Update on Ending the Export Ban: What It Means for US Gasoline Prices
Data aficionados among our readers will appreciate that it is best to analyze price movements using as disaggregated data as possible, both temporally and spatially. In the original version of our recent issue brief, we used annual data. But with more time to acquire data, we found monthly data series. Importantly, these new data include observations from 2013, and so have observations after the flow reversal of the Cushing pipeline connecting to the Gulf Coast area in 2012 and its expansion in 2013. Using these data instead and allowing for idiosyncratic impacts on crude oil prices in PADD 2 and PADD 4, we found that crude oil prices in the Midwest were actually only $6.34 per barrel below world prices, not $14.83 as we originally estimated.
In our simulation model, this difference in crude oil pricing meant that lifting the crude oil ban was found to increase the price of crude oil by about $0.15 per barrel instead of reducing it by $0.01. We also found slightly smaller reductions in gasoline prices—from 2.8 to 6.9 cents per gallon using annual data to 1.7 to 4.5 cents per barrel using monthly data. We also did standard sensitivity analyses on both data sets. In no case did we find gasoline prices increasing as a result of lifting the crude export ban. Read More
Russia and Ukraine: The Energy Dimension
Russian incursion into Crimea, potential counter-measures by the United States and other Western countries, and retaliatory Russian responses to such counter-measures have, unsurprisingly, spotlighted the role of energy in the conflict. In the case of oil, Russia, it is accurately noted, is the world’s largest producer and second ranking exporter (behind Saudi Arabia). In the case of natural gas, it ranks second in production (behind the United States) and first in exports. This dominance leads to fears that Russia will manipulate energy supplies as a foreign policy weapon against Ukraine or the West generally—something it has done before, albeit on a smaller scale. The crisis has even injected possible Russian energy maneuvers into an ongoing US debate about whether to lift restrictions on American oil exports and speed licensing of LNG (liquefied natural gas) exports – the point being that such actions could frustrate, at least to some extent, any attempt by Russia to use its energy dominance for political gain.
Are these fears reasonable, and, if so, can US energy policy help?
Ounce of Prevention, Pound of Cure, Ton of Bricks
Speaking in drought-devastated California last month, President Obama announced that his 2015 budget would include a new $1 billion Climate Resilience Fund to better understand and prepare for the impacts of climate change. Having made limited progress so far in the fight to avoid climate change, we are now heading into the fight to gird ourselves for it. Perhaps adaptation policy and resources will come more easily than mitigation policy and resources have, but they will certainly be more expensive. One billion dollars is a small down payment – just the first step of Mayor Bloomberg’s plan to protect New York City from future storm damage following Hurricane Sandy came to $20 billion.
If there is a will to adapt, what will be the way? Big calls on scarce budgets demand hard choices. One choice is to raise new revenue. Some countries have established national climate funds, drawing on a variety of sources ranging from multilateral contributions to a tax on domestic oil profits. Other approaches to financing climate adaptation include levies on international aviation and maritime transport and issuing bonds through an international financing facility. Bonds offer a wealth of purpose-built arrangements as to how they are sold and paid off. For example, selected criteria can be used to allocate required purchases to particular parties – people who make money generating harm are obliged to participate in funding to protect against it. The timing and scale of payoffs can be linked to other criteria, such as the achievement of climate-related goals broadly or by the bondholder. Such instruments can be a vehicle for shared commitment and belief in our ability to shape the future – “American Resilience” bonds in the spirit of US War Bonds from an earlier time of threat and fortitude.
This Week in the RFF Library Blog
Each week, we review the papers, studies, reports, and briefings posted at the “indispensable” RFF Library Blog, curated by RFF Librarian Chris Clotworthy. Check out this week’s highlights below:
Climate Change: Evidence and Choices
The National Academy of Sciences and its British counterpart, the Royal Society, have published “Climate Change: Evidence and Causes,” a fresh primer on greenhouse-driven global warming that is a useful update on past reports from both organizations. You can find helpful summaries of the findings on the National Academy of Sciences website. — via National Academy of Sciences
Why Is Electricity Use No Longer Growing?
