I plan to use this site to post news, commentary, and analysis of current environment and development issues. Of course, I reserve the right to rant about politics now and then.
I think that this article is a prime example of what we have talked about all semester regarding the difference between the price of a good and the true cost of the good. $4.11 might be a more accurate reflection of the cost associated with the burning of fossil fuels unlike the $1.92 which makes gasoline a relatively low priced good, which unfortunately does not reflect the high cost (social, environmental, etc.) of burning fossil fuels. Unfortunately, without a high price, the push to find alternative energy sources is less aggressive than before, which simply lays the foundation for an even greater dependence on foreign oil in the near future.The article states that “lower domestic gas production by the end of the year will require increased imports of liquefied natural gas from places like Qatar.” Qatar has the highest GDP per capita according to the CIA World Factbook. We are in the throws of a financial crisis and are on the brink of becoming even more reliant on foreign nations for oil…which has worked really well for us in the past (ha). With thousands of oil and gas workers being laid off, and payments for the gas deposits beneath homes dwindling, the last thing we should be doing is funneling more money into a state with an absolute monarch and a thriving economy.
I agree with Hilary in saying that this article demonstrates the difference between price and true cost. That being said, I don’t believe this halt in drilling company’s ambitious effort to squeeze more oil from aging fields and to tap new sources of natural gas is necessarily bad. In fact, we can only hope this is the sort of downturn that will push innovation and stimulate growing interest in new, clean energy sources. I don’t think this situation will hurt the economy as much as this article seems to aloud to; on the other hand, I think it will spur growth in the right direction so far as independence from fossil fuels is concerned.
It is only a matter of time before it goes back up again, just wait for demand. Bernanke gave an interview to CBS recently where he said this contraction should level off by the end of this year. My guess if you were to graph the amount of oil exploration versus the state of the economy, the former would follow the latter prety closely. At least prices aren't high right now (including food and other items in the CPI basket) because then we would have stagflation. For the sake of the environment, this contraction has probably given the Earth a breather.
Although the price of oil is currently at a point which is great for consumers, its true costs have yet to be recognized. Not only is the consumption of cheap oil continuing to hurt our environment, but it is now beginning to have an impact on our already downward spiraling economy. People are too caught up in current prices to realize that while it may be expensive in the short run to continue looking for new sources of energy, the benefits will far exceed the costs in the long run. A gas tax, something we have been talking about all semester, would be the perfect solution to this issue. By placing a tax on gas, we will not only raise the price of oil (hopefully restoring some jobs) but we could use the revenue from the tax to search for new energy sources (another job creator). Although current gas prices would rise, consumers need to begin to value the future to understand the benefits of this tax. If we match this tax with a decrease in income tax, it might not hurt the consumer as much. This would be a much better solution than simply stopping the search for new energy sources altogether. We may currently have a surplus of oil, but this isn't going to last forever, and eventually prices will skyrocket like last summer.
I have to agree with Katherine that the truth costs of oil have yet to be recognized. One particular line in the article stood out to me: that “The drop [in oil prices] has been good news for American consumers.” Like many choices that have created the glorious state of our current economy, Americans are too focused on the short term. Not only have lower oil prices limited exploratory drilling, it has also lowered Americans’ motivation to search for alternative energy sources. As we often discuss in class, human beings are terrible at assessing risk. Therefore, current consumers are focused on low oil prices, with little concern for future consequences.
I agree with Brittany - Without focusing on the long term, we are inherently shifting the burden on to future generations. Politics and bureaucratic bs involved with actually getting policies/regulations passed that will make a difference are two root causes of short-term focus. With reelection as the goal of nearly every politician, it is difficult to implement policies as well as work out the kinks within such a short period. Politicians also aim to please their constituents (or at least smart ones do), and without public outcry, reducing carbon emissions will take a back seat to other issues. I also agree with Katherine in that the most effective way to encourage R&D in finding and minimizing the environmental impact of alternative energy sources is through a gas tax, which will cause a number of citizens to fundamentally change their behavior as well as increase the demand for substitutes.
