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Ed Dolan's Econ Blog

Fareed Zakaria is Wrong (Mostly) about the Keystone Pipeline

Watching the Sunday talk shows this week, I learned that the influential journalist Fareed Zakaria has now joined the chorus urging construction of Keystone pipeline. If built, that pipeline would carry bitumen, a form of asphalt that can be used as a substitute for conventional crude oil, from Canadian oil sands to refineries on the Gulf of Mexico. The pipeline has been opposed by environmental groups and championed by many in the energy industry. After much waffling, the Obama administration appears ready to let it go forward. In a Time Magazine editorial this week and a segment on CNN, Zakaria maintains that is the right decision. I find his arguments unconvincing.

His first argument is that the oil derived from Canadian tar sands will be developed at about the same pace whether or not there is a pipeline to the U.S. Stopping it might make us feel good, but it wouldn’t do much about climate change.

It is very likely true that blocking Keystone would not stop the development of Canadian oil sands in its tracks. Whether or not it proceeds at “about the same pace” is another question. If Keystone is, as its backers argue, the lowest-cost way to get Canadian bitumen to market, then failing to approve it would raise the delivered cost of the product. Other things being equal, we would expect that to slow development. On the other hand, if Keystone is not the least cost means of delivery, or if its cost advantage is trivial, then it would seem that we would gain little by building it. You can’t have it both ways.

But, you might say, if we block Keystone, and the oil goes to China instead, won’t they gain the benefits of this low-cost energy source that we cut ourselves off from? Not really.

First of all, Canadian bitumen is not a low cost substitute for crude oil. Its large scale extraction is profitable only so long as crude oil prices remain high. Developing the oil sands is not going to cause oil prices to fall the way fracking has caused natural gas prices to plunge.

Furthermore, the global oil market, by and large, operates according to the law of one price. If China were to substitute Canadian bitumen for conventional crude oil that it would otherwise import from somewhere else, the world price of crude would fall that much below what it would otherwise be. The economic effect of the extra oil supply would be felt everywhere regardless of whether China or the United States actually took delivery of Canadian bitumen.

Zakaria doesn’t get everything wrong, though. About two-thirds of the way through his editorial, he throws this in:

Environmental groups are approaching this project much as the U.S. government fights the war on drugs. They are attacking supply rather than demand. In this case, environmentalists have chosen one particular source of energy–Alberta’s tar sands–and are trying to shut it down. But as long as there is demand for oil, there will be supply. A far more effective solution would be to try to moderate demand by putting in place a carbon tax or a cap-and-trade system.

Now we’re getting to the heart of the matter. Yes, using a carbon tax or cap-and-trade to raise the price of energy up to a level that reflects the full environmental costs of its production and use would make a big difference. In fact, if we had a national energy policy based on full-cost pricing, it is unlikely we would be debating Keystone in the first place. With such a policy, our energy use per capita and per dollar of GDP would decline to the levels of other advanced countries that have more realistic energy prices. Germany gets 44 percent more GDP per kilogram of oil equivalent than does the United States, , the UK 67 percent more, and Switzerland 123 percent more, according to World Bank data. With efficiency like that, the United States would already be self-sufficient in energy. We wouldn’t need Alberta’s bitumen, or Venezuela’s, or anyone’s.

With full-cost energy prices, a lot of smaller things would fall in place, too. We wouldn’t be hearing another of Zakaria’s arguments, namely, that if we don’t build Keystone, refiners will transport their Canadian bitumen by train. He is right to point out that transporting oil by train burns a lot of diesel fuel and emits a lot of CO2. But with a carbon tax or cap-and-trade scheme in place, transporting oil by train would very likely be prohibitively expensive.

The bottom line: If we make full-cost energy pricing our starting point, rather than throwing it in as an afterthought, the whole Keystone debate looks different. The arguments in favor of the pipeline begin to look absurd. What they amount to is saying that since we are stuck with an energy policy that keeps prices low and encourages wasteful use at the expense of both the environment and national security, then we might as well make matters worse still by tapping ever dirtier supplies to feed our bloated appetites.

Fareed Zarkaria is a smart guy and one of my favorite journalists. He’s wrong about Keystone, but does seem to have a grasp of the underlying principles. I’m hoping that as he thinks things through, he’ll see the inconsistencies in own arguments. When he does, his next Time editorial won’t be titled “Build that Pipeline!” but instead, “Fix that Energy Policy!”

