Weakonomi¢s » environment

The Downside To Great Gas Mileage

The Weakonomist — Fri, 18 May 2012 14:10:02 +0000

Between gas prices and government regulation, fuel economy on vehicles has started to climb significantly. Manufacturers fought the regulation, but now they aren’t fighting consumer demand. When the recession hit people stopped buying new cars. There’s now pent up demand as consumers are tired of paying for repairs and dealing with crappy mileage. Millions either now have jobs or at least feel better about the ones they have. As a result, the automotive industry is now doing so well both Obama and Romney are taking credit.

Fuel consumption is falling not only thanks to vehicle efficiency, but also thanks to consumers driving less too. Below is a chart showing the average amount of miles we travel each year per person. Not only has this been falling per capita, but it’s also been falling on a gross scale too.

This is all great news for our wallets, technology, and the environment. But there’s no such thing is a perfect outcome, and better fuel economy is no different.

Think about what you do when you’re in your car. You drive, mess with your phone, flip bad drivers off ignoring your own bad driving, curse the radio for too many commercials, and sit at lights. But you’re also wearing down the roads, and clogging them up. Even with a reduction in driving, we still need new roads and existing ones have to be repaired. A lot of the funding from those roads comes from taxes on gasoline sales. And if we’re buying less gas for a number of reasons, we’re paying less into the fund that pays for the roads.

So we’re left with a couple of options. The easiest one is to just increase the tax on gasoline. But unless the cost of making roads has dropped considerably, consumers are going to lose the savings from better fuel economy to higher taxes.

There may be better ways. We could charge taxes based on your miles driven. Gas taxes attempt to do this at the pump, but that’s really a tax on how long your motor is running. And that’s different than how many miles you drive.

Whatever way we raise money is up for debate. But that is a debate that needs to occur soon before our roads start to become a problem.

Read: New CAFE rules and a stagnant gas tax mean big deficits for infrastructure

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America Is Too Gassy

The Weakonomist — Wed, 18 Apr 2012 14:30:58 +0000

For years now we’ve been bragging to the world about now we won’t need their oil any more thanks to natural gas. Estimates vary, but we have somewhere along the lines of as much gas in our ground as the universe has suns, or something. We have a lot.

Natural gas is considered a “bridge fuel” to get us to green. It’s considerably cleaner than coal or oil, and can replace both in many aspects of life. Most of the planned power plants to be built in the next few years are natural gas. And vehicles can run on gas as well. Honda makes a natural gas Civic and some companies are slowly switching to gas powered trucks.

The benefits are three-fold. Natural gas burns much cleaner than oil, it’s made here in America, and it’s super freaking cheap. That last one might actually be becoming a problem actually.

The price of natural gas continues to fall, because supply is extremely outpacing demand. If this is such a wondrous fuel, why aren’t people buying it? This is one of those times where traditional economics doesn’t seem to apply. Supply and demand are completely out of synch; so much so that all the gas being extracted from the ground may soon not even have a place to be stored.

So what’s the problem? The users of gas tomorrow, aren’t ready to use it today. Most of the new power plants aren’t up and running yet. No one buys the Civic GX because there’s no place to fill it up. Some cities have embraced natural gas for buses and dump trucks because they don’t have to drive far to fill up. But it’s more difficult for truckers going cross country. How often do you see a station that offers natural gas? For most people, the answer is never.

The most interesting thing about this problem is the extractors continue to pump gas out of the ground. This despite not having a buyer. Part of the reason is the way the contracts are written for these people to extract the gas. They buy leases that give them the rights to extract gas for a certain number of years. But if they don’t start extracting, then the contract will expire. If they start drilling then the contract keeps going. Everyone in the business bought up these contracts at cheap prices years ago.

So we have too much gas. Too much of a fuel that’s supposed to be a win for everyone (except for some potential issues with extraction). A very interesting economic enigma. In the long term this is a problem that will solve itself. A lot of demand is about to come online. But that is long term. We don’t know when the short term will end.

Read: US Has A Natural Gas Problem: Too Much Of It

Image: Montgomery Cty Division of Solid Waste Services

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Put Your Money Where Your Mouth Is?

The Weakonomist — Thu, 05 Apr 2012 14:03:07 +0000

T. Boone Pickens is a well known billionaire that for the most part has made his money investing in energy businesses. Today he runs a hedge fund but previously made his billions during the buyout craze of the 1980s.

For some he’s known as the loony old guy behind the “Pickens Plan” commercials that ran a few years ago. The Pickens Plan is a proposal to get Americans off of imported oil and onto green sources of energy as well as using the existing resources available in the US. Namely: natural gas.