What frustrates me with this article is how changes in price so aggressively stimulated searches for additional drilling fields and the perceived need of oil companies to try to suck dry existing oil fields as opposed to funneling some of this cash into alternative energy sources. THe number of rigs has halved in the face of plunging prices, 2400 to below 1200 in under 12 months. The Barnett Shale field alone dropped from 35 rigs to 8. Should demand increase, the article estimates a lag time of 18 to 24 months - clearly the startup time is far less expedited than the haste with which oil fields were shut down as prices dropped. To me, this indicates the excess and irrationality of wild drilling increases when prices went up so drastically. As always, the American people looked to what would benefit them financially in the short term, seeking out a relatively fast and easy solution through drilling more, in more places. This frantic quest for energy sources that have been scientifically deemed environmentally threatening and rapidly dwindling in quantity seems absolutely ludacris. Of course, the efforts were well received by the American public because it benefitted everyone where they most appreciate it - their wallets. These "pleased" Americans will again be in public outcry when demand inevitably fluctuates upward again, and the halted drilling efforts are unable to overcome the time lag to reman their rigs and continue extracting every last bit of natural gas from American soil. All the resources thrown around during these fluxes in the economy - the money to build, shut down, and reopen rigs, and the cavalier attitudes towards human capital - will be wasted when demand increases and supply cannot keep up. Had these inputs been transferred to a large scale effort to create more efficient forms of energy, there would have been potential for steady progress as the American economy - and thus the price and demand for gas - swing wildly. Though unpopular, a gas tax would force America to recognize the true cost of their consumption and the costs that they will inevitably face when finite resources run low again and no sustainable alternatives exist.
Living about 15 minutes off campus I have come to love the lower gas prices this year since it is saving me a fortune. Through this class and this article though I have really come to realize why these lower prices are actually in fact a bad thing. As Hillary first stated, the true cost of these lower prices is becoming extremely detrimental, socially and environmentally. And unfortunately as the article stated, “Inevitably, the market doesn’t react; it overreacts and shoots itself in the foot.” Additionally, once prices begin to rise again it is going to take extremely long to man the oil rigs that we have begun to abandon. Thus, as some people have observed, it does seem like our country is falling into the hole it usually does of thinking short term rather than long term.
As Ryan says, it is very easy to forget the negative externalities of fossil fuel combustion when the prices are as low as they are. When prices were higher, I made a conscious effort to drive less, but now that the prices are back down, it is not the first thing that comes to mind. I do believe that the best solution is to "tax bads, not goods," by adding a gas tax and decreasing taxes in another area, such as income taxes. Taxing gas consumption would most likely prevent reinvestment in inefficeint ethanol production. It takes approx. 1.3 gallons of fuel to produce one gallon of ethanol fuel. A gas tax would ensure that the price of ethanol increases, as well.
One interesting piece I noticed from the beginning of the article is that, like Jordan said, the state of our economy (and general fall in demand) have really helped the environment. For example, natural gas consumption has decreased even during a cold winter, and even with lower prices. This has prompted companies to drill less as it is no longer profitable. And while I understand that equating the price of oil with its social costs its fundamentally important, it seems that the low prices have been somewhat positive in the sense that they have decreased drilling. However, natural gas companies and employees have paid the price: since consumers are not consuming, there are massive surpluses. Employees are losing jobs and natural gas companies are losing money. So, while it seems good that prices are falling and consumption is decreasing, the costs outweigh the benefits here. Further, as the economy recovers and demand increases, prices will rise again, and we will need to rely on foreign gas until domestic industry recovers. So, back to square one, high energy prices coupled with a thriving economy would be ideal: demand would decrease for the right reasons, prompting further research into alternative energy, and we will all be smiling with thick wallets and a healthy planet.
It seems like the bottom line is that high oil prices were "good" for the American public. Not only did high oil prices spawn Investment in alternative energy sources and domestic drilling, but also precipitously cut US and global energy demand. We discuss taxing oil consumption alot in class and that would just increase the price back to the $4.11 value when Investment and decreases in demand were recorded. If we truly want to account for the "True cost" of oil so frequently discussed on this blog then why not just tax the commodity.