 

34 Responses to “Fareed Zakaria is Wrong (Mostly) about the Keystone Pipeline”

kakatoaMarch 11th, 2013 at 10:23 am

Ed,

We record "Global Public Square (GPS)" on our DVR. I will have to check out Fareed Zakaria's thoughts on the Keystone Pipeline later this week. Last month I read a post by Dr. Borenstein on the Keystone project http://energyathaas.wordpress.com/2013/02/04/what… His thoughts on trading it for something that will lead to greatly improved means of providing carbon neutral forms of energy seemed like a viable approach.

ThomasGrennesMarch 11th, 2013 at 6:00 pm

There appear to be two separable issues here. One is about the optimal quantity of
energy in the presence of external costs. The other is about the minimum cost way to
obtain energy of a given quantity. A carbon tax could be devised to deal with the externality
issue, but it should be imposed on all sources, not just Canadian sources. Finding the correct level of the tax is not a trivial issue. However, the Keystone issue is about
obtaining energy from the least cost source and location. If the Keystone pipeline is the
least cost way to transport energy, rejecting it just makes people poorer. An earlier objection claimed that the initial proposed route could damage the ground water in Nebraska. That is a legitimate economic concern. However, the route has been changed
and the Governor of Nebraska has now declared that the new route does not threaten
environmmental problems. If Keystone is rejected for environmental reasons, should all
the pipelines in the US that supply us with energy every day be shut down? The case for a carbon tax is a separate issue and it has merit. Rejecting least cost sources lacks merit.

TomMarch 11th, 2013 at 11:40 pm

Ed, you're usually right on, but in this case I agree with Thomas Grennes. The most important thing is that energy in general is priced to reflect its true costs. We live in a world which fails to properly price energy, but that does not mean that the best solution is to make the transportation of energy more expensive by blocking one particular pipeline from a relatively dirty source. Not only is transportation of bitumen more expensive by truck and rail, it also produces more emissions (at least on a per barrel basis.) Seems like cutting off our nose to spite our face.

Jardinero1March 12th, 2013 at 12:31 am

The only reason to build Keystone is to provide product for refineries on the gulf coast where the infrastructure already exists to refine heavy crudes and lessen dependence on the Orinoco Belt and its attendant geo-political risks . If the product for those refineries doesn't come from Canada then it will necessarily come from the Orinoco Belt(the largest hydrocarbon reserves in the world are located there). As far as mining dirty oil the choice is six on one hand(Canada) and half a dozen on the other(Venezuela). Take your pick, the sands will be mined and those refineries will get served.

SailorDudeMarch 12th, 2013 at 5:58 am

The reason to ship the bitumen to the Gulf Coast is the refineries there have excess capacity, so it is cheaper to refine it there before shipping it to China. The downside to the US citizen is that once that capacity is filled, refined oil prices rise in the Midwest, so the US consumer ends up paying more to fill his or her tank than they pay today. The US consumer pays more, the Chinese get a deal. Hmm, not so smart for us.

DDDMarch 12th, 2013 at 11:17 am

Mr Grennes has it about right- Mr Dolan overlooks the point that even if we inacct a carbon tax, china and india wont and will conttinue to pullutte at eveb grretaer eveks than us…unless yu have a way of getting tehse countries to collaborate we are just making yuppie environmenatlists feel good about themeselves. One other point, while its is conventtiional wisddom wwee havee a uniffied global market for oil and its prricing, why in the world are the chinese being so aggressive at locking on sourrces of oil in asia africa and South America? what do they know that we dont ? and energy self sufficiency will allow u to finally ignorre the Middle East and allow them to engage in theri endless blood and reigious feuds wihout killing american troops

ThomasGrennesMarch 12th, 2013 at 11:27 am

Today's Wall Street Journal has an informative article on how Valero and other U.S. firms
are already shipping Alberta oil to Gulf refineries, but at twice the cost of the proposed
Keystone Pipeline. The article is "U.S. Refiners Turn to Rail to Tap Canadian Oil". Refiners have also increased their rail capacity to connect new oil fields in North Dakota
to south Texas while waiting for pipeline construction. If the Alberta-Texas pipeline is
objectionable, shouldn't a North Dakota-Texas pipeline also be objectionable?

Jardinero1March 12th, 2013 at 11:30 am

I would also point out that there is not a global price for oil, but many, many prices depending on the grade and their proximity to refineries which can process that grade. A plant which can readily process Saudi Light cannot process Venezuelan Heavy. Many refineries on the Gulf Coast are uniquely suited to processing the heavier grades. These heavier grades come overwhelmingly from Canada and Venezuela.