That’s all well and good. In principle it’s something most of us could get behind if you exclude the current issues behind natural gas.

Pickens is truly a believer of man-made global warming. He’s also concerned with sending money from the United States to OPEC countries. So his plan is designed to get us off that oil and onto green tech and natural gas.

It’s no surprise then that on CNBC this week Pickens said he would expect to see oil back near $150 a barrel in the summer. Not something most of us want to hear. But given his support for green energy and natural gas he has staked his reputation on this plan and so has an incentive to scare us about oil. Whether he is right or not is almost irrelevant.

Many would say he should put his money where his mouth is. If he wants to make this happen and thinks it will then he should put some money on the table. He has. He’s invested in companies that pull gas out of the ground and even in firms that make natural gas engines for big vehicles like buses and dump trucks. He’s lobbying Congress like crazy for regulations that encourage more use of natural gas. This can happen in the form of tax credits or even regulation of electricity generation. He stands to make a boatload of cash if the US moves to natural gas.

And that’s a catch 22.

Skeptics would tell anyone with a cause to put their money where the mouths are. Think about the Super Bowl. If I think the Giants are going to beat the Patriots someone who thinks otherwise would tell me to make a bet. And I could. But then I not only think something will happen, I have an incentive to make it happen. Perhaps a $100 bet doesn’t make it worth the effort, but a $1 billion might make it worth my time to break Tom Brady’s legs.

Thinking about incentives gives you a cynical view of the world. And it’s something I wrestle with all the time. So is Boone Pickens just a cheerleader for a cause that will make him rich or does he really believe in this and so put his money down as proof? Can someone put money down on a bet and still seem sincere about the outcome?

Photo: Center for American Progress Action Fund

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Not Everyone Makes Money In Big Oil

The Weakonomist — Wed, 21 Mar 2012 14:34:43 +0000

The rise in gas prices sparks all kinds of conversations about $4 a gallon, $5 a gallon, $200 oil and all sorts of other things. We’ve heard about such things for years and no one is surprised to see those kinds of headlines anymore. While it is true that the economy is recovering and that could conceptually cause some supply squeezes, aggregate gasoline demand has been down over the last year, and compared to the boom years. So maybe it isn’t consumer demand.

There’s the big Iranian and Syrian issues which would explain it. And that could drive speculators back into oil markets, a place they’ve been before. There isn’t proof there but it’s likely a player in the game.

But it’s not so simple as all that. We like to think that with all the oil production in the world we should have no issues getting gas into our tanks. After all, there’s a gas station on every corner, we see tanker trucks everywhere on the roads. But getting oil out of the ground and turning it into gas is a process no one really talks about. They’re called refiners, and some of them can’t make a profit.

On the east coast there are only a few large refineries and they are in danger of being shut down. Being squeezed between oil giants and price sensitive consumers, they aren’t as able to pass on price increases as you might think. This has left them in a hole for some time and the current owners have some of these facilities listed for sale. If they can’t find a buyer, they’ll shut them down. Sunoco shut a large one down in New Jersey in 2010.

If more shut down there will be a supply shortage on the east coast. The northeast would feel it the most, but everyone will feel something. Wholesalers will look to the production in Texas and on the west coast to help meet demand, but that gas has to be shipped across the country, and that will add to the cost 5-10 cents per gallon. That increase doesn’t account for price adjustments related to supply not meeting demand, just shipping costs.

Summer almost always brings higher prices too due to a fuel additive that makes the gas cleaner in hot months. This is known as summer-grade fuel. We could be looking at a pricey summer.

More affordable gas is not something easily done. It’s not as simple as a promise from a presidential candidate. It’s not as simple as removing speculators. It’s a balancing act of geopolitics, demand, production, supply, the economy, fuel economy, refining, and even the weather. There’s never one explanation for a move, and never an easy fix.

Read: East Coast Gas Squeeze Expected

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Less Carnivorous Than Before

The Weakonomist — Fri, 09 Mar 2012 15:56:34 +0000

Americans love their meat. Along with countries like Australia and Spain we consume the most meat per person in the world. Before the recession hit we were eating almost 190 pounds of meat per person. That’s more than half a pound of meat per day. Today is Friday and the last time I had meat was Sunday. That was about 1/4 pound of chicken. Sooooo someone is picking up my slack.

We’re a big meat eating culture for a number of reasons. For one, meat tastes really good. But meat is also expensive compared to other foods and Americans are still the richest in the world; meaning we can afford it. We also grow most of our meat in the US leaving no need to import. And the government has long subsidized (directly and indirectly) the meat industry.

