The Oil Drum: Local

Previously, Herman Daly wrote a guest post on the Steady State Economy, outlining core suggestions on how to overhaul our banking, financial (and value) systems. I encourage everyone to read it (if short on time, please read the conclusion). Professor Daly was Senior Economist at the World Bank before leaving to teach Ecological Economics at University of Maryland's School for Public Policy. He was also the catalyst for me to leave my own financial career and return to school to study the real economy (i.e. what we call the human economy is only a small part of a larger closed system). Below the fold are his thoughts on the current crisis (current being defined as last 30-40 years or so). (For comparison, here are links to what 'mainstream' economic icons George Soros, and Bill Gross are saying.)

The Commonwealth Scientific and Industrial Research Organisation (CSIRO) is the national government body for scientific research in Australia. The CSIRO Future Fuels Forum (FFF) began in November 2007 and culminated in July 2008 with the release of a report, "Future Fuels Forum report - Fuel for thought". The initiative brought together 18 leading representatives from Australia’s community, industry and government to share ideas and develop a range of options for our nation’s transport fuel future, determining what could potentially get us ‘from A to B’ by the middle of the century.

ASPO Australia spokesperson (and TOD editor) Phil Hart gave this speech at the launch of the report on Friday 11th July:

The Australian Association for the Study of Peak Oil congratulates CSIRO for leading the Future Fuels Forum and thanks all the participants for the constructive dialogue that led to this final report. We have all learnt new things along the way. I have been personally encouraged to hear of the many changes businesses have been making – there are more pro-active changes under way than even I realised.

2007 began with oil prices falling back to near $50 a barrel – because the speculators got it wrong. Many forum participants would have choked on a prediction of $8/litre (~US$30/gallon) early last year, but tight supply and the rapid increase in prices since then have given them courage to accept these dramatic model outcomes now. No one can know the precise future of oil prices, but such high figures reflect how hard it is to transform our cities and economies built on cheap oil when we are faced with declining oil production.

This is a guest post from kiashu

Here in Australia Garnaut, an economist, is undertaking a study on what to do about Australia's greenhouse gas emissions. He has a website about it, and has released a draft report on it. He is in favour of strong action, though what he calls "strong action" and what you and I call "strong action" may be rather different things.

There are two basic ways people think of for dealing with emissions of unpleasant substances, aside from banning them entirely - tax them, and trade them. In taxing them we say, "emit as much as you like, but you have to pay for it." The theory is that people will reduce spending on things with that cost attached to them, thus reducing emissions of it, and that the revenue raised can be spent on dealing with the problems from it. In trading them we say, "you can only emit this much, and you must pay for it." So the government sets a target amount for emissions, creates permits for that much, and lets companies buy and sell these permits as they wish.

The government and Garnaut are in favour of an emissions trading scheme (ETS). I'm not. Remember the point of our schemes is to stop carbon emissions. We did not abolish outright slavery by setting up a slave market. That only encourages it. (Of course it's still not entirely abolished even today, but fewer people as a proportion of the world population are enslaved than ever before, and not because someone established a cap and trade system for slaves.)

I have written periodically on 'green diesel', which is not to be confused with biodiesel. Neste, Petrobras, and ConocoPhillips (in a venture with Tyson foods), have all entered the green diesel arena. (See a bit on announced projects from these companies here; explore previous green diesel stories I have written here).

Green diesel is produced either from hydrotreating or hydrocracking plant oils or animal fats (Neste, Petrobras, and COP) or via the BTL reaction (Choren). Green diesel is chemically different from biodiesel. Green diesel has chemical properties identical to petroleum diesel, while biodiesel is not a pure hydrocarbon (it contains oxygen atoms, hence the somewhat different physical properties).

There have been several refining questions lately that were topical to this essay, originally posted in January 2007. Here I have updated it to reflect more recent prices.