One other factor to consider is, if the sands are going to be mined, where would you rather they be mined, in Canada which has a long history of environmental stewardship or Venezuela, where, you know….

Max De KovenMarch 12th, 2013 at 1:09 pm

Given this administration's maladroitness with former allies and the upheaval that has resulted, one shouldn't be shocked when the same thing happens with Canada. The US has a foreign policy responsibility, and not just an environmental one. You can't act as if you're in a vacuum while at the same time steer the world.

EdDolanMarch 12th, 2013 at 8:34 pm

Somehow I guess I did not make myself clear. In the context of our current energy policy, which hypes demand to an unnecessarily high level (relative to the energy/GDP ratios of other advanced countries), Alberta bitumen may well be a bit cheaper than some alternatives. Yes, blocking the pipeline could cost us a few bucks. But:

1. The savings won't be large unless for some reason the Canadians decide to sell us their synthetic crude below the world price. If they decide to sell to the highest bidder, our savings will be limited to the saving in transport cost from using the pipeline compared to the cost of sending the oil somewhere else. I think that is going to be a rather small saving.

2. If we had an energy policy that priced in externalities, we would already be energy self-sufficient and wouldn't be importing any crude, so Keystone would be moot.

3. I don't think I said I was in favor of lying down in front of the bulldozers. I said Keystone is a bad idea in that it makes economic sense only in the context of a policy that itself does not make sense in the first place.

EdDolanMarch 12th, 2013 at 8:36 pm

What is not smart is to orient our whole energy policy toward keeping consumer prices low. We should be actively trying to raise them to encourage conservation.

EdDolanMarch 12th, 2013 at 8:39 pm

Yes, what you say is true. But I don't think defending something bad (high pollution) is justified by the fact that someone else is doing it. When I catch a student cheating on a test, I don't accept the excuse, "well, I wasn't the only one."

EdDolanMarch 12th, 2013 at 8:42 pm

We should have just the number of pipelines, wells, refineries, and all other oil infrastructure that we need to meet our energy demand as it would stand when the price of all energy sources was raise to reflect all externalities.

My hunch is demand for relatively high-cost Canadian crude would be too low to justify the pipeline if we got our energy/GDP ratio down to the levels of comparable advanced economies.

EdDolanMarch 12th, 2013 at 8:45 pm

I would rather see steps taken to encourage energy conservation. As for environmental stewardship, if you read web sites sponsored by Canadian environmental organizations, you will see that Canada's halo has slipped quite a bit since the glory days.

ThomasGrennesMarch 12th, 2013 at 10:48 pm

I agree that ideal prices should include all costs, including measurable external costs.
However, I wonder how informative energy/GDP ratios can be when the many forms of
energy generate different amounts of pollution. If two countries had the same energy/GDP ratio but one used mostly the cleanest natural gas and the other used mostly the dirtiest coal, wouldn't the bigger coal user be the bigger polluter?

TomMarch 12th, 2013 at 11:36 pm

1. I agree that the savings for the US from the Keystone pipeline would not be large. But the Canadians *are* currently selling their crude at far below the world price, so the gains to them would be large. But we generally like the Canadians, why deny them this benefit?

2. I agree that if we priced in externalities, we might be self-sufficient, but we might be importing Canadian oil in order to export refined products to the rest of the world. The US is currently a large diesel exporter despite the fact that we're a large oil importer. Trade will continue, even if externalities are priced in. And it will still lead to a net benefit to the world economy.

3. As I think I argued in 1 and 2, I think Keystone would continue to make sense even if we had a rational energy policy. Self sufficiency in any good is seldom going to be the economically optimal solution, no matter what the pricing regime.

This is the core of our disagreement. While we both agree that pricing in externalities would be a good thing, I think that trade (even in commodities which have significant externalities) will continue to benefit the world economy. I do agree with you that the Keystone pipeline will be *more* profitable in the current regime where externalities are not properly priced, but I think oil (including tar sands oil) is such a valuable commodity that we will continue to use it even when when externalities are priced in.

GuestMarch 13th, 2013 at 3:13 am

Ed,

You think the spreads are small. I invite you to look at a new master limited partnership that exploits the transportation difference you think is small. Look up NTI. I got into this MLP because the spreads are huge….and these guys are making a fortune. Good luck and Keep fighting the pipe line, so I keep making a fortune.