But then the recession hit. Not only do we have less money than before, but the price of meat has gone up. The result is a drop in meat consumption per capita of about 12%. There’s never been such a precipitous drop before. The expectation is that our meat consumption will not pick up again for some time. And that’s coming from a convergence of a number of factors.

For one, Americans are choosing to eat less meat for health reasons. Not just because we’re as fat as the pigs we’re eating. But awareness about growth hormones and humane treatment has made shoppers more sensitive to the meats they choose. Some are buying less meat, but of a higher quality. Some are even starting to learn about how harmful livestock growth can be on the environment compared to other food sources.

Another reason is price. Meat prices have increased and they aren’t likely to come down. The cost to produce meat has gone up. The feed needed is more expensive to grow, and the land these animals need takes up a lot of space. With a growing world population, farmers are shifting their focus to producing the most food per acre. That growing world population is also coming out of the poverty line. And they want meat too. Global demand for meat is likely to increase for a while.

This is all fine, as it’s unlikely many have noticed their decreased consumption. Years ago I gave up meat for Lent and had no trouble surviving. Since then my meat consumption has dropped considerably (especially meat from mammals). My diet is supplemented by dairy, whole grains, and legumes (peanuts, kidney beans, and black beans). And chocolate.

Will this trend help Americans get healthier? I have my doubts. It is unlikely everyone is switching from meat to tofu or humus. One of the problems in the US is healthier food costing considerably more than less healthy food. This is true in the grocery store and elementary school cafeteria.

Graph: Daily Livestock Report

Image: toolmantim

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The Math Behind Oil’s Hold On The Economy

The Weakonomist — Thu, 23 Feb 2012 15:55:00 +0000

In 2011 Americans consumed 8.75 million barrels of gas per day. There are 42 gallons in a barrel. That’s around 135 billion gallons of gas consumed per year. A $1 move in the price of a barrel of oil translates to about a 2.5 cent increase in a gallon of gas (see link above). 2.5 cents times 135 billion gallons of gas equates to about $3.4 billion. A $10 move in oil prices is a $0.25 markup on a gallon of gas is about $34 billion out of the economy. Allowing for some rounding errors that’s about 1/4 of 1% of the economy. That doesn’t sound like a lot, but that’s mathematically enough to cause a recession.

This is what people are talking about when they say we’re addicted to oil. If the price of oil were to go up $10, it could potentially cause a recession by itself. Of course, $34 billion doesn’t just disappear from the economy so it’s really not that simple. Assuming no reduction in driving, that money does filter through the system after some oil companies take a cut. But people won’t have as much money to spend on other goods. And since we import a significant portion of our oil, some of that money leaves the country. The bottom line is high oil prices are not good for the economy. This is well known.

But the math we walked through above isn’t always so apparent. And the insensitivity to gas prices I assumed is a crock. We’re very sensitive to gas prices. So what really happens when gas prices go up?

Let’s look at a typical Saturday afternoon trip for a mother and daughter. On the weekend they like to go to the mall and window shop. Occasionally buying something but it’s mostly just about the shopping experience. They do drop $10 at Starbucks though and spend just as much in gas getting to and from the mall. When the price of gas goes up they decide to not bother with that trip and do something that doesn’t require driving instead. Not only are they cutting back on vehicle expenses, they cut back on spending too since they don’t make it to Starbucks.

This is because consumers know that rising gas prices are going to hit them everywhere. Food prices go up, plane tickets, shipping costs, commuting costs, everything. So they further cut back spending. Maybe Dad works from home one day a week saving a few bucks on gas and parking. Money not spent means money not moving around in the economy. The spending spiral continues.

Economists try to measure the impact of one dollar on the economy but it’s difficult because that dollar will get spent multiple times in a year. But cutting back spending by a dollar usually means more than a dollar lost from the economy.

Americans have a weird relationship with their vehicles. Improved fuel efficiency usually means we think we can drive further. That’s not really helping with reduction in demand. We need to be living closer to the places we’re going. The girl commuting with the Prius has nothing on the guy who rides his bike to work.

Getting off our addiction to “foreign” oil won’t matter either. This is a global world, it doesn’t matter where the oil comes from. As long as we insist on transporting ourselves around in machines with internal combustion engines the math is never going to be in our favor.

The link at the top of this post has a lot more about our gasoline usage and has some more interesting math.