The line from this article that I find hits home the hardest is, “The big bonanza is over". This applies not only to the collapse of American oil wells and the speculative scurry for Natural Gas, but the credit crunch and many other problems in American business and American society. I am a true believer that our drive and entrepreneurial spirit has fueled our nation's rapid ascent and made it a beacon of hope and prosperity for millions of immigrants, but the magnitude of American greed is unfathomable. The real estate boom a few years ago that had many Americans putting TONS of money that they didn't have into homes they intended to "flip" for huge profits a few months later and the banks that gave out these loans to anyone who had a library card was no different than the rapid shutdown of these oil rigs. And Mr. Stamper, bless his heart (Southern Apophasis, anyone?), is a micro-example of this greed phenomenon, abandoning his old way of life to work on the oil rig and buy a $216,000 home that he cannot afford two years later when the bottom has fallen out. The hope for the future is not in gas taxes or emission regulations. It's not even in alternative energy. Our only hope is that we overcome the lag of evolution and learn to objectively weigh TOTAL costs and TOTAL benefits by thinking in the long term. Our brains are still stuck in a time where at any given moment, we can be eaten by a dinosaur or run out of woolly mammoth meat and starve to death. We had to live day to day because tomorrow wasn't guaranteed. It is now - in almost all probability, you WILL live to see tomorrow and your next birthday and the birth of your first child, which could not have been said only a short time ago. We must learn to curtail our greed by rationing our resources (our personal finances and our natural resources alike) and realize the full consequences (TMC) of our actions. Because right now there are some more guarantees if we continue on the path we're on: we will run out of fossil fuels, our planet will keep getting warmer, and there will be worldwide social collapse and ultimately, extinction if we choose to remain greedy and oblivious. It's nowhere close to too late and as long as the world quickly starts receiving some of the education we've gained about humans' impact on the environment and taking action, there is hope.
Andrew, I like how you broadened our discussion of a solution with your recent post. Instead of just taxing the commodity, which is something that the government could enforce, you recommended that the American people themselves experience a change of mind. We need to start recognizing the TOTAL costs of goods, which is usually not represented in the price of these goods. The low price of gas seems to good to be true now, and that's because it is! Using so much gas costs us and our environment ALOT more than we are paying for at the pump. Doesn't it seem extremely strange to the every day American that a commodity that was so expensive this summer (to the point that we were changing their living habits) is now so ridiculously cheap. Obviously, the price of gas is based on supply and demand, not TOTAL cost. So why aren't more Americans asking what this TOTAL cost entails?
As we have discussed all semester, the current price of gas ($1.89/gallon in Lexington) does not reflect the true cost. Obviously CO2, O3, NOx, etc. emissions affect the environment, children's bronchial health, future generations etc. My question is, we are drilling less in the US because there is little profit in it with prices being so low, but consumers have no incentive to look for alternate forms of energy or ways to lower their carbon footprint (i.e. buying a hybrid car), will we depend on foreign oil even more...? The demand for oil is not going to decrease as long as the prices are this low, and US isn't drilling so we have to get the oil from somewhere. I say jack up the prices. US will drill again, opening up more jobs for this workers who have been laid off which could, in turn, stimulate the economy, and lower CO2 emissions. And the country is happy (kind of...)
Coleman, I think you make a great point. This is the direction I wanted to go after reading this article. There is an important tradeoff that we have to recognize. With lower gas prices, we have greater foreign dependence, but we have incredible consumer savings. With higher gas prices, foreign dependence falls, alternative energy development increases and consumer losses pile up. I definitely think that in order to make progess as a nation, it is important to stabilize fossil fuel energy prices at a very high price. At first, oil companies will rake in large profits, but better substitutes will soon develop that put us on the right track to deal with issues such as CO2 emissions. With these low gas prices it seems that we are treading water instead of moving forward. One way to simultaneously increase oil prices and make strides toward clean energy is to put a price on emissions. This is an underlying theme of our course.