Error 1 in your logic: I suggest you consider how the system for oil is re juggling itself based on new regulations. My read is this: oil will find its market of highest value. Either jobs move else where or the oil stays here. Your dream of artificial pricing, where you are King and deciding the cost of externalities is silliness unless you become king of the world. As in the previous paragraph, people will innovate around any artificial pricing mechanisms, unless everyone in e world signs up and lets you be King. My bet is you nor I will become King of the World.

Error 2 in your logic: The USA will be less energy efficiency versus other First World economies until population/production density is equal to those economies. Let me try to explain. If energy consumption is the tree, then energy efficiency is the fruit. Without the tree there is no fruit plus there is a physical limit to the amount of fruit each tree can produce. The USA energy tree is not the same as the energy tree of other nations. The geographic density of population and production (USA is less dense) demands higher transportation per produced quantity of goods, and therefore appears to be less energy efficient per unit of goods produced versus other First World economies.

I find two things disturbing in your idea. First, an externalities tax is a tax on the poor. The poor lose their jobs as jobs run from high cost energy. Since fracking has entered the picture and lowered energy cost plus insured future supplies, the USA has chemical and steel plants returning with good jobs. Second, an externalities tax on carbon ignores the externalities cost of other energy sources. Carbon depends on the atmosphere. Nuclear demands interim storage of used fuel till the nation eliminates regulations preventing reprocessing. Renewable energy is an environmental disaster in the making because it depends on Newtonian physics, F=MA. The only way to get more M, mass, is to destroy more and more of the natural habitat on the surface of the Earth. Therefore, a carbon externalities tax will eventually destroy the entire surface of the Earth…..that is the math and science of your tax.

EdDolanMarch 13th, 2013 at 11:05 am

" I think that trade (even in commodities which have significant externalities) will continue to benefit the world economy."

I am not going to let you get away with being more pro-trade than I am, but I think the above is a tricky proposition even within classical trade theory. I think it holds only if all parties price in their externalities.

I think the case is clearest when we have trade between two countries, one of which prices in externalities and the other does not. In that case, the country with the greatest willingness to impose pollution on its citizens gains a comparative advantage, and the trade flows (at least at the margin) increase the total area of the little welfare-triangle thingies, when you draw them so that they contain both the gains from trade in the conventional sense and the losses from the externalities.

It also seems intuitively possible to me that trade would reduce welfare if no parties price in externalities. Then it seems to me at least possible that more openness to trade in the pollution intensive good could shift the world energy mix toward greater pollution intensity. The effect would probably not be as strong as in the first case.

However, I agree that there is no reason to think that pricing in externalities would necessarily stop all trade in exteralitiy-intensive products. For example, Chile would undoubtedly continue to export copper even after it had made all cost-effective measures to control smelting fumes, mine tailings, etc. (Maybe it already does; that is just a hypothetical). Your scenario in which the US has a comparative advantage in refining and Canada in extraction–a comparative advantage that persists even when prices are higher and demand lower–is certainly a possible outcome. Let's try it and see. If your scenario pans out, so be it.

What I don't like is the picking winners that says, well, if we let the market work freely, it would give us X, so let's just take a shortcut and mandate or subsidize X, as in, "If your market-based theory worked, higher energy prices would result in more [fill in your favorite: ethanol/solar panels/electric cars/high-speed rail], so let's just shortcut the whole thing and subsidize or mandate the above."

The core of our agreement may be that I see your Keystone argument as falling in that category. I say, if we believe in the market, and if we believe in trade, let's actually USE the market, not just try to imitate what we think the market might do if we let it work. I don't know if you really think that, but Fareed seems to.

John WIlkinsMarch 13th, 2013 at 11:18 am

We should have started raising gasoline prices a nickel or a dime a year starting in 1976 and pledged to do so for 20 or more years. then there would have been clarity as to future prices. We would have leapfrogged the big car era and we would be paying $6 for gas (like everywhere else) and not thinking a thing about it. As far as the XL goes my issue is that I think all the oil will either be exported or the gasoline from XL oil refined in the US will be exported.

EdDolanMarch 13th, 2013 at 11:21 am

I agree, energy/GDP ratios are crude measures and a sophisticated treatment would take in many factors, including climate and population density, just for two obvious ones. I should try to do a post taking some of those things into account.