Image: jiazi

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No One Can Resist A Short Cut

The Weakonomist — Wed, 22 Feb 2012 14:42:25 +0000

When you find something you’re really passionate about it’s easy to lose sight of a greater goal and take a short cut. Perhaps you want to get into Harvard and cheat on your SATs to get in. Or something less serious like taking out store credit to buy that new iPad you wanted to pay cash for. Short cuts present themselves all the time and they can be hard to resist. But the problem is you have to sell yourself short to get there.

The Guardian reports:

A leading defender of climate change admitted tricking the libertarian Heartland Institute into turning over confidential documents detailing its plans to discredit the teaching of science to school children in last week’s sensational expose.

In the latest revelation, Peter Gleick, a water scientist and president of the Pacific Institute who has been active in the climate wars, apologised on Monday for using a false name to obtain materials from Heartland, a Chicago-based think tank with a core mission of dismissing climate change.

If you aren’t familiar with the story, this Gleick fellow is a climate scientist who has been a big supporter of the message that climate change is caused by humans. Someone anonymously sent him the strategic agenda for a conservative think tank that has fought the science behind climate change. To confirm the agenda was true he pretended to be a member of the think tank’s board and had them send him all kinds of stuff.

The strategy for this organization was to get involved in the curriculum design for science in schools. The supposed narrative would change from “climate change has been shown to likely be attributable to humans” to “it’s a hotly debated topic and no one really knows”. An overwhelming majority of scientists in the field agree humans are playing a factor. This is not limited to activist scientists. Supposedly the strategy is similar to one employed to get the Christian creation story in classrooms next to the science behind evolution.

Gleick leaked this document as well as some other documents that showed the supposed private donation records of the organization. Among other things, energy companies were shown to have been contributors. I guess the hope was to expose systematic manipulation of facts and organized attempts to suppress ideas that are generally accepted in academia but would work to the detriment of some companies. I’m pretty sure Congress does that every day.

Perhaps we’ve entered the dark ages for the climate change debate. Two years ago the emails and files of some prominent climate scientists were hacked and the conversations indicated some numbers had been fudged and faked to better fit a pro-climate change agenda.

What we’re seeing are some people who feel very passionately about their work and the whole global warming/climate change thing. And that passion blinded them. Perhaps it was annoyance with an organized attempt to fight their work. Perhaps it’s just exhaustion with the fight to convince people of the science behind the research. Whatever it is, such scandals set back the debate and give opponents more fuel to the fire.

The American public is quite skeptical, and this Glieck fellow has likely undone any progress he’s ever made in convincing the public about climate change. And we’re that much further from having a real debate and consensus now.

Image: natalielucier

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What To Hope For Next Year

The Weakonomist — Thu, 22 Dec 2011 15:13:04 +0000

A peaceful resolution to the Euro crisis: As of right now this is the biggest issue facing the developed world. As scary as this crisis might be, we’ve come a long way since WWII.

Enough turnover in Congress to make them more able to enable legislation: At this point I don’t really care which party controls the legislature, because there’s such a small chance of Obama actually loosing next year. A prevailing idea over the last year has been that the economy is waiting on stability in Congress. I didn’t think that was the case earlier in the year, but I’m buying into it. If the GOP takes over it would be interesting to see if they actually passed the legislation they talk about.

Presidential campaigns that make it hard to pick who one should vote for: Even though Obama will likely win, I want a candidate that will keep it close and make me really think about who I’m voting for. This will bring both candidates to the center.

An increase in interest rates (though not due to a credit downgrade): Low interest rates haven’t spurred the economy. Rates need to go up before banks can even make money again on interest rate spread, much less make it worth the risk. However we don’t want rates to increase simply because the US credit rating gets downgraded again, which is a risk.

No collegiate scandals: There is nothing sadder than when a university is given a lashing for the behavior of someone who should know better. Even sadder is when it’s all due to sports. It would be great to think most of the scandals have fleshed themselves out so we can get back to being proud of our schools.

Stable energy price: Nothing could derail a recovery faster.

A new world changing product from Apple: Love them or hate them, but they keep pushing the industry forward unlike any other.

Decline of social issues in policy discussions: At worst these issues should be settled in the states. At best, social issues don’t have a place in government. Most ideas identified as “progressive” will eventually happen. I can’t wait to get a tax deduction for my sister-wives.

China’s continued growth: There is a worry of a real estate bubble in China. Hopefully that is not the case as China’s economy has helped hold the world together. We will continue to need this. Besides, as China’s economy improves wages increase and manufacturers are more likely to make their goods closer to home.

Some (macro) economist gets proven wrong: This is so hard to do, but everyone would just love it. Doesn’t matter who.

