing allowable ozone levels across the country.

The standards governing ozone — the main component of harmful smog — are supposed to be set every five years. But because the standards proposed by the Bush administration in 2008 were seen as inadequate by the scientific community and had been challenged in court, Ms. Jackson decided to set her own standards, tough but achievable. Their health benefits would approximate their costs, and they would not begin to bite for several years, giving industry time to prepare. [click to continue…]

Congress, Not Steven Chu, Is To Blame for Solyndra

by William Yeatman on November 17, 2011

in Blog, Features

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This morning, Energy Secretary Steven Chu was grilled by the House Energy and Commerce Committee over his role in the ongoing Solyndra debacle. In September 2009, the California-based solar panel manufacturer received a $535 million loan guarantee from a stimulus-funded green bank operated by the Department of Energy. Last September, Solyndra declared bankruptcy, and now taxpayers are on the hook for almost a half billion dollars. Lawmakers on the Energy and Commerce Committee want to lay responsibility for this fiasco at the feet of Secretary Chu, but they have misidentified the perp. In fact, the Congress has only itself to blame.

This is not to say that Secretary Chu is faultless. His stewardship of the stimulus-funded green bank was rash. From the outset, the Energy Secretary intended to rush money out the door, which is conducive to fiscal mismanagement. Two weeks after the creation of the green bank, Secretary Chu promised to “start cutting checks” within months, despite the fact that the Department of Energy was essentially creating an investment bank from scratch.

Secretary Chu’s need for speed, however, wasn’t enough for Members of Congress. In September 2010, the Senate Energy and Natural Resources Committee held a hearing decrying the supposedly languid pace of loans from the Energy Department’s green bank. A month before that, Senate Majority Leader Harry Reid (D-NV) bemoaned that, “They [the Department of Energy] have been, in my opinion, very, very slow in putting that money out.”

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House Republicans Set to Unveil American Energy & Infrastructure Jobs Act

by Marc Scribner on November 17, 2011

in Blog

House Republicans, led by Speaker John Boehner, announced today that they will soon be introducing the American Energy & Infrastructure Jobs Act. A summary is available on Rep. Boehner’s website. The bill would expand domestic American oil and natural gas production offshore and on federal lands, something I believe is very positive. However, I am not enthusiastic about depositing royalty revenues into the Highway Trust Fund, which would spell an end to the mechanism’s “user-pays/user-benefits” principle that has long enjoyed broad bipartisan support. The other day at CEI’s OpenMarket.org, I briefly explained why this is a shortsighted move that will likely do great harm to long-term surface transportation policy in the United States by opening the door for increased politicization.

Matt Ridley: How Fossil Fuels Helped End Slavery

by David Bier on November 17, 2011

in Blog

The first three excerpts this week argued that the quantity of natural resources are 1) not as limited as experts have believed (Daniel Yergin), 2) not as important as our technological and political ability to access them (Peter Huber/Mark Mills), and 3) not “natural,” in that their usefulness is not an  inherent feature, but rather an artificial human innovation (Robert Bradley).  This excerpt from Matt Ridley’s brilliant 2010 book The Rational Optimist: How Prosperity Evolves explains how non-renewable, finite energy sources paradoxically made economic growth sustainable. With inanimate objects doing the work instead of slaves, we can, as he says, all “live the life of a Sun King.” 

 In 1807, as Parliament in London was preparing to pass at last William Wilberforce’s bill to abolish the slave trade, the largest factory complex in the world had just opened at Ancoats in Manchester. Powered by steam and lit by gas, both generated by coal, Murrays’ Mills drew curious visitors from all over the country and beyond to marvel at their modern machinery. There is a connection between these two events. The Lancashire cotton industry was rapidly converting from water power to coal. The world would follow suit and by the late twentieth century, 85 percent of all energy used by humankind would come from fossil fuels. It was fossil fuels that eventually made slavery–along with animal power, and wood, wind and water–uneconomic. Wilberforce’s ambition would have been harder to obtain without fossil fuels. ‘History supports this truth,” writes the economist Don Boudreaux. ‘Capitalism exterminated slavery.’

The story of energy is simple. Once upon a time all work was done by people for themselves using their own muscles. Then there came a time when some people got other people to do the work for them, and the result was pyramids and leisure for a few, drudgery and exhaustion for the many. Then there was a gradual progression from one source of energy to another: human to animal to wind to fossil fuel. In each case, the amount of work one man could do for another was amplified by the animal or the machine. The Roman empire was built largely on human muscle power, in the shape of slaves. It was Spartacus and his friends who built the roads and houses, who tilled the ground and trampled the grapes. There were horses, forges and sailing ships as well, but the chief source of watts in Rome was people.