Beyond that, you seem to be suggesting an interesting case in which country C has no gas fields, only coal deposits and country G has no coal deposits, only gas fields. How would trade and pollutio pricing interact to affect relative energy intensities in such a case?

Suppose our baseline is the pattern of trade that exists when there is no pollution pricing. We would have a lot of trade in goods but maybe not a lot of trade in gas and coal, since the goods have lower transportation costs per unit of value added. For example, C might have a comparative advantage in cement and steel production, ship those to G in exchange for petrochemicals and manufactured goods.

Now add pollution pricing. The price of coal per Btu would go up more than the price of gas, so the comparative advantage of C would diminish, and on the world scale, the relative price of cement and steel would rise, reducing quantity demanded. We might (hypothetically) get less trade in steel and cement from C to G, and maybe start to get some trade in LNG from G to C. G's comparative advantage in manufacturing might shrink, so some manufacturing might move to C. Anyhow, whatever the specifics, I suspect the end result would be a convergence of energy/GDP ratios compared with the starting situation. Not that the ratios would have to move to full equality.

BTW see my latest comment to the other Tom, above, for more on the trade/pollution interface.

TomMarch 13th, 2013 at 11:35 am

I think you make good points. I agree that in the case of asymmetric prices on externalities, free trade can lead to net harm. I think we already see that in the trade of e-waste: In this case, environmental regulations take the place on prices for externalities, but the result is that e-waste is shipped away from countries which regulate its disposal to "recyclers" in countries where it is unregulated and often dumped in ditches. Numerous other examples come to mind.

I had not previously considered the case of trade producing harm in an environment of no externality pricing, but I think you are right.

I also agree with you in terms of not picking winners. However, given the level of government meddling in all aspects of the economy , especially energy, I think even a decision for the government to take no action often results in picking winners. Allowing Keystone picks the tar sands oil as a winner; barring it benefits shale oil in North Dakota.

Given that we have to pick winners, I lean towards the winners that are aligned with free trade, even at the risk that the trade will result in net harm. I think environmentalists' political capital has been wasted opposing Keystone… think of all the good they might have down if they had instead been fighting for market based reforms to reduce oil demand. To me, the tragedy is that we're talking about Keystone at all, and not focusing on a policy we're sure will bring a net benefit.

EdDolanMarch 13th, 2013 at 11:48 am

I totally agree. Even such a small thing as having the good sense to index the federal gasoline tax to inflation, starting the last time it was raised, ages ago, would have made a significant difference over the years.

EdDolanMarch 13th, 2013 at 1:56 pm

You raise some important points, some of which require a longer reply than I can put in a comment box, but briefly:

1. "Your dream of artificial pricing" I agree that I am unlikely to become king of the world, and if I did, my libertarian instincts would probably cause me to abdicate within minutes of my coronation. However, I disagree that pricing to include pollution costs is "artificial." It is artificial only if you believe pollution costs are not "real." Is that what you mean? Get back to me on that.

2. "The USA will be less energy efficiency versus other First World economies until population/production density is equal to those economies." See my reply to Tom Grennes earlier in this thread on the same point. Yes, we should take population density, climate, etc. into account. However, even if the optimal energy/GDP ratio is higher for the US than for, say, Germany, the gap now is larger than it should be.

3. "an externalities tax is a tax on the poor." I dealt with this argument at length in an earlier post, "When does 'It will Hurt the Poor' Outweigh 'It's good for the Environment'" ( http://www.economonitor.com/dolanecon/2012/02/24/… ). The answer is "never." Read it and get back to me.

4. "Second, an externalities tax on carbon ignores the externalities cost of other energy sources. Carbon depends on the atmosphere. Nuclear demands interim storage of used fuel till the nation eliminates regulations preventing reprocessing. etc" Yes, I absolutely agree with you about this. If you are going to go the route of pricing externalities, you don't want to stop with just carbon. See my review of "Green Illusions" here: http://www.economonitor.com/dolanecon/2012/12/10/…

GuestMarch 13th, 2013 at 2:22 pm

Ed, the artificial pricing issue does not reside around if something is or is not a pollutant. The pricing issue resides around around who decides and values pollutants. A plant considers CO2, at elevated levels, to be food and places a positive value on CO2. George Strait wrote a song on Ocean Front Property in Arizona, which might be supplied by climate change. Both these groups value climate change differently than the Green community. The value is artificial because the value is in the eye of the beholder, or more simply, a political decision versus a science decision. When a decision becomes political, it is artificial. In my time on Earth, rarely do these type of political decisions end up benefitting society.