250,000 new jobs per month: This is the magic number we really need to decrease the unemployment rate at the same time people return to the workforce. Anything less is simply “better than job losses”.

Once again I defer to you, what do you hope for next year?

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A Look At Our Energy Situation In 30 Years

The Weakonomist — Fri, 16 Dec 2011 16:01:34 +0000

The following charts come from research by Exxon. They paint the picture of where we’re headed in terms of energy use and consumption in 2040. For the most part, things seem to look pretty good. But the caveat is the research could be biased given the source. I doubt very much that is the case, but it should be noted. On to the highlights:

It’s clear where we’re going to see growth over the next few decades. Welcome Africa to the world stage.

Meanwhile the US will make huge strides in reducing energy consumption per person. But it’s also obvious why global green policies are kind of meaningless without the US being involved.

Not surprisingly then the US will lag the world in the fuel economy of vehicles. We like our big cars and despite a more than two-fold increase in fuel efficiency we’ll still lag the world.

But there is an observable gain in the use of electricity for transportation. That’s saying plug-in hybrids and electric cars may make a meaningful dent over the next generation. Usage of coal for electricity will level off and while renewable energy will have made progress, it will still be a small fraction of electricity production.

Electricity doesn’t represent all energy demand. On the whole, oil usage will rise. Naural gas is getting very popular and is cleaner than oil and coal. This is expected to help bridge the gap to renewable. Nuclear will not increase enough to make a big dent. People are still a little afraid of that source.

And of course the reason for the popularity of fossil fuels is and will remain, cost. This last chart does a good job of showing the cost of various sources of energy, and includes what that cost would look like with a carbon tax.

Exxon’s report makes for interesting reading. If you like charts and pretty colors you can get a good idea of everything in 10 minutes of skimming. Exxon isn’t the only organization to do these kinds of projections but it’s good to see the world how corporations see it. I think many would expect and hope for more accelerated use of reneweables and cars that draw power from the grid. Exxon doesn’t benefit by under-reporting those numbers because it will just inspire people to get more active. Check out the entire report here.

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Wasteful Government Spending: Wasteful Conversation

The Weakonomist — Mon, 12 Dec 2011 15:15:52 +0000

There is no shortage of examples out there of government waste. Fiscal conservatives believe that government, especially the federal government, just gets in the way. In some cases, this is very true.

When governments fund programs or initiatives, they often come with a number of strings attached. This is likely a result of paranoia over wasting taxpayer moneys. And short of breaking any laws, one of the worst things that can happen to an incumbent at any level of government is to be in charge of something that ends up being a huge waste of money.

Sometimes though government does a lot of good. Again, there are no shortage of examples for the good things that come out of government and government funded projects. If you’re having trouble thinking of stuff, go check out NASA, the National Science Foundation, the Smithsonian, any public university (or private one using govt grants), etc… For every example of bad and wasteful government programs, there’s an example of a good one.

Below is an example of the former.

A study of Indiana road building had interesting, though not surprising results. It’s the closest example yet of being able to compare road construction holding all factors constant, except for the funding. So the roads were in the same area, built by the same contractor, had the same standards, etc. But one used federal funds while the other used local ones. The local project cost about $1mm per mile. The federal one – almost 3 times as much. Part of this is due to all the strings that come attached to federal money. Legitimate strings or not, the road cost a lot more and the locally funded road is still projected to last longer and be of better quality than the federal one.

This kind of study will give any small government supporter all the fodder they need to make their case for small government through the next election cycle. But should it?

Does this example look bad? Of course. It seems very wasteful and the local money road looks to be the clear winner. But that doesn’t mean there is a direct translation of all big government funding acting this way. In many circumstances the strings attached come down to fair wages, environmental protection, and other likely liberal benefits. While the road may cost more, the impact on the surrounding area may be greater. That was not a part of the study.

And even if this is truly a perfect example of big government getting in the way, it shouldn’t translate back to all big government money being wasteful. It’s like saying a hospital sucks for having to charge higher prices for being extra clean and overly safe. It may be worth the cost.

Examples of wasteful spending should be treated on a case by case basis. The goal should be to make government more efficient. Both sides of the political spectrum benefit from efficiency. Sadly though, we all know what is more likely to happen. The right will accuse the left of supporting big government and wasting taxpayer dollars, the left will accuse the right of being in the pocket of corporations and not supporting fair wages and environment protection.

As wasteful as this road program may seem, the most wasteful thing coming out of it will be the political conversations that come from it.

Read: Limited mileage when feds spend

Image: Nicholas T

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