Although this is a set back, i think that technology will continue to improve (although not nearly as quickly) in bringing about efficient alternatives. Another option besides raising the price of oil would be to greatly subsidize alternative energy and using alternative energy.I think this is a viable option because no politician is gonna go for a large enough increase in gas prices for fear of losing votes.
http://www.ft.com/cms/s/0/65f2d5b8-fedb-11dd-b19a-000077b07658.htmlhttp://www.nytimes.com/2009/02/21/business/worldbusiness/21yuan.htmlMeanwhile, China is looking long-term, making significant investments in securing supplies of energy and other natural resources - vital for its rapidly growing economy. With China’s ability to supply this much desired capital, it will surely help developing nations such as Brazil come out of the recession with a more robust economy. These economies in addition to India’s will be crucial for sustaining demand through this recession.
Placing a price on Carbon could also greatly increase government revenues and pay down the large national debt--possibly even allowing the economic growth and environmental protection. Mentalities in the United States, as mentioned in posts above, are stuck in their fixation over prices, but few Americans realize or acknowledge the improvement in quality of life that could accompany improved environmental regulation. Perhaps utilizing a method that the US currently uses to improve health and decrease obesity, EDUCATION, could improve people's understandings of environmental quality and climate change. There are still many people who refuse to believe that the increase in carbon emissions are caused by human activites and perhaps comprehensively highlighting scientific evidence to the contrary will get the majority of Americans on board for the solution needed in America.
I agree that eventually something needs to be done about oil, but I don't think we should do anything now given the economy. Personally I don't understand why we just don't do the easy things first and then do the tougher things (like taxing oil) later. I say we subsidize the heck out of solar, wind, hydroelectric, nuclear, biodiesel, and cellulosic ethanol for several years. We can also do simple things like subsidizing buildings and machinery to become more efficient. Subsidizing R&D is the way to go. By the way, you can figure out what the government spent on energy/environment projects in the stimulus bill at stimulusproject.org. Some of it is okay, some is disgusting.
http://www.reuters.com/article/environmentNews/idUSTRE52I09T20090319?sp=trueThe UN proposes a rich country gas tax that hardly affects the consumer but generates a lot of revenue to invest "greenly." of course this tax could be increased in installments over time.
Also, as long as we are talking about "long-term solutions" and not passing on the costs of global warming to "future generations," let's stop wasting so much of our future generations' money. We are currently going to give our children a MESSED UP CLIMATE AND UNHEARD OF DEBT. Just google the amount of debt we have taken on in the last 6 months.
I disagree. I think something needs to be done about oil now. I already blogged on this post, so I'll just restate my point. Oil prices are low... too low. What does this affect? Increased carbon emissions. Further dependence on foreign oil. Less of an incentive (or none) for the consumer to use less energy or drive energy efficient cars, etc. American oil companies are no longer drilling because there is no profit, so American workers are losing their jobs, which is just making our horrible economy even worse. All of this is directly related to our $1.89/gal of gas. Makes our country look kind of shitty, doesn't it... so what to do...? Gas tax. What does this do? Soccer mom is tired of spending $70 at the Shell Station every week to fill up her gas-guzzler, seems more practical to buy a hybrid. The idea of starting a neighborhood carpool sounds like a good plan now. Oh, and we start drilling again and thousands of workers get their jobs back, and our economy starts rolling again. I think I made my point. Anyway, I really like the piece we read for class today, I think it was Krugman's, who talked about the "Great Green Tax Shift." I know the word "tax" is kind of taboo, but by implementing it, we can reduce the taxes else where like on employment and income. Since I am trying to get a job after I graduate, and I have already accepted that a quarter of my pitiful income is going to the government, that option is sounding pretty good to me right now.All in all, I think that jacking up the price of oil well help ore than just the environment. Americans will live and get through this, I know we can. We just need to do it.
With gas prices as low as they are, the opportunity for cap and trade to have a minimal impact on consumers is now. The increased prices in gas do to the possible cap and trade system would not create a large further drop in consumption. I do not know the exact increase in prices that will result out of a cap and trade system, but with gas taking up a smaller portion of disposable income an increase in the price will not hit consumers as hard. The time to curtail carbon emissions by raising the price on gas is now.