The idea of an externalities tax fails because the economics demands every nation become part of the system……if you have ever been involved in the United Nations or written global standards, you would agree that the chances of reaching global agreement is zero. I am on an iPad in a convention, so I can not pull the article on the poor….I will pull and get back to you on this one.

My push back on externalities is not the at I am against addressing the negative consequences of providing energy. My push back is around the impracticality of addressing the issue using this mechanism. Society has historically addressed externalities using codes, standards, and regulations. These tools have limitations, but they do a good job of addressing the many negatives.

Turing over externalities to a tax panel would be a disaster in my opinion. I pulled up a paper recently which was written by the new head of the Department of Energy. The paper was written in 2001. Every predictive on the future of energy was wrong. If see predictions are wrong, then the related negatives from energy production will be wrong. Therefore a tax will only distort what should be done as well as politicize what should be done. Society will be a big loser from an externality tax in my opinion.

Thanks for your blog…I read everyone. Best and drop in some time.

EdDolanMarch 13th, 2013 at 2:40 pm

Thanks. I wanted to be sure I knew where you were coming from before commenting in more detail.

" The pricing issue resides around around who decides and values pollutants. . . . The value is artificial because the value is in the eye of the beholder." Yes, you are right about this, but what you say is true of almost all goods and services. The value of a Gucci purse is in the eye of the beholder, etc. All values are subjective–something the Austrian school of economics is always reminding us of.

My short reply to your point is that just because it is hard to put a dollar value on something does not mean its value is zero, or that it is of no concern for pubic policy. I would use this analogy: Suppose some mugger hits me over the head, stealing $10 and leaving me with months of headaches and fear of leaving my apartment at night. Is the harm just the easily measured $10? Or is it much greater, even if hard to measure? If the latter, it is worth putting more cops on the street than the former.

"The idea of an externalities tax fails because the economics demands every nation become part of the system" Yes, you are right that the tax would work better if everyone adopted it. I fully agree this is a big problem. There is a moral side to the issue, too, however. Even if the Chinese are going to pollute the world to a cinder, should we pitch in? It is like the student who cheats on an exam, and then offers the excuse that other students were cheating, too. If something is wrong, it is wrong whether others do it or not. Taking care of our own pollution puts us on the moral high ground. Maybe you think that is a silly thing to be concerned about.

"Society has historically addressed externalities using codes, standards, and regulations. These tools have limitations, but they do a good job of addressing the many negatives. " This is a point where (most) economists chronically disagree with (most) noneconomists. (I don't know which you are.) Economists like myself tend to think that pricing works better than command and control methods. Take a concrete example, CAFE standards for cars, which I treated at length in this post: http://www.economonitor.com/dolanecon/2011/07/15/…

"drop in some time. " Would love to if I knew who and where "Guest" was.

GuestMarch 13th, 2013 at 3:40 pm

I said I would read your article on the relationship between raising energy cost and impacts on the poor. The poor I know want a job, and not a hand out. The largest impact is on job destruction.

Evidence: the article makes my case. I can show a number of these cases. High energy intense industry migrates to low cost and predictable energy locations. High energy industries are high employers of the poor. High energy prices are a tax on the poor because they destroy their ability to get middle class jobs.
http://www.dispatch.com/content/stories/local/201…

California is returning the money to the residential rate payers in their cap and trade scheme. I suggest you check out CA unemployment versus Texas or North Dakota. I suggest you check out wages and the direction of the standard of living. As a footnote, I left CA because energy prices are high and job creation has been destroyed. Our office in Phoenix is seeing CA companies leave their HQ in California and move the production out of state due to the high cost of energy and taxes.

As a previous poster on your Feb 24 Bog made, the issue on a tax to the poor is jobs. Eventually, I hope the environmental community awakens to the relationship between poor countries and poor environmental compliance. My economic belief is the USA is destroying its economy, and in turn, it is slowly destroying its environment through state mandated environmental policies. These policies are having little to no impact on improving the environment while raising energy cost and destroying modern society.

What to do? As an engineer, carbon fuels could be out lawed, if that were a priority. I can specify an energy production system using today's technology that eliminates CO2 from energy production and lowers the cost of energy to consumers. Our leaders are not interested! If leaders and environmentalist do not wish to phase out carbon fuels and pay for renewable externalities, then what is all the fuss? My guess: winning political power!

