Archive | Energy

Why Gasoline Prices Are Volatile

Andrew Morriss and Donald Boudreaux have an op-ed in today’s WSJ explaining why gasoline prices have become more volatile. The short version: Boutique fuel requirements have balkanized the gasoline market, magnifying the effects of local supply disruptions.

For most of the 20th century, the United States was a single market for gasoline. Today we have a series of fragmentary, regional markets thanks to dozens of regulatory requirements imposed by the federal Environmental Protection Agency (EPA) and state regulators. That’s a problem because each separate market is much more vulnerable than a national market to refinery outages, pipeline problems and other disruptions. . . .

The role of regulators in fuel formulation has become increasingly complex. The American Petroleum Institute today counts 17 different kinds of gasoline mandated across the country. This mandated fragmentation means that if a pipeline break cuts supplies in Phoenix, fuel from Tucson cannot be used to relieve the supply disruption because the two adjacent cities must use different blends under EPA rules.

To shift fuel supplies between these neighboring cities requires the EPA to waive all the obstructing regulatory requirements. Gaining permission takes precious time and money. Not surprisingly, one result is increased price volatility.

Another result: Since competition is a key source of falling gas prices, restricting competition by fragmenting markets reduces the market’s ability to lower prices.

While most of the fuel standards were adopted in the name of the environmental protection, many are actually the result of special interest pleading. Producers of various products, ethanol in particular, sought fuel content mandates or performance requirements that would benefit their particular product. (I detailed part of this history in “Clean Fuels, Dirty Air,” in Environmental Politics: Public Costs, Private Rewards (Greve & Smith eds. 1992).) Worse, some of the content requirements are irrelevant for new […]

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Lessons from British Columbia’s Carbon Tax

In yesterday’s NYT, Yoram Bauman and Shi-Ling Hsu explained why the U.S. would be wise to follow British Columbia’s example and impose a carbon tax and use the revenues to reduce other tax rates.

On Sunday, the best climate policy in the world got even better: British Columbia’s carbon tax — a tax on the carbon content of all fossil fuels burned in the province — increased from $25 to $30 per metric ton of carbon dioxide, making it more expensive to pollute.

This was good news not only for the environment but for nearly everyone who pays taxes in British Columbia, because the carbon tax is used to reduce taxes for individuals and businesses. Thanks to this tax swap, British Columbia has lowered its corporate income tax rate to 10 percent from 12 percent, a rate that is among the lowest in the Group of 8 wealthy nations. Personal income taxes for people earning less than $119,000 per year are now the lowest in Canada, and there are targeted rebates for low-income and rural households.

According to Bauman and Hsu, adopting a similar tax in the U.S. could allow for substantial reductions in corporate and income tax rates.

What would a British Columbia-style carbon tax look like in the United States? According to our calculations, a British Columbia-style $30 carbon tax would generate about $145 billion a year in the United States. That could be used to reduce individual and corporate income taxes by 10 percent, and afterward there would still be $35 billion left over. If recent budget deals are any guide, Congress might choose to set aside half of that remainder to reduce estate taxes (to please Republicans) and the other half to offset the impacts of higher fuel and electricity prices resulting from the


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Eminent Domain and the Keystone Pipeline Project

The New York Times has an article describing how the TransCanada corporation is using eminent domain to forcibly acquire property to build the Keystone oil pipeline:

When the TransCanada men first came, Julia Trigg Crawford said, they were polite. They offered money. Seven thousand dollars to let the Keystone XL pipeline cross her family’s 600-acre farm on its way from the Alberta tar sands to the refineries on the Gulf Coast….

Ms. Crawford, 52, who serves as the farm’s manager, called the rest of the family. They agreed to sign. “We thought that at least if we signed we’d have some say in what happened,” she said.

They called the TransCanada representative. “He told us that if we could come up with a contract that worked for both parties, they wouldn’t condemn the land,” Ms. Crawford said…..

“I fully expected them to counter,” she said. “There were about five or six things we wanted, and we would have been happy to take one or two.”

Then, she said, TransCanada “went full radio silence.” The Crawfords never heard back from them — until October, when they got a letter saying their land had been condemned and a lease awarded to TransCanada.

But as the Crawfords discovered, when voluntary compensation agreements are not reached, Texas law allows certain private pipeline companies to use the right of eminent domain to force landowners to let pipelines through. This was true even for TransCanada, which has yet to get State Department permission to bring the Keystone XL across the Alberta border.