It is also necessary to look towards Copenhagan (December 2009) and realize that if the US truly seeks to move into these discussions with any legitimacy, bold action must be taken. With a strategic agenda supported by concrete examples which signal a new perspective towards sustainable economic growth, the US will surely be a more influential negotiator. The recent passage of China’s impressive stimulus package which designates a significant portion toward investments in clean-tech and renewable energies and Green projects to create jobs and spur economic growth signals a dramatic shift in its perception of the environment. A recent NRDC report provides evidence of greater cooperation between the US and China and observes “China often lacks the capacity to accurately report its greenhouse gas emissions, the report recommends that the US offer technical assistance to bolster emissions monitoring capabilities” (NRDC p11). China Greenspace argues, the “US and China should work towards joint reporting of annual national greenhouse gas emissions” (chinagreenspace.blogspot.com). Cooperation is essential for constructing a strong framework for globally sustainable economic growth and should necessarily include greater transparency in negotiations between these two governments.
http://www.earthtimes.org/articles/show/259248,swedish-government-to-raise-fuel-taxes-to-cut-greenhouse-gases.htmlN.B. This bill is still pending. I assume it will still need to pass a vote before it's enacted.I would like to hear more explanation of this statement: "the measures would take the current financial slump into account." What does this mean in economic terms? How can raising taxes take a recession into account? Also, the brief article makes no mention of whether this addition tax money would be used for environmental purposes. Regardless, the Swedes are to be commended for acting on the fact that oil prices are too low and should instead reflect oil's total costs.
I was most struck by the implications of lower gas prices on research and development. As gas prices fall, the demand for substitutes fall. Lower gas prices may benefit the consumer, but the environment needs new energy technology to be developed if there is any hope of curtailing carbon emissions. High gas prices spark research and development. While high gas prices may hurt American's wallets in the short run, a short spike in gas prices will trigger innovations in energy technology that will benefit the environment.
I think this article serves as a prime example for the continuing need for alternative energy, but takes an interesting perspective by looking at how the market can overreact at times. Not only has the market reacted in such a way that prices are plummeting, etc...but in my opinion the biggest problem is that we are not being efficient enough with what resources we do have. With that said, we have looked all semester at the importance of a carbon tax that would spur research and development in alternative energy; even though low gas prices are extremely nice for consumers, but they will in the end affect our environment more because behavior is not persuaded to change. Its necessary to target a healthy price for gas that will spur r&d, while not affecting people's wallets too too much.
I believe this article shows that it is time for America to start developing new technologies. If it is becoming less and less profitable to drill for oil in the United States, soon companies will go out of business. Since government is investing so much money into the economy, I believe they should pay for the reeducation of these laid off workers. Could these workers learn to assemble windmills? The government should also try to develop another form of fuel besides corn-based ethanol. Once you learn all the facts about corn-based ethanol, it is obvious that it will not be fuel of the future. Therefore, the government needs to work with scientists to find an efficient fuel that America can sell to the rest of the world. Whether it is an algae-based fuel or liquefied coal, selling the globe our fuels will undoubtedly boost our economy.
I think this article details the frightening situation we are currently in. There is a huge lag time between the industries ability to adjust to consumer demand and change in price. Since the economy is in a fragile state, it no longer makes sense for the oil producers to continue to drill since a large surplus currently exists. However, as workers are laid off and the industry supply shrinks, a spike in consumer demand could result in a scarcity problem. Consequently, we need to invest in other more stable forms of technology. However, as previously stated, the price of gas does not reflect the true cost of it--especially the environmental impact. Without the higher and more accurate price of gas, people are reluctant to search for new forms of energy. A gas tax has the potential to stimulate a search for new forms of energy other than oil. By implementing a gas tax, the price of oil would more accurately show the true cost of it. In addition, the money generated by this tax could be allocated to help in the research and development of new energy sources.