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Will Blocking Keystone XL Increase GHG Emissions?

by Marlo Lewis on November 16, 2011

in Blog, Features

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Last week, after three years of environmental review, public meetings, and public comment, President Obama postponed until first quarter 2013 a decision on whether or not to approve the Keystone XL Pipeline — the $7 billion, shovel-ready project to deliver up to 830,000 barrels a day of tar sands oil from Canada to U.S. Gulf Coast refineries. Obama’s punt, which Keystone opponents hope effectively kills the pipeline, is topic-of-the-week on National Journal’s Energy Experts Blog. So far, a dozen “experts” have posted, including yours truly.

Now, if you’ve been paying attention at all over the past 40 years, you may suspect that most Keystone opponents want to kill the pipeline just because they hate oil and oil companies — even as they fill up their tanks to drive to the next demonstration. Bill McKibben, lead organizer of the anti-Keystone protest rallies outside the White House, lives in Vermont. On the Colbert Report, host Stephen Colbert asked McKibben: “You’re from Vermont? Did you ride your bicycle down here? Or did you ride ox cart? How did you get down here? Or do you have a vehicle that runs on hypocrisy?”

If we take them at their word, McKibben and his climate guru, NASA scientist James Hansen, oppose Keystone because they believe it will contribute to global warming. How? The cutting-edge method for extracting oil from tar sands is a process called steam assisted gravity drainage. SAGD uses natural gas to heat and liquefy bitumen, a tar-like form of petroleum too viscous to be pumped by conventional wells, and burning natural gas emits carbon dioxide (CO2). So their gripe is that replacing conventional oil with tar sands oil will increase CO2 emissions from the U.S. transport sector. Maybe by only 1% annually,* but to hard-core warmists, any increase is intolerable.

Enter the Law of Unintended Consequences. If McKibben and Hansen succeed in killing the pipeline, petroleum-related CO2 emissions might actually increase! [click to continue…]

A Tale of Two Technologies

by William Yeatman on November 16, 2011

in Blog

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There was a telling juxtaposition in the news yesterday. On the one hand, Energy Conversion Devices became the latest green energy company to flirt with bankruptcy, after benefiting from stimulus spending. On the other, oil and gas giant Anadarko announced that it would invest $1 billion annually to tap the Wattenberg field, part of the Niobrara shale formation in Colorado.

Such investments are fuel to the engine of job creation. A decade ago, the Niobrara shale deposits would have been worthless, because we couldn’t get the oil and gas out of the ground. But that changed thanks to two technological breakthroughs—horizontal drilling and hydraulic fracturing.

In fact, these two innovations are allowing for the recovery of big oil and gas plays across the country, which is why the industry is a leading job creator. Earlier this month, Reuters reported on a new analysis from the U.S. Bureau of Labor Statistics showing that jobs related to oil and gas drilling account for one in five of all net new private sector jobs in the United States since 2003. And according to a recent report by economics consulting firm EMSI, nine of the top eleven fast-growing jobs in the nation are in the oil and gas sector.

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Robert Bradley: There Are No “Natural Resources”

by David Bier on November 16, 2011

in Blog

Yesterday’s excerpt from Mark Mills and Peter Huber’s book The Bottomless Well showed how people consume energy to discover and create more energy through technological advances.  Today’s excerpt from Robert Bradley’s 2009 book Capitalism at Work: Business, Government, and Energy makes a similar point, that there are no such thing as “natural” resources.  As he writes, “Resources without man are not resources.”

His name is not found in economics textbooks or histories of economic thought. Where it does appear, his Germanic surname is often misspelled. His contribution is virtually unknown in the world’s vast mineral-resource industries today. Government policies owe little or nothing to him. Yet Erich Zimmermann (1888–1961) developed a new theory to explain why fixity and depletion were the wrong way to view minerals in an economic and business sense.

Zimmermann’s 1933 World Resources and Industries began a line of analysis that would explain a paradox of economic life—the growth of supposedly “depletable” supply, whether measured as current production or known reserves. …. Economists from Jevons forward focused on a conception of known resource quantities that, by definition, depleted as they were mined and consumed. Future production costs would rise as mining progressed from superior to inferior deposits. Resource prices were destined to increase in the face of continuing demand and, certainly, demand growth. The increasing scarcity of mineral resources might be gradual or rapid, but the direction was not in doubt, even allowing for improved exploration and extraction technology.

Zimmermann rejected this outside-in view that saw resources as a knowable, fixed quantity. Such a perspective was for the natural sciences, not economics. Instead, he started from the inside out: “the appraising mind of the economic decision-maker.” Resources, defined as “the environment in the service of man,” exist only from “human wants and abilities.” Resources without man are not resources. The interaction between man and environment is central.

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