The article notes TransCanada’s claim that it has acquired the overwhelming majority of the property they needed for the pipeline through voluntary land sales. This may be true, but it is misleading. Like the Crawfords, these owners agreed to sell their land under the […]

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Heartland’s Mad Billboard Stunt

The folks at the Heartland Institute are mad, and that seems to have driven them a little mad. For years environmental activists have compared climate skeptics and those who raise questions about the likelihood of a warming-induced apocalypse to Holocaust deniers and worse. In 1989, then-Senator Al Gore famously compared those who downplayed the climate threat to those who ignored Hitler’s rise and NASA’s James Hansen compared coal-bearing trains to the rail cars headed to Nazi crematoria, drawing a moral equivalence between the use of coal and the Holocaust. Think Progress also trumpeted the “climate denial” views of Norwegian terrorist Andrew Breivik and claimed he was “inspired” by mainstream climate skeptics.

Then, earlier this year, Heartland was the target of directed smear campaign after the Pacific Institute’s Peter Gleick surreptitiously obtained internal Heartland documents by impersonating a board member. Gleick anonymously distributed the purloined documents together with a forged memorandum purporting to provide further evidence of Heartland’s internal dealings. Progressive bloggers trumpeted the materials, and the forged memo in particular, as evidence of Heartland’s sinister machinations. While it seems likely that Gleick himself forged the memo (or knows who did) Heartland may have difficulty seeking legal redress for his actions. I posted on what some call “Fakegate” here and here.

Instead of trying to retain the moral high ground by defending the substance of its views, Heartland adopted the tactics of its most unhinged critics, purchasing a billboard comparing those who believe in global warming to the Unabomber. According to Heartland, this was to be the first in a series featuring famous “global warming alarmists,” including Osama Bin Laden, Fidel Castro and other “rogues and villians.” Heartland explained the campaign this way:

what these murderers and madmen have said differs very little from what spokespersons for the United


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IG Inspector Claims White House Obstructed Gulf Drilling Moratorium Report

The New Orleans Times Picayune reports the White House denied the Department of Interior’s Office of Inspector General access to e-mails and communications about White House revisions to a report Interior Secretary Ken Salazar relied upon to justify a moratorium in oil drilling in the Gulf of Mexico. The story begins:

A senior federal investigator says he was denied access to a White House official and full email records as he tried to determine whether a BP oil spill report was intentionally edited to erroneously suggest outside experts supported the Obama administration’s deepwater drilling moratorium. The experts, in fact, did not endorse the moratorium the administration ordered after the 2010 spill. The White House and Department of Interior later said the mistake was inadvertent, a result of an early-morning edit that moved some material from the body of the report to the executive summary.

Although some e-mails were provided eventually, the IG’s office was never able to validate their authenticity or completeness, the investigator claims. He also alleges the White House did not allow the IG to interview a White House official involved in editing the report. An official in the IG’s office told the Times Picayune that his office “does not have authority to compel” White House cooperation with its investigation. […]

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A Stronger Case for Keystone

The Washington Post editorializes that the case for approving the Keystone XL pipeline was “always strong” and “has grown stronger.”

A key environmentalist argument against Keystone XL has been that the project would encourage the extraction of bitumen, a particularly dirty oil-like substance, from the “oil sands” in Alberta. If activists could “shut in” Canadian bitumen, limiting the ability of oil companies to sell the product, they argued, perhaps petroleum firms wouldn’t be able to fully develop the oil sands.

That hope always was unrealistic, and a recent announcement from Kinder Morgan, another pipeline company, illustrates why. The firm wants to nearly triple the capacity of its existing Trans Mountain pipeline between Alberta and Vancouver — a route from the oil sands to the world market — enabling it to carry even more product than the Keystone XL would. From there, much of it would probably head to Asia. Because the pipeline exists, expanding it may not face the same regulatory hurdles — particularly opposition from native groups — that other proposals to run new pipelines to Canada’s west coast have encountered.

There is already enough spare pipeline capacity running out of the oil sands to accommodate increasing production for much of this decade, a government report concluded in 2010. While Kinder Morgan’s expansion certainly wouldn’t sate all the future demand for pipeline capacity, it would add more time before the environmentalists’ strategy could seriously impact production. And it demonstrates a critical point: Even if environmentalists manage to stop one pipeline or another, given high world oil prices, the enthusiastic support of the Canadian government, the many transport options and the years available to develop infrastructure, it’s beyond quixotic to believe that enough of the affordable paths out will be blocked. Environmentalists might succeed, however, in relocating some construction jobs


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EPA to Release More Greenhouse Gas Regulations

The Washington Post reports the Environmental Protection Agency will release proposed regulations governing the emissions of greenhouse gas emissions from power plants this week, perhaps as early as today.   As described by the Post, this New Source Performance Standard regulation could put a halt to the construction of new coal-fired power plants unless and until carbon sequestration or some other GHG-emission-reducing technology becomes economically viable.