When a refinery purchases crude oil, the key piece of information they need to know about that crude, besides price, is what the crude oil assay looks like. There has been a lot of discussion here at various times about “light sweet”, or “heavy sour”, and how these qualifiers affect the ability of a refiner to turn these crudes into products. So, I thought it would be good to devote an essay to this subject, and discuss how different types of crude can affect a refiner’s bottom line.

Let's compare light sweet oil to heavy sour oil by looking at a pair of assays:

Table 1. Comparison Between Assays of Light and Heavy Crudes

This isn’t an argument about whether or not taxes—particularly energy taxes—are “good” or “bad.” Rather, this essay has a narrow focus: IF we’re going to attempt to reduce gasoline demand through taxation, what is the best way to do it?

Here’s my somewhat counter-intuitive theory: to most effectively reduce long-term gasoline demand, gasoline taxes should increase, not decrease, long-term price volatility.

First, let’s look at European gasoline taxes. In the UK, gasoline tax is .50 GBP per liter plus 17% VAT ($3.75/gallon before VAT, $4.42/gallon with VAT). In Germany it’s .65 Euro per liter plus 19% VAT ($3.80 per gallon before VAT, $4.53/gallon with VAT). Compare that with US taxes, which range from a low of $0.26/gallon (Alaska) to a high of $0.63/gallon (California). The much higher European taxes operate to reduce price volatility because they remain static in the face of changes in the underlying price of gasoline. For example, if taxes effectively double the price of gasoline, then a 10% increase in the pre-tax gasoline price results in only a 5% increase in the after-tax price of gasoline paid by the consumer.

[UPDATE] JP Morgan agrees to buy Bear Stearns for $2 a share (Stock closed Friday at $30).
Also, Fed cuts rates (on Sunday) from 3.5% to 3.25%.

The WSJ has a decent article describing the current financial crisis and pulling no punches:

Debt Reckoning: U.S. Receives a Margin Call

The U.S. is at the receiving end of a massive margin call: Across the economy, wary lenders are demanding that borrowers put up more collateral or sell assets to reduce debts.

The unfolding financial crisis -- one that began with bad bets on securities backed by subprime mortgages, then sparked a tightening of credit between big banks -- appears to be broadening further. For years, the U.S. economy has been borrowing from cash-rich lenders from Asia to the Middle East. American firms and households have enjoyed readily available credit at easy terms, even for risky bets. No longer.

Someone e-mailed a few days ago and asked about the present economics of corn ethanol. I did a few calculations, and thought the results were interesting enough to share. This exercise should make it clear which factors have the biggest impact on corn ethanol profitability – and why corn ethanol producers are presently struggling.

Consider this a supplement to Stuart Staniford’s comprehensive essay Fermenting the Food Supply. Stuart’s essay goes into great detail on the factors underlying the economics. In my essay, I take a snapshot of a corn ethanol plant based on current prices for corn, natural gas, and by-products. (Note that because this is a snapshot, the numbers will change over time. But you should be able to use the methodology here to roughly calculate the economics at any point in time.)

Much of what we discuss at theoildrum is about supply - pinpointing problems and/or advantages of existing and future energy technologies. These are the 'means' by which society meets its day to day demands. But little time, (and certainly not equal time) is devoted to discussing the 'ends' - what is all this energy for. As many of you know, I am completing my Phd in Natural Resources at The University of Vermont, with a specialization in Ecological Economics. This hybrid field asserts that the economy is just a part of a larger planetary system (as opposed to the planet and its resources being just part of the economy). EE attempts to evaluate (monetarily and otherwise) the things the market system takes for granted (fresh air and water, biodiversity, healthy dolphin populations, stable climate, etc.) But a growing subset of ecological economists are addressing the 'ends'. By digging into the empirical datapoints that comprise human happiness, we are finding we can be happier with far less energy use. I initially wrote about this here. Below is a short essay, also posted on Grist, co-authored by my advisor Robert Costanza. In my opinion, the questions these authors raise should be preceding or at least accompanying policy discussions on how we decide to obtain and allocate more energy. Ends before means.