The point that resonates more with me from this article is the potential shortage of oil availability in the next couple of years. Clearly, this does not mean that oil will run out, if anything, this article shows that we have more than enough resources that we just are unable/unwilling to extract from. The unprofitability of extracting will become a problem when the economy recovers and people demand more of it. Since the process of extraction takes time, this demand will not be met by the current decreasing supply. This shortage will likely lead to an increase in the price of oil, since it will become a temporarily scare resource.Although this increase in price will not be caused by a tax it will still raise the short run cost of consuming oil and could lead to investments in alternative fuels. What needs to happen for this to last, however, is for that higher oil price to continue high and not fall. Perhaps, this would be a good opportunity to implement a tax, if it is that we really want to produce a drastic change in behavior. As we know, consumers would take the largest hit with this policy but if we truly want our efforts to reduce carbon emissions to work then they will have to bare the true costs eventually. The higher prices will eventually change the elasticity of demand for oil (making it more elastic) and reducing consumption of oil. This decreasing demand, if the price remains continuously high, will act as an incentive for these oil extracting companies to implement policies of carbon sequestration and internalize part of the externality. I just think we should make the prices soar up to the point that the true cost of using oil is reflected in the price. Seriously, people should stop thinking about high oil prices as an “end of days” scenario.
Articles like this one about oil shortages and surpluses and whatnot always make me wonder when we will actually completely run out of oil. Also, are we really going to wait to find better energy sources until we absolutely have to?Everyone agrees that the price of oil does not reflect the real cost. I think this same concept can be applied to the search for alternative energy. As of now it is isn't beneficial economically to find energy alternatives so people aren't really trying. If engineers realize that the benefits of alternative energy will be more than just economical, maybe they will increase their efforts.
This article brings up one big point. The price at the pump is not the same as the true cost of the fuel. We have learned extensively throuhgout the class the harms associated with the burning of fossil fuels. Low prices at the pump (while AWESOME for people living on the college budget) spur the continuation of inaction. At least when prices were high there was a "substition effect." People were in frantic search for alternative, cleaner, forms of energy. Though the motivation for the search for alternative fuels was financially driven, at least it was driven.
Firstly, I think it's funny, or perchance ironic, that this article seems to be worried about the most profitable companies in the world: energy. Something just seems funny about worrying about ExxonMobil CEO Rex Tillerson who made $16M in 2007. Moreso, I'm worried about that man who banked on paying his mortgage because of his high-paying oil job, the guy who was laid off the rig, or the woman who works at the diner where oil workers frequent.I love America. I am so proud to say that I live in this country, but our mantra for the past few decades has been, "Cheap, Quick, and Easy." And clearly we have seen over the past few months that this was the equivalent of the proverbial foolish man who built his house upon the sand.There are going to be some serious tough times in the coming years as we not only deal with this world-wide economic crisis but also attempt to figure out how we are going to fuel our world.I think everything's already been said as far as a need for a gas tax, internalizing externalities, etc, so I won't again rehash this for the 36th time.Something I think we do need is hope. We will come out of this as long as we take it the call for new energy seriously (and network news stops taking a razor blade to the wrists of Americans every night).
This column does not seem to be about the billionaire gas people as much as it does our economy and the problems of recovery. I guess it is human nature to vilify people and find scapegoats, but it is not the fault of the CEO of Exxon that the economy is going south. The fact that the CEO has a lot of money means very little in context of this article. If you want to look at people being over payed you only have to look to the Yankees batting roster. They had as much effect on the economic downturn as Rex Tillerson. The American people bought the overpriced gas, drove the cars when they could have taken busses, picked suburbans over hybrids; we signed our own ticket to where we have gotten ourselves.As I said before, this is not even about the oil industry's woes as it is about our country's ability to rebound once we do start climbing out of the hole. We will have trouble finding crews to work rigs, thus our energy prices will be high limiting production thus limiting the rate at which we can get on track again. Also, since oil companies are having to cut back on everything, they are cutting back on the research which probably would benefit the US's addiction to oil. (I'm assuming they would find this technology and slow the tap down on the oil production so prices stay high and they still profit off oil and now the new technology, but that is a different issue.)
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