The proposed rule — years in the making and approved by the White House after months of review — will require any new power plant to emit no more than 1,000 pounds of carbon dioxide per megawatt of electricity produced. The average U.S. natural gas plant, which emits 800 to 850 pounds of CO2 per megawatt, meets that standard; coal plants emit an average of 1,768 pounds of carbon dioxide per megawatt.

Industry officials and environmentalists said in interviews that the rule, which comes on the heels of tough new requirements that the Obama administration imposed on mercury emissions and cross-state pollution from utilities within the past year, dooms any proposal to build a coal-fired plant that does not have costly carbon controls.

“This standard effectively bans new coal plants,” said Joseph Stanko, who heads government relations at the law firm Hunton and Williams and represents several utility companies. “So I don’t see how that is an ‘all of the above’ energy policy.”

The rule provides an exception for coal plants that are already permitted and beginning construction within a year. There are about 20 coal plants now pursuing permits; two of them are federally subsidized and would meet the new standard with advanced pollution controls.

These new regulations are but one piece of the surge in GHG regulations the EPA is adopting under the Clean Air Act as a consequence of Massachusetts v. […]

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The Green Costs of Kelo Revisited

In 2006, Ilya and I co-authored “The Green Costs of Kelo: Economic Development Takings and Environmental Protection,” in which we argued that allowing the use of eminent domain for economic development was bad for environmental conservation.  Environmentalist advocates responded with disbelief.  The Community Rights Counsel (the precursor to the Constitutional Accountability Center) went so far as to label our paper the “outrage of the month” and labeled our argument “a skewed view from the libertarian fringe.”   Six years later, however, it appears some environmentalist advocates are coming around to our point of view.

Yesterday, E&E News reported (subscription required) that several major environmental groups are looking to block the use of eminent domain for the construction of portions of the Keystone XL pipeline that are still slated for construction.  In particular, they plan to argue that the use of eminent domain for the pipeline will violate state rules that preclude eminent domain’s use for private economic development.

In a conference call with reporters today, representatives of four environmental organizations — Bold Nebraska, the Natural Resources Defense Council, and the Sierra Club — said they believe they have a strong legal case against the company on eminent domain issues. The company is seeking to use condemnation power against a north Texas farmer.

The groups’ main argument is that, as a nonpublic entity looking to build a project for profit, TransCanada does not qualify for eminent domain power in most states.

Whatever the merits of the pipeline, it appears that some environmentalists are beginning to recognize that allowing the government to seize private property for the purpose of encouraging private economic development an facilitate environmentally undesirable projects. Indeed, insofar as such efforts are successful at promoting economic growth, the use of eminent domain for economic development necessarily results in more […]

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Fined for Failing to Do the Impossible

Back in 2007, Congress created a biofuels mandate under which oil companies are required to use a minimum amount of cellulosic ethanol each year.  The mandate was supposed to encourage the development of a domestic cellulosic ethanol industry.  This has not happened.  Several years after the mandate was imposed, there is still no commercial cellulosic ethanol production.  This gets the oil companies off the hook, right?  Nope.  As the New York Times reports, companies are still paying fines, totaling nearly $7 million, for failing to meet a blending quota for a substance that does not exist.  Were that not bad enough, this year the cellulosic ethanol quota will increase, as will the fines for failing to meet it.

Who would defend mandating the use of a substance that, for all practical purposes, does not exist?  Not the renewable fuel industry.  As the NYT reports, they acknowledge that commercial production of cellulosic ethanol remains years away.

“From a taxpayer/consumer standpoint, it doesn’t seem to make a lot of sense that we would require blenders to pay fines or fees or whatever for stuff that literally isn’t available,” said Dennis V. McGinn, a retired vice admiral who serves on the American Council on Renewable Energy.

The EPA, on the other hand, defends the mandate:

Cathy Milbourn, an E.P.A. spokeswoman, said that her agency still believed that the 8.65-million-gallon quota for cellulosic ethanol for 2012 was “reasonably attainable.” By setting a quota, she added, “we avoid a situation where real cellulosic biofuel production exceeds the mandated volume,” which would weaken demand.

AEI’s Ken Green has trouble making sense of the EPA’s rationalization:

So what’s most important about biofuel quotas is that they prevent us from over-producing a product that we can’t produce so we don’t weaken demand for the product that the


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The Keystone Pipeline Precedent

Others have commented on President Obama’s decision to punt on the Keystone XL pipeline project.  Ordering additional review pushes the decision past the next election and enables the Administration to evade responsibility should the project ultimately fail.  As those who study environmental law know, delays of this sort are often enough to derail major projects for good — and that’s certainly the outcome some environmentalists anticipate.