…Our various analyses suggest that energy efficiency has likely had a substantial impact on electricity use. Our analysis indicates that over the 1993-2012 period, changes in electricity use were most influenced by energy efficiency programs and policies, warmer weather, changes in gross domestic product (GDP), changes in electricity prices, and long-term trends. Over the more recent period of 2007-2012, savings from energy efficiency… — via American Council for an Energy-Efficient Economy
RFF on the Issues: Clean Air Act court review; China’s smog court case
Note: RFF on the Issues will not be distributed on Monday, March 10.
Clean Air Act Court Review
The Supreme Court recently heard arguments in Utility Air Regulatory Group v. EPA, a case that questions the Environmental Protection Agency’s (EPA) authority to consider greenhouse gas emissions in Clean Air Act permits. Plaintiffs argue that the agency’s move to require such permits has imposed “far-reaching and near-ridiculous regulatory burdens” on states and industries.
RFF’s Nathan Richardson notes that while the case doesn’t directly concern any other parts of EPA’s plans to regulate carbon under the Clean Air Act—including performance standards for power plants, which he calls “the most important part of EPA’s climate regulations”—there’s some reason to worry that a loss for EPA could affect those performance standards indirectly.
Misplaced Obsessions
The environmental movement has long been and will remain a crucial engine behind environmental policy, but I believe it really needs to reorient itself toward policies that matter, and in the process give up on its misplaced obsessions.
First, environmentalists’ obsession with reducing carbon emissions is NOT misplaced. I am not just worried, but scared for my children and theirs because of the more violent and extreme weather, rising oceans, and warmer climate we will very likely be leaving them.
But I think that the environmental community, having seen relatively comprehensive climate legislation fail, is now operating under two major misplaced obsessions: first, that all fossil fuels must be kept in the ground and, second and more specifically, that natural gas development must be stopped (or at least slowed) because of its fugitive methane emissions—which, if sufficiently large, would make it a dirtier fuel than coal from a carbon perspective.
Giving Too Much Away?
The Supreme Court heard arguments this morning in Utility Air Regulatory Group v. EPA, a suit challenging the agency’s authority to address greenhouse gas emissions using the Clean Air Act’s PSD permitting program. I have not followed the case closely, and hesitate to make any predictions based on comments at oral arguments anyway. However, one comment made in passing by Solicitor-General Verrilli (arguing on behalf of EPA) could have serious implications, if I’m interpreting it correctly.If you aren’t familiar with the background here, or if you do want some predicitons, see NRDC’s David Doniger, Richard Frank on Legal Planet, or Johnathan Adler at the Volokh Conspiracy.
In any case, some minimal background: in 2007′s Massachusetts v. EPA, the Court ruled that greenhouse gases were air pollutants within the definition of the Clean Air Act, and directed EPA either to regulate GHG emissions from cars and trucks, or explain why it would not do so. Having since issued such rules, EPA concluded that it must also review GHG controls as part of the permitting process for new and modified stationary emitters like factories and power plants. This is because the statute requires (or at least appears to require) new facilities that emit “any air pollutant” to use “best available control technology” to be eligible for a permit.
This, if interpreted strictly, leads to some costly and arguably absurd results. EPA’s attempt to deal with those results while still regulating in this area are what’s at issue in the case. When asked by Justice Sotomayor on what grounds he would prefer to lose, if indeed the court were to rule against him, Solicitor-General Verrilli opted for a creative reading of “any air pollutant” such that it would not include CO2 (see the transcript, starting on page 67; h/t James Coleman). Looking at the permitting program alone, this would be an acceptable result for EPA since it would exclude the many smaller emitters EPA would rather not review, but keep big emitters in if EPA has issued performance standards for them, as the agency is currently doing for power plants.
Using Natural Gas to Lower Fuel Costs
With low-cost, abundant natural gas now available in the United States and the promise of new fuel and vehicle technologies on the rise, an opportunity may soon exist for industry (and consumers) to expand the use of natural gas in the form of a liquid fuel for passenger cars and trucks.
In new research, RFF’s Arthur Fraas, Winston Harrington, and Richard Morgenstern find that replacing some of the domestic gasoline currently used for these vehicles with natural gas–based liquid fuels could bring economic and energy security benefits. In particular, after accounting for differences in refining, energy density, in-use fuel economy, transport, and related costs—but assuming that the same road taxes are in place as for conventional gasoline rather than the lower taxes currently enjoyed by biofuels—they find that natural gas–based ethanol (especially E85) could yield significant fuel cost savings.
Even when looking at different markets across the nation, E85 stands out as a potential winner. For example, the current price gap between E85 and E10 (which is currently marketed as conventional gasoline in most states) ranges between 31 and 59 cents per gasoline gallon equivalent, but it increases to 52 to 83 cents by 2015 (Figure 1).
Resources Magazine: Business Motivations for Conservation
Business decisions have a huge impact on natural resource use and environmental quality, so the ability to influence these decisions presents an opportunity for significant conservation gains. How can conservationists tap into the range of factors that drive business behavior and motivate businesses to invest in conservation efforts?
Not surprisingly, most theories of business behavior emphasize financial motivations. A powerful, but incomplete theory is that businesses do not care about the environmental costs they impose on others because “externalized” costs do not affect profitability. The corollary is that environmentally beneficial behavior can be motivated by the imposition of those costs on firms. The need to internalize otherwise external social costs justifies most modern environmental laws and regulations.
Conservationists can focus their advocacy around new, reformed, or expanded government policies to internalize a broader suite of environmental costs on businesses, regulate or prohibit activities at odds with conservation goals, or subsidize desirable conservation behaviors. This strategy resulted in landmark policy and legal innovations in the 1960s and 1970s, and it continues today. But lobbying government to enact such policies is not the only strategy available to conservation advocates.
Read the rest of this article.
This Week in the RFF Library Blog
Each week, we review the papers, studies, reports, and briefings posted at the “indispensable” RFF Library Blog, curated by RFF Librarian Chris Clotworthy. Check out this week’s highlights below:
Production Tax Credit Incentives for Renewable Electricity: Financial Comparison of Selected Policy Options
Under current law, the production tax credit (PTC) incentive for renewable electricity will expire at the end of 2013. Generally, congressional debate about the PTC falls within a spectrum of options. At one end of the spectrum, proposals have been made to eliminate the incentive. At the other end of the spectrum, proposals include making the PTC permanent. Other proposals, such as temporarily extending and phasing out the PTC over time… — via Congressional Research Service
Oil Sands Economic Benefits: Today and in the Future
Oil sands development is contributing more dollars and jobs to the Canadian economy than some of the nation’s provinces, a new report has found. In 2012, the industry injected into the national economy $91 billion Canadian dollars ($81.7 billion), amounting to 5 percent of gross domestic product, and generated 478,000 jobs, accounting for 3 percent of the country’s employment… — via IHS CERA
Proposed First Update to the Climate Change Scoping Plan : Building on the Framework
The California Air Resources Board released the draft proposed first update to the AB 32 Scoping Plan, which guides development and implementation of California’s greenhouse gas emission reduction programs. The Air Resources Board is required to update the Scoping Plan every five years. — via California Air Resources Board
Energy Rush: Shale Production and US National Security
The US should encourage oil and gas exports as part of a broader strategy that also includes accepting the reality of energy interdependence, taking steps to reduce domestic consumption and diversify supplies, and integrating energy security into strategic policy and military planning, a recent report recommended. — via Center for a New American Security
Public Support for Climate and Energy Policies in November 2013
A large majority of Americans — 83 percent — say the U.S. should make an effort to reduce global warming, even if those efforts have economic costs, according to a new report from the Yale Project on Climate Change Communication. As many as 56 percent of Americans would be willing to pay an extra $100 each year if their power company… — via Yale Project on Climate Change Communication
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