ThomasGrennesMarch 13th, 2013 at 4:21 pm

On the subject of energy/GDP ratios, trade contributes to convergence of these ratios
because it contributes to convergence of energy prices, net of transport costs, around the world. However, I agree with Guest that these spatial price differences (spreads) are not
small, and some have gotten much bigger recently. Their size reflects the profitability of
huge investments, such as the proposed Keystone Pipeline. My impression is that the project represents private investors risking their own money because they consider the spreads to be large enough to cover their costs.
Trade contributes to convergence of energy/GDP ratios, but other factors are relevant.
Consider the famous (Engel's Law) ratio of spending on food as a percentage of GDP.
It ranges from around 60% today for poor countries like Bangla Desh to around 10% in rich countries, such as the U.S. Even though food is traded, other factors produce large differences in ratios. Income is the main factor, and countries with similar incomes also
have similar ratios to GDP.

EdDolanMarch 13th, 2013 at 5:40 pm

I don't see anything in the Columbus Dispatch article that says the plant will employ a lot of poor people. I don't know much about the technology of the plant. How many workers will be engineers, how many experienced chemical workers, how many unskilled, unemployed people previously living below the poverty line? There also is nothing in the story that says the company is going to Pennsylvania because that area has lax pollution rules. It is not a convincing example to support your case.

My point is simply that we should have a policy toward poverty and a policy toward the environment that are independent. If we want more jobs for poor people, we should invest more in education and training, or maybe even direct employment by government, CCC style, but let's make it a policy that is somehow targeted at the problem it is supposed to solve.

Yes, I agree that you can make a point that poor people have other priorities than the environment and that middle class people care more about pollution because they already have bread on the table. Still, Encouraging increased pollution just to help low-income families seems to me like it has a lot of slippage, very little benefit to the poor compared to the cost to the rest of us who have to suffer the adverse effects of the pollution.

Jardinero1March 13th, 2013 at 11:52 pm

The biggest problem with an externality tax that taxes CO2 is that CO2 is not a pollutant. No human has been harmed by elevated levels of CO2 in the last century and it is unlikely that any human will be harmed in the future. In the long run, elevated CO2 levels are a net benefit to the biosphere.

EdDolanMarch 14th, 2013 at 1:59 am

Science is never certain, it is just based on the probabilities. Within 4 or 5 sigmas, it is possible you are right. I sincerely hope so.

Jardinero1March 14th, 2013 at 6:01 pm

The historical record is on the side of CO2 being a net positive. In last 100 million years, CO2 levels were once higher than 2000 ppm. In earlier periods, with much higher CO2, the earth was warmer, wetter, ecologically more diverse, less desertified and had much less ice. Declining CO2, over the last 100 million years, corresponds closely with a colder, drier, desertifying and frozen planet. Given a choice between the former climate and the latter, I choose the former.

Climate change occurs over many human generations, I have the highest confidence that human beings will adapt readily to changes in the climate in that span of time.

RichardindenverMarch 14th, 2013 at 7:41 pm

This article is just another Enviro-Green Energy alarmist tract. Wait, wait…let's just spend another $90 billion on some more "Earth Friendly and Green Energy" projects. Yeah, right!!

monitor websiteMay 18th, 2013 at 1:27 am

The most essential thing is that power in common is cost to indicate its real expenses. We reside in a globe which is not able to effectively cost power, but that does not mean that the best remedy is to make the transport of power more costly by preventing one particular direction from a relatively unclean resource.

David BAugust 16th, 2013 at 1:49 pm

Excellent article Dan!

>>"First of all, Canadian bitumen is not a low cost substitute for crude oil. Its large scale extraction is profitable only so long as crude oil prices remain high"

I wonder how high the price of crude has to be to keep Tar Sands a viable option? I've heard similar arguments being made in the past but haven't seen any factual data pointing to this inflection point for crude oil.

Its unlikely that crude will continue to stay at current inflated price levels cos its bound to cause an economic slowdown in all emerging markets including China.

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Dan Steinbock

Dr Dan Steinbock is a recognized expert of the multipolar world. He focuses on international business, international relations, investment and risk among the major advanced economies (G7) and large emerging economies (BRICS and beyond). In addition to his advisory activities (www.differencegroup.net), he is affiliated with major US universities as well as international think-tanks, such as India China and America Institute (USA), Shanghai Institutes for International Studies (China) and EU Center (Singapore).

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