The CFR’s Michael Levi suggests environmentalists are being short-sighted, as “the tactics and arguments that have won the day are ultimately as likely to retard clean energy development as they are to thwart dirty fuels.”

oil pipelines are hardly the only pieces of energy infrastructure that will require government approval in coming years. This is particularly true if the United States wants to build a new clean-energy economy.

The country has already seen strong opposition to offshore wind energy in Massachusetts, including from environmental activists and local landowners, on the grounds that it will ruin spectacular ocean views. Solar plants will need to be built in sunny deserts, but local opponents continue to insist that the landscape blight would be intolerable. New long distance transmission lines will have to cross multiple states in order to bring that power to the places that need it most. Once again, though, a patchwork of local concerns and inconsistent state regulation is already making the task exceedingly difficult. . . .

Energy experts often note that it would be impossible to recreate today’s energy infrastructure, given the intensity of opposition to pretty much any new development. The environmentalists’ victory against Keystone XL will only reinforce that judgment. But realizing their broader vision — a low-carbon economy that enhances the nation’s security and helps avoid dangerous climate change — will require defeating the same sort of local opposition


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A Prize for Ocean Cleanup

Last month, the X-Prize Foundation announced the winners of the Wendy Schmidt Oil Cleanup Challenge.  The challenge was created to spur the development of more effective oil spill cleanup methods.  Specifically, the challenge offered $1.4 million in prizes for the development of removing oil from the ocean’s surface.  The aim was to double the industry’s best oil recovery rate in controlled conditions.  The winning team, Elastec/American Marine, demonstrated an oil recovery rate more than three times the industry’s previous best and was awarded the top prize of $1 million.

This is another example of how technology inducement prizes can spur the development of valuable technologies, and further evidence that such prizes are far more cost-effective than ex ante R&D grants or government investments in speculative ventures like Solyndra.  The latter may be more politically popular, but prizes would be a better use of taxpayer dollars.  As I’ve argued at length, if we’re serious about problems like global climate change, we should invest more in prizes and less in conventional approaches to government-sponsored R&D.

(Thanks to Roger Meiners for the pointer.) […]

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Another Setback for Cape Wind

In 2002, federal reguators predicted it would take between 18-months and three-years for the proposed Cape Wind energy project in Nantucket Sound to receive federal approval.  Nearly ten years later, the project is still awaiting full federal clearance, and has yet to begin construction.  Full operation remains at least two years away.

On Friday, the Cape Wind project suffered yet another setback when the U.S. Court of Appeals for the D. C. Circuit vacated and remanded the Federal Aviation Administration’s determinations that the project would pose no hazard to air traffic.  A unanimous three-judge panel concluded that the FAA had failed adequately explain the basis for its decision.  Even though formal FAA approval is not required for the windfarm, the Interior Department has made its approval of the plan conditional upon FAA clearance and full compliance with any FAA-recommended mitigation measures.  So until the FAA can provide an explanation for its “no hazard” determination the D.C. Circuit will accept, construction will be on hold.

Friday’s decision is not merely a setback for Cape Wind.  It worsens the climate for offshore wind energy development more generally.  The longer and more uncertain the regulatory process for such projects, the harder it will be to encourage private firms to invest — and the more difficult it will be to expand wind power offshore.

The Cape Wind experience also shows that it does not take much to gum up the regulatory gears for new projects of this sort.  Opposition to Cape Wind has been driven by a few dozen families willing to invest their time and money to influence the regulatory process — and it’s worked.  It does not matter whether a proposed project is popular with local residents, as a relatively small group of naysayers can exploit existing regulatory requirements to slow things […]

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Are Motorcycles “Greener” Than Cars?

The LA Times reports on a Mythbusters investigation into whether motorcycles are a more environmentally friendly mode of transportation than cars, at least with regard to their fuel consumption and emissions. The investigation involved road-testing vehicles of each type from the 1980s, 1990s, and 2000s while monitoring the vehicles’ fuel consumption and emissions. The results:

Motorcycles were indeed more fuel-efficient than cars and emitted less of the greenhouse gas carbon dioxide, but they emitted far more smog-forming hydrocarbons and oxides of nitrogen, as well as the toxic air pollutant carbon monoxide. For the most recent model year vehicles tested — from the ’00s — the motorcycle used 28% less fuel than the comparable decade car and emitted 30% fewer carbon dioxide emissions, but it emitted 416% more hydrocarbons, 3,220% more oxides of nitrogen and 8,065% more carbon monoxide.

So, if you’re primarily concerned about greenhouse gas emissions — and don’t need to transport passengers or much luggage — motorcycles might reduce your environmental impact. But if you’re concerned about traditional air pollutants — the kind that can affect people’s health here and now — motorcycles are far worse. This should not surprise, as automobiles are subject to far more stringent emission control requirements — and it’s that much easier to add emission controls to a car than a bike as